2/15/2022
City of Huntington Beach
Policy Discussion concerning
Cannabis-related
Taxation & Regulation
City Council Study Session
February 15, 2022
Background
• The City prohibits medical and recreational cannabis activities in the City. • Exception: allowing/regulating non-medical marijuana cultivation per a private residence up to six plants
• Two private parties have filed separate cannabis petitions requesting that the City prepare documents allowing their proposed regulations to be placed before the voters of Huntington Beach for consideration.
• November 3 - Huntington Beach Cannabis Taxation and Regulation Act • December 2 - Huntington Beach Cannabis Regulation & Land Use Measure February 15,2022 City Council Study Session
SUPPLEMENTAL
COMMUNICATION
Meeting Date: 215/2022
1 * (22-131)
Agenda Item No.:,
2/15/2022
Background - Continued
• On December 21, 2021 Study Session, the City Council formed an ad-hoc subcommittee to further assess, research and present a balanced cannabis regulation framework for the Council's consideration.
• An Ad-hoc subcommittee of 3 City Council members consisting of City Council members Bolton, Kalmick, and Peterson, was formed.
> The Committee met twice to deliberate several key policy issues related to cannabis.
> Staff conducted research on best practices/ model regulatory ordinances for the Committee's consideration as a starting point.
• Staff also engaged cannabis industry representatives to learn about their perspectives on an alternative balanced ballot measure.
CANNINGTON C
February 15, 2022 City Council Study Session
Commercial Cannabis - Pros & Cons*
Pros Cons
/ Economic development opportunities / Public safety issues V Generate local jobs / Staffing and enforcement costs
/ De-incentivize illegal market / Potential safety hazards for cannabis manufacturing and processing
/ Revenue generation / Substance abuse, particularly by youth V A tool to boost tourism efforts • Odor and nuisance
Meet the evolving needs of the public, / Increased exposure to litigation whose perception of cannabis is regarding the city's process and trending more positively implementation of cannabis programs / Opportunity for social equity initiative / Utility strain (water/electricity/hazardous waste)
*Reference: Local Impacts of Commercial Cannabis Report published by ICMA (Sept, 2018) 2 2/15/2022
FURTHER
Some considerations when establishing CONSIDERATIONS
commercial cannabis regulations:
/ Public safety and administration cost
v Utilize best practices and approaches for permitting and implementing cannabis regulations while tailoring them to the unique environment of Huntington Beach
/ Maintain a cautious approach, as things are rapidly changing and long-term community impacts are still unknown.
/ Take into consideration potential community impacts.
February 15, 2022 City Council Study Session
Policy Decision1-5
By the City Council
Five Key Policy Areas include:
Types of Cannabis Industry
2 # of licenses and selection process
3 Zoning & Buffer requirements
4 Revenue options (taxes, fees, or others)
5 Inspection and enforcement protocols
3 2/15/2022
Policy Decision:
WHAT TYPES OF
CANNABIS INDUSTRY?
Types of Cannabis Industries include:
1 Retail Non-Retail
• Storefront Retail • Cultivation
(dispensary) • Manufacturing
• Non-Storefront Retail • Testing Laboratories
(i.e. delivery-only) • Distribution
• Both Storefront and • Microbusiness
delivery services
Each offer different challenges and opportunities for the City.
Commercial Cannabis - Categories
Testing cannabis MICROBUSINESS
or cannabis A combination of these types
products of business at one location
TESTING LAB EVENT ORGANIZERS
Holding an event where
cannabis will be sold
1 TESTING LAB
CULTIVATOR
Growing cannabis
Often called "Dispensaries"
MANUFACTURER Selling cannabis
Making cannabis (storefront, delivery or both)
products
DISTRIBUTOR
Procuring and
Transporting
cannabis
RETAIL CONSUMER
4 2/15/2022
Cannabis Industry Types: Retail or Non-Retail?
Comparison w/other cities
Outside OC Huntington
Orange County Beach
Long
Santa Ana Costa Mesa Irvine Pasadena Petition 1,2
Beach
Retail YES
YES YES NO YES YES
Non-Retail YES YES YES YES YES YES
• Cultivation • Cultivation • Cultivation
• Manufacturing
Types of • Manufacturing • Manufacturing • Manufacturing • Testing lab • Cultivation
• Testing lab • Testing lab • Testing lab • Testing lab Non-Retail • Distribution • Testing lab
• Distribution • Distribution • Distribution
Policy Decision: What types of businesses
should the City allow?
The Subcommittee's Recommendation
v Both retail and non-retail, except outdoor cultivation • Retail (Storefront, delivery, or both)
• Non-Retail
• Indoor cultivation
• Manufacturing
> Testing Labs
• Distribution
5 2/15/2022
Policy Decision: How many licenses should be
allowed and how?
CAP NO CAP
• Limit number of businesses through • Number of licenses determined by licensing process other factors (e.g. consumer demand,
• Most appropriate for retail license types zoning, buffers, etc.) (e.g. storefront retail) • Most appropriate for non-retail license • Requires competitive application/ type (e.g. labs, manufacturers, etc.) selection process
Comparison w/other cities
Costa HB Petition
Santa Ana Irvine Long Beach Pasadena
Mesa 1,2
32 + 8 (co-location of Retail: 1 per
30 medical No Cap
License Cap No Cap medical/non- district (6 total) Retail: 10-12 20 non-medical (testing only)
medical) Non-Retail: 4
Population 1 every 12,000-
1 every 7,000 N/A N/A 1 every 14,000 Every 17,000
Ratio 15,000
2 Policy Decision: How many licenses should be issued
and how?
The Subcommittee's Recommendation
• No cap for non-retailers.
> Limit 1 license type per owner.
• Non-transferability
• Consider a no-warehousing provision, e.g. require that licensee must begin operation w/n a certain period after license is granted, otherwise the license is revoked and offered to another applicant
No Consensus Reached:
> Retailers: # of licenses
• Up to 5 retailers (1 license for every 40,000 HB residents) • Up to 10 retailers (1 license for every 20,000 HB residents) > Threshold of employee counts required for Labor Peace Agreement of licensees • NOTE: The State law requires applicants for a state cannabis license with 20+ non- supervisory employees to enter into a LPA with a labor organization. 6 2/15/2022
2 Policy Decision 2-1:
If cap on # of licenses, how to select?
Competitive Licensing Options
MERIT FIRST IN LINE LOTTERY HYBRID
• Application/Interview • First-come, first serve • Lottery machine • Combination of ranking (similar to • Online or in-person • Raffle drum different options (e.g.
RFQ/RFA process) • Computer program Merit for first screening + • Discretionary approval Lottery Process for final
selection)
Example Cities/Counties
• City of Long Beach • City of Costa Mesa • City of Santa Ana • City of Pasadena • City of Los Angeles
2 Policy Decision 2-1:
If cap on # of licenses, how to select?
The Subcommittee's Recommendation
/ Merit-based Application process (RFQ/RFA) to identify highest quality operators with:
• Prior experience/owner expertise
• No past violations
• A detailed business plan and proof of financial capacity/capital to successfully build/operate and in compliance with all the regulations • Include Community Benefit Plan (extra point or requirement) • Include a residency requirement/preference (e.g. a minimum 3-5 years) • Local operator preference (extra point) with a clear guideline • Consider an option of hiring a third-party rater to prevent any accusations that the City is biased in any way and risk of lawsuits • Consider developing an Administrative Regulation on the specific requirements and evaluation procedure
7 2/15/2022
Policy Decision: Where to locate through Zoning
& Buffer requirements?
STATE LOCAL B2B
• Schools • Parks • Minimum distance between
• Commercial Daycare • Playgrounds businesses
• Youth Centers • Cities may also • Typically applies to retail only increase/decrease staff • Requires process to determine buffer distances who has rights to an area
> State buffer requirement is not less than 600 feet distance from schools, daycares, and youth facilities.
> The City can decide a buffer restriction of more than 600 feet and add restrictions on parks, playgrounds, libraries, or beaches. • The City of Long Beach has a buffer restriction of 1,000 ft. of a school, beach, or other dispensaries and 600 ft. of daycare center, park, library, but allowed within mixed-use buildings in downtown area.
Zoning/Buffer Restriction - Comparison w/other cities
Outside OC Huntington
Orange County
Beach
Santa Ana Costa Mesa Long Beach Pasadena Petition 1,2
Zoning/Buffer YES YES
YES YES YES
restriction
600 ft. from youth 1,000 ft. from K-12 600 ft. from
All types 1,000 ft. centers; school;
Buffer Limits (State from K-12 schools, Residential zone, K- 600 ft. from K-12 12 school, daycare, schools (state
Required 600 feet) parks, or residential 1,000 ft. from K-12 600 feet of daycare church/faith, park o regulations)
uses. schools, daycare, center, park, library (no
playgrounds, buffer for youth centers) library
500' from another 1,000 ft. from other 1,000 ft. from other B2B Buffer None.
retail cannabis. dispensaries cannabis retailers
1,000 ft. from
Downtown, Beach / 500 ft. from testing
N/A. homeless shelters Unknown.
Specific Facilities lab
downtown
"Green Zone" for
Zoning district industrial cannabis
uses
8 2/15/2022
Policy Decision: Where to locate through Zoning
& Buffer requirements?
The Subcommittee's Recomendation
V Retailers - Allow businesses in the Commercial Zone and Specific Plan Areas but apply buffer restrictions
• Exclude Downtown SP5 (No stores in our downtown adjacent to beaches); state and city beaches will be applied 'park' buffers > Allowed in multi-tenant buildings as the current law allows > No buffer requirement between shops (B2B)
• Delivery-only retailers can locate in the Industrial Zone V Non-Retailers - In the Industrial Zone only
3 Policy Decision: Where to locate through Zoning
& Buffer requirements?
The Subcommittee's Recommendation - Continued
/ Drive-through options are allowable as long as it is legal in the specific zones
v "Grandfather" existing businesses if/when a sensitive use facility opens within existing buffers
9 2/15/2022
Policy Decision: Where to locate through Zoning
& Buffer requirements?
No Consensus Reached:
• 1,000 ft. vs. 600 ft. from K-8 schools/high schools
• 1,000 ft. vs. 600 ft. buffer from parks, youth centers, daycare centers? • Consideration of additional buffer restrictions from homeless shelter • How to Measure? Parcel to Parcel vs. Building to Building o Building to Building
• Parcel to Parcel
o A hybrid approach to apply a building-to-building buffer for residents/commercial centers but property lines for all other uses such as parks and sensitive receptors.
GIS MAPS for Eligible Areas (Zoning Buffers)
Retail
Commercial Locations
1. Non-Retail Parcels (Industrial and Specific Plan
Industrial): 1000 ft. buffer from high schools, and 600 ft. from K-8 and other sensitive uses
2. Non-Retail Parcels: Same as Map 1 above, but
includes a 1000 ft. buffer from any Residential and
Mixed Use sites and Housing Overlay areas.
3. Retail Parcels (Commercial and Specific Plan
Commercial): 1000ft. buffer from high schools and
600 ft. from K-8 and other sensitive uses
4. Retail Parcels (Commercial and Specific Plan
Commercial): 1,000 ft. buffer from high schools and
mmercial Valor - 7 popetes
other sensitive uses, and 600 ft. from K-8 schools
from High Schools
10 2/15/2022
Policy Decision: Revenue Generating Options
• Cities typically have standard fee(s) to recover City costs and impose general taxes. • Imposing a general tax requires voter approval in June or Nov. 2022. • Tax revenues go to the City's General Fund.
OTHER
TAXES FEES
BENEFITS
• Percentage of gross • Application Fees • Development
receipts • Regulatory Fees agreements may be
• Price per square foot • Limited to cost used to negotiate • Requires voter approval recovery, unless additional
in June 2022 negotiated through community benefits
• Designed to avoid over- development
taxing yet ensure agreement
sustainability
4 Policy Decision 4-1: Tax Rate
• The State of California imposes both a 15% excise tax on purchases of cannabis/cannabis products, as well as sales tax at 7.75%.
• Numerous counties and cities have developed a wide range of local cannabis taxes, typically from 4-6% of gross receipts, making the cumulative tax rate to range from 25-30%.
Comparison w/other cities
Orange County Outside OC Huntington Beach
Costa
Santa Ana Long Beach Pasadena Petitions 1,2
Mesa
Retail: 8% Retail 6-8% Retail: 4% Retail:
Non-Retail: 1-6% Non-Retail 1% • Medicinal 2-4%
Tax Rate 7% Non-Retail: 1-
of gross retail Cultivation 2.5% • Recreational 3-5%
receipts $13.41/sf Non-Retail: 1%
11 2/15/2022
Projected Tax Revenue & Costs
• Projected Revenue: can vary based upon the specified tax rate imposed and number and type of businesses.
> Per HdL Companies 2019 report, annual tax revenue could be from $400K $600K for retailers.
> Emerging market makes it difficult to accurately assess (e.g. demand vs. supply) • Costs: One-time and on-going expenditures related to Cannabis oversight includes staffing and enforcement costs, including but not limited to:
• Police
Fire
• Code Enforcement
Business support
Legal costs
Overall administration costs
February 15,2022 City Council Study Session
4 Policy Decision: Revenue Generating Options
The Subcommittee's Recommendation
• Fees for 100% cost recovery of city expenses, which can be estimated by staff and approved annually by the City Council via resolution.
• Imposing Tax
• Retail Tax: No differentiation between medicinal and recreational products
• Non-retailers: up to 1% tax
o Revenues go to General Fund
12 2/15/2022
4 Policy Decision: Revenue Generating Options
No Consensus Reached:
• Retail Tax Rate:
• 2-3%, or
• 4-6%, or
5-8% of gross retail receipts
• Tax Ballot Measure in June - with or without ordinance? › Depending on the outcome of the tax ballot measure, the City Council can work on the ordinance or subsequently present to voters for separate approval. 5 Policy Decision: Security, Inspection, and Enforcement Protocols
The Subcommittee's Recommendation
SECURITY MEASURE REQUIREMENT - HBPD:
• Security personnel must be on-site 24 hours a day unless alternative security is authorized by the City Manager or his/her designee.
• Conditionally allows armed security, pursuant to criteria established by Chief of Police. • 24-hour security surveillance cameras of at least HD-quality all entrances, exits, and all interior spaces.
• Video recordings shall be maintained for at least 90 days • Limited access areas accessible only to authorized personnel • All cannabis products to be stored in a secured and locked room. 13 2/15/2022
5 Policy Decision: Security, Inspection, and Enforcement Protocols
The Subcommittee's Recommendation - Continued
SECURITY MEASURE REQUIREMENT - HBPD
• Maintain a map of the camera locations, the direction of camera coverage, and assigned camera numbers at the premises.
• Copies of video must be made available to the HBPD within 48 hours of request without a search warrant, court order or subpoena.
• Must install sensors for entry/exit, panic buttons, and alarm system • Must have the capability to remain secure during a power outage • Application shall include a storage and transportation plan • The City, County or any investigating official shall have the right to enter the premises of dispensary establishments during regular business hours to inspect and enforce compliance
• Notification to the City within 24 hours after discovering any breach of security 5 Policy Decision: Security, Inspection, and Enforcement Protocols
The Subcommittee's Recommendation - Continued
FIRE DEPT.
• Requires Fire Dept. inspection prior to occupancy requirement • Cannabis manufacturing facilities must submit plans demonstrating compliance with CA Fire Code, identify any hazardous processes, and fire protection systems • Commercial cannabis facilities are subject to routine fire and life safety inspections at the frequency identified in the HBFD's Community Risk Assessment
CODE ENFORCEMENT
• Add pre-operational requirement that all owners/operators must remedy any expired building permits for the subject tenant space
• Add operational requirement for permittees to carry and display a copy of the issued permit • To supplement enforcement efforts, add language allowing the City to board any doors and windows associated with illegally operating cannabis businesses • Add Administrative Penalties.
14 2/15/2022
Comparison Chart - Summary
Orange County Outside OC
Santa Ana Costa Mesa Irvine Long Beach Pasadena
Retail YES YES NO YES YES
YES (cultivation, YES (manufacturing, YES YES
Non-Retail manufacturing, testing testing lab, (Testing Laboratory YES (cultivation, testing lab, distribution) distribution) only) laboratory)
30 medical 40 licenses (co- Retail - 1 pel
License Cap No Cap No Cap location of medical/non- district (6 20 non-medical
medical) Non-Retail - 4
Zoning/Buffer YES YES
YES YES YES
restriction
Licensing First come, First
Lottery Merit-Based Merit-Based Merit-Based
Options serve
Retail 6-8%
Retail: 8% Non-Retail 1%
No tax; Retail: 4%
Tax Rate Non-Retail: 1-6% 7% Cultivation
Permit Fees Non-Retail: 1-2.5%
$13.41/sf
Industry Petitions vs. City Proposal
Huntington Beach Compared to Model Cities
Huntington Beach
Petition 1 Petition 2 Long Beach Pasadena
(Proposed)
Retail
YES YES YES / NOT YET YES/ YES YES
(w/delivery)
YES (cultivation,
Non Retail YES YES YES YES
testing laboratory)
# of License 32+8 licenses (co Retail - 6 Retail - 5 vs. 10 10-12 10-12 location of medical /non- (1 per district)
/permits Non-Retail - 4 Non-Retail - No cap
medical
License per 1 every 30,000 vs.
1 every 17,000 residents 1 every 12,000 1 every 14,000
population ratio 20,000
Retailer: Commercial &
NO. Allows in all all special plan areas
Zoning commercial/industrial areas YES YES except Downtown including Downtown Non-Retailers: Industrial
Zone only
1,000 ft of a school,
beach, or other 600 ft buffer from
600 ft buffer from schools dispensary residential zones & 1,000 ft buffer vs. 600 buffer 600 feet of daycare sensitive uses; from schools
Buffer Restriction 600 ft buffer from schools
center, park, library
(state regulations) Allowed within mixed- 1,000 ft from other No B2B buffers use buildings in cannabis businesses
downtown
15 2/15/2022
Huntington Beach Compared to Model Cities
Petition 1 Petition 2 Long Beach Pasadena Huntington Beach (Proposed)
Licensing
Unknown at this time. Merit-Based Merit-Based Merit-Based Options
YES (20% of all permits to be YES (50% of all permits To be determined at a Equity Program Unknown at this time. issued to Equity Applicants- to be issued to Equity final approval pending) Applicants) later time.
Retail (Medical 6%, Retail: 2-3%, 4-6%, or 5-8%
Medicinal 2-4% Retail: 4% (NTE 6%)
Recreational 8% Non-Retail: up to 1%
Tax Rate Non-medicinal 3-5% Non-Retail: 1-2.5%,
Non-Retail 1% Non-Retail 1% (applied same to both medical $ 10/canopy st and recreational)
Cultivation $13.41/sf
Total taxing Medicinal 28-30%
rate (w/state) Non-medicinal 29-31% Appx. 32-34% Appx. 30% max Appx. 28 - 34% Unrestricted General Fund Unrestricted General
Revenue purposes such as Fund Revenue Unrestricted General Fund Revenue Use N/A Revenue purposes such as
public safety, office of purposes such as
public safety
cannabis oversight public safety
Application fees (per Application fees Fees for 100% cost- Other fees Unknown at this time. one owner license): (cost recovery): recovery:
appx. $6,052 appx. $24,000 fee schedule TBD
Summary: Non-Consensus Policy Areas
1) Number Cap for Retail Licenses
2) Location - Buffer Restrictions
3) Tax Rates for Retail Establishments
4) Regulatory Ordinance adopted by City Council or by voters? February 15, 2022 City Council Study Session
16 2/15/2022
Next Steps / Recommendations
1. Direct staff to work with the City Attorney's Office to develop a Cannabis Tax Ballot Measure to place on upcoming June Election
2. Direct staff to work with the City Attorney's Office to prepare a regulatory and land use ordinance based on the regulatory framework presented and determined tonight for the Planning Commission and City Council's consideration.
Taxation for Regulatory Implementation
Voter Approval Ordinances (application, fees,
etc.)
HUN
600000000000000 INCORPORATED NGTON BEACH
QUESTIONS?
17