Chamber News

October 05, 2018 Likes Comments

Proposed pot shop ban would mean lost revenue for Newton

By Greg Reibman

A ballot referendum that would ban the sale of adult-use recreational marijuana in Newton would result in the loss of millions of dollars annually in local tax revenue, according to city projections.

Given the nascent nature of the marijuana industry, it is difficult to pinpoint exactly how much revenue could be on the table. However, the revenue from a three percent local recreational marijuana tax and up to three percent in local host agreements could yield over $2 million and perhaps more, said Jonathan Yeo, chief operating officer for the City of Newton.

“These new dollars could potentially equal or exceed the [$1.95 million] Newton now collects annually from the local meals taxes from 400 restaurants,” Yeo said.

But that revenue stream (representing the city’s largest new source of new, non-property tax, revenue in a decade) is now in doubt following an effort by a citizens group, Opt-Out Newton, to ban all recreational shops at a time when the Fuller Administration is looking for funds to cover pension liabilities, expand to full day kindergarten and is in the middle of contract talks with nearly all of the city’s unions.

Opt-Out Newton spent much of this past summer collecting signatures for the purpose of asking the Newton City Council to place a recreational store ban on the ballot.  After submitting more than 7000 signatures, the council agreed to place a nonbinding question about a recreational ban before voters on Nov. 6.

The council also decided to place a separate, second, nonbinding question that would cap the number of adult-use recreational stores in Newton to between two and four, instead of the eight that would otherwise be allowed under state law.

As a result, there will be two separate questions about recreational marijuana sales before voters next month.

Yeo stressed that Mayor Ruthanne Fuller is not presently endorsing any position on either ballot question and acknowledged that factors other than municipal revenue need to be considered.

“We’re not taking a position on this one way or another, but we’ve been asked to estimate the potential revenue.These are our best estimates based on projections,” Yeo said.

This will not be the first time Newton voters have been asked to weigh in on marijuana use. In 2016, 54 percent of Newton voters approved of legalizing adult use recreational marijuana though a statewide referendum.   Voters in Newton also supported legalizing medical marijuana in 2012 and endorsed a 2008 question to reduce possession of small amounts of marijuana from a criminal to a civil penalty.

The last time a new revenue stream was introduced in Newton came in 2009 when -- during the height of the financial crisis and state budget woes -- the state legislature approved local options for a meals and hotel tax. Newton presently receives about $1.95 million in tax revenue annually in a local option meals tax from the city’s 400 restaurants and an additional $2.5 million in revenue annually form the hotel/motel tax.

The only local estimates the city has for potential revenue from marijuana sales comes from Garden Remedies, which has been operating Newton’s only medical marijuana clinic at 697 Washington St. for the past two years.

Presently Garden Remedies is estimated to pay Newton $200,000 annually as part of its medical marijuana host agreement with the city. But Garden Remedies has just received a special permit from the City Council to expand to adult-use recreational, providing that “Opt-Out” does not prevail in November. If approved, the company estimates it will pay a minimum of $750,000 annually to Newton for the combined three percent local options tax and host agreements for both medical and recreational sales at their single store.

On Oct. 1, the Newton City Council approved a special permit for what would become Newton’s second medical dispensary, operated by Cypress Tree Management Inc., at 24 Elliot Street.Cypress Tree and the city have yet to negotiate their host agreement. Cypress Tree has also expressed interest in being allowed to sell adult-use recreational marijuana.

Under state rules, host agreement funds must be earmarked for the purposes of addressing the public health, safety, education, administrative, infrastructure and other effects or impacts of marijuana while the three percent local sales option can go into a general fund to pay for street and sidewalk improvements, schools or other pressing needs.

The total yield from additional shops in Newton would undoubtedly depend on the final number of approved stores and a still unknown consumer demand, both here and in Greater Boston.

But based on Garden City’s projections, it’s easy to see how the Fuller Administration’s estimate of over $2 million or more in tax revenue -- even for just four stores -- is a safe estimate.

While there certainly are other considerations that must go into deciding if Newton should allow or limit the number of recreational marijuana stores, the municipal finance downside of a retail store ban in Newton would not make the city immune from the social and public safety effects of recreational marijuana use.

That’s because Newton residents could always drive to Brookline, Boston, Waltham, Watertown or another community where recreational merchants are expected to operate and pay taxes that would benefit that municipality instead.





Subscribe to our Events eNewsletter, INBusiness or BOTH!