Plan to Increase Taxes on Cannabis in Phoenix Goes Up in Smoke

On Thursday, a mysterious new proposal to tax medical marijuana businesses appeared on the policy agenda for the Phoenix City Council.

Five days later, the tax was dead – swiftly killed by the Phoenix City Council after an uproar from industry professionals and patients who rely on medical marijuana.

At a policy meeting on Tuesday, the Council unanimously killed the hastily announced proposal from interim Mayor Thelda Williams. It would have enacted a huge tax on marijuana dispensaries and cultivators in order to fund the city's police and fire departments.

A financial analysis of the proposed tax options from the city staff estimated that the registration tax would raise roughly $43 million per year.

Frustrated council members said that they were stunned by how the tax seemed to come out of nowhere, and expressed their displeasure with Williams.

A couple of council members intensely questioned the mayor and City Manager Ed Zuercher regarding how much time city staff spent researching the measure over the weekend in an attempt to evaluate whether the eight-hour rule had been violated. The rule limits the amount of time city staff can spend on projects that have not been approved by the full Council.

Councilman Sal DiCiccio denounced the new tax to applause from the audience and said that it was obvious the procedure violated the eight-hour rule.

"It's a way of stuffing it and screwing the public," he said. "And I'm tired of this kind of shenanigans at City Hall."

Williams defended herself, arguing that she had the authority to authorize the proposal. Her chief of staff, Bryan Jeffries – who happens to be the president of the Professional Fire Fighters of Arizona – has been working on the measure for a long time, she said.

Several tax options were outlined under Williams' plan.

One proposal was to tax dispensaries and cultivation sites based on square footage. Another proposed taxing businesses based on their gross receipts from the previous 12 months. A third option would have enacted a flat-rate registration tax of $920,000 per cultivation site and $560,000 per retail location or consumption lounge.

The founder of the Marijuana Industry Trade Association, Demetri Downing, said that as of right now, Phoenix dominates among other cities in terms of dispensaries and cultivation sites. That would change with the new tax, he said.

"It doesn’t make any sense," Downing said in an interview before the Council voted on Tuesday. "There will always be a jurisdiction in Arizona which is smart enough to keep taxes down on cultivations.”

Dispensary owners might pack up and migrate to Tucson, Cottonwood, or any number of other low-tax jurisdictions, Downing suggested.

At the Council meeting, Sara Presler, a former mayor of Flagstaff who works as a consultant to the medical marijuana industry, told the Council that their intentions may have been good, but the process lacked transparency. Plus, the tax ultimately would have been passed on to patients, she said.

She recommended stopping the tax proposal in its tracks and pursuing "a more meaningful conversation," Presler said at the meeting.

Lobbyist Kevin DeMenna, who represents the Arizona Dispensary Association, said in an interview that city officials never consulted dispensary owners and never attempted to have a discussion about the tax. He decried the tax rollout for its lack of clarity.

Even before the Council shot down the proposal, DeMenna said that if the city approved the tax, the ADA would sue Phoenix or pursue recall elections of City Council members.

DeMenna described the proposed tax as a draconian crackdown on medical marijuana.

"It looks like an assault on medical marijuana patients and businesses," DeMenna said.