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Proposed Pot Tax Would Generate $22M For San Diego In First Year, City Says

Customers buy products at a medical marijuana dispensary, April 20, 2016.
Associated Press
Customers buy products at a medical marijuana dispensary, April 20, 2016.

A proposed tax on San Diego businesses selling recreational marijuana could generate about $22 million for city coffers in the first year.

That's according to an analysis released Tuesday by the city's Independent Budget Analyst.

Proposed by Councilman Mark Kersey, Measure N is designed to cover city regulatory costs of marijuana legalization, which is projected to be around $650,000 annually.

Measure N: Non-Medical Cannabis Business Tax
A fiscal impact analysis of Measure N by the city of San Diego's Independent Budget Analyst.
To view PDF files, download Acrobat Reader.

Measure N will go before voters in November and would only take effect if voters statewide approve Proposition 64, which would decriminalize recreational use of marijuana.

"The intent of this measure is to protect the city from the potential costs of this new industry," Kersey told City News Service.

"While the fiscal analysis is just a prediction, if approved by voters, Measure N should generate enough funds to ensure that our core budget priorities like infrastructure and public safety are not negatively impacted by the costs to the city of legalized recreational marijuana," he said.

The tax would be 5 percent of gross receipts in the first year, rising to 8 percent the second year. The City Council would have discretion in the future to hike the rate to 15 percent. Marijuana sold for medical use would be exempted.

The Independent Budget Analyst's office based its projection on revenues in Colorado, where recreational use of marijuana has been legal since 2014. It zoomed in on Denver, which has roughly half of San Diego's population.


"In 2015, Denver reported gross retail cannabis sales — excluding medical — of approximately $220 million from an average of 128 retail outlets," the report said. "Adjusting Denver's sales for San Diego's population gives an estimated hypothetical sales figure for San Diego of $440 million. If the proposed (tax) were applied to this amount at the initial rate of 5 percent, the tax would raise approximately $22 million annually."

The report said annual revenue would jump to $35 million at the 8 percent tax rate.

Actual revenue would fluctuate depending on the number of non-medical cannabis businesses permitted in the city, which has yet to be determined; the rate at which the industry develops; the amount of consumer demand in the region, including availability in neighboring jurisdictions; and the price of recreational marijuana, which may change over time, according to the report.

The Independent Budget Analyst released fiscal and legal analyses on the dozen city of San Diego propositions that will be decided in the general election, saying most of the measures on the ballot would have a minimal fiscal impact on the city. For those that do, the Independent Budget Analyst said:

Measure C, the Chargers' plan to hike hotel room taxes to help build a stadium and convention center annex, would raise between $1.3 billion and $1.6 billion for the project. But if revenues fall short of estimates, the city's "general fund support may be necessary, reducing funding available for other public purposes."

• Measure D, which restructures tourism spending, bans an expansion of the current convention center and addresses the future of Qualcomm Stadium, would raise hotel room taxes to generate an additional $18 million to $98 million annually for the city, depending on certain actions by area hotels.

• Measure K, which would mandate automatic runoffs for municipal offices, would increase election costs in a range from $30,000 to $260,000 for additional voter materials and ballot counting, based on recent experience.

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