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Phoenix Mayor Proposes Massive Taxes on Medical-Marijuana Dispensaries

The mayor of Phoenix is prepared to levy a significant new tax on medical marijuana businesses that could decimate the city's dispensaries and raise costs for patients.

In a letter to the Phoenix city manager on Thursday, Mayor Thelda Williams proposed an occupational licensing tax on medical-marijuana businesses in order to fund Phoenix's police and fire departments.

The letter, obtained by Phoenix New Times, directs City Manager Ed Zuercher to place a possible tax and licensing program for marijuana-related operators in Phoenix on the October 2 City Council agenda.

The city's looking at options with big numbers, like maybe an occupational license tax based on 17 percent of the previous year's gross receipts, or a flat-rate registration tax of $560,000 on medical marijuana retail businesses and $920,000 on cultivation sites.

J.P. Holyoak, the founder of medical-marijuana supplier Arizona Natural Selections, said that a $560,000 tax on retail locations would be prohibitive.

“That puts us all out of business. Every single one of us,” he told New Times on Thursday.

"What they’re trying to do is they’re trying to tax us out of existence. They’re essentially trying to overturn the medical-marijuana law by taxing it out of existence,” Holyoak said.

In Williams' view, the city would essentially use pot to fund police officers.

“We have recently received information from the Police and Fire Chiefs indicating that our public safety resources in Phoenix are strained," Williams wrote. "It is clear to me that we are unable to keep up with the public safety needs of our City due to financial constraints.”

In order to bring in revenue for public safety, Williams added, her office has been examining new revenue sources. She proposes a new structure to license and tax medical-marijuana operators.

Williams wrote in her letter that the new tax option is meant "to protect the local concerns of public health, safety, quality of life and the well-being of the City’s residents and visitors.”

According to a report attached to Williams’ letter, the program would require an occupational license or a registration tax to operate a dispensary cultivation site, retail dispensary location, or public consumption lounge.

Several potential options for the new tax are outlined in the letter, with backup plans for a new tax in case the courts invalidate the first option.

One tax is calculated based on square footage: $50 per square foot for cultivation and infusion sites and $280 per square foot for retail locations or lounges.

If that is invalidated by the courts, a second option is listed as 17 percent of the operator's gross business receipts during the previous year. Finally, if that possibility is ruled out, a third option is for a flat-rate registration tax of $920,000 on each cultivation site and $560,000 on each retail location or lounge.

However, if all those tax types are invalidated by the courts, the report says, Phoenix will require dispensaries transporting marijuana to use certified secure transport providers to ferry their products to and from locations with a service fee not to exceed $175 per mile.

In an emailed statement to New Times, Williams said, "Phoenix’s Police and Fire departments have many needs and face serious challenges. Today, funding for public safety is simply not where it needs to be."

"On Oct. 2, the City Council will consider a creative approach to finding a new revenue source to help fund public safety," Williams continued. "The proposal is in no way an attempt to single out medical marijuana businesses that operate legally in the city, but a proposal to establish a revenue structure for a growing industry that adds pressure to public safety.”

Despite the claim of public safety issues, though, city staff say in an October 2 agenda for the Planning and Economic Development Subcommittee, "Based on the numerous reviews of existing non-profit medical marijuana dispensaries, there are not significant public-safety issues or detrimental effects from these establishments."

Because dispensaries aren't a problem, staff recommend allowing them to extend their hours to 10 p.m.

Correction: A previous version of this article stated that one registration tax proposal is based on 17 percent of the marijuana operator's gross profits during the previous year. The proposal is to tax gross receipts, not profits.

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