Voters will decide whether to let the city impose a tax of up to 10 percent of gross receipts on businesses in San Jose that sell marijuana, either legally or illegally.
Proponents see the business tax as a revenue source for the cash-strapped city.
A poll conducted last month indicated that 66 percent of likely voters were in favor of a 10 percent tax, and 68 percent were in favor of a 3 percent tax.
It's unclear how much revenue the tax would generate because marijuana reporting and regulations are murky.
There are 73 marijuana collectives in San Jose, 40 of which have applied for a sales permit with the State Equalization Board, according to Scott Johnson, the city's finance director.
Of those 40, 18 businesses have reported sales to the state with gross receipts of about $1.5 million.
Officials said the city could collect about $150,000 based on the state's reporting, but that number could be higher if voters legalize non-medicinal marijuana in November.
A statewide ballot measure, Prop 19, also known as the Regulate, Control and Tax Cannabis Act of 2010, would legalize and allow taxation on non-medical use of marijuana.
Opponents of San Jose's proposed business tax argued that the tax is too high and that it might put a financial burden on low-income patients who use marijuana medicinally.
They are also concerned that patients might opt to drive to neighboring cities with no taxes or with lower taxes to avoid paying the additional cost.
And others, such as San Jose resident Tili Ayala, want to see all marijuana use opposed.
"A woman holding a medical marijuana card sold marijuana to my 12-year-old niece," she said.
Councilman Pete Constant said he was concerned about the city's ballot measure because approving a tax on a substance that is not approved for recreational use and is sold illegally could create a slippery slope.
But limiting the tax to legal businesses would require additional resources in finance and other departments to determine if a business is operating legally, and the city doesn't have the funds to operate that way, Johnson said.
If Prop. 19 passes, the City Council agreed it would review the tax structure and likely lower the tax rate for medicinal marijuana.
The council has the authority to lower the tax rate at any time without voter approval.
Some cities already have marijuana business taxes, including Berkeley, Oakland and Sacramento.
Placing a measure on the ballot costs the city $758,000 for the first measure and $366,000 for each subsequent measure.