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 were 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. Details on direction provided by Council are included in the discussion section below.
A follow-up study session discussion was held on May 11, 2022. The outcome was the Council asked staff to separate the tax discussion from the ordinance revisions in that they do not necessarily need to be addressed together. The direction was to proceed with modifications to the definitions regarding taxable area for the cultivation tax. This went to Council separately on June 8, 2022. Therefore, this report no longer discusses any issues related to taxation. The other direction provided on May 11 was to provide additional information related to the proposal to allow outdoor consumption lounges.
Specifically, the outstanding questions related to the locations of existing and licensed dispensaries and their distances to Resort Residential neighborhoods and to provide more specific regulations related to odor control for outdoor lounges.
DISCUSSION:
A staff working group was formed, consisting of staff involved in cannabis licensing, enforcement and tax collection, with the assignment to review in detail the current ordinances governing the operation of cannabis businesses in Cathedral City.
MUNICIPAL CODE REVISIONS:
Over the course of the two prior study session discussions Council provided adequate direction to allow staff and legal counsel to work on the amendments to Chapter 5 and Chapter 9 and the changes as summarized below are being finalized for Council action at a future meeting (planned for consideration on August 24):
•Under 5.88.025 Definitions there is a definition of Good Cause to deny or suspend a local license. The current language is as follows:
“Good cause” for purposes of denying an initial local license issuance, for suspending or revoking a local license, or for denying a local license renewal, means:
1. The applicant or licensee has violated any of the terms, conditions or provisions of this chapter, of state law, of any regulations and rules promulgated pursuant to state law, any applicable local rules and regulations, or any special terms or conditions placed upon its conditional use permit, state license, or local license;
The ordinance amendment makes the following change:
1. The applicant or licensee has been cited for violating any of the terms, conditions or provisions of this chapter, of state law, of any regulations and rules promulgated pursuant to state law, any applicable local rules and regulations, or any special terms or conditions placed upon its conditional use permit, state license, or local license;
•In the same section, also under the Good Cause definition is the following:
6. The applicant or licensee, or any owner of the applicant or licensee, operated a cannabis business in violation of this chapter or Chapter 9.108 of the code;
This language was deleted in the ordinance amendment as it is covered in the section noted above:
•The following language is under the definition of Owner:
1. A person with an aggregate ownership interest of ten percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance.
The ordinance amendment changes this section to 20 percent to align with state law. •Under 5.88.035 Local license required there is the following language:
B. Beginning January 1, 2018, it is unlawful for a cannabis business to operate in the city unless it has been granted the appropriate temporary or permanent state license(s) for its commercial cannabis activities. Notwithstanding the foregoing, any licensee operating in the city prior to January 1, 2018, may continue to operate without a state license provided that it applies for the appropriate temporary or permanent license(s) from the state no later than forty- five days from the date that the state begins accepting applications. If the state denies the application for a temporary or permanent license(s) for any reason, the cannabis business must cease operations until such time as it obtains the appropriate temporary or permanent state license(s).
This was part of the initial transition to legal cannabis in California after the passage of Prop 64. The transition language is no longer necessary, and the ordinance amendment changes this section to read as follows:
B. It is unlawful for a cannabis business to operate in the city unless it has been granted the appropriate temporary or permanent state license(s) for its commercial cannabis activities. If the state denies the application for a temporary or permanent license(s) for any reason, the cannabis business must cease operations until such time as it obtains the appropriate temporary or permanent state license(s).
•Under 5.88.065 Cannabis business operational requirements is the following language:
P. Seed to Sale Tracking Required. Until such a time that the state of California fully implements the track and trace program required by Section 26067 of the Business and Professions Code, a cannabis business must utilize seed to sale software, third-party software that tracks all sales, transfers, purchases, receipts, deliveries of cannabis and cannabis products. The software must be capable of producing electronic shipping manifests, tracking all cannabis inventory in possession of the cannabis business, promptly identifying a discrepancy in the stock, and tracking cannabis from the end purchaser back to its source in the event of a serious adverse event.
The state program described is in place and this section of the code is deleted in the ordinance amendment.
•Also under 5.88.065 Cannabis business operational requirements is the following language:
R.2. Cannabis Waste. Cannabis waste must be made unusable and unrecognizable prior to leaving the licensed premises by grinding it and incorporating it with fifty percent non-medicinal cannabis waste. If necessary to protect the health and safety of individuals working on a licensed premises, a cannabis business may grind the stalk of a cannabis plant outside of its licensed premises provided all grinding activities occur within twenty feet of the licensed premises and cannot be seen from any public street.
R.3. Composting. A cannabis business may compost cannabis waste onsite, in accordance with this provision and all other applicable laws, rules, and regulations.
Staff has encountered some issues with odors that have been traced to the handling of waste. The ordinance amendment adds language to reinforce that waste and cannabis operations must be done in accordance with the conditional use permit which will consider placement of containers and impose odor control requirements. •Under 5.88.070 Dispensary operational requirements is the following language:
A. Limited Hours of Operation. A dispensary may only be open to the public and engage in sales between the hours of eight a.m. and ten p.m.
1. Product Not Visible To Public. The display of cannabis and cannabis products for sale shall not be visible from outside the licensed premises.
State law allows businesses to operate from 6 a.m. to 10 p.m. The policy question is does the City want to be more restrictive than state law. Additionally, the Planning Commission has recommended the elimination of item B. They believe the requirement makes buildings less aesthetically pleasing and inhibits the use of windows and glass as design features. The same provision related to visibility exists related to cultivation businesses in 5.88.080 Cultivation operational requirements in section D.
The amendment changes the operating hours to align with state law. The prohibition on visibility of the product is deleted from the amendment and language is added indicating the visible displays cannot include cartoon characters or other images designed to appeal to children. Chapter 9 is also amended as noted below:
•Under 9.108.080 Conditions of approval is the following language:
A. 6. From a public right-of-way, there should be no exterior evidence of the cannabis business except for any permitted on-site signage.
The provision is deleted in the ordinance amendment.
•Also under 5.88.070 Dispensary operational requirements is the following language:
I. Sale of Untested Products. A dispensary may sell cannabis or cannabis products that have not been tested by a testing laboratory from January 1, 2018 until such time as determined by the state. Thereafter, all cannabis and cannabis products sold by a dispensary must be tested by a testing laboratory prior to sale to a purchaser in accordance with MAUCRSA.
Testing facilities are now available and operational, and this provision has been deleted from the amendment.
•Under 5.88.095 Packaging and labeling is the following language:
D. State-Mandated Warnings and Information. All cannabis and cannabis product labels and inserts shall include the state-mandated warnings and information contained in Business and Professions Code Section 26120(c).
Notwithstanding the foregoing, during the period of time that the state permits untested cannabis and cannabis products to be sold to purchasers, all cannabis and cannabis products must have a label affixed to each package that clearly states “This product has not been tested as required by the Medicinal and Adult- Use Cannabis Regulation and Safety Act” and must comply with any other labeling requirements imposed by the state. (Ord. 800 § 1, 2017) The transition period is over, and testing is a state requirement. The text in red above is deleted in the amendment.
•Under 5.88.120 Civil fines is the following language:
Any person convicted of an infraction or misdemeanor violation shall, for each separate violation of this chapter, be subject to the following civil fines in addition to any infraction or misdemeanor penalties:
A. A fine in an amount not to exceed two hundred fifty dollars for a first conviction of an offense;
B. A fine in an amount not to exceed five hundred dollars for a second conviction of the same offense within a twelve-month period of the date of the first offense;
C. A fine in an amount not to exceed seven hundred fifty dollars for a third conviction of the same offense within a twelve-month period of the date of the first offense; and
D. A fine of one thousand dollars for the fourth and subsequent convictions of the same offense within a twelve-month period of the date of the first offense.
The City is converting from having fines listed in the code to have fines adopted through a companion resolution and the ordinance deletes this section. A companion resolution establishing the fines will come forward with the ordinance amendment.
Chapter 9 of the Municipal Code deals with land use and includes a section related to cannabis 9.108 CANNABIS BUSINESSES
•Under 9.108.050 Conditional use permit application is the following language:
B.1. Proof that the applicant has received a local license for the proposed premises, and the local license is in good standing, or a statement that the applicant is applying for a local license for the proposed premises concurrently with the conditional use permit application.
The amendment eliminates this requirement. Requiring a local license prior to the Condition Use Permit process increases the time necessary to get a business approved and operating. The CUP process is related to land use and can be considered in advance of a license being issued. Many times, the applicant for a CUP is a developer and this provision requires them to get a license they will never use since the ultimate licensee will be another party.
•Also under 9.108.050 Conditional use permit application is the following language:
a. An environmental plan indicating how cultivation and/or manufacturing will be conducted in accordance with state and local laws related to hazardous material disposal, land conversion, grading, electricity usage, water usage, and agricultural discharges.
b. An emergency response plan which complies with Title 8 of this code and California Fire Code Section 401, and sets out standard operating procedures to be followed by all individuals in case of a fire, chemical release, chemical spill, or other emergency.
These provisions have been eliminated in the amendment. Permit and inspection requirements from the water agencies, County and State cover these items and the information is duplicative and is not necessary for the City CUP application. •Under 9.108.070 Locational requirements is the following language:
A. 2. Within two hundred fifty feet of East Palm Canyon Drive or a residential zone.
B. 3. Within two hundred fifty feet of East Palm Canyon Drive.
C. 2. Setbacks from East Palm Canyon Drive shall be measured to the nearest edge of the right-of-way for East Palm Canyon Drive.
The ordinance amendments remove the 250-foot setback provision from East Palm Canyon.
OUTDOOR LOUNGES
The last remaining issue, on which Council asked for further information and discussion, involves the issue of outdoor consumption lounges:
•Under 5.88.070 Dispensary operational requirements is the following language:
2. Cannabis consumption must occur within the interior building space of the dispensary. Consumption may not occur on patios, in parking areas, or in any other space that is not fully enclosed.
Council indicated an openness to considering outdoor lounges but wanted to discuss further. Options on how to handle this comprise the primary discussion points for today’s agenda item.
Option 1: Councilmembers raised the idea of limiting outdoor lounges to only certain zoning districts. The most limiting option would be to allow outdoor lounges in the I-1 zone. There are currently three retail licenses in the I-1 zone with two currently operating. This would prohibit lounges in all other zoning districts.
Option 2: Allow outdoor lounges at licensed dispensaries that can meet setback requirements and add a setback requirement to Resort Residential (RR) zoning districts.
9.108.070
A. Dispensaries. No dispensary shall be or located:
1. Within six hundred feet of a school, day-care center, or youth center; or
2. Within two hundred fifty feet of East Palm Canyon Drive or a residential zone.
3. Within two hundred fifty feet of the RR (Resort Residential) zone, if the dispensary includes an area for the outdoor consumption of cannabis and cannabis products pursuant to Section 5.88.070(K).
The suggested 250-foot setback from RR will have the effect of eliminating one current dispensary from eligibility (the setback would have to go down to 100 feet to allow).
In either option, Council was also interested in strengthening the language related to odor control requirements for outdoor lounges. The following language is suggested:
Section 5.88.070(K)
K. Consumption of Cannabis and Cannabis Products on Premises. Cannabis and cannabis products may be smoked, vaporized, ingested or otherwise consumed on the licensed premises of a dispensary, subject to the following regulations:
1. Access to the area where cannabis consumption is allowed must be restricted to persons twenty-one years of age and older. The dispensary shall be responsible for checking identification and ensuring underaged individuals do not enter.
2. Cannabis consumption shall not be visible from any place where persons under the age of twenty-one are permitted.
3. Cannabis consumption must occur only within the areas specifically designated for consumption by the license. within the interior building space of the dispensary.
Consumption may not occur on patios, in parking areas, or in any other space that is not fully enclosed.
4. The cannabis business must install and maintain in good working order an odor control system in accordance with Section 9.108.080(A)(1). Odors caused by the consumption of cannabis at the dispensary must not be detectable from any public place. The cannabis business shall submit and abide by a certified odor control plan approved by the local licensing authority as a part of the license application and approval process. The plan shall include the use of a Vapor Phase System utilizing an odor neutralizer, such as Cannabolish or a similarly effective technology.
5. Cannabis consumption shall occur in a space within the licensed premises that is separate from the space used to sell cannabis and cannabis products for on-site or off-site consumption.
6. Only cannabis and cannabis products purchased from the dispensary during the same visit by the customer may be consumed within the dispensary. Individuals may not bring cannabis or cannabis products into a dispensary for the purposes of consumption.
7. Cannabis and cannabis products that are only partially consumed on the premises of the dispensary must be repackaged in accordance with Section 5.88.095 prior to leaving the dispensary.
8. Representatives of the city, including, but not limited to, police officers, must be permitted to enter the licensed premises, including all areas where consumption is allowed, at any time during the regular business hours of the cannabis business and/or whenever consumption is occurring on-site.
Staff is seeking feedback on the final outstanding issues related to outdoor lounges.
Based on the direction received, an ordinance amendment will be forwarded for consideration at a future meeting.
FISCAL IMPACT:
None with amending the code or allowing outdoor lounges. Staff costs are recovered through the fees paid by the businesses. In calendar year 2021, total cannabis taxes paid to Cathedral City were $4,971,001.