CANNABIS. Working with local government and the cannabis industry to: Interactive Webinar Discussion on

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1 Working with local government and the cannabis industry to: Capture Revenue Support Business Compliance Implement Ordinances MuniServices presents: Interactive Webinar Discussion on CANNABIS The impact on Cities and Counties: Taxation, regulation, land use and public safety Tuesday, September 6, 2:00 to 3:00 PM 1

2 Jeff Kolin, Senior Advisor to MuniServices. Retired California City Manager of Beverly Hills, Santa Rosa and Pittsburg. Jeff brings decades of experience tackling complex issues facing city governments. Panelists Larry Bergkamp, Senior Technical Advisor to MuniServices. Retired from Board of Equalization with over 28 years of tax expertise. Larry has extensive experience in auditing, compliance, policy, legislation and was the BOE s lead technical expert on medical marijuana issues since Mike Madrid, Principal, GrassrootsLab. Political consultant and public affairs professional with an expertise in California local government; California Marijuana Policy publisher and recently launched WEBINAR MODERATOR Robert Hamud, Client Services Manager, MuniServices. Over 13 years of public sector experience including serving as CFO. 2

3 MAJOR QUESTIONS CITIES ARE ASKING MUNISERVICES Proposition 64 would affect sales tax revenue to the state and local governments in two ways. First, legalizing the sale of recreational marijuana will result in new sales tax revenue stream. This would happen automatically under the current tax law. Second, the sale of medical marijuana, which is currently subject to sales tax, would be exempt from sales tax Should we develop a local tax on medical marijuana? How should we structure it? Do you have a sample zoning ordinance or medical marijuana regulations? How much tax is too much tax? Will it stimulate illegal grows and sales? I hear that manufacturers use dangerous volatile chemicals to produce their products, is there another way? What regulations and controls are needed? Can we exclude medical marijuana industries in specific areas of the City? WEBINAR TOPICS November Ballot: Medical Marijuana and Adult Use Marijuana Initiative, Proposition 64 Medical Regulation and Safety Act: What to consider before January 1, 2018 Legislation: Provisions of measures and what s ahead Local Control: Taxation options for both medical and recreational businesses. Local Zoning: Issues related to cannabis dispensaries and manufacturing facilities Public Safety: Do we want the medical marijuana industry in our community What are Cities and Counties Doing: What has been adopted and considerations Tax Elections: Trends and what to consider 3

4 How We Got Here Regulations will be developed by January 1, 2018 California s Proposition 215 (1996) is the first state-wide medical marijuana initiative adopted in the Country (approved by 55.58% of voters) Enacts the Medical Marijuana Regulation and Safety Act; includes provisions with respect to ordinances, permits, licensing requirements, establishes the Bureau of Medical Marijuana Regulation, and more (AB 266) (chaptered) Creates a regulatory framework for cultivating, selling and transporting medical cannabis by the Bureau of Medical Marijuana Regulation, Department of Food and Agriculture and other state entities; authorizes counties to impose a tax for certain cannabis activity (SB 643) (chaptered) Establishes a regulatory program for cultivation of medical cannabis; includes local provisions with respect to ordinances and issuing or denying permits for cultivation (AB 243) (chaptered) Removes the provisions from AB 243 that would have granted the Department of Food and Agriculture the sole licensing authority for medical marijuana authority cultivation if a local cultivation regulation was not in effect as of March 1, 2016 (AB 21) (chaptered) 4

5 State Agency Role Department of Consumer Affairs (DCA): Lead oversight agency Bureau of Medical Regulation: Formed in the DCA; responsible for oversight (licenses for manufacturing and dispensary distribution activities) Department of Food and Agriculture: In charge of indoor and outdoor cultivation Department of Pesticide Regulation: Develops standards for pesticide use and contaminant regulation Department of Public Health: Mandated to develop labeling and production manufacturing and testing standards for edible marijuana products Department of Fish and Wildlife and State Water Resources Control Board: Joint responsibility to the to prevent illegal water diversions from adversely affecting California fish populations and environmental impact Department of Justice: Applicants must submit fingerprints to this agency; DOJ to provide verification information to licensing authorities State Treasurer: Manages various funds Board of Equalization: Administers the sales and use tax on retail sales of cannabis 5

6 STATE REGULATIONS / PRE-REGULATORY MEETINGS The dual licensing requirements for Medical Marijuana preserve local control and emphasize the importance of local agency involvement in the development of Statewide standards and regulations. Involvement is needed to make sure the minimum standards are set appropriately and consistency is created statewide. Anticipated Regulations will be Developed by January 1, 2018 Bureau of Medical Regulation: Convening pre-regulatory meetings: September 19 to October 5. California Department of Food and Agriculture: Convening public scoping workshops and a comment period: September 19 to September California Department of Public Health: Convening pre-regulatory meetings: September 19 to October State Board of Equalization: 6

7 PROPOSED MEDICAL MARIJUANA AND ADULT USE MARIJUANA INITIATIVE (PROPOSITION 64) Proposition 64 Would Legalize the Recreational use of Marijuana State Excise Tax on the Proposed Recreational Use 15% on retail sales of marijuana $9.25 per dry-weight on the commercial cultivation of marijuana flowers $2.75 per dry-weight on the commercial cultivation of marijuana leaves How Will Proposition 64 Change Current Law Medical marijuana and marijuana products are exempt from the State and Local Sales and Use Taxes; Will not impact locally adopted taxes on Medical Marijuana The proposed excise tax under Proposition 64 is in addition the sales and use tax imposed by state and local governments Local Authority Under Proposition 64 May adopt and enforce ordinances: to regulate businesses licenses, local zoning and land use May completely prohibit marijuana type businesses Local control allows local governments to tailor their regulations to fit community standards - from a complete ban to regulations for citing appropriate segments of the industry in your community and enacting appropriate levels of taxes to offset the costs of administration, enforcement and compliance. 7

8 PERSONAL CULTIVATION Proposition 64 Personal cultivation of marijuana would be done in accordance with local ordinances Living plants and any marijuana products must be kept within the person s private residence or in a locked space not normally visible to the public Not more than 6 living plants LOCAL GOVERNMENT OPTIONS Personal Cultivation Options for Local Jurisdictions Enact and enforce reasonable regulations to personal cultivation Not completely prohibit indoor personal cultivation at a private residence Prohibit personal outdoor cultivation Limit the number of licenses based on the concentration of operations in the jurisdiction Impose a tax on marijuana business activities 8

9 PUBLIC SAFETY AND HEALTH Proposition 64 Public Safety and Health Schedule I (Federal) Controlled Substance: Conflicts with State Medical Marijuana Regulation and Recreational Use Consumption in Public and Intoxication: What enforcements and regulations are needed Driving and Traffic Enforcement: DUI and public intoxication standards Neighbors: Housing and cooperative enforcement and regulation What About our Youth: What prevention programs are needed that work Cash: Nature of the industry heightens risk of robberies and home crimes Enforcement: Increased demand or a reduction for illegal markets Cultivation and Manufacturing Means New Waste: Hazardous chemicals, pesticides, and other waste need a resting place that protects the public Others TBD 9

10 Cities and Counties What s in Motion WHAT OTHER CALIFORNIA CITIES AND COUNTIES ARE DOING Most if not all local jurisdictions have taken a position on the medical marijuana industry Authorization / prohibition currently vary widely throughout the state Express authorization or prohibition might be required to regulate medical marijuana activities Passive bans may not be sufficient to prohibit medical marijuana activities What are the potential economic impacts for authorizing or prohibiting medical marijuana activities What are the potential zoning and land use impacts for authorizing or prohibiting medical marijuana activities 10

11 TYPES OF ORDINANCES Provisions for an Ordinance Butte County: Bans commercial cultivation, dispensaries and delivery. Allows personal cultivation for qualified patients/caregivers of 50 sf for parcels greater than.5 acres, 100 sf for parcels from 5.0 acres to 10 acres, and 150 sf for parcels greater than 10 acres. Richmond: Bans all cultivation and deliveries. Allows no more than 3 dispensaries and no more than 3 product manufactures. Oakland: Allows no more than 4 industrial cultivation permits, 8 dispensary permits, and delivery that is reasonably related to the medical needs of qualified patients. San Rafael: Bans dispensaries. Passive ban on cultivation and deliveries. Modoc County: Bans commercial cultivation and dispensaries. Passive ban on delivery. Allows personal cultivation for qualified patients/caregivers at their residence of 12 plants per patient up to a total of 24 plants. Marin County: Passive ban on all cultivation and delivery. Allows up to 4 dispensaries in unincorporated areas. San Francisco: Incorporates an application fee, a referral to City departments (planning, building inspection, fire, public health and police) for review; public hearing requirement; dispensaries are prohibited in certain districts. 11

12 WHAT IS THE REVENUE POTENTIAL? Managing the Revenue Expectations Estimating average sales for medical marijuana dispensaries is difficult due the lack of public information related to this industry. Although, many local jurisdictions impose taxes on medical marijuana sales, tax revenue information is not readily available. Additionally, issues that impact the revenues of established retail businesses also impact medical marijuana dispensaries. However, the levels of impact on medical dispensaries have not yet been established. The following is a partial list of these factors: Customer Demographics Business Size Product Selection Customer Loyalty Product Quality Supply Chain Competition Including Black Market Activities Quality of Business Operations MuniServices recently estimated annual revenues per dispensary from $200,000 to $2,400,

13 WHO IS TAXING MARIJUANA? Managing the Revenue Palm Springs: 10% tax on proceeds from collectives with a valid City Council-issued permit. 15% tax on proceeds from collectives that do not have City Council-issued permit. San Jose: 10% Business Tax on gross receipts from dispensaries. Santa Cruz: 7% - 10% Business Tax on gross receipts from dispensaries. City of Sacramento: 4% Business Tax on gross receipts from dispensaries. The City recently voted to approve commercial grow facilities and tax cultivated marijuana at 4%. Cathedral City: Up to 15% Tax on proceeds on marijuana collectives and dispensaries. 13

14 1. Polling & Research Vetting a Local Ballot Measure 4 Things to Consider o o o Does your community want marijuana / cannabis businesses operating in your city? If so, what kind? Retail (Dispensaries) Cultivation (Farming) Manufacturing (Edibles) What tax levels would it support and for what services? 2. Drafting Language Critical Phase 3. Identifying Key Constituencies & Stakeholder Outreach 4. Plan at least 1 year out for input from key demographics o o o o Considerations : Law Enforcement Parent Organizations Ethnic Organizations Chambers of Commerce 2/3 Majority vs. Simple Majority Neighboring Cities Mood of the Electorate 14

15 ON THE GOVERNOR S DESK Legislation Reaching the Governor s Desk Would exempt collectives and cooperatives that manufacture medical cannabis products from criminal sanctions under specified conditions, including a provision that requires a collective or cooperative to have a valid seller s permit issued by the BOE, a valid local license or permit; and is in compliance with any local licensing conditions by the issuing local agency (AB 2679/ Cooley) A tax penalty amnesty between July 1, 2017 to December 31, 2017 for medical cannabis dispensaries to begin to comply with tax liabilities for reporting periods beginning January 1, 2015 (AB 567/Gipson) Allows the BOE to accept tax payments from dispensaries by means other than electronic fund transfers (AB 821/ Gipson) Creates a specialty cottage medical cannabis cultivator sub-license license for small growers that grown less than 5,000 square feet; current law lumps all cannabis cultivation sites that are 5,000 square feet or less into one license. (AB 2516/ Wood) 15

16 Comments Future Webinar Topics and Dates Next Steps 16

17 Contacts and Resources SUBJECT MATTER TECHNICAL ADVISORS Jeff Kolin: / Larry Bergkamp: Mike Madrid, Founder, California Marijuana Policy: GOVERNMENT RELATIONS Brenda Narayan: / Fran Mancia: RESOURCES MuniServices 1400 K Street, Suite 301 Sacramento, CA Located in the League of California Cities Building 17