title
AMENDMENT TO TITLE 16, CHAPTER 16.20, SECTION 16.20.020, CHAPTER 16.64, SECTION 16.64.040, CHAPTER 16.80, SECTION 16.80.195, AND CHAPTER 16.240, SECTION 16.240.020 RELATED TO THE CANNABIS REGULATORY PROGRAM
recommended action
RECOMMENDATION
Staff recommends that the Planning Commission forward a recommendation to the City Council to adopt an Ordinance amending Title 16, Chapter 16.20, Section 16.20.020, Chapter 16.64, Section 16.64.040, Chapter 16.80, Section 16.80.195, and Chapter 16.240, Section 16.240.020 related to Cannabis Regulatory Program.
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Summary
In Spring of 2018, 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. At that time, ordinances allowed four (4) medical cannabis dispensaries (storefront retailers) and four (4) medical cannabis cultivation sites. Commercial Cannabis business lines that were explored included expansion of cultivation, introduction of testing laboratories, distribution, manufacturing, and expansion of retail (dispensaries and delivery) business types.
In April 2018, Council authorized a contract with cannabis business and regulation consultants Freeman & Koski, Inc. On September 18, 2018, following public outreach and input, City Council approved the first round of proposed recommendations, allowing current medical cultivation sites and dispensaries (storefront retailers) to also grow and sell adult-use cannabis.
Adoption of the proposed ordinance and resolution would allow for additional cultivation and storefront retailer (dispensary) businesses, along with the introduction of previously prohibited business types, such as distribution, testing, manufacturing (non-volatile and volatile), microbusiness, and non-storefront (delivery) commercial cannabis businesses in the City. Allowing these business types also aligns with the Medical Cannabis Regulation and Safety Act and the Adult-Use of Marijuana Act of 2016 (Proposition 64), which legalized marijuana for adult recreational use in addition to medical use for all business types.
In addition to increased/new business types, the proposed recommendations also include an equity program. Applicants would be evenly selected on the same day from 1) a general pool of applicants or 2) an equity pool of applicants. Equity pool applicants must meet certain criteria and would also be eligible to be a part of the general pool. Additionally, the proposed ordinance would create a ‘controlled expansion’ program for certain cannabis business types. This phased out approach is designed to protect the City from oversaturation, provides the City time to analyze effects, and allows the City to provide support needed by applicants.
New commercial cannabis business applicants would be required to obtain a Commission or Administrative Use Permit (excluding Testing Laboratories), an Operators Permit, a City Business License and a State Annual License. Land-use requirements for each vary based on the type of business line and consistent land uses.
It is recommended that the Planning Commission forward a recommendation that Council adopt the proposed ordinance.
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 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 Q allowed an increase to the business license tax on medical cannabis and cannabis-related businesses.
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 (storefront retail);
• Allow up to four (4) medical cannabis dispensaries (storefront retail) in certain commercial and industrial zones, including the three (3) existing dispensaries (storefront retail);
• Allow up to four (4) cultivation sites in industrial zones;
• Impose location restrictions for dispensaries (storefront retailers) and cultivation operations, including distances from sensitive locations;
• Require a Commission 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 (2) 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 (storefront retail) and cultivation facilities, including minimum separation distances from sensitive land uses and from other cannabis businesses.
Measure Q amended Chapters 5.98 and 5.99 of the SMC to:
• Increase and establish a range of rates for the City’s medical cannabis business license tax;
• Allow the City Council to raise or lower the business license tax within a range of between $35 - $50, per $1,000 in gross receipts of medical cannabis, and
• Authorize a business license tax for non-medical/recreational marijuana of $100 per $1,000 in gross receipts, should State or Federal law be changed to allow the use of marijuana for any non-medical purpose.
As a result of Measures P and Q, Cannabis Businesses fees were also established and approved.
On February 28, 2017, the City Council held a public hearing to discuss the option of increasing the number of medical dispensaries (storefront retailers) to six (6), but the amendments failed. Based on the action at that hearing, there were no changes to the existing limit of four (4) medicinal dispensaries (storefront retailers).
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 (storefront retailers).
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 (storefront retailers) to also sell adult-use cannabis while maintaining the limit of four (4) dispensaries (storefront retailers) pending further review and analysis.
The scope of the project was to develop a proposed ordinance after extensive public outreach and to include the following issues:
• Expansion of the current program to include adult-use cannabis businesses.
• Expansion of the current program to allow distribution, testing laboratories, manufacturing, and delivery (non-storefront retail).
• Development of an equity program to either mitigate the impact of those persons disproportionately affected by cannabis sales in neighborhoods and/or lower barriers of entry to the industry
• Exploring special event permitting and on-site consumption
On July 18, 2018, the City hosted two community meetings to launch the public engagement for the project and begin gathering data from the community on a variety of topics.
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, via resolution, approval of Phase 1’s proposed ordinance, pertaining to Title 16, and offered modifications for City Council consideration. On September 18, 2018, City Council approved Ordinance 2018-09-18-1502 (Attachment A) and Resolution 2018-09-18-1502 (Attachment B) with the Planning Commission’s modifications. This allowed for current cultivation sites to grow and current dispensaries (storefront retail) to sell adult-use cannabis as a by-right use (no amendment to existing Use Permits) in addition to medical cannabis. It also increased the number of allowable dispensaries (storefront retail) to five (5).
Three additional community meetings were conducted between October 17 and 19, 2018 in various locations throughout the City. The topics discussed included cultivation, distribution, testing laboratories, manufacturing, delivery (non-storefront retailer), and issues related to equity. On November 15, 2018, a presentation of the community meeting findings was provided to the Planning Commission.
Present Situation
The proposed amendments to the Stockton Municipal Code (SMC) will result in several changes to the City’s existing Cannabis Regulatory Program.
It introduces new business types (manufacturing, distribution, testing laboratories, non-storefront retailers (delivery only), and microbusinesses). It also proposes allowing for additional cultivators and storefront retailers (dispensaries). The requirements for each of the business types vary and are noted in this report and proposed ordinance. Other California cities with robust cannabis programs were also researched and analyzed. Attachment C shows a summary of the programs and their allowed cannabis business types and maximum number of permits (i.e. caps), if any. The proposed code amendments have been incorporated into the relevant sections of the Code for consideration by the Planning Commission (Attachment D - Proposed Ordinance (Redline Version).
The most significant proposed structural change to the program is that, if approved, there would be no limit (i.e. caps) on the total number of permits (i.e. CUPs) for any land use and business permit types. Instead, for permit types where there is concern that there may be an impact on public safety, public health, or community character, the program creates a controlled expansion program.
Programs with total caps can be problematic for several political and economic reasons. A controlled expansion program allows the City of Stockton and the existing industry to adapt to an expanding program and gives the City ongoing flexibility to accelerate or decelerate industry expansion over time.
This controlled expansion program also has the benefit of allowing the City to give preference for equity applicants.
If the Ordinance is adopted, the City of Stockton, on an annual basis, would allow for the following numbers of new applicants for cannabis business permits:
a. Two (2) storefront retail permits
b. Two (2) cultivation permits
c. Two (2) volatile-manufacturing permits
d. Two (2) microbusinesses, which include storefront retail and/or cultivation business types
Half of these (a through d) applicants will be randomly drawn from the general pool, and half will be drawn from the equity applicant pool. Equity pool applicants must meet certain criteria and would also be eligible to be a part of the general pool.
For these types of permits, applicants will follow this process:
An alternative controlled expansion program that exempts microbusinesses (storefront retail and cultivation subtypes) from the equity lottery process is also an option for consideration. There are pros and cons to each option:
|
Option 1 - Include Microbusinesses |
Option 2 - Microbusinesses Exempt |
|
Prevents a potential loophole where applicants that were not selected in the lottery process can still operate a storefront retail and/or cultivation business type. |
Allows business-ready applicants to proceed with the permitting process without waiting for equity lottery proceedings. |
|
Allows equal opportunity to equity and non-equity applicants |
May decrease opportunities for equity applicants as there would be more competition in the local economy. |
|
Can delay the processing of storefront retail and cultivation applications due to equity lottery proceedings |
Can result in more than two (2) each of storefront retail and/or cultivation permits being issued each year. |
|
Microbusinesses that do not include storefront retail and/or cultivation would still be exempt from equity pool requirements. |
Potential to reduce the effectiveness of controlled expansion efforts for storefront retail and cultivation business types. |
|
Processes small (less than 10,000 square feet) and large (10,000+ square feet) cultivation permits equally. |
Cultivation activities within a Microbusiness are limited to 10,000 square feet or less. Allowance of this smaller use will not conflict with the controlled expansion of larger cultivators as their business models are different. |
Alternative redlines exempting Microbusinesses from equity lottery requirements are available for review under Attachment E.
New distributors and non-volatile manufacturers permits
For these permit types, new permits must obtain a Commission Use Permit, an Operators Permit, a City Business License and a State Annual License. These business types have enough of a potential land-use impact that a commission use permit and review of their application is recommended.
The entitlement process, for this business type is as follows:
Testing laboratory permits
This business type will be allowed by-right. Testing laboratories have a very minimal land-use impact. They will be required to obtain an Operators Permit, a City Business License, and a State Annual License.
The entitlement process, designed to limit unnecessary capital or time expenditure from the applicant, for this business type is as follows:
Non-storefront retailer permits (delivery only)
For this permit type, an Administrative Use Permit (AUP), an Operators Permit, a City Business License and a State Annual License would be required. Applicants for this business type would need to adhere to location requirements and would be regulated, however the barriers to entry would be reduced. Current State regulations, Business and Professions Code §26080(b), do not preclude delivery services to local jurisdictions who restrict this business type. However, adopted Bureau of Cannabis Control (BCC) regulations do not specifically define “local law” and may be legally challenged. In that event, the City would reassess its regulatory structure for any recommended changes as a result of State litigation, regulatory changes and counsel direction. The proposed approach will allow but also regulate this business type.
An AUP is a permit for uses that have the potential for a slight, although definite, impact on surrounding areas and is subject to review by the Community Development Director as opposed to the Planning Commission (as is the case for CUPs).
The entitlement process, designed to limit unnecessary capital or time expenditure from the applicant, for this business type is as follows:
Existing Cultivators and Retailers
There is no change in required permits for existing retailers.
Existing cultivators with approved Commission Use Permits by the Ordinance’s effective date would be granted self-distribution and non-volatile manufacturing land use by-right. However, in order to self-distribute or engage in non-volatile manufacturing, they must obtain the appropriate Operators Permit, City Business License, and State Annual License.
New Cultivators and Retailers
For these permit types, new applicants must obtain a Commission Use Permit, an Operators Permit, a City Business License and a State Annual License.
The entitlement process for this business type is as follows:
Microbusinesses
Per State Code, a microbusiness may act (in part or whole) as a retailer, distributor, manufacturer (Level 1 - non-volatile), and/or cultivator (on an area less than 10,000 square feet). A microbusiness must engage in at least three (3) of the four (4) aforementioned cannabis business types. There are four (4) possible microbusiness subtypes:
|
RDC |
RDM |
RCM |
DCM |
|
Retailer or Retailer - Non-Storefront |
Retailer or Retailer - Non-Storefront |
Retailer or Retailer - Non-Storefront |
Distributor or Distributor - Transport Only |
|
Distributor or Distributor - Transport Only |
Distributor or Distributor - Transport Only |
Cultivation |
Cultivation |
|
Cultivation |
Manufacturer |
Manufacturer |
Manufacturer |
For these permit types, new applicants must obtain a Commission Use Permit and/or Administrative Use Permit, an Operators Permit, a City Business License, and a State Annual License, please see the table below. Furthermore, as discussed above (Option 1), Microbusinesses that include Retailer (storefront) and/or Cultivation types would be subject to the Equity Program (i.e. controlled expansion and lottery pool). Should Option 2 be preferred, all Microbusinesses would be exempt from the equity lottery process.
Table 1 - Microbusiness Subtype Use Permit Requirements
|
RDC |
RDM |
|
Retailer or Retailer (Non-Storefront) |
CUP AUP |
Retailer or Retailer (Non-Storefront) |
CUP AUP |
|
Distributor or Distributor (Transport Only) |
CUP CUP |
Distributor or Distributor (Transport Only) |
CUP CUP |
|
Cultivation (less than 10,000 sq. ft.) |
CUP |
Manufacturer (Level 1, Type 6 - Non-Volatile) |
CUP |
|
RCM |
DCM |
|
Retailer or Retailer (Non-Storefront) |
CUP AUP |
Distributor or Distributor - Transport Only |
CUP CUP |
|
Cultivation (less than 10,000 sq. ft.) |
CUP |
Cultivation (less than 10,000 sq. ft.) |
CUP |
|
Manufacturer (Level 1, Type 6 - Non-Volatile) |
CUP |
Manufacturer (Level 1, Type 6 - Non-Volatile) |
CUP |
The entitlement process for this business type is as follows:
Table 2 - Summary Table of License and Permit Types
|
New License Type or Existing? |
Cannabis Business Type |
Land Use Requirement |
Annual Operators Permit Required? |
Annual Business License Requirement? |
Annual State License Requirement? |
|
New |
Testing Laboratory Operation Permit |
By-right Allowance |
Yes |
Yes |
Yes |
|
New |
Non-Storefront Operator Permit (delivery only) |
Administrative Use Permit (AUP) |
Yes |
Yes |
Yes |
|
Existing |
Cultivator Operator Permit * |
Commission Use Permit (CUP) |
Yes |
Yes |
Yes |
|
New |
Distributor Operator Permit † |
Commission Use Permit |
Yes |
Yes |
Yes |
|
New |
Manufacturer Operator Permit † (Non-Volatile) |
Commission Use Permit |
Yes |
Yes |
Yes |
|
New |
Manufacturer Operator Permit * (Volatile) |
Commission Use Permit |
Yes |
Yes |
Yes |
|
Existing |
Retailer Operator Permit* |
Commission Use Permit |
Yes |
Yes |
Yes |
|
New |
Microbusiness |
Commission Use Permit |
Yes |
Yes |
Yes |
* Controlled Rollout (limit on number of Operator Permits issued each year) selected through an annual lottery
† Cultivation permits with approved CUPs by Ordinance effective date, are granted self-distribution by right
State law allows the vertical integration of cannabis business types, excluding testing laboratories. Vertical integration is a business strategy by which a company/person controls every or multiple stage(s) of a single production path. For example, a cannabis business achieves vertical integration when it consolidates multiple steps in the cannabis production process by cultivating, manufacturing and distributing the product. The proposed ordinance addresses this and provides the framework necessary for processing while still providing the City regulatory oversight.
Equity Program
A full explanation of the Equity Program is described in the Equity Program Memorandum (Attachment F). In brief, the Equity Program:
1. Allows for license types that require less capital such as microbusinesses and non-store front retail stores.
2. Creates a Limited Cannabis Business Expansion Process for new retail stores (dispensaries), cultivators, and volatile manufacturers that ensures that at least half of the new permits go to equity applicants.
3. Continues to give flexibility for Chief of Police to grant work permits that would otherwise be denied due to past criminal activity.
Market Research & Community Readiness
Research was conducted to identify what other cities have implemented in terms of cannabis regulatory programs. Table 3 below indicates a comparison of seven (7) cities and provides a point of reference that was used to develop the City’s recommendations. There are cities that have a more restrictive program and programs that are more inclusive and less restrictive. The City analyzed the services and programs provided by each City to determine what components should be incorporated in the City of Stockton’s regulatory program.
Table 3 - City Equity Program Comparisons
|
Cities |
Support Services / Incubator |
Expungement |
Priority Processing |
Fee Waivers / Deferrals |
Diversity Hiring Incentives |
Ownership Quota |
Equity-Based Fund |
|
Fresno |
|
X |
|
|
|
|
X |
|
Los Angeles |
X |
|
X |
X |
|
|
X |
|
Oakland |
X |
|
X |
|
|
X |
|
|
Richmond |
N/A |
|
Sacramento |
X |
X |
X |
X |
X |
|
|
|
San Bernardino |
N/A |
|
San Francisco |
X |
|
|
|
X |
|
X |
The proposed recommendations were selected as a balanced approach to industry demand, community readiness and based on the results of the comparable city research noted above. The community comments collected at the community meetings confirmed that the community is seeking an equitable distribution of business ownership as we phase-in new businesses. There was strong support to expand the current program to include distribution, manufacturing, testing laboratories and delivery business line items.
Staff recommends that the Planning Commission forward a recommendation to Council approving the proposed Title 16 amendments (land use amendments) which will be presented to Council concurrent with proposed Title 5 amendments (cannabis licensing amendments).
Attachment A - Ordinance 2018-09-18-1502
Attachment B - Resolution 2018-09-18-1502
Attachment C - Summary Table of Other Cities’ Permit Caps
Attachment D - Proposed Ordinance (Redline Version)
Attachment E - Proposed Ordinance (Redline Version) - Microbusinesses Exempt from Equity Lottery
Attachment F - Equity Program Memorandum