WATSONVILLE — Those in the local cannabis business may soon be eyeing Watsonville as a place to put down roots, after the City Council voted to significantly cut the tax rates of retail growers and retailers.
The ordinance reduces taxes for all parts of the retail cannabis supply chain — nurseries, cultivators and storefronts. Those in the retail side of the business will see their tax rate lowered from 10% of gross receipts to 5%. Nursery businesses in Watsonville can expect a new tax rate of $1 per square foot of canopy area. Cultivators will see their taxes decrease to $10 per square foot for flowering canopy, which is half the previous $20 rate.
Councilmember Rebecca Garcia, who represents District 5, and Mayor Jimmy Dutra both voted to not move forward in formalizing the ordinance. The new tax rates passed in a 5-2 vote.
The freshly approved rates put Watsonville in a more competitive spot when compared regionally. The city of Santa Cruz taxes dispensaries 7% of gross receipts. Monterey County charges the same nursery and cultivator tax rates, as those approved by Watsonville on Thursday night.
“The city’s recommendation cited the reduction of the illicit market as the No. 1 reason as to why now for the reduction of taxes — that the community has yet to reap the benefits of — despite the fact it was our votes that approved the cannabis industry’s presence,” resident Karina Brewington said during public comment.
Others echoed Brewington, saying that funds from currently implemented tax revenue were not sufficient for the public benefit. Watsonville voters passed Measure M in 2016, which prioritizes where cannabis-generated tax revenue is invested such as 25% of those funds are allocated to pay for parks and community services. According to a handful of residents speaking Thursday, not enough funding has been reinvested into libraries, parks and other public spaces.
The majority of public attendees voiced opposition to the tax cuts, but some voiced support.
Bryce Berryessa, a licensed cannabis operator in Watsonville spoke during Tuesday’s meeting in support of lowering taxes for the industry.
“The high taxes are a huge challenge to smaller-scale businesses we have in Watsonville. Every bit of financial assistance we can get helps us compete with companies that manufacture at a much larger scale,” Berryessa said, noting the new rates would make his business more competitive statewide. “It has been an incredible challenge to try and operate a cannabis business through COVID — we don’t get any resources from federal government, we can’t qualify for PPP loans, bank loans … we are literally on our own.”
When asked by Councilmember Aurelio Gonzalez and Francisco Estrada if the approved tax rates were rigid, City Manager Matt Huffaker said the rates could change in the future.
“The tax structure was always intended to be dynamic as the economy shifts and this industry matures, we expect there will be future adjustments that need to be made as our local businesses get their feet off the ground,” Huffaker said.
While cannabis dispensary Santa Cruz Naturals has a location in Pajaro, an unincorporated community of Monterey County, Watsonville has yet to see its first retailer set up shop in the city.