Voters will likely be asked to decide in March whether the city should be allowed to tax medical marijuana dispensaries after the Los Angeles City Council approved a measure Tuesday to place the issue on the ballot.

Medical marijuana dispensaries will now have an additional six months to register with the city. (photo by Edwin Folven)

The measure was authored by Councilmember Janice Hahn, 15th District, and seeks to place a $50 levy per $1,000 in gross receipts that a medical marijuana dispensary takes in. The Los Angeles City Attorney’s Office determined that sales of marijuana are illegal, but the dispensaries are allowed under the city ordinance to charge for the drug as a means to recoup the costs of growing the marijuana, employing workers and other costs associated with doing business. The ballot initiative would place the levy on those revenues, according to Hahn, who added that other cities including Oakland and San Jose currently have similar measures in place.

“The main thing is to bring money into a cash-strapped city,” Hahn said. “We have spent the last two year cutting spending, laying off employees, closing libraries and imposing reductions on things like trimming trees. I thought this will be an opportunity to try to bring some money in.”

William Carter, the chief deputy for the Los Angeles City Attorney’s Office, said it may prove difficult to tax medical marijuana dispensaries. First, the city would have to determine how much money the dispensaries are taking in, and Carter said dispensary owners are known for not telling the truth about that amount.

Second, he said the city will have to place a value on the marijuana, and the costs each dispensary accrues while doing business, so the tax is levied consistently and evenly among all of the dispensaries.

“The fact of the matter is, the city’s measure would place a tax on the value of the goods,” Carter said. “First we will have to figure out how much marijuana they have, and I can tell you from taking depositions from these people, that they are very reluctant to tell you. Second, we will have to put together an enforcement agency to tax these medical marijuana shops.”

Hahn said the exact legal provisions will be worked out prior to the March 8 election, and added that she believes the voters will pass the measure. She said the city could stand to generate up to $7 million annually from the taxes, or perhaps even more.

“It looks pretty good that the voters will pass this through,” Hahn said. “In my opinion, I believe the medical marijuana clinics are here to stay. We, in the city of L.A., have crafted an ordinance that allows the dispensaries to exist. We in the city of L.A. do not recognize sales, we believe sales are illegal in California, but they are allowed reimbursement of their operating costs, so we are going to tax the gross reimbursement.”

As a formality, the city council will have to review the taxation proposal again on Nov. 23. If passed on second reading, the city attorney’s office will be tasked with drafting the specific measure.

The Los Angeles City Council also approved some changes to the city’s medical marijuana ordinance on Wednesday that will likely allow more dispensaries to remain open. Under the city’s ordinance, a dispensary could only reapply for a license if all of the owners and managers who were present when the moratorium went into effect in 2007 are still associated with the business.  The new change will allow a dispensary to reapply for a license if at least one owner is still associated with the business. The motion was authored by Councilmember Paul Koretz, 5th District, who said that earlier provision was unfair because it did not take into consideration why the owners or managers were no longer at the dispensaries. For example, if a manager was distributing the drug to people who were not licensed to have medical marijuana, and the manager was fired, the dispensary could not be considered eligible for new license. Under those criteria, only approximately 40 dispensaries would have been allowed to stay open. Koretz said although the change will allow for more dispensaries, the number will be fewer than the 180 dispensaries that are allowed citywide under the ordinance.

Carter also said the change would not make a significant difference from the perspective of the city attorney’s office.

“We support the ordinance, which contemplated that there would be as many as 180,” Carter added. “We will still have under 180. The only concern would be if the number rises above that.”

The city council on Wednesday also extended the time period dispensaries will have to reapply for a new license by 180 days. Dispensaries will now have until next June to reapply.