Butte County Board of Supervisors Agenda Transmittal

Transcription

1 Butte County Board of Supervisors Agenda Transmittal Clerk of the Board Use Only Agenda Item: 5.06 Subject: Update on Commercial Cannabis Activities in California Department: County Administration Meeting Date June 12, 2018 Contact: Casey Hatcher Phone: Regular Agenda Consent Agenda Department Summary: (Information provided in this section will be included on the agenda. Attach explanatory memorandum and other background as necessary). State law allows businesses to conduct commercial cannabis activities for medical and adult use cannabis when permissible by the local jurisdiction. State agencies issued more than 4,100 licenses for various commercial cannabis activities beginning January 1, All the licenses are temporary while the agencies process annual license applications. Local jurisdictions have the authority to ban or regulate the activities up to what is allowed by the State. Twenty two counties and 144 cities allow some type of commercial cannabis activity. The activities are primarily allowed in jurisdictions south of Sacramento and along the coast. The Butte County Board of Supervisors passed two ordinances on October 24, 2017 amending Chapters 34A and 34C of the County Code to prohibit all commercial cannabis activities within the unincorporated jurisdiction with the exception of deliveries, which may originate from a licensed retailer outside the County. The Board of Supervisors requested staff provide an update about commercial cannabis activities approximately six months after the State began issuing licenses. Limited data is available about the effects of the commercial cannabis industry in California since State regulations were recently operationalized. The update includes: a summary of commercial cannabis regulations by County; a summary of temporary licenses issued by the State for commercial cannabis activities; and an account of the State taxes collected for commercial cannabis activities in the first quarter of Fiscal Impact: Does not apply. Personnel Impact: Does not apply. Action Requested: Accept for information. Administrative Office Review: Brian Ring, Assistant Chief Administrative Officer Revised: March, 2018 W:\Agenda Items\Form Template & Resources

2 Butte County Administration Shari McCracken Chief Administrative Officer 25 County Center Drive, Suite 200 T: Oroville, California F: buttecounty.net/administration Members of the Board Bill Connelly Maureen Kirk Steve Lambert Doug Teeter Larry Wahl DATE: JUNE 12, 2018 MEMORANDUM TO: FROM: RE: BOARD OF SUPERVISORS CASEY HATCHER, ECONOMIC AND COMMUNITY DEVELOPMENT MANAGER UPDATE ON COMMERCIAL CANNABIS ACTIVITIES IN CALIFORNIA Summary The State of California began issuing licenses for commercial cannabis businesses on January 1, Several state agencies regulate the various commercial cannabis activities and are responsible for issuing licenses and regulating the business activities. State law calls for a communication process between State agencies and local jurisdictions to ensure only locally approved commercial cannabis activities receive State licenses. The Butte County Board of Supervisors passed two ordinances on October 24, 2017 amending Chapters 34A and 34C of the County Code to prohibit all commercial cannabis activities within the unincorporated jurisdiction with the exception of deliveries, which may originate from a licensed retailer outside the County. The Board of Supervisors requested staff provide an update about commercial cannabis activities approximately six months after the State began issuing licenses. Limited data is available about the effects of the commercial cannabis industry in California since State regulations were recently operationalized. The update includes: a summary of commercial cannabis regulations by County; a summary of temporary licenses issued by the State for commercial cannabis activities; and an account of the State taxes collected for commercial cannabis activities in the first quarter of Local Control County Cannabis Ordinances Under State law, local jurisdictions have authority to ban or regulate commercial cannabis activities up to what is allowed by the State for cultivation, manufacturing, testing, distribution, retail sales, and delivery. The California State Association of Counties (CSAC) collected information from counties about local ordinances banning or regulating commercial cannabis activities. The data is current as of February 2018, but local regulations for cannabis are evolving quickly. The information does not reflect regulations for incorporated jurisdictions within a County. It is common for an incorporated jurisdiction to permit commercial cannabis activities while the County prohibits commercial activities. This is the case in Shasta County where commercial activities are prohibited in the County, but permitted in Shasta 1

3 Lake and, most recently, in the City of Redding. The CSAC data is used in this report to illustrate local regulations across California Counties. According to the CSAC data, 22 of the 58 California Counties allow some type of commercial cannabis activity within the county. Additionally, data reported by the Southern California News Group indicates 144 cities permit commercial cannabis activities. The information in this report focuses on counties. Seven counties located north of Sacramento allow some level of commercial cannabis activities. Three of these counties allow all commercial activities: Humboldt, Mendocino, and Sonoma. Three of these counties allow just cultivation: Lake and Trinity, as well as Yolo County where a limited number of businesses cultivate medical cannabis. One county, El Dorado, allows existing dispensaries for medical cannabis to continue operating. The remaining counties allowing commercial cannabis activities are primarily coastal counties in the central and southern part of the State. Counties and cities supported local control to ban or regulate commercial cannabis activities because it allows local governing bodies to consider the unique needs and character of the communities when adopting policies. By its nature though, local control results in varied policies across the State. These varied policies make assessing how the implementation of cannabis policies are working throughout the State difficult. Local governments are learning from each other when developing regulations for the emerging cannabis industry, but there is no clear best practice yet. Counties permitting cannabis activities are operationalizing these regulations differently. Some counties use a discretionary permit process while other have a nondiscretionary, administrative process. The information stated below for Yolo, Mono, and Calaveras counties is an example of the ways in which counties are implementing cannabis regulations. Yolo County reports transitioning from a ministerial process (administrative approval) to a discretionary process requiring a use permit from the Planning Division in addition to the local license issued by the Agriculture Department. Mono County will begin processing discretionary use permits and operating permits starting June 7, 2018 for cultivation activities through the Community Development Department in coordination with the County s other land development departments and the Sheriff s Office. The Board of Supervisors considers each discretionary permit. Calaveras County is still reeling from its recent foray into permitting cultivation of commercial cannabis. Calaveras County s temporary cannabis program, which included a ministerial registration for existing farms, ends June 7, 2018 at which time all cultivation is banned. The County received more than 740 applications for cultivation activities while the program was open. The effort was overwhelming for staff and the regulations made it difficult to reliably determine if the application met the standard for the ministerial permit. The examples above illustrate various ways counties are implementing cannabis regulations. Two common themes are the need for clear regulations and adequate staff to process permits or licenses. Local regulations are likely to evolve as counties and cities learn from each other, and the industry develops.

4 Commercial Cannabis in Butte County Commercial cannabis activities are prohibited by all of the incorporated jurisdictions in Butte County. The City of Oroville hired SCI to draft an ordinance allowing commercial activities and provide general information to the public. The City held two public meetings on May 24, The Council will consider an ordinance at its June 19, 2018 City Council Meeting, which will include consideration of a voter tax measure with varying tax rates on different parts of the production process as well as retail sales. California Licenses for Commercial Cannabis Activities The State issues licenses for cultivation, manufacturing, retail sales, distribution, and testing. Deliveries are associated with a licensed retail location, which can have a storefront or be a non-storefront location. The California Department of Food and Agriculture (DFA) issues licenses for cultivation. The California Department of Public Health (CDPH) issues licenses for manufacturing. The Bureau of Cannabis Control, which is a division of the Department of Consumer Affairs issues the remaining licenses. The State agencies have only issued temporary licenses for commercial cannabis activities. Applications have been received for annual licenses, but no annual licenses have been issued according to the Bureau of Cannabis Control. The section below outlines the number of active, temporary licenses for each commercial cannabis activity in the State. Cultivation Licenses There are 2,063 active, temporary cultivation licenses issued by the California DFA, and half of those licenses are in counties north of Sacramento. The licenses are issued across 28 counties, but 85% of the licenses are issued in six counties: Santa Barbara, Humboldt, Mendocino, Monterey, Trinity, and Los Angeles. Table 1 lists the County and the number of licenses issued within the County. The data for incorporated jurisdictions is shown by County. For example, Shasta County is listed because there are licenses in the City of Shasta Lake. Table 1: Cannabis Cultivation Licenses by County County Active Cultivation License Alameda County 41 Calaveras County 2 Colusa County 2 Contra Costa County 1 Humboldt County 409 Kern County 12 Lake County 29 Los Angeles County 102 Mendocino County 335 Monterey County 187 Orange County 1 Riverside County 87

5 Sacramento County 39 San Benito County 2 San Bernardino County 13 San Diego County 1 San Francisco County 21 San Luis Obispo County 14 Santa Barbara County 475 Santa Clara County 28 Santa Cruz County 22 Shasta County 24 Solano County 1 Sonoma County 54 Siskiyou County 1 Stanislaus County 6 Trinity County 110 Yolo County 44 Manufacturing Licenses There are 643 active, temporary manufacturing licenses issued by the CDPH, and 80% of those licenses are in counties south of Sacramento. The licenses are issued across 29 counties, and nearly 50% of the licenses are issued in three counties: Alameda, Los Angeles, and Riverside. Table 2 lists the County and the number of licenses issued within the County. The data for incorporated jurisdictions is shown by County. For example, Colusa County is listed because there are two licenses in the City of Colusa. Table 2: Cannabis Manufacturing Licenses by County County Active Cultivation License Alameda 120 Colusa 2 Contra Costa 5 Fresno 4 Humboldt 54 Kern 4 Los Angeles 110 Marin 3 Mendocino 6 Merced 2 Mono 4 Monterey 41 Nevada 1 Riverside 88 Sacramento 28 San Benito 7 San Bernardino 27 San Diego 16 San Francisco 32

6 San Luis Obispo 2 Santa Clara 10 Santa Cruz 33 Shasta 2 Siskiyou 2 Solano 1 Sonoma 22 Stanislaus 5 Tulare 2 Yolo 10 Retail Sales There are approximately 570 active, temporary retailer licenses issued by the Bureau of Cannabis Control for storefront locations. These licenses are for physical locations where the public comes to purchase cannabis products. The Bureau of Cannabis Control does not report the licenses by location, so there is no clear way to determine where the businesses are located. A phone number is reported for each license holder and 18 licenses are held by businesses with a 530 area code. There are approximately 160 active, temporary retailer licenses issued by the Bureau of Cannabis control for non-storefront locations. Customers do not come directly to these retailers to purchase cannabis products, but products are delivered from these locations. The licenses are not reported by location, but two of these licenses are held by businesses with a 530 area code. Licenses are separate for medical and adult use cannabis, so the number of licenses does not necessarily represent the number of retail locations statewide. Distributors and Testing The Bureau of Cannabis Control issued approximately 600 temporary distributor licenses for the transport of cannabis and cannabis products between entities licensed for cannabis activities. A phone number is reported for each license holder and 12 licenses are held by businesses with a 530 area code. Licenses are separate for medical and adult use cannabis. There are 26 active, temporary licenses for testing businesses. No licenses are held by businesses with a 530 area code. Licenses are separate for medical and adult use cannabis. Request for Commercial Activities in Butte County The Bureau of Cannabis Control contacted Butte County twice in the last five months for applications filed with the State for commercial cannabis activities in the County. The process involves the Bureau contacting the County to confirm the activity is permitted. In these cases, staff informed the Bureau the activity is prohibited and the licenses were not issued by the State. Staff from the Planning Division and the Economic Development Division receive one to two inquiries per week from individuals interested in starting commercial cannabis businesses in the County. Staff informs the interested individuals the County prohibits commercial cannabis activities. The inquiries are typically for cultivation, manufacturing, or retails sales.

7 California Taxes for Commercial Cannabis Activities The California Revenue and Taxation Code provides for a 15% State retail excise tax on medical and adult use cannabis sold in California. A State tax of $9.25 per ounce of dried cannabis flowers and $2.75 per ounce of dried cannabis leaves will be imposed on all cannabis cultivated in California. State excise and cultivation taxes are deposited in the California Marijuana Tax Fund. The costs of regulatory agencies not fully covered by licensing fees will be paid from the Fund. State sales tax applies to the purchase of cannabis or cannabis products from a licensed retailer. Local governments only receive the local portion of State sales tax from retailers operating a physical retail location within their jurisdiction. Local governments will not receive sales tax for cannabis or cannabis products delivered to their jurisdiction from a retailer located in another jurisdiction. Patients purchasing medical marijuana with an identification card are exempt from paying State sales tax. The Butte County Public Health Department reports issuing two ID cards for medical cannabis since January 1, This rate of issuance is in line with the declining issuance of cards in the last several years. The California Department of Tax and Fee Administration released revenue numbers for cannabis sales in the first quarter of Tax revenue from the cannabis industry totaled $60.9 million since January 1, 2018, which includes State cultivation, excise, and sales taxes. It does not include local tax revenue collected by cities or counties. California s excise tax on cannabis generated $32 million in revenue for the first quarter of calendar year The cultivation tax generated $1.6 million, and the sales tax generated $27.3 million in revenue. The majority of taxes were collected in jurisdictions in the Bay Area and Southern California. The tax revenue collected from commercial cannabis activities fell short of the State s budget projections. Governor Brown s budget estimated California would take in $175 million in cannabis cultivation and retail taxes by June 30. In his May Budget Revision, Brown upgraded that anticipated tax revenue to $185 million. The $60.9 million collected for the first quarter of 2018 falls well short of the projection. Local Tax Local jurisdictions may impose additional local taxes on commercial cannabis activities occurring within the jurisdiction. Eight counties have passed ballot measures to tax commercial cannabis operation and 57 cities have done the same according to data reported by the Southern California News Group. Mono, San Luis Obispo, San Joaquin, Santa Barbara, and Yolo Counties are reportedly considering voter tax initiatives in either the 2018 primary or general elections. The application of local taxes varies by jurisdiction. Most counties and cities with tax measures apply a tax as a percentage of sales receipts. Retailers pay 2.5% of gross receipts in Mendocino County while they pay 7% in Santa Cruz County. Taxes on cultivation activities, however, are typically a set fee per square foot of cultivation area. Lake and Humboldt Counties charge $1 per square foot for outdoor cultivation, $2 per square foot for mixed-light cultivation, and $3 per square foot for indoor cultivation. State and local taxes increase the price to the end consumer for cannabis and cannabis products. States like Colorado, Washington, and Oregon still report an illegal market where cannabis grown and

8 produced illegally sells for less than retail cannabis primarily because of taxes and costs associated with regulations. The price for cannabis and cannabis products in California is likely to change as the industry develops and the retail price compared to the illegal market remains uncertain. Conclusion State law allows businesses to conduct commercial cannabis activities for medical and adult use cannabis. Local jurisdictions have the authority to ban or regulate the activities up to what is allowed by the State. Twenty two counties and 144 cities allow some type of commercial cannabis activity. The activities are primarily allowed in jurisdictions south of Sacramento and along the coast. State agencies issued more than 4,100 licenses for various commercial cannabis activities. All the licenses are temporary while the agencies process annual license applications. The State reported $60.9 million in tax revenue from cannabis activities in the first quarter of 2018, which fell short of the State s estimate of $185 million by June 30, Cannabis regulations and local tax measures vary by local jurisdiction. These varied policies make it difficult to assess how the implementation of cannabis policies is working throughout the state. Local governments are learning from each other when developing regulations for the emerging cannabis industry, but there is no clear best practice yet. County staff will continue to track cannabis activities across the State. Requested Action Accept for information.