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AMENDMENT TO TITLE 5, CHAPTERS 5.98 AND 5.100, AND TITLE 16, CHAPTERS 16.20, 16.80, AND 16.240 RELATED TO THE CANNABIS REGULATORY PROGRAM TO ALLOW ADULT-USE CANNABIS FOR EXISTING DISPENSARIES
recommended action
RECOMMENDATION
It is recommended that the City Council:
1. Adopt an Ordinance amending the Stockton Municipal Code, Title 5, Chapter 5.98 and 5.100, and Title 16, Chapter 16.20, 16.80 and 16.240, to allow the sale of Adult-Use Cannabis in existing medical cannabis dispensaries.
2. Approve a Resolution amending the FY 2018-19 Fee Schedule to add the Amendment to the Application for Permit to Operate and remove “medical” from the section title.
3. Authorize the City Manager to take appropriate and necessary actions to carry out the purpose and intent of this ordinance and resolution.
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Summary
In Spring of this year, City Council directed the City Manager to analyze and evaluate the potential regulation of cannabis business lines beyond what is allowed under the City’s existing ordinances. Current ordinances allow four (4) medical cannabis dispensaries and four (4) medical cannabis cultivation sites. Other lines of cannabis business to be explored include adult-use cultivation, testing laboratories, distribution, manufacturing, and expansion of retail (dispensaries and delivery).
Due to the significant increase in development activity and an effort to update the City’s General Plan, staff availability to evaluate cannabis business options was limited. In April 2018, Council authorized a contract with cannabis business and regulation consultants. In conjunction with the City’s consultant, a three-phased approach to update the City’s cannabis program was developed. The City’s cannabis program will be updated to reflect the Medical Cannabis Regulation and Safety Act and the Adult-Use of Marijuana Act of 2016 (Proposition 64), the legislation that legalized marijuana for adult recreational use in addition to medical use. The planned phases of the update are:
• Phase I - Allow existing medical cannabis dispensaries to sell adult-use cannabis. Present to Council in September 2018.
• Phase II - Retail (additional dispensaries and delivery), Testing Laboratories, and Equity Program. Anticipated to be presented to Council in Winter 2018/19.
• Phase III - Cultivation, Distribution, and Manufacturing. Anticipated to be presented to Council in Spring 2019.
Adoption of the proposed ordinance and resolution would allow the sale of adult-use (recreational) cannabis in existing medical cannabis dispensaries. This will require a new fee to be established to process amendments to applicant’s Operator’s Permit. The sale of adult-use cannabis was analyzed, public engagement conducted and the proposals were reviewed by the Planning Commission. On August 23, 2018, the Planning Commission recommended approval of the proposed ordinance and resolution, and offered the following modifications for City Council consideration:
• Replace the major amendment to the Conditional Use Permit (planning Commission level) requirement with a permitted by-right land use allowance for all dispensaries and cultivations sites
• Eliminate the distinction between medical and adult-use cannabis for allowable cultivation conditional use permits
• Planning Commission expressed concern about minor access to cannabis.
It is recommended that Council adopt the ordinance as originally proposed. As proposed, the ordinance would require an amendment to the Conditional Use Permit and allow for public input, including review by the Planning Commission, regarding the proposed sale of adult-use (recreational) cannabis. Council has the option to modify the ordinance as proposed by the Planning Commission.
DISCUSSION
Background
Measures P and Q were passed by the voters on November 8, 2016, through the General Election. The two initiatives removed the prohibition on medical cannabis dispensaries and allowed medical cannabis cultivation businesses within the City. Measure Q allowed an increase to the business license tax on medical cannabis and cannabis-related businesses. Measure P did three things: lifted the ban on medical cannabis dispensaries, expanded the maximum number of medical cannabis dispensaries, and allowed the establishment of medical cannabis cultivation locations.
Measure P amended Chapters 5.10, 16.20, 16.80 and 16.240 of the Stockton Municipal Code (SMC) to:
• Remove the prohibition on dispensaries;
• Allow up to four (4) medical cannabis dispensaries in certain commercial and industrial zones, including the three (3) existing dispensaries;
• Allow up to four (4) cultivation sites in industrial zones;
• Impose location restrictions for dispensaries and cultivation operations, including distances from sensitive locations;
• Require a Conditional Use Permit (CUP), Operator Permit, and permits for all employees; and
• Prohibit dispensary owners/operators from owning/operating cultivation operations within the City.
As enacted, Measure P requires two types of permits for medical cannabis businesses: a CUP approved by the Planning Commission, and an Operators Permit approved by the Chief of Police. The measure also set zoning standards that restrict the location of dispensaries and cultivation facilities, including separation distances from sensitive land uses and from other cannabis businesses.
On February 28, 2017, the City Council held a public hearing to discuss the option of increasing the number of medical dispensaries to six, but the amendments failed. Based on the action at that hearing, there were no changes to the existing limit of four (4) medicinal dispensaries. On June 27, 2017, the Governor signed into law Senate Bill 94, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), which established a single system of administration for cannabis laws in California combining the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act of 2016 (Proposition 64) into a single system and provided for additional clarification on the siting of adult use dispensaries.
On November 7, 2017, City Council adopted ordinance 2017-11-07-1502, which made changes relative to the City’s medical cannabis businesses permitting program, including a ban on non-medical cannabis businesses, a ban on outdoor personal cultivation, a ban on any cannabis business engaged in delivery, distribution, manufacturing or testing of the product, and certain restrictions on indoor cultivation.
On January 9, 2018, the County of San Joaquin approved an agreement to provide consulting services for the development and implementation of a sustainable regulatory structure for commercial and personal cannabis. Its selection process deemed Freedman and Koski, Inc. as the best-suited consultant to conduct this analysis. The County’s agreement allowed other jurisdictions to enter in cooperative agreements with the vendor to perform the same cannabis policy services. On April 17, 2018, the City approved a Cooperative Agreement between the City and Freedman and Koski, Inc. to conduct a review of the City’s current policy, conduct public engagement, and provide recommendations to improve the City’s current cannabis regulatory program. At this meeting, City Council directed the city manager to explore the plausibility of allowing current medical dispensaries to also sell adult-use cannabis while maintaining the current allowable dispensaries limit of four dispensaries pending further review and analysis.
A three-phased approach was developed to outline the scope of the policy project. Each of the three phases will include public engagement, analysis, presentation to Planning Commission (if Title 16 amendments are necessary), and ultimately final presentation to City Council for consideration. Phase 1 will address the addition of adult-use cannabis sales for existing medical dispensaries. Phase 2 will address an equity program, retail (additional dispensaries and delivery), and testing laboratories. Equity Programs are created to either mitigate the impact of those persons disproportionately affected by cannabis sales in neighborhoods and/or lower barriers of entry to the industry. Phase 3 will address cannabis distribution, cultivation, and manufacturing (Attachment A - Detailed Project Outline).
On July 18, 2018, the City hosted two community meetings to launch the public engagement for the project and to begin gathering data from the community on a variety of topics (Attachment B - Summary of Findings).
On August 2, 2018, the Planning Commission received a presentation on the scope of the entire policy project along with a summary of the feedback received from community meetings held in July. The phases of the project were reviewed, and questions regarding public education and general enforcement of potential new policies were discussed.
On August 23, 2018, the Planning Commission recommended approval of the proposed ordinance and resolution, pertaining to Title 16, and offered modifications for City Council consideration.
Present Situation
The amendments to the SMC as originally proposed will, contingent upon successful application to modify existing CUPs, allow existing medical cannabis dispensaries to also sell adult-use cannabis. If the Ordinance is approved, existing owners/operators would be required to amend their current CUP’s before the Planning Commission and if the CUP amendment is approved, amend the Operator’s Permit, with approval by the Chief of Police. The proposal would not increase the total number of dispensaries currently allowed.
To apply for and receive amended CUP’s and Operator’s Permits, existing owners/operators would be required to:
• Pay all fees associated with processing the amendments.
• Pay taxes in accordance with SMC Section 5.99.030 in the amount of $100 per $1,000 of gross receipts (for adult use cannabis).
• All new employees shall undergo background investigations consistent with the expansion of sales to include adult-use cannabis.
• Submittal of documentation indicating any changes to the operation due to the expansion of including the sale of adult-use cannabis.
The medical cannabis portion of the business would continue to pay taxes in accordance with SMC Section 5.98.030 in the amount of $50 per $1,000 of gross receipts (Resolution No. 2017-02-28-0401).
The proposed amendments have been incorporated into the relevant sections of the Code for consideration by City Council (Attachment C - Proposed Ordinance (Redline Version)). The FY 2018-19 amended Fee Schedule has been included with this proposal. The Administrative Services Finance Division section will reflect the addition of the Amendment to the Application for Permit to Operate Fee and removal of the word “Medical” in the section’s title. (Attachment D - Proposed Amended FY 2018-19 Fee Schedule).
As noted above, the Planning Commission received a presentation outlining the Cannabis Policy Project and reviewing the results from the community meetings on August 2, 2018. Following that review and a discussion amongst the Commission, the Planning Commission voted to forward a recommendation that the City Council adopt an Ordinance amending Title 16 of the Stockton Municipal Code, Chapter 16.20, Section 16.20.020; Chapter 16.80, Section 16.80.195; and Chapter 240, Section 16.240.020, to allow the sale of Adult-Use Cannabis in existing medical cannabis dispensaries (Attachment E) and offered the following modifications for City Council consideration:
• Replace the major amendment to the Conditional Use Permit (planning Commission level) requirement with a permitted by-right land use allowance for all dispensaries and cultivations sites
• Eliminate the distinction between medical and adult-use cannabis for allowable cultivation conditional use permits
• Consideration during decision making by Council in regard to the potential of increased access for minors with both medical and adult use cannabis sales.
The Planning Commission’s proposed modifications address the following considerations: the addition of adult-use cannabis sales is not substantially different than medical cannabis sales and therefore should not be considered a major amendment; requiring a major amendment to the Conditional Use Permit rather than making it a by-right use would result in unnecessary cost and delay; and cultivation permit holders should also be allowed to sell adult-use cannabis for equity purposes. The Planning Commission reviewed proposed planning (land-use) changes, as required by the City’s Charter (Article XXIV, Section 2401). These proposed changes are captured in Title 16.
The proposed ordinance being presented to Council includes changes to the development code reviewed by the Planning Commission (Title 16) as well as administrative changes to the operator’s permit (Title 5). Following the Commission’s review and recommendation, additional technical edits were made including:
1. Title 16, Chapter 16.240, section 16.240.020 (Definitions) amendments for consistency with the State definitions which were inadvertently left out of the first draft.
2. Title 16, Chapter 16.80, Section 16.80.195 was added in its entirety to provide transparency and continuity, including the section regarding medical cultivation, for which no amendments are being proposed.
3. The arrangements of the sections were reformatted to the correct numerical order.
None of the technical edits affect the fundamental policy question or amendments considered by the Planning Commission to allow the sale of adult-use cannabis in existing medical cannabis dispensaries.
City staff recommends approval of the ordinance as presented to the Planning Commission with the technical edits described in the preceding paragraph. To allow the public an opportunity to provide input on an applicant’s proposed change in land use (i.e., addition of adult use cannabis sales to existing medical cannabis dispensaries), staff recommends requiring a major amendment to the Conditional Use Permit to include review by the Planning Commission, as originally proposed.
The allowance for adult-use cannabis for cultivation sites was not part of the scope for Phase 1 of the Cannabis Policy Project. Cultivation as a business type will be reviewed and analyzed during Phase 3; staff will bring any recommendations to change the City’s existing program at that time, which is scheduled for spring 2019.
FINANCIAL SUMMARY
For the most recent four quarters, the City collected approximately $570,000 in taxes from the 5% tax on two currently operating medical dispensaries. Allowing the sale of adult-use cannabis is forecast to increase revenues received; however, it is difficult to forecast with accuracy given the nature of the industry, status of State regulations, and surrounding local jurisdiction’s programs. It is anticipated
that State financial data may be available within the next 18 to 24 months. Revenues received from business license taxes and operator’s permits are deposited to the City’s General Fund. Revenues received from the Conditional Use Permit are deposited to the Community Development fund to cover the cost of processing the permit.
Attachment A - Project Outline
Attachment B - Summary of Findings
Attachment C - Proposed Ordinance (Redline Version)
Attachment D - Proposed Amended FY 2018-19 Fee Schedule
Attachment E - Resolution 2018-08-23-0602