A back room decision at Colusa City Hall in 2019 to let a cannabis manufacturer off the hook for an agreed-upon facility fee has left the city’s already underwhelming cannabis fund short $225,000.
Colusa Mayor Greg Ponciano said he – and the public – only learned from City Manager Jesse Cain at the September City Council meeting that Greenleaf Processors, Colusa’s first approved cannabis manufacturing business on Fifth Street, stopped paying its annual $75,000 facility fee imposed through a 2017 developer agreement in 2020 because the company’s attorney claimed the city cannot legally charge a facility fee on top of a 3 percent fee the city collects on gross annual receipts.
“Their attorneys sincerely believe this is double taxation,” said Cain, fearing the city may now be heading for a lawsuit.
A Developer Agreement with Greenleaf and the city’s other cannabis companies allows the municipality to impose fees on the marijuana industry without having to deal with the cost and uncertainty of putting the matter before voters, as required with the imposition of a tax.
“I’m sorry – if it’s in their DA, they need to pay it,” said Ponciano, who disagreed with the analysis that it is a double tax.
About 200 cities in California have put measures before the voters to establish local taxes on cannabis. Most, however, use developer agreements to acquire revenue for public benefits, such as police and fire protection, road maintenance, and other public services. Many charge only a percentage fee on the gross receipts, while others have a mix of fees, depending on the number of state licenses the company holds. The City of El Monte, for example, charges a $12.50 per square foot “canopy” fee for cultivation plus a 4 percent fee on gross receipts on manufacturing, distribution, and retail sales, if the company also holds those licenses. The city charges only a 4 percent fee on single licenses, such as manufacturing (extraction).
Some cities that only have percentage fees often include a minimum amount the company must pay. The city of Red Bluff, for example, approved a developer agreement in December for a microbusiness (multiple licenses), charging 3 percent of the gross receipts or $150,000 per quarter ($600,000 per year), whichever is greater. Other cities have percentage fees of 5 to 8 percent.
Colusa has seven cannabis companies currently operating in city limits, officials said, but has collected only $1.2 million in five years, which has resulted in frustration for council members and citizens who were promised better roads if the city embraced the industry.
Although Greenleaf points to a paragraph in their agreement that prohibits “double taxation” on production fees as a reason to stop paying the facility fee, the very next paragraph examples production fee as an assessment on the amount the company pays to a cultivator for the marijuana they use to make a product (oils, tinctures, edibles, etc.) in addition to an assessment on the product they ultimately sell, based on gross receipts.
Ponciano said Greenleaf is an extraction facility and the nature of the business, not production, was the reason they were charged a facility fee in addition to 3 percent of their gross receipts.
“There’s hazmat materials and other factors,” he said. “The financial makeup of that versus grows is completely different. And that was determined through the application process and discussion with the operator – and they subsequently signed a developer agreement to pay those fees.”
Although Cain was hesitant at last week’s meeting to openly refer to the company by name or talk about Greenleaf’s refusal to pay, Ponciano said the City Council should have been made aware of the situation long ago. At minimum, letters from an attorney should have prompted a closed session discussion in 2019.
Cain said he can’t remember why the matter was never brought to the full City Council, but it was discussed with the cannabis ad hoc committee, which included then Mayor Josh Hill and Councilman Tom Reische, who no longer sit on the legislative body.
Hill confirmed later that the ad hoc and the city attorney were aware of the letters – and acknowledged no official action was taken. But he also confirmed that the Planning Commission and the City Council last year approved the city’s second extraction business at Colusa Industrial Park without asking the company for both fees because, in general, they felt that it was double taxation, which they did not want to pursue through litigation.
Colusa Councilwoman Denise Conrado believes that despite Greenleaf’s agreement to pay both fees, the bigger picture is a matter of fairness.
“I don’t think it’s right,” Conrado said. “They should all be charged two fees or no one should be charged two fees.”
Councilman Ryan Codorniz, who served on the Planning Commission, agreed with Ponciano that the fee was not a “double tax” because it was what Greenleaf agreed to pay.
He suggested the company should simply catch up on the amount they owe – and then renegotiate another agreement.
“I’m willing to negotiate once that bill is paid,” Codorniz said.
Because the company’s legal representative has written multiple letters since 2019 regarding the facility fee, the City Council agreed the matter should be discussed with the city attorney in closed session as potential litigation. ■