BACKGROUND:
During City Council discussions on cannabis taxes in January and February of this year, City Council expressed some interest in measures that would have the effect of reducing the number of retail licenses over time by limiting the renewal of inactive licenses. This was reported to the Cannabis Task Force during their meeting on April 3, 2023. It was further reported the municipal code currently includes a provision that licenses that have been inactive for a period of at least one year may not be renewed (discretionary) and the City Attorney’s concern that non-discretionary language would be advisable if the desire is to stop renewing inactive licenses. After discussion, it was the consensus of the task force that licenses inactive for over a year should not be renewed and non-discretionary language should be adopted. They also indicated that prior to implementing the non-renewal practice existing inactive license holders should be surveyed regarding their intent and there should be a well-advertised start date in the future so existing inactive license holders aren’t caught off-guard by the change.
Council discussed this update from the Cannabis Task Force during the study session on May 10, 2023. Direction was provided to staff to prepare an ordinance amendment removing the discretion in renewing inactive dispensary licenses and to provide language indicating licenses will not be renewed if the business is not current on their taxes due to the City.
DISCUSSION:
An ordinance has been prepared to implement the changes as directed by Council.
Specifically, the following provisions have been added to Section 5.88.055 related to license renewal:
4. For dispensaries, proof that commercial cannabis activity is occurring on the premises in accordance with the following:
a. For a first renewal application, proof that commercial cannabis activity permitted by the license has been occurring on the premises for the previous month. A tax return submitted pursuant to Section 3.48.080 of this code showing that taxable commercial cannabis activity occurred on the premises shall be sufficient proof. b. For a second and subsequent renewal application, proof that commercial cannabis activity permitted by the license has been occurring on the premises for the previous twelve (12) consecutive months. Tax returns submitted pursuant to Section
3.48.080 of this code showing that taxable commercial cannabis activity occurred on the premises shall be sufficient proof.
c. The local licensing authority may renew a license not meeting the requirements of subparagraphs a or b above if the renewal application demonstrates unique or extraordinary circumstances that has impacted the ability of the cannabis business to conduct commercial cannabis activity on the premises, including but not limited to fire, flood or other act of god resulting in substantial damage to the premises, or a delay in the issuance of necessary licenses, permits or other approvals necessary to conduct the commercial cannabis activity at no fault of the applicant.
6. Proof that the cannabis business is not delinquent on the submission of any tax returns or the payment of any taxes due under Chapter 3.48 of this code.
Correspondingly, Council expressed concern that businesses should not be allowed to remain delinquent on their taxes until license renewal, which could result in delinquencies of up to an entire year. By administrative policy, staff will begin license revocation procedures on delinquencies of three months or greater in accordance with an existing ordinance provision. 5.88.115 Enforcement.
The provisions of this chapter may be enforced by the local licensing authority by any means provided for in Title 13 of this code in addition to any and all other remedies, civil, equitable or criminal, afforded to the city under the law.
The operation of a cannabis business in violation of this chapter or any conditions of approval placed on a licensee’s local license is hereby deemed to be a public nuisance. As provided for in Title 13 of this code, the local licensing authority may issue administrative, infraction or misdemeanor citations, institute a summary abatement of a public nuisance that poses an immediate threat to the public health and safety, and/or institute proceedings to suspend, modify or revoke a local license.
Additionally, Section 5.88.040 has been amended to read as follows:
“H. A local license issued pursuant to this chapter shall specify the date of issuance, the period of licensure, the name of the licensee, the address of the licensed premises, and the nature of the cannabis business licensed. All local licenses are valid for one year, except that an initial local license shall automatically expire if the commercial cannabis activities authorized by the license have not commenced at the premises within eleven (11) months of the date of issuance. If the licensee has not submitted a tax return pursuant to Section 3.48.080 of this code showing that commercial cannabis activity is occurring on the premises before the start of the twelfth (12th) month of the license term, the City will notify the licensee in writing that their license has been rendered null and void due to the failure to commence commercial cannabis activity. The licensee is not precluded from applying for a new cannabis license.”
As suggested by the Cannabis Task Force and as directed by the City Council, the effective date of the ordinance amendment is January 1, 2024 so that current inactive license holders have an opportunity to qualify for renewal by starting operations.
FISCAL IMPACT:
No direct fiscal impact. The hope is that reducing, over time, the number of retail licenses will result in remaining businesses becoming more profitable.
FIVE-YEAR STRATEGIC PLAN:
The intent of the ordinance amendment is to promote cannabis business profitability and ensure timely payment of taxes due:
GOAL C: FISCAL STABILITY AND SUSTAINABILITY
Objective: Cathedral City has economically prospered by facilitating the investment of private dollars in high quality development which benefits the community. We remain financially solvent by instituting prudent fiscal policies and transparent financial practices.