| Palm Springs Desert Sun
Video: What’s it like to grow pot for a living?
In April 2018, Jeff Homolya, cultivation manager at Canndescent in Desert Hot Springs, Calif., talked about what it’s like to grow pot for a living.
Desert Sun file video
Desert Hot Springs officials have voted to lower the city’s cannabis cultivation tax rate in an effort to keep the city’s competitiveness as the cannabis industry expands throughout California.
It was one of the first cities in California to allow medical marijuana cultivation within its limits, but other cities, offering lower tax rates, have since opened their borders to the cultivation industry.
Desert Hot Springs' current tax rate is $25.50-per-square-foot for the first 3,000 square feet, then $10.20-per-square-foot for each square foot over 3,000 square feet. Its $25.50 rate is among the highest in Southern California.
City Council approved a Cannabis Strategic Plan in March 2019, which outlined the city’s goals regarding cannabis cultivation. These goals include creating a business-friendly image and maintaining its competitiveness.
In June 2020, council members directed city staff to create a Cannabis Task Force made up of industry stakeholders, residents, and city staff to review the Desert Hot Springs' tax competitiveness.
On Tuesday, the task force presented its recommendations during Desert Hot Springs City Council’s regular session.
The group found that the city’s tax rate of $25.50-per-square-foot for the first 3,000 square feet was the highest among Southern California cities surveyed, which included other areas that are a similar distance from Los Angeles as Riverside County.
Adelanto had the lowest rate of $5-per-square-foot, while the neighboring Coachella Valley cities of Palm Springs and Cathedral City both have rates of $10-per-square-foot. Palm Springs also offers a $5-per-square-foot rate in its „Cannabis Overlay Zone” located north of the Interstate 10 corridor, directly adjacent to Desert Hot Springs.
The task force and Desert Hot Springs officials expressed concern that in addition to competition with cities across Southern California, cannabis businesses looking to cultivate in this region specifically could easily go „across the street” to Palm Springs for a lower tax rate.
The task force recommended eliminating the $25.50 tax rate, which would leave Desert Hot Springs with a single rate of $10.50-per-square-foot, which puts the city in the mid-range when compared with other Southern California municipalities.
„The task force feels that getting rid of that high rate to the far right of the chart would really help market the opportunities for the city,” said Deputy City Manager Luke Rainey. „There were concerns that this $25 rate is associated with the city and people aren’t really looking into what the true rate is when they calculate out the numbers, they just look at that $25 rate and say 'That’s the highest I’ve ever heard,' so they move on and don’t really consider the city.”
The fiscal impact of the tax rate decrease is estimated to be between $640,934 and $1,337,122 in reduced cultivation revenues for the city. But city officials said this reduction was worth it if it meant the Desert Hot Springs might attract more businesses and produce more jobs.
There are currently 1,796 cannabis industry jobs in Desert Hot Springs, with 537 of those positions held by Desert Hot Springs residents. The city’s 26 current cultivation facilities are responsible for 1,211 of those jobs, compared to 186 jobs at nine dispensaries and 399 jobs at 17 manufacturing facilities.
„If the objective is to increase the standard of living for our residents, and the cannabis industry has shown that this can create lots of good paying jobs for the people that live here… Certainly we need a tax base, but a $25-per-square-foot on the first 3,000 square feet in the present environment is a 0 initiative, 100% of nothing equals nothing,” Councilmember Russell Betts said.
The Cannabis Task Force also identified other topics that could help the city’s competitiveness, including Development Agreements and reduced tax tiers for very large cultivation projects, changing the definition of the taxable square footage, and incentives.
The Cannabis Task Force recommended that the Desert Hot Springs leaders continue the task force so it could evaluate these other issues.
The proposed tax change received several public comments in support, with several calling on the City Council to lower the tax rate even further — down to the $5 to $7 range — to attract business. But Mayor Scott Matas and Councilmember Gary Gardner both said they wanted to avoid a „race to the bottom” with tax rates.
The City Council voted 4-1 to accept the task force’s recommendation, and to eliminate the tax rate of $25.50-per-square-foot for less than 3,000 square feet.
In its wake, Desert Hot Springs will maintain a single tax rate of $10.20 that will take effect on July 1. The change will be adopted formally via an ordinance put before council at a future meeting.
Councilmember Jan Pye was the sole dissenter, and expressed concerns that the task force was solely focused on the cannabis industry, with only one resident who was „interested in public safety.” Only one member of the task force was a resident who wasn’t also city staff or a cannabis stakeholder. She said she’d prefer to look into other options, like development agreements or changing the taxable square footage, before reducing the tax rate.
Council members, ultimately, voted unanimously to continue the Cannabis Task Force so that the group could continue to review Desert Hot Springs' competitiveness.
Jocelyn Kane, vice president of the Coachella Valley Cannabis Alliance Network, applauded the city’s move.
„We appreciate their forward thinking move, they’re making themselves a competitive place to keep up with what’s going on out there,” she told the Desert Sun, noting the higher taxes in other cities.
Erin Rode covers the western Coachella Valley cities of Palm Springs, Cathedral City and Desert Hot Springs. Reach her at email@example.com.