File photo of marijuana being sold over the counter.
Alan Sylvestre / OPB
Ontario is one of Oregon’s largest cannabis markets, but the Idaho border town says it’s not getting the kind of tax revenue that matches how much the amount of product it sells every day.
At the request of the city of Ontario, state Sen. Lynn Findley, R-Vale, and state Rep. Mark Owens, R-Crane, introduced House Bill 2505, which would raise the cap on local cannabis taxes from 3% to 10%. According to the lawmakers and other local government officials, the move would allow small towns like Ontario to increase their budgets for police officers and emergency responders to meet demand from out-of-town visitors.
“Ontario has a tremendous need for more revenue for their cannabis sales in order to handle the cost to the city from the sales,” Findley said.
At a Jan. 31 meeting of the House Committee on Economic Development and Small Business, Findley pointed to a set of stats from the Oregon Liquor and Cannabis Commission that demonstrate how much Ontario is punching above its weight. Neither Owens nor Findley responded to requests for comment before publication.
Malheur County, where Ontario is the only city with dispensaries, produced more than $100 million in cannabis sales in 2022, the second most of any county in the state behind Multnomah County. Malheur County accounts for less than 1% of the state’s population, but more than 10% of its cannabis sales. And while the cannabis industry statewide has seen declining sales due to low prices, Findley said Malheur County had a gentler drop off.
Ontario’s booming dispensaries are less reliant on the 11,000 people that live within city limits, or even the 31,000 people who live in Malheur County. Instead, Ontario sources most of its customers from neighboring Idaho, where cannabis remains illegal. Ontario is closer to Boise than it is to Portland, and most of the more than 800,000 people who live in the Boise metropolitan area live within an hour’s drive of Ontario.
But city manager Dan Cummings said Ontario is not receiving the windfall of tax revenue it might expect for the significant sales. This disconnect goes back to the cannabis taxing system created by Oregon following the passage of Measure 94 in 2014.
The measure allowed residents across the state to recreationally consume, possess and grow cannabis. But the Legislature allowed cities and counties to opt out of sales, meaning they could effectively ban dispensaries. While many cities and counties reasoned that they should ban cannabis businesses because their voters rejected Measure 91, a handful of cities like Ontario took the plunge.
The state charges a 17% sales tax on cannabis and local governments are allowed to tax up to 3% more, which Ontario currently does. While a portion of the state tax goes back to cities, Cummings said the distribution formula wasn’t fair to Ontario.
“It’s based on population and the number of dispensaries instead of sales,” he said. “All we’re telling the state is, ‘Be fair with it. Base it on the sales percentage instead of population for crying out loud.’”
Cities and counties felt squeezed further when Measure 110, the state’s drug decriminalization measure passed in 2020, started directing money away from local governments in favor of drug treatment and mental health programs.
The state’s cannabis taxing system means Oregon gets two very different amounts of return on the $100 million Ontario’s cannabis dispensaries generate in sales. In its 2022-23 budget, the city expected to collect $3.5 million from local cannabis taxes. After factoring in the distribution formula, the city projected it would receive just $25,600 from state taxes.
Should HB 2505 pass, Ontario and other local governments across Oregon would be allowed to raise their local cannabis tax rate to a 10% maximum. Any cannabis tax increase would require local voters to approve it through a ballot measure.
Cummings said the daily traffic from Idaho has strained Ontario’s public safety services, and if the city raises its cannabis revenue, he would look to hire more police officers to deal with an uptick in calls.
Cummings also said the tax rate wouldn’t jump from 3% to 10% overnight, and he would instead work with the Ontario City Council to seek a more realistic number to put in front of voters, noting that a general 1% sales tax failed previously.
He knew that Ontario’s dispensaries were unlikely to support a cannabis tax hike, but his hope would be that a smaller increase wouldn’t draw heavy opposition.
Owens, the state lawmaker, also acknowledged the cannabis industry as a potential hurdle for the bill.
“They need to face a lot of challenges that we need to try to help with because they are small business owners,” he told the House committee at the January hearing. “They do employ people. They do sell a product. But sometimes that product comes at a cost for some of our communities. And that’s what we’re trying to address here.”
Representatives from cannabis businesses spoke out against the bill at the hearing, but none from Ontario. A few months later, reaction from the Eastern Oregon town is mixed.
Matthew Westgate, an operations manager at Ontario dispensary Cannabis & Glass said he was probably an outlier within the local businesses, but he wouldn’t mind a tax increase if it meant more help from police.
“The Ontario PD helps us so much all the time,” he said. “We get all kinds of stuff going on in our lot. They’ve helped me trespass customers before that were out of bounds.”
Elevation 2150 manager Cory Goade was more skeptical of a tax hike. He said cannabis taxes at are already high and an increase in police presence could discourage some customers from coming.
But for now, the status quo remains. A similar attempt to raise the local cannabis tax cap stalled in the Legislature last year, and this year’s bill hasn’t seen any activity since the January hearing.
Correction: This story originally misstated the measure number that legalized cannabis recreationally in Oregon.