title
ORDINANCE AMENDING TITLE 5, CHAPTERS 5.98, 5.99, AND 5.100; 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
It is recommended that the City Council:
1. Adopt an ordinance amending the Stockton Municipal Code, Title 5, Chapters 5.98, 5.99, and 5.100 and Title 16, Chapters 16.20, 16.64, 16.80, and 16.240, related to the City’s Cannabis Regulatory Program, and
2. Approve a Resolution amending the FY 2018-19 Fee Schedule to introduce and amend fees based on the proposed Stockton Municipal Code amendments.
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of this ordinance and resolution.
body
Summary
The proposed amendments to the Stockton Municipal Code (SMC) will result in several changes to the City’s existing Cannabis Regulatory Program. New business types would be allowed in Stockton, including: manufacturing, distribution, testing laboratories, delivery-only non-storefront retailers, and microbusinesses. The amendments also propose additional cultivators and storefront retailers (dispensaries). The requirements for each of the business types vary and are noted in this report and proposed ordinance. Allowing these business types aligns the municipal code with the Medical Cannabis Regulation and Safety Act and the Adult-Use of Marijuana Act of 2016 (Proposition 64). Proposition 64 legalized cannabis under State law for adult recreational use in addition to medical use for all business types. The proposed ordinance also supports the City Council’s goal of providing economic development opportunities within the City.
The most significant proposed structural change to the program is that there would be no limit (i.e., caps) on the total number of land use permits or operator permits. For certain permit types where there is concern about the potential impact on public safety, public health, or community character the proposed ordinance creates a controlled expansion program. Programs with total caps can be problematic for several policy and economic reasons. A controlled expansion program allows the City and the existing industry to adapt to an evolving industry 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 to equity applicants.
If the ordinance is adopted, the City of Stockton on an annual basis, shall allow for the following numbers of new cannabis business types:
a. Two (2) storefront retailer 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
This phased approach protects the City from oversaturation, provides time to analyze effects of business expansion, and ensures adequate oversight. The equity program would create opportunities for Stockton residents from disadvantaged neighborhoods to obtain cannabis business permits. Applicants for new permits would be evenly selected from 1) a general pool of applicants and 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. 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.
On February 14, 2019, the Planning Commission approved a resolution recommending that Council adopt the proposed ordinances and resolution with modifications. Although there was a long discussion of the proposed amendments at the Planning Commission meeting, additional concerns occurred to staff following post-meeting deliberations. Consequently, staff did not incorporate recommendations related to by-right expansion of existing businesses, and recommends these issues be returned to the Planning Commission for further discussion of public safety issues. A more thorough discussion of the concerns is provided below.
Other California cities with robust cannabis programs were researched and analyzed. Attachment A provides a summary of the cannabis programs in other cities. Attachment B is a redline version of the proposed ordinance and the proposed resolution is also attached. Staff recommends that Council adopt the proposed ordinances and resolution to expand and effectively regulate cannabis businesses in the City.
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 (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 required 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 cannabis of $100 per $1,000 in gross receipts, should State or Federal law be changed to allow the use of cannabis 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 bans on non-medical cannabis businesses, outdoor personal cultivation, and 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. The County 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 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 current allowable dispensaries (storefront retailers) 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 address 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 approval of Phase 1’s proposed ordinance and resolution, pertaining to Title 16, and offered modifications for City Council consideration. On September 18, 2018, the City Council adopted Ordinance 2018-09-18-1502 and Resolution 2018-09-18-1502 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. Council 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.
On February 14, 2019, at the regularly scheduled Planning Commission meeting, the proposed recommendations as related to Title 16 were presented to the Commission for consideration. The Commission unanimously approved a recommendation to forward the proposed ordinance and resolution to Council with the following modifications:
• Include a definition of equity,
• Include language regarding the reason why an Equity Program is needed in Stockton,
• Allow existing cultivators and storefront retailers (dispensaries) vertical integration of all proposed cannabis business types by-right,
• Allow existing storefront retailers (dispensaries) to deliver cannabis products, and
• Allow incubators as a part of the Equity Program.
Present Situation
The proposed amendments to the Stockton Municipal Code (SMC) will result in several changes to the City’s existing Cannabis Regulatory Program.
The ordinance introduces new business types (manufacturing, distribution, testing laboratories, non-storefront retailers [delivery only], and microbusinesses), and proposes to allow 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 researched and analyzed. Attachment A shows a summary of the programs and the amendments are incorporated into the relevant Code sections for consideration by Council (Attachment B - Proposed Ordinance - Redline Version).
The most significant proposed structural change to the program is that there would be no limit (i.e., caps) on the total number of land use permits or operator permits. Instead, 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 for certain permit types. Programs with total caps can be problematic for several policy and economic reasons. A controlled expansion program allows the City and the existing industry to adapt to an evolving industry 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 to equity applicants.
If the Ordinance is adopted, the City of Stockton on an annual basis, shall allow for the following numbers of new cannabis business types:
a. Two (2) storefront retailer 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:
Distributor and non-volatile manufacturer 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. These permit types would not be subject to controlled expansion.
The entitlement process for this business type is as follows:
Testing laboratory permits
These businesses will be allowed by-right. Testing laboratories have a very minimal land-use impact. Laboratories will be required to obtain an Operators Permit, a City Business License, and a State Annual License. This permit type would not be subject to controlled expansion.
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 these permit types, new permits must obtain an Administrative Use Permit (AUP), an Operators Permit, a City Business License and a State Annual License. Applicants for this business type would need to adhere to location requirements and would be regulated; however, the barriers to entry would be reduced for this particular business type. Current state regulations, allow delivery statewide regardless of local regulations. Specifically, Business, and Profession Code §26080(b) does not preclude delivery services to local jurisdictions that restrict this business type. Because state regulations allow delivery, the proposed allows and regulates this business type. This permit type would not be subject to controlled expansion.
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 prevent unnecessary capital or time expenditure from the applicant, for this business type is as follows:
Existing Cultivators and Storefront Retailers
There is no change in required permits for existing storefront 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; not requiring additional land use entitlements. However, to self-distribute or engage in non-volatile manufacturing, the appropriate Operators Permit, City Business License and State Annual License is required.
New Cultivator and Storefront Retailer permits
For these permit types, new applicants must obtain a Commission Use Permit, an Operators Permit, a City Business License and a State Annual License. Furthermore, these permit types would be subject to the Equity Program (i.e., controlled expansion and lottery pool).
The entitlement process for this business type is as follows:
Volatile manufacturer permits
For these permit types, new applicants must obtain a Commission Use Permit, an Operators Permit, a City Business License and a State Annual License. Furthermore, these permit types would be subject to the Equity Program (i.e., controlled expansion and lottery pool).
The entitlement process for this business type is as follows:
Microbusiness permits
Per State Code, a microbusiness may act (in part or whole) as a retailer, distributor, manufacturer (Level 1), and/or cultivator (on an area less than 10,000 sq. ft.). 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, Microbusinesses would be subject to the Equity Program (i.e., controlled expansion and lottery pool).
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) |
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) |
CUP |
Manufacturer (Level 1, Type 6) |
CUP |
The entitlement process for this business type is as follows:
Table 1 provides a summary of the business types and proposed requirements.
Table 1 - 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 |
|
New |
Microbusiness* |
Commission Use Permit |
Yes |
Yes |
Yes |
|
Existing |
Retailer Operator Permit* |
Commission Use Permit |
Yes |
Yes |
Yes |
* Controlled Rollout (limit on the number of Operator Permits issued each year)
† Cultivation permits with approved CUPs by Ordinance effective date, are granted self-distribution by right
State law allows for the vertical integration of cannabis business types, excluding testing laboratories. The proposed ordinance addresses this and provides the framework necessary for processing vertically integrated business types while still providing the City regulatory oversight.
Equity Program
A full discussion of equity programs is provided in the Equity Program Memorandum (Attachment C) prepared by Freedman and Koski. In brief, the proposed Equity Program:
1. Allows for license types that require less capital such as microbusinesses and non-storefront retail stores.
2. Creates a Limited Cannabis Business Expansion Process for new retail stores (dispensaries), cultivators, volatile manufacturers, and microbusinesses that ensures that at least half of the new permits go to equity applicants.
3. Continues to give flexibility for Chief of Police to have the discretion to grant work permits that would otherwise be denied due to past criminal activity.
Market Research & Community Readiness
Research was conducted to identify how other cities implemented cannabis regulatory programs. Table 2 below indicates a comparison of cannabis programs in seven (7) cities and was used to develop the City’s recommendations. There are cities that have more restrictive programs and programs that are 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 2 - City Equity Program Comparisons
|
Cities |
Support Services / Incubator |
Expunge-ment |
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 the City phases in new businesses. There was strong support to expand the current program to include distribution, manufacturing, testing laboratories, and delivery (non-storefront retail) business line items.
Planning Commission Recommendations
On February 14, 2019, the Planning Commission approved a resolution recommending that Council approve staff’s recommendations with the following modifications:
• Include a definition of equity
• Include language regarding the reason why an Equity Program is needed in Stockton
• Allow existing cultivators and storefront retailers (dispensaries) vertical integration of all proposed cannabis business types by-right.
• Allow existing storefront retailers (dispensaries) to deliver cannabis products.
• Allow incubators as a part of the Equity Program.
Although there was a long discussion of the proposed amendments at the Planning Commission meeting, additional concerns occurred to staff afterwards. Consequently, staff did not incorporate all of the proposals and recommends certain issues be returned to the Planning Commission for further discussion.
A definition of equity and language regarding the reason why an Equity Program is needed was added to the proposed ordinance (see attachment B).
Vertical Integration is defined as “a business strategy by which a company controls every or multiple steps on 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 incorporates vertical integration in a variety of ways. One way is by allowing microbusinesses to operate in the City. Another way is allowing current cultivators to self-distribute and conduct non-volatile manufacturing by-right. Self-distribution allows them to transport their own cannabis product to other licensees. To vertically integrate, business owners would be required to amend their Operators permit, Business License, and State Annual License.
The Planning Commission approved a resolution recommending that existing cultivators and storefront retailers be given the ability to cultivate, manufacture (volatile and non-volatile), distribute, sell and deliver by-right (i.e., vertical integration). Staff would support this proposed change if land-use zones were considered in the proposal and business types would only be allowed in zoning districts that are proposed as appropriate for said business types.
If zoning restrictions are not taken into consideration, there are public safety concerns. For example, vertical integration by-right for an existing dispensary would allow volatile manufacturing in a commercial zone, and commercial zones often abut residential zones. Volatile manufacturers utilize volatile solvents to compound, blend, extract, infuse, or otherwise make or prepare a cannabis product. State Health and Safety Code (HSC) section 11362.3(3)(b) defines a volatile solvent as “a solvent that is or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures.” Volatile Manufacturing would be a potential health and safety hazard given the utilization of flammable and combustible substances during the manufacturing process. Staff concurs with the intent to allow businesses to integrate vertically, and the proposed ordinances would allow a fully integrated business in an appropriate land-use zone. However, allowing existing cannabis businesses to vertical integrate by-right at existing locations would create public safety concerns. Vertical integration of existing businesses should be evaluated further, and future amendments to the proposed ordinances could be made.
Finally, testing laboratories cannot be considered for vertical integration because it is prohibited by state law. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (BPC §26053(b)) prohibits testing laboratory owners from 1) having a business interest in any other cannabis business type and 2) the employment of individuals who are employed by any other licensee that does not hold a state testing laboratory license.
Table 3 indicates the current proposed zones in the proposal.
Table 3 - Proposed Zoning Districts
|
|
Commercial |
Industrial |
Port |
Open Space |
|
Cultivator |
|
X |
X |
X |
|
Distributor |
|
X |
X |
|
|
Storefront Retailer (dispensary) |
X |
X |
|
|
|
Non-storefront Retailer (delivery) |
X |
X |
|
|
|
Non-Volatile Manufacturer |
|
X |
X |
|
|
Volatile Manufacturer |
|
X |
X |
|
|
Microbusiness |
|
X |
|
|
Allowing existing storefront retailers (dispensaries) to delivery cannabis products is not proposed in staff’s recommendation, but was proposed by the Planning Commission. If existing storefront retailers are provided this allowance by-right, it is recommended that they be required to amend their Operators Permit, Business License, and State Annual License; as is similarly proposed for other business types. This would allow for a review of an adjusted security plan. Language can be incorporated into the proposed ordinance to allow new storefront retailer applicants the ability to vertically integrate with delivery, provided they meet all other land-use and operator requirements.
Incubator programs are designed to provide an option for equity applicants to enter the cannabis business. Incubators are not included in the proposed ordinance but were recommended by the Planning Commission. Incubator programs can include a variety of components, such as providing business courses to equity applicants, providing zero or low-interest loans to equity applicants, and pairing equity applicants with existing cannabis businesses that serve as “incubators” and provide free rent for space (typically 3 years). An incentive is given to the existing business for providing the equity applicant with free rent in their business. The administrative costs of an incubator program are substantial. It is a labor-intensive program to administer, and there is a cost to existing businesses and the local jurisdiction. Also, the incubator program requires that existing businesses participate as “incubators” and are in turn provided expedited permit processing or renewal permit processing. The City currently has a limited number of existing businesses who would be eligible to participate. Furthermore, there is insufficient data to substantiate the effectiveness of incubator programs due to the limited operation and short tenure. Finally, it is recommended that any expansion of administrative oversight or business subsidy be considered along with other service priorities during the annual budget process.
Staff recommends that the City Council adopt an ordinance amending the Stockton Municipal Code related to the City’s Cannabis Regulatory Program, approve a resolution amending the FY 2018-19 Fee Schedule based on the proposed Municipal Code amendments; and authorize the City Manager to take appropriate and necessary actions to carry out the purpose and intent of this ordinance and resolution. Recommendations related to by-right vertical integration for existing businesses could be referred back to the Planning Commission for consideration of the public safety issues and amendments to the proposed ordinances.
FINANCIAL SUMMARY
The State requires an excise tax from cannabis businesses. The State reported the collection of the excise tax generated $84 million in FY 2017-18 and is expected to generate $355 million in FY 2018-19 and $514 million in FY 2019-20.
In addition to the State’s excise tax, the City’s current tax revenue rates collected are 5% for medical cannabis business sales and 10% for adult-use cannabis sales. Cannabis businesses are required by the State to keep the monetary streams of medical cannabis and adult-use cannabis separate to track from “seed-to-sale.”
The proposed recommendations do not include changing the rate collected for tax revenues. It is expected that City revenues will increase due to the expansion of business lines. However, it is difficult to estimate how much the City will receive. Utilizing industry standards for revenue forecasting, it is estimated that the City can expect to receive between $2.3 million- $6.2 million once the program is fully implemented. The estimated revenue is not specific to City of Stockton, is not based on future market trends, and may never be realized. Also, the State’s forecasted excise tax revenue amounts have consistently been less than forecast. Staff recommends that estimated revenues not be programmed for expenditure until actual revenues are received. Additionally, any new program expenditures should be evaluated during the annual budgeting process and considered along with proposals to address existing service deficits.
There is also a need to implement new fees associated with inspections (and renewals) for the new cannabis business types. Staff has reviewed existing permit activities to determine operational impacts. It was determined that there would be additional service needs from the following departments:
• Community Development
• Police
• Fire
• Administrative Services
The following new fees are proposed for adoption:
• Non-Compliance Fee
• Non-Compliance Reinspection Fee
• Cannabis Cultivation Inspection fee (based on square footage for initial inspection and renewal)
• Cannabis Testing Laboratory Inspection fee (for initial inspection and renewal)
• Cannabis Retail Inspection (for initial inspection and renewal)
• Cannabis Distribution Inspection (for initial inspection and renewal)
• Non-Volatile Cannabis Manufacturing Inspection (for initial inspection and renewal) Volatile Cannabis Manufacturing Inspection (for initial inspection and renewal)
Revenues collected from the new fees will be deposited into the Fire Department’s Fire Prevention Development Fund. A “Non-Compliance Fee” and a “Non-Compliance Reinspection Fee” is also proposed to reimburse the Police Department/Code Enforcement for resources used to address a complaint made about a cannabis business, and inspect the business for a violation. The existing “Permit to Operate” and “Permit to Operate Renewal” fees reflect current and accurate costs associated with the Operator’s Permit and Business License requirements. Revenues collected from the amended fees will be deposited to the City’s General Fund. Revenues collected from the Commission Use Permits and Administrative Use Permits, which are not being amended, are deposited to the Community Development Fund to cover the cost of processing the permit.
Attachment A - Summary Table of Other Cities’ Permit Caps
Attachment B - Proposed Ordinance - Redline
Attachment C - Equity Program Memorandum