As California barrels toward the legalization of recreational marijuana Jan. 1, Sacramento officials are tying up loose regulatory ends to ease the way here in the capital.
But the city auditor's office found a stumbling block in terms of tax collection. Some of Sacramento's 30 medical marijuana dispensaries have been under-reporting their earnings, meaning the city isn't receiving all the tax dollars it's owed. The current tax rate for dispensaries is 4 percent of gross receipts, and that's on top of the annual $20,000 permit fee.
Even with dispensaries under-reporting income, he said, the city has raked in a pretty penny from medicinal marijuana.
"Last year, our 30 dispensaries generated about $4.8 million in General Fund revenue. That goes towards contributing towards everything that's funded through the General Fund, such as police, firefighters, parks," Devlin said, further explaining that the $20,000 annual permit fee "pays for the inspection and administration of the Cannabis Office."
Every year, that tax revenue from cannabis has only increased. In 2011, it netted the city half a million dollars. This year, the revenue is on track to exceed 2016, especially now that city officials are tackling the under-reporting problem. The report from the auditor's office is officially before City Council Tuesday evening, but the problem has been on leaders' radar for several months now.
"We've already put in place the internal controls to correct what was found in the audit," Devlin said. "This was an audit that the city council requested. It's one that I fully embrace and welcome, and it really provided, I think, what is a good roadmap towards ensuring that we have all of our systems in place as we regulate this new industry."
That's one of several fine-tuning steps the city is taking ahead of January 1.
"We've got a bunch of policy items on the council schedule for Nov. 28, and they'll be taken up at that point: some amendments to our dispensary ordinance to allow delivery, to permit distributions and some other things," he said.
One major matter council must decide is whether to allow existing medical dispensaries to sell recreational weed.
In 2009, the city placed a moratorium on new dispensary permits. While council members may consider lifting that in the future, the freeze currently remains in place. If existing dispensaries aren't permitted to sell recreational - or "adult-use" - marijuana, Sacramento will not have the infrastructure in place to sell it, come Jan. 1.
"Not all 30 of (the existing dispensaries) right now would be eligible or would qualify to sell adult-use because they don't meet the high standards that we have set," Devlin said.
And there are other weed-related matters council likely won't touch until the first quarter of 2018, like whether to allow - and how to regulate - cannabis cafes, where people can purchase and consume the product on-site.
"I think we have the responsibility to do it right," Devlin said.
While it's easy to get lost in the weeds, Devlin said, taking a step back and looking at the big picture is pretty exciting.
"This is a huge moment. Cannabis is becoming legal," he said. "People have been talking about legalizing cannabis for 40 years. Well, that moment is here."
Sacramento gets to be one of the few major trailblazers.
"I think the framework and the policies that we adopt here will ultimately roll out across the state and, ultimately, across the country," Devlin said. "I think when we look back on it, I think it will be much easier to appreciate the magnitude of what we were actually dealing with. This is going to be a process, not an event."
Like Sacramento, other major California cities - including LA and San Francisco - are working on how to roll out and regulate recreational weed. Some cities and counties, however, are opting to ban the substance altogether, which state law allows.
Devlin anticipates that the next six months-to-a-year will see "a very progressive shift toward professionalism across the industry," and that may put some current dispensaries out of business, the ones that can't meet the high, stringent new standards.
"There isn't another option, right? It is, 'Get it right and do it well,'" he said. "That is the only option, and so that is how I'm approaching this."
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