Administrative
Report
N.2., File # 22-4734 Meeting Date: 9/20/2022
To: MAYOR AND CITY COUNCIL
From: BRANDY FORBES, COMMUNITY DEVELOPMENT DIRECTOR
TITLE
DISCUSSION AND POSSIBLE ACTION REGARDING A DRAFT ORDINANCE OF THE CITY OF
REDONDO BEACH ESTABLISHING A TAX ON CANNABIS AND HEMP BUSINESS ACTIVITIES
WITHIN THE CITY
EXECUTIVE SUMMARY
As part of the City’s ongoing local effort to implement cannabis regulatory ordinances, City Council approved an agreement with HdL Companies (HdL) to review the City’s draft cannabis regulatory ordinances and other cannabis-related procedural tasks, including preparation of a cannabis tax ordinance. The contract with HDL was approved at the June 21, 2022 City Council meeting.
HdL has since reviewed the City’s draft cannabis regulatory ordinances and provided staff with recommendations and comments. The ordinances were amended to address HdL’s recommendations and City Council adopted the ordinances on September 6, 2022. Additionally, HdL has helped prepare a draft cannabis business tax ordinance. This item allows the City Council to discuss the draft tax ordinance and provide direction to staff on possible changes.
BACKGROUND
In order to analyze and identify the cannabis regulations appropriate for Redondo Beach, a Cannabis Steering Committee was appointed by the previous City Manager comprised of representatives from the law enforcement community, RBUSD, BCHD, and other outside interest groups familiar with common best practices for commercial use regulations of cannabis, including storefront siting, taxation, delivery, and development agreement options. The Steering Committee met multiple times over several years, and on October 5, 2021 presented their recommendations to the City Council.
Following their recommendations, Council directed staff to begin preparing a draft ordinance designed to regulate commercial cannabis activity in the City. Per City Council direction, the Planning Commission reviewed the draft cannabis ordinance at a public hearing held on March 3, 2022. The Planning Commission provided several recommendations at the hearing including that the City engage a consultant with experience advising the municipal regulation of the cannabis industry to assist in the review of the City’s draft ordinance.
On May 10, 2022 the City Council considered the Planning Commission recommendations and provided direction to staff on the final preparation of ordinances. The Council, as part of that direction, also asked staff to prepare an agreement with HdL to review the City’s draft cannabis regulatory ordinances and other cannabis-related procedural tasks, including preparation of a cannabis tax
N.2., File # 22-4734 Meeting Date: 9/20/2022
ordinance. The contract with HDL was approved at the June 21, 2022 City Council meeting.
HdL has since reviewed the City’s draft cannabis regulatory ordinances and provided staff with recommendations and comments. The ordinances were amended to include the Planning Commission recommendations as directed by City Council and the HdL recommendations supported by City staff. City Council adopted the ordinances on September 6, 2022.
The contract with HdL also includes the preparation of a cannabis business tax ordinance as well as assistance with the subsequent ballot measure. The current, adopted cannabis regulations do allow for developer agreements to include fees, though this option would sunset at such point that a tax would be approved.
There are numerous advantages to establishing a cannabis business tax as opposed to administering developer agreements. A cannabis business tax would allow the City to collect taxes on all cannabis sales within the City, including deliveries originating outside City limits. A cannabis business tax would also address and capture hemp business sales. Lastly, a cannabis tax ordinance would remain in effect and be enforceable even if the forthcoming cannabis ballot initiative is approved. In contrast, the cannabis ballot initiative going to voters on October 19, 2022 - if successful - would supersede the City’s adopted cannabis licensing regulations and does not include a developer agreement fee.
The draft taxation ordinance is attached and includes the following components:
· Creating a flexible tax range
· Requiring registration, reporting, and remittance of tax · Addressing delinquency of tax, including penalties and interest · Clarifying that personal cultivation is not taxed
· Establishing audit and examination of records requirements · Clarifying that payment of tax does not authorize unlawful business · Specifying that violation of the Ordinance is deemed a misdemeanor This agenda item is only for the discussion of the draft cannabis tax ordinance and is designed to give City Council a chance to provide direction to staff and HdL prior to finalizing the ordinance for introduction and consideration of approval.
COORDINATION
This agenda item was prepared by the Community Development Department in coordination with the City Manager’s Office, Finance Department, Treasurer’s Office, and the City Attorney’s Office. The City’s consultant, HdL, prepared the draft ordinance which was reviewed and revised by the City Attorney’s Office.
FISCAL IMPACT
The fiscal impact to the City for regulating cannabis sales and delivery in Redondo Beach is not fully known at this point. There are many variables to consider including 1) the number and types of licenses to be issued, 2) the volume of business and sales from future local cannabis operations, 3) the specific franchise fee or tax rate charged for cannabis sales in Redondo Beach, 4) the amount of staff time allocated to regulatory and enforcement activities, and 5) the potential for legal challenge to
N.2., File # 22-4734 Meeting Date: 9/20/2022
the City’s licensing activities.
Notwithstanding the above variables, staff’s initial estimate is that each licensed site in Redondo Beach could provide $500,000 to $1,000,000 in additional annual General Fund revenue, provided the City moves forward with the proposed 5% tax and/or the equivalent developer agreement fee included in the City’s Ordinance. The preparation of the Ordinance and staff report are within HdL’s contract scope and the annual budgets of the Community Development Department, City Manager’s Office, and the City Attorney’s Office.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· Draft Ordinance Amending Title 6