Cathedral City leaders support cutting cannabis tax in half

There could soon be a break in the years-long battle between valley cannabis business owners and local leaders over hefty taxes they say are crippling small businesses.

Cathedral City is tied with other west valley cities for the highest tax on retail cannabis businesses in the valley: a 10% tax tacked on top of the sales and state taxes.

At Wednesday's Cathedral City council meeting, city leaders unanimously supported cutting the tax to 5% – a move business owners say could be key to saving the city's cannabis industry.

"Everybody thought that was going to be the new frontier," said Mayor Pro Tem Mark Carnevale. "We were gonna make all that money and in a sense, that is kind of greedy on our part. I hate to say, it was kind of greedy."

Kenneth Churchill, CEO of West Coast Cannabis Club, has worked for years to get Cathedral City leaders to lower tax burdens.

"Our goal is just to keep our stores open," Churchill said. "It puts us in a situation where it's impossible to survive, and you're seeing stores close all over Cathedral City, you're seeing sales go back to the black market, go back to other cities."

Dr. Stone James, Cathedral City's economic development director, said cutting the tax supports an important industry in the city – but it could come at a cost.

"In a worst case scenario, we're looking at about a $1.3 million reduction in city revenues – however, that's not the complete picture," James said.

As prices decrease, he said, consumers are usually willing to spend more. And last year, Cathedral City had a budget surplus of about $7 million.

But the issue stretches beyond Cathedral City. Palm Desert looked at lower cannabis taxes late last year, too.

"We put that high rate of tax in thinking that there would be public safety issues," said Mayor Jan Harnick. "We don't need that increase that we thought we did and I think we need to look at what we’re taxing."

It's movement that Churchill is inspired to see – on an issue he said has taken years to reach this point.

"These are local companies and these are locally owned companies. We're just trying to find a tax rate that is a little bit more competitive," Churchill said.

City Council voted in a study session to bring the issue back for a formal vote in its Feb. 22 meeting.