and revenue for educating a population that still fears the effects of cannabis based on years of brainwashing quite frankly and misinformation. these needs from varied and frankly, unpredictable, but they are real. a couple points. first, we as a city must be committed to patient care, tha. we want to make sure that all product is tested and its safe. that is why testing is also exempt from this tax.

i have had several conversations with patients and others and everyone's concern is continued competition from unlicensed providers which are supported by bad actors in the platform space and that is why i delayed implementation until 2020 and set a lower initiation rate the first year. this will give businesses a break while they continue to invest in improvements in our city and meet city requirements and this would also help businesses to compete with the out of city operators and also our goal to temper the black market. the fourth point is based on the controller study. the controller study has shown that of cannabis retailers in san francisco, almost 50% of

them are micro businesses making less than $1 million in revenue. these businesses combined earn only 3% of the total sales, so that is why i am exempting the first $500,000 in sales for all businesses, and i have made a tiered marginal tax rate as well. all businesses will pay no taxes on revenue from 0-$500,000, and will pay a lower rate on revenue between $500,000 and $1 million, and the fifth point, after the passage of the board's labor harmony agreement for the cannabis industry, i recognized that result sra cultivators and manufacturers offer union job,

and that is why i have set a lower gross receipt rate for upstream business. this measure has a few other points. first, it sets initial implementation rate for tax, but give it is board of supervisors the power to revise this measure up or down. it will require a super majority vote and those that come on a regular basis and you know that requires a vote of eight, finally, i have circulated some amendments for your consideration today, and these amendments reflect conversations, a series of conversations with industry leaders as well as their concerns about competition with the unregulated businesses. the amendments are as follows. first, it sets the top rate above which the board cannot revise at 7% rather than 10%.

second, it sets the introductory rate for 2020 at 1% rather than 2%. it revises down the rate for cultivators and manufactures from the top rate of 3% to a top rate of 1.5%. we will now exempt transportation for distribution. now we are doing this, so that there is no additional tax on the simple service provided to small businesses to move cannabis products around the city, and it also allows the board to reduce the tax rate with a simple majority vote. it prohibits the board from increasing the tax rate by more than 1% per year and the final two points are when you consider before the previous version of

the legislation, in this version, there is no increase that can be made without a report by the controller, and i think that's important to note because the controller will anchor the conversation to ensure that this is a conversation that we are using data to help inform our policy group decisions, and so we are able to understand the impact on the industry and the retail gross receipts tax remain at 5% for business over $1 million and at 2.5% for the middle tier. one amendment that i have not included by interested in exploring is an interesting one. it has the potential to impose this particular tax on those wholesales businesses that are distributing in san francisco but without a physical presence in the city, which a legislative aid in supervisor peskin's

office mentioned this earlier when she was referencing the t. n. c. tax. i believe this option may go a long way towards leveling the field for our made in san francisco businesses, but i want to understand that any other implications on the black market or legal viability first, so this amendment is not included but i will be asking questions of the city attorney to inform this discussion as to what it would look like if we were to borrow the t. n. c. tax structure. i am also circulating a memo from the controller's office about the potential impacts of the tax on the industry. i see ted eigen here and thank

you for being here. he can answer any questions. before we hear formal presentations i have one question for the deputy city attorney. i would love for you to talk about the way fair decision issue. please inform us onetime pacts of the way fair decision. thank you. >>. >> sure. the supreme court decided this case about a month ago that involved a south dakota law that imposed tax on companies that did not have a physical presence in the state but that did a certain amount of sales in the state. i think it was a certain number of contacts or sales and a certain amount of revenue. generally large out of state companies that were selling in

south dakota. under existing supreme court case law, they concluded that states could not under the u.s. congresses tax companies that had no physical presence in the state. the wayfair decision overruled those past cases and concluded a state could impose a tax on a company without a physical presence in the state as long as the company meant other requirements including a substantial nexus in the state and that opens up the possibility under the constitution to tax out of state or out of city companies. >> supervisor cohen: i appreciate that summary. supervisor fewer i see you name. >> supervisor fewer: thank you

chair cohen for bringing these forward. one of my concerns with the cannabis taxes is there is a significant importance of this industry that exists on the black math and i think we should bring them into compliance and off the black market -- will help with this goal. i appreciate that this will grant the board of supervisors the flexibility to reassess these rates in 2021 as these industries grow. i understand concerns about taxation from the industry and i think this has been crafted thoughtfully with these in find i would like to thank supervisor cohen for bringing these forward. >> supervisor cohen: thank you supervisor cohen. thank you so much. i do want to thank -- she is

behind me for all the work. with that, i want to open up to public comment and i have a list of cards here. michael dillingham, spean sor parkway, erin flynn, and david goldwin. why don't you come up. >> my name ask michael dillingham and i work with a number of businesses including green spirit business inc. which is a public company. although i don't know much about them yet, i assume that i would support the amendments that were

listed off by chair wh chair cohen. all of the businesses that will stay in business over the next 16 to 18 months will require investment. the 10% figure, the top-end tax potential is the number that was the scariest to me and probably is to anybody. it appears from the text that it can at a moment's notice be imposed, and 10% represents 30% of our margin at the most optimistic projectionst and as much as 60% at the more conservative projections. the ability to attract and keep investors is something that will be critical for these businesses

to stay afloat the next few years. in addition to the amendments already going in the right direction that reducing the top-end potential tax down to somewhere in the five or four percent range is something that for many of my colleagues would be very welcome. thank you for allowing me to speak. >> spencer pickman, i am a consultant throughout the bay area. i work in manufacturing, cultivation and all the way to retail. we live in san francisco and already the most expensive and harder to operate. what is happening with the 2% gross receipts taxes, i at an operator at 2 million gross can expect to see half of my profits

sent to the city and that means it's not viable to manufacture my business in san francisco, and essentially you are going to drive away small businesses and not collect on the tertiary parts of the industry. it might work for retail, but you are going to push away all the small businesses and that will destroy the diversity and the health of the marketplace and you will have less business owners, so that is my warning. >> after we hear from the speakers we will hear from paul connoly, and then jim lazarus.

jim, we want to work on your penmanship and bruce king. >> we would like to amend your tax proposals with the three following proposals. one, we would like to lower the gross receipts tax rate to be in parity with what other businesses pay. the second we would like to exempt all mad calcannabis licensees, and third we would like to earmark revenues that are taken in from the gross receipts taxes for equity applicants and a compassion program for fra san francisco. this is will be a tax on med can

cannabis patients. >> we are not taxing the medical side. >> the retail will not be taxed by how about the distribution. >> supervisor cohen: forgive me for interrupting, please just read the statement. >> this tax the 50 to 60 time it is rate charge on other business types for an anticipated revenue of only 6 million to $12 million. why should cannabis businesses have to pay higher rates than other business types. only medical cannabis licensees for exempt from these taxes. this tax will undoubtedly be

passed down to retailers and ultimately to medical cannabis patients. >> supervisor cohen: thank you. next speaker. >> good afternoon soup soup aaron flynn with the california growers association. i want to thank you supervisor cohen an for all you have done with the industry over this period of time. we appreciate this ability to have this open dialogue. the amendments that are propos ed are a movement in the right direction and we appreciate that as well acknowledging the burden that operators are under right now in giving us time to move into this is something that we all want to consider, and we feel like we are getting closer and closer to something that is

really palatable for the industry. all of that said, i am excited to hear about the potential that's being talked about. we bounced around the idea of a tariff on product for other places coming into this city and it sounds like what just recently happened -- i am blanking on the name what happened a at the federal level? >> the wayfair,. >> san francisco is a retail hub and a lot of cannabis businesses want to be part of a retail hub and if there is a way to bring needed revenue in through a tax that is coming in from outside of the city it would give relieve to san francisco operators that we feel we need in order to operate in this

expensive economy that is here and give a competitive-based advantage and solving the issue of where revenue is coming from, so i encourage a more in depth look and i can tell you, we will go and look at that as well. my name is up. thank you. >> supervisor cohen: any speakers left that want to speak come on down. >> bruce livingston, executive director of alcohol justice and we support this being put on the ballot, excited by it. there is harms and cost to government from the cannabis industry in san francisco includes cost of planning and zoning and public safety and rare instances of health care costs. we call it a charge for harm. we supported that in the alcohol

mitigation fee proposal that was supported by the board of supervisors and ultimately vetoed by the mayor and then prop 24 that said to do a mitigation fee is a two-thirds vote. this time, big alcohol, big tobacco and the sugary beverage industry -- it was kind of sad that it had to happen, but your own sugary beverage tax was exempted in the freeze on grocery taxes, and it's now or never in passing a charge for harm tax on marijuana in san francisco. it's time to do it and thank you for putting it on the ballot we

hope. >> jim lazarus san francisco chamber of congress. thank you for your wor working on this. we have the broader issue of the payroll tax reform that is not completed targeting any becomes problematic when we go back to the ballot in 2020 -- remember these businesses are startup businesses and businesses less than $1 million gross should not b paying tax. this industry like all that have $250,000 in payroll will be paying payroll tax. the police departmentses on the

bat lot need to reflect the desire to have equity participation and small business growth and to get rid of an underground economy. if we overtax this, and we already are at the state level, so i urge you to take a look at the rate schedule and adjust it and give yourself ability to change it in the future. >> my name is dominic. i would like to congratulation coi would like to respectfully request that you do not recommend your proposal. i believe that the tax rate is

too high, and i believe it's going to encourage consolidation, which is not going to be good for equity. i believe it's going to discourage the middle class job growth that the non-retail side provides to this community. i also believe that every historical movement in terms of commercial cannabis in every state, and as mentioned at local jurisdictions have back peddled on their tax policy groups they initially put forward and that is because the current tax policy group encourage the black market and there is no reason to move forward with this kind of policy group. i think a fair alternative and compromise would be a flat 1% tax throughout the chain of supply. i think that would help with consolidation issues and promoting the equity program.

a mandate like the equity program that's unfunded i could ask myself how are these equity participants going to pay for their license fees and employees without funds for this program, and i would expect this tax increases that burden on the equity program and future participants. i would strongly ask you to not recommend this item. >> johnny delaplane. we all know cannabis is an industry that craves normalization and we want to be treated like every other industry, and we are facing a tax policy group that will tax us at 6x to 50x.

raising final retail prices 20 to 30 percent. higher prices for patients and forcing people back into the unregulated market for their medication. this skills innovation and invites consolidation and will ensure only the largest, most-funded players have a seat at this label. there is sentiment in city hall that we gave away this town to tech and now we have a way to get it right. much in the way the lower taxes allowed the tech industry to come in and overthrive -- this industry is comprised of san

francisco and we are raising kids just like everybody else -- when was san francisco ever a follower? we are leaders. help us set an example by normalizing cannabis. unfair tax burden will lead to the flight of businesses from san francisco taking with it blue collar jobs and entrepreneurial opportunities we are helping to create. >> howdy. jim freeburn. i am a cultivator in the 10th district and we have a temporary micro business right now and a member of the california growers association, san francisco chapter and i want to thank you supervisor cohen and fewer for coming to our meeting.

we appreciate the amendments and working with uses to get our feet on the ground. i have one specific request, and that is to simply take a nurturing approach for us in the industry. i hope to build a thriving business in the next few years, but i hope to just simply survive this year and next year and probably the year after that. we have a lot of expenses in front of us. our business is getting into a c. u. process right now. we have a long catalog of new fees we will be paying and right now the whole market is uncertain and the supply chain is shaking itself out and it will take years for the retail to get built where our products will land, but in the meantime we need to survive and then there is downward pressure on prices.

i have lived here all that time and my daughter is going to san francisco state and we have lived a comfortable life, but we and my partner have not gotten rich here and we don't own a home. we are example of typical business. >> typical cannabis business. >> i would say a typical business. if you help us get on our feet we can build industry here together that will prosite employment opportunities and please nurture us while we are getting going. >> supervisor fewer: thank you. >> i am a policy group student at berkeley, and also have been interested in working with a number of cannabis startupst.

i just wanted to first of all taking the due diligence to reach out to the community and get their feedback before proposing those amendments, that has been really helpful, but i want to make a specific concern regarding one of the propositions within the new law, and that is the fact that the proceeds of the cannabis business tax would be deposited in the general fund and could be used for any purpose in the city. i feel this proposition would better be useful for bringing the black market into compliance. because we are putting a lower cannabis tax rate, i feel that the shorter amount of money that we would get would be better used for a more specific case and best catered towards

bringing the black market towards compliance. thank you for your time. >> thank you. >> my name is rob king and i would like to add my voice today as a local grower with sense. we are trying to set an example for creating batches of small -- cannabis. we run our facility on renewable energy via the city's clean power program and proud to align with the city's climate change goals. we had the sfpd over the other day and we invite you to join and check out our facility. we don't do these things because we have to, but we are trying to

set a positive street for the city to have san francisco. we are good neighbors and i think we are the kind of neighbors that the city of san francisco wants. it is a huge risk to move our business here we are not a tech industry. . we are dealing with incredibly high rent and limited space. when it comes to taxation, we just want to be taxed like any similar small business brave enough to give it a go here in san francisco. to propose a tax rate many times the rate of noncannabis-based businesses wil. we want to be taxed in line with

any other business. >> i'm here today to advocate for a tax policy group that's fair for the industry. i degree notes are goini agree that it is going in the right direction. the industry is very hard to enter. anytime you have industry that require as huge amount of overhead and then you add taxation on that, they are not even getting any sort of relief at the federal level also, it can be very high and san francisco has equity program and this equity program is very well intentioned by taxing at this

high rate is i guess unintended consequence that will kill the equity program because these applicants already have a hard time getting capital and on top of that a very high tax burden, it will probably force some of them into the black market or have the black market continue. the goal of the city should be to get the black market licensed and permitted so that way the industry can grow rather than to force businesses back into the black market. i would like the city to propose a zero or one percent tax overall.

>> thank you for your engagement on this issue and for your brilliant and energetic staff we appreciate your engagement in past week and beyond, and i also thank you for the amendments today. it is headed in the right direction, so i just want to advocate for an amendment that we have proposed which would rather than impose a tax as a percentage in article 30 that you have proposed, it would define the tax as relating back to the gross receipts tax that already exists in san francisco and adding a multiplier for cannabis. i think this accomplishes three of the immediate goals right now. one is normalizing the cannabis

industry. treating cannabis is different just because is part of the policy group problem of sales regulation right now. it would address that and address the need of a higher tax right now, but it also allows the city to tier it to the gross receipts tax going forward in 2020 when that is readdressed, it's possible that the multiplier could be reduced or eliminated all together because it might not be necessary in 2020. if we continue to create cannabis as a separate tax, that gets baked in for longer and less ability to be nimble in the structure for cannabis going forward. i hope we can only to engage on this over the next week. thank you very much for the engagement on this issue.

>> bridget may. i run a small manufacturing company in san francisco. i am still waiting to get licensure, and like many other small manufactures that's been a hurdle to even get back into business. i live here and i have called this great city my home since 1989, and i would absolutely prefer to have my business stay here, however, i have to admit that the other cities and jurisdictions are looking for attractive. i support normalizing cannabis taxes to bring them on par with other businesses and make san francisco for attractive to other businesses like myself. >> thank you for the amendments. my gave is dave hula and we

build software for the industry. i am also a husband to my wife stephanie who is a cannabis marshmallow maker here in the city. these are some of the handicaps she has experienced trying to build this up for the last three years. with guiding text principles, the first is around equity and fairness. taxing similarly taxed payers and tax rates. she is a marshmallow maker an and she can't get a bank, whereas another person that doesn't have noninfusion can do that. the second principle is the

ability to pay taxes. taxes should be noncausing undue financial distress, and with her, she hasn't had the ability to deduct business expenses. she is looking at 20 to 30 percent of expenses not to be able to deduct, which is really difficult. the third economic growth and deficiency. we should not have tax policy group that punishes the growth of her business and just having four months to get a building permit to put an ada bathroom in the city has slowed down her ability to work through this. the last point is minimizing noncompliance. the state already sees a big thriving black market because of the overregulation and taxation we have an opportunity to go

another direction. >> good afternoon. i actually know both of you from when i worked downstairs in this building. in addition to the principles of tax policy group i have other considerations i would like to be present and central in this debate at all times. what place does the board of supervisors see for cannabis in the city's ecosystem. is the intent to nurture or encourage this industry? what is the extra tax revenue for, these businesses already pay one gross receipt to tax. if a second is collected will it be leveraged for other campaigned throughout the commune. what about brings those currently under taxes and industries up to fairity instead of adding to an already ave

overtaxed industry. although our idea is to tax cannabis in the same way other businesses are taxed, if the board is set on treating the business differently maybe that would bring us closer to what david just spoke of. there are many cities that look at cannabis and see a source of tax revenue, but we don't have to do that. we are small businesses and have families and i hop let's be inclusive and fair and welcome this community instead of siloing it and feeding

misconceptions. >> if there are any other speakers that would like to comment, please get in line. >> my name is loss gor dens and i work with california grower's association. i work around the state and at the state level. i think the idea that medical cannabis should not be taxed and there is a recognition that there is regulation with the market are important issues of tax policy group. i think that the problems with competition with the unregulated market is hard to emphasize just how serious those are, and you may be a ware that first quarter tax numbers have come in and they are about 40% of what was

estimated. it was 38 million and that was supposed to be closer to 80 million or so. even that underestimates the problem. so about 10% less than that of the cannabis being purchased is being purchased on a legal market. the average tax rate hoar in california on cannabis businesses is quite a bit higher not just than other businesses but even cannabis businesses in other states. the average tax in california is 40% higher than the tax in colorado and about double that which is in oregon.

this idea that there needs to be greater parity and how can we regulate without additional burdens on it, that kind of paradigm shift. >> i ran a business from 2015 to 2017 until i was a pre-existing non-conforming operator. san francisco you guys have proposed one of the allowest tax rates in the state, so i can't really be mad at you, but i think you can do better. >> you're welcome. [laughter] >> san francisco has always been a leader and item 20 important to be a leader in progreesessive

values in the city and you have the opportunity to lessen the burden on cannabis businesses here. it's already really expensive to do business in san francisco. we have talked about this before of the committee pound effect and i know that you have been looking at it so thank you again for that, but if you have one percent that you moved it too, it is still compounding on each cultivation, manufacture, distribution, retail, plus sales tax, so all we ask is to be treated like every other business in san francisco. if we are going to tax more to help our equity partners and to

help with education, sure, but just to tax simply because it's cannabis is not the way to be a leader in the state of california. thanks. thanks. >> good afternoon, supervisor cohen and supervisor fewer. i want to echo support from any of my colleagues because i am not an export. i came in as an artist, but as i started to transition the business into a legalized structure, i started realizing the amount of money i was going to bring was in less too because i was going to are to pay employees and the amount that we pay on our properties is even

taxed more properties were like $1.75 now they are like $4 for us. coming in here i was like 2% and then hearing the 1%, thank you for lowering it, but learning that is still more than other businesses are paying in fra san francisco as business owners, i felt like we are still considered to be a sin and not n normalized at all, so i encourage you to work with us to figure out something that is workable and normalizes the industry. >> i don't see anyone else in line but i would like to give a last call. seeing none, public comment is closed.

[gavel] supervisor fewer, any comments? at that point i want to pivot to ted eagen who wrote a knowledge memo. could you present to us your memo? >> thank you, ted eagen, controller's office appreciate the recommendation. we initially felt this was too small to require and economic impact report but your office asked us for this memo to subject what would be the overall impact and as you suggest, we have a couple of facts to add to the discussion. like any stacks would have adverse effect on the industry

and consumers, whether it would lead to contraction of the industry depends on two things, first, what is the overall growth, and secondly what is the ability of the industry to pass the tax on to consumers. if consumers pay the tax that doesn't harm the economy. one of the things we know is that from the first quarter of last year when it was not legal to the first quarter of this year when it was. -- they had revenues grow by 25%. some of that is consumption by some that were not consuming cannabis a year ago and now are.

if just a quarter of that is an increase in prices, then the industry as a whole could absorb a two to five increase in taxes. secondly, reviewing the existing research on cannabis demand, it does seem that consumers are price insensitive to price increase in cannabis -- at the retail level in particular is feasible. based on our number crunches we think conservative estimate we think about half the tax could be passed on to consumers which means it would feel like a 1% to

2% tax. this makes us feel like it is fairly unlikely that would result in a contraction of the industry to the pre 2017 levels. >> supervisor cohen: ted is an economist, he doesn't work for the mayor's office, he is an independent entity so his reports are based on empirical research and the point i'm trying to make is that it's not favored or skewed towards any one entity and we asking him for a data analysis and it is based on that we will drive it forward, so thank you. i recognize there is not much information out there to some of the speaker's points there is

data coming in that will shape the legislation, which is why i really wanted to build in some mechanism to allow for adjustment for the tax rate. what i would like to do supervisor fewer is to make a motion to accept the amendments and then i'm going to ask that we continue this item until july 19. all right. i will make a motion to accept the amendments and we will do this without objection. please note that the house has changed. supervisor fewer and i are here and we will take this without objection and continue this to july 19,. [gavel] thank you for continuing this conversation. is there any further business. >> there is none. >> supervisor cohen: thank you ladies and gentlemen, we are adjourned.

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regular green program, it's not going to change your bill at all. you can sign up online or call. you'll have the peace of mind knowing you're doing your part in your household to help the environment.

>> all in favor? [voting] >> i make a motion that we don't reveal anything that we talked about in closed session. >> i second? >> all in favor? [voting] >> okay. pledge of allegiance. [pledge of allegiance] >> clerk: please be advised that the ringing of and use of cell phones, pagers and other similar sound producing devices are prohibited in this meeting. please be advised that the chair may order anyone removed from the room