The Business of Cannabis.

The Business of Cannabis.

Cities across Los Angeles County are preparing to cash in on a potential tax bonanza from legalizing recreational marijuana – and they are hoping to do so without the Wild West atmosphere that surrounded the opening of medical marijuana dispensaries nearly a decade ago.

Back then, many cities reacted with outright bans as dispensaries began sprouting up all over. That’s not as likely this time around, as years of crushing budget deficits have municipalities eying potential tax windfalls. Proposition 64, a November ballot measure that would legalize recreational pot use in California, also gives local governments far more oversight than they had with medical marijuana.

“We’re seeing much more interest from cities in revenue generation,” said Jeffrey Dunn, a partner in the Irvine office of law firm Best Best & Krieger who has consulted on medical marijuana issues for cities across the state, including several in Los Angeles County.

Proposition 64 would set up a statewide licensing system and tax fund, and allow “local regulation and taxation of marijuana.” It also would permit local governments to ban nonmedical marijuana businesses.

Under the measure, cities could have two tax revenue streams: allocations from a California marijuana tax fund, primarily for local law enforcement agencies, and any taxes they wish to impose, including sales taxes and business license fees or levies.

Dunn said many cities want to steer the additional tax revenue to public safety agencies that must grapple with the problems that often come with marijuana businesses, including robberies from the all-cash retail operations. Marijuana outlets operate outside the national banking system because the federal government considers cannabis a controlled substance.

It’s too soon for municipalities to project how much they expect to collect in taxes from weed, largely because they are still studying what form their laws will take. But if Adelanto (pop. 32,000), just west of Victorville, is an indication, it could be substantial. That town, which is trying to lure growers, estimated it could take in as much as $10 million annually in taxes.

Considered approach

Cities are preparing to use the one-year period before the law would take full effect in January 2018 to craft regulations, Dunn said.

“Cities got caught off-guard when medical marijuana dispensaries suddenly exploded here in Southern California,” he said. “Many received complaints from citizens and other businesses about the dispensaries suddenly appearing, and they reacted reflexively with moratoria and bans.”

Now, he said, many cities are seeking to get ahead of the situation. If the measure passes in November, they intend to be ready to put forward zoning restrictions, caps on the number of outlets, and limits on operating hours.

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