HomeMy WebLinkAboutCC 2026-06-09_11c Local Cannabis Tax Measure_PP
Consider Placing a Cannabis Business Tax Measure on the November 3, 2026 Ballot
Good evening, Mayor and Members of the City Council.
Tonight, staff is bringing forward for Council consideration, a Cannabis Business Tax Measure to be placed on the November 3, 2026 General Municipal Election Ballot.
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Council Goals Workplan
Pursue New Revenue Sources
Consider Cannabis as a Means of Economic Development
This topic is included in the current Fiscal Year Council Goals Workplan under the goal of pursuing new revenue sources.
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Cannabis Study Session
December 9, 2025, Cannabis Study Session, Council directed staff to proceed with the preparation of a local cannabis tax ballot measure
Council deferred creation of draft regulations until potential ballot measure is decided
On December 9, 2025, City Council received a Study Session on Cannabis Regulation and directed staff to proceed with the preparation of a local cannabis tax ballot measure (and draft
tax language) to be placed on a future municipal ballot. Staff is here today asking Council to consider placing a Cannabis Business Tax on the November 3, 2026 General Municipal Election
Ballot.
If the Cannabis Business tax measure passes, staff will proceed with drafting regulations to allow commercial retail cannabis uses and return with zoning, permit process and a draft
ordinance.
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Fiscal Impact
Estimated annual revenue: ~$500,000 with 6% City tax
Ballot Language includes 10% maximum rate to provide flexibility in responding to future market conditions
To provide flexibility in responding to future market conditions, the proposed ballot measure and ordinance would establish a maximum cannabis tax rate at 10%. Based on current projections,
staff estimates that an initial 6% retail cannabis tax would generate approximately $500,000 annually. The HdL retail market analysis estimated $460K, but staff is rounding up for ease
of communication with the public. The specific tax rate imposed would be set by the City Council and may be adjusted over time within the voter-approved maximum.
As a general tax, the proceeds would be deposited into the General Fund and may be used for any lawful purpose, as designated by the City Council, including being allocated towards
maintaining City services including, public safety, road maintenance, infrastructure repair, recreational programs, and other general City services.
Funding for the November 2026 General Municipal Election has been included in the FY 2026-27 Mid-Cycle Budget Update in the amount of $80,000 and is anticipated to cover costs associated
with printing the ballot measure in the Sample Ballot booklet.
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Proposed Ballot Language
Shall the measure to maintain Arroyo Grande City services, including public safety, road maintenance, infrastructure repair, recreational programs, and other general City services by
enacting a tax of up to 10% of gross receipts on cannabis businesses operating in the city if such businesses are permitted, estimated to generate approximately $500,000 annually, with
spending oversight and until ended by voters, be adopted?
The proposed ballot language is as follows:
Shall the measure to maintain Arroyo Grande City services, including public safety, road maintenance, infrastructure repair, recreational programs, and other general City services by
enacting a tax of up to 10% of gross receipts on cannabis businesses operating in the city if such businesses are permitted, estimated to generate approximately $500,000 annually, with
spending oversight and until ended by voters, be adopted?
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Cannabis Business Tax Ordinance
Maximum tax rate not to exceed ten percent (10%) of gross receipts generated by cannabis business activity.
The rate of the cannabis tax may be adjusted from time to time by the City Council as set forth in Section 3.26.300, subject to the maximum rate and methodology set forth above.
The proposed ordinance would add Chapter 3.26 to Title 3 (Revenue and Finance) of the Arroyo Grande Municipal Code, establishing a tax on cannabis businesses operating within the City
of Arroyo Grande.
The maximum tax rate is not to exceed ten percent (10%); and the tax would be on all gross receipts generated by cannabis business activity.
The rate of the cannabis tax may be adjusted from time to time by the City Council as set forth in Section 3.26.300, subject to the maximum rate and methodology set forth above.
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Structure of the Cannabis Tax Measure
2/3 vote of the City Council (at least 4 members) must approve the proposed Resolutions and Ordinance
In order to place a tax measure on the November 3, 2026, ballot, a 2/3 vote of the City Council (at least 4 members) must approve the proposed Resolutions and Ordinance.
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Argument in Favor
Staff recommends Council designate two Councilmembers to prepare and submit an argument in favor of the measure
It is also recommended that the Council designate two Councilmembers to prepare and submit an argument in favor of the measure, using their personal equipment on their personal time,
to the City Clerk within the time prescribed by law for inclusion in the voter information materials.
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Adopt a Resolution calling for the placement of a General Tax Measure on the November 3, 2026, General Municipal Election Ballot for the submission to the qualified voters of a proposed
ordinance adding Chapter 3.26 to Title 3 (Revenue and Finance) of the Arroyo Grande Municipal Code establishing a tax on cannabis businesses operating within the City of Arroyo Grande;
Adopt an Ordinance adding Chapter 3.26 (Cannabis Business Tax) to Title 3 (Revenue and Finance) of the Arroyo Grande Municipal Code establishing a tax on cannabis businesses operating
within the City of Arroyo Grande (to ultimately be considered for approval by the voters);
Adopt a Resolution providing for the filing of direct and rebuttal arguments and setting rules for the filing of written arguments regarding a City Measure to be submitted at the November
3, 2026, General Municipal Election;
Adopt a Resolution requesting the Board of Supervisors of the County of San Luis Obispo to consolidate a General Municipal Election to be held on November 3, 2026, with the Statewide
General Election to be held on that date pursuant to Section 10403 of the Elections Code;
Pursuant to Elections Code Section 9282, authorize and designate two members of the City Council to prepare and submit an argument in favor of the measure to the City Clerk within the
time prescribed by law for inclusion in the voter information materials for the General Election to be held on November 3, 2026; and
Recommendation
Determine that adopting the Resolutions and Ordinance regarding a cannabis business tax relates to organizational or administrative activities of governments that will not result in
direct or indirect physical changes in the environment, and therefore is not a project within the meaning of the California Environmental Quality Act (“CEQA”) and the State CEQA Guidelines,
section 15378(b)(5).
6.
To place the measure on the November 3, 2026 ballot:
• Council must approve the proposed Resolution by a two-thirds vote, meaning at least four affirmative votes are required.
• Council is also being asked to adopt the associated Ordinance language, which would only become effective if approved by voters.
• Council is being asked to designate two Councilmembers to prepare an argument in favor of the measure for the voter information guide.
• The City Attorney would prepare an impartial analysis as required.
Staff recommends that the Council:
Adopt the Resolution placing the measure on the November 3, 2026 ballot;
Adopt the Ordinance language subject to voter approval;
Designate two Councilmembers to prepare an argument in favor of the measure; and
Make the recommended CEQA determination.
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