BACKGROUND:
With the passage of Proposition 64 by California voters, Cannabis businesses became fully legal for both medicinal and adult use. The full implementation of Prop 64 became effective January 1, 2018. The industry continues to grow and mature in Cathedral City.
On September 8, 2021, Staff provided an update to the City Council at their study session, covering the history of tax collections in Cathedral City and discussed a request from a business owner to consider a retail “tax holiday”. At that time, Council declined to proceed with a tax holiday.
After the Cannabis Task Force meeting held on November 29, 2021, staff provided an update to the City Council in study session on January 12, 2022 and reviewed the discussions of the Task Force. As result of that meeting, Council asked staff to conduct a full review of the City’s Municipal Code provisions related to Cannabis, the tax and fee structure and related data.
The data and staff suggestions resulting from that review were presented to the Cannabis Task Force during a meeting on April 11, 2022. All task force members were present for the discussion and the primary topics of the meeting will be reviewed with Council during the presentation on this item.
The recommendations from the staff and task force were presented to the City Council during a study session meeting on April 20, 2022. Council agreed with many recommendations related to the regulations, asked for more information on others and asked for a follow-up discussion on taxation. An additional discussion on taxation and other outstanding issues was held during study session on May 11, 2022. The result is Council asked staff to bring forward a resolution to provide some clarification on taxable areas for cultivators and on a startup period for cultivators prior to taxes becoming due.
Recommended changes in the ordinances, based on the Council study sessions, will be processed through separate action including required Planning Commission consideration of changes to provisions in the zoning ordinance related to cannabis.
Additionally, consideration of outdoor lounges and the regulations necessary will be processed separately.
DISCUSSION:
Two resolutions are attached for consideration.
1. The first exempts rooms in a cultivation facility from the square foot tax if the rooms are not used for cultivation:
SECTION 1. The portions of cannabis cultivation space, as defined in the Cathedral City Municipal Code (‘CCMC”), existing outside of the canopy, as defined below are hereby made exempt from, and shall not be included in the calculation of, the cannabis tax imposed in paragraph B of Section 3.48.010 of the CCMC, as it may be adjusted from time to time by resolution of the City Council pursuant to CCMC Section
3.48.040.
SECTION 2. In addition to all definitions in Chapters 3.48 and 5.88 of the Cathedral City Municipal Code, the following definitions shall apply to this Resolution:
A. “Canopy” means the designated rooms, including nurseries, at a licensed premises that contain or will contain mature or immature plants at any point in time.
B. “Immature plant” or “immature“ means a cannabis plant that has a first true leaf measuring greater than one-half inch long from base to tip (if started from seed) or a mass of roots measuring greater than one-half inch wide at its widest point (if vegetatively propagated), but that is not flowering. For retail purposes, “immature plant” or “immature” means a cannabis plant that is nonflowering and shorter and narrower than 18 inches.
C. “Mature plant” or “mature” means a cannabis plant that is flowering.
D. “Nursery” or “nurseries” means all activities associated with producing clones, immature plants, seeds, and other agricultural products used specifically for the propagation and cultivation of cannabis.
2. The second provides for a phase-in period for new cultivation operations prior to the tax being due and provides for a non-operating exemption for existing businesses:
A. Pre-Operational. A legal cannabis cultivation business shall not be subject to taxation under paragraph B of Chapter 3.48 of the Cathedral City Municipal Code until 90 days after a certificate of occupancy (whether temporary or final) is issued for the business or any portion thereof.
B. Non-Operational. A legal cannabis cultivation business shall not be subject to taxation under paragraph B of Chapter 3.48 for a period of no more than ninety (90) days if the business provides the City with written notice that it will be suspending cultivation operations under one or more local license for a period of at least ninety (90) days but no longer than the remaining term of the business’s current local license issued by the City pursuant to Chapter 5.88 of the Cathedral City Municipal Code. A cannabis cultivation business may only invoke this exemption one (1) time during the current term of its local license.
FISCAL IMPACT:
In calendar year 2021, total cannabis taxes paid to Cathedral City were $4,971,001.