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August 8, 2023
ITEM TITLE
Agreement: Approve an Agreement with The Pun Group LLP to Provide Cannabis Excise Tax and Inventory Audit and Consulting Services
Report Number: 23-0184
Location: No specific geographic location
Department: Finance
Environmental Notice : The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines. Therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required
Recommended Action
Adopt a resolution approving an agreement with The Pun Group, LLP to provide cannabis excise tax and inventory audit and consulting services.
SUMMARY
To enhance Cannabis Excise Tax revenue collection efforts, program oversight , and compliance with Chula Vista Municipal Code Chapter 5.21, the Finance Department is requesting that the City Council adopt a resolution approving an agreement with The Pun Group, LLP to provide cannabis excise tax and inventory audit and consulting services.
ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed activity for compliance with CEQA and has determined that the activity is not a “Project” as defi ned under Section 15378 of the State CEQA Guidelines because it will not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable
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DISCUSSION
In March 2018, the City Council approve d Ordinance 3418, which created a licensing and regulatory structure for the operation of lawful Cannabis Businesses located within the City of Chula Vista’s jurisdiction; such structure is codified in Chula Vista Municipal Code (“CVMC”) Chapter 5.19.
In August 2018, the City Council approved Ordinance 3434, subject to approval by a simple-majority vote of the electorate as required by law, enacted a tax on the privilege of conducting business relating to cannabis in the City of Chula Vista. Ordinance 3434 is codified in CVMC Chapter 5.21.
On November 6, 2018, City of Chula Vista voters approved Measure Q , which imposes a Cannabis Business Tax of $25 per square foot of canopy on Cannabis Cultivators, and 7% of gross receipts on all other Cannabis Businesses including Storefront Retailers, Non-Storefront Retailers, Manufacturers, Distributors, and Testing Laboratories. This tax is to fund general City services, including enforcement efforts against Cannabis Businesses that are operating illegally.
CVMC Section 5.21.150 allows the City to perform compliance audits and examine all cannabis business locations, books, and records to certify tax remittance and general operations are in accordance with the City of Chula Vista’s rules and regulations.
To enhance Cannabis Excise Tax revenue collection efforts, program oversight, and compliance with CVMC Chapter 5.21, the Finance Department is recommending the use of a consultant to provide cannabis excise tax and inventory audit and consulting services.
In October 2022, in collaboration with the City of La Mesa and the County of Imperial, a Request for Proposal (RFP 23 -09) was published by the City of La Mesa , to request cannabis audit services to perform cash handling audits, on-site inventory audits, cannabis revenue excise tax reporting audits, development of audit policies and procedures, and track and trace systems evaluation. Five (5) proposals were received, and staff from all three agencies evaluated the proposals and selected The Pun Group, LLP.
The Pun Group , LLP is experienced in providing accounting, advisory, and audit services. The firm is headquartered in Orange County, California, with four branches in San Diego County. Currently, they are providing cannabis audit services to various jurisdictions , includ ing the cities of La Mesa, Stockton, San Bernardino, Fairfield, and Salinas.
The Finance Department recommends entering into an agreement with The Pun Group , LLP for the above- described cannabis excise tax and inventory audit services, for an initial term of one year through June 30, 2024, with four (4) one -year options to renew through the end of fiscal year 2028. Notwithstanding the foregoing, the maximum amount to be paid to the Consultant for services performed through June 30, 2024, shall not exceed $129,000.
Currently, eleven licensed cannabis businesses are operating within the City of Chula Vista limits. It is expected a twelfth cannabis businesses will open during fiscal year 2024.
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DECISION-MAKER CONFLICT
Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the real property holdings of the City Council members do not create a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).
Staff is not independently aware of and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
Approval of this resolution will result in no fiscal impact to the General Fund, the c ost of this contract is included in the fiscal year 2024 adopted budget.
ONGOING FISCAL IMPACT
The ongoing fiscal impact is estimated to be $66,300 for fiscal year 2025, $52,020 for fiscal year 2026, $27,591 for fiscal year 2027, and $28,143 for fiscal year 2028 , and will be considered as part of the annual budget development process.
ATTACHMENTS
1. RFP 23-09 for Cannabis Tax Audit Services
2. Agreement with The Pun Group, LLC
Staff Contact: Adrian Del Rio, Assistant Director of Finance Jimmy Vasquez, Revenue Manager, Finance Department
Sarah Schoen, Finance Director/Treasurer