Law and Legislation Committee
March 15, 2022

Economic & Planning Systems, Inc.T h e E c o n o m i c s o f L a n d U s e455 Capitol Mall, Suite 701 nSacramento, CA 95814916.649.8010 nwww.epsys.com SACRAMENTO COMPREHENSIVE CANNABIS STUDYPrepared for the Office of Cannabis Management, City of Sacramento REAL ESTATE ECONOMICSPUBLIC FINANCELAND USE & TRANSPORTATIONECONOMIC DEVELOPMENT & REVITALIZATIONFISCAL & ECONOMIC IMPACT ANALYSISHOUSING POLICYPUBLIC PRIVATE PARTNERSHIPS (P3)PARKS & OPEN SPACE ECONOMICSEPS

SACRAMENTOOAKLANDLOS ANGELESDENVER
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 2 INTRODUCTIONScale of the industry and its constituent elements in SacramentoThe industry’s affect on the City’s economy, real estate, and neighborhoodsThe industry’s net revenue to the City after factoring municipal service costsLiterature and case study findings that may be applicable to Sacramento’s oversight of the industry The City of Sacramento retained EPS to conduct a comprehensive cannabis study focusing on the following four questions:

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 3 QUALITATIVE TRENDS AND ISSUESWhere and under what conditions have jurisdictions regulated industry to ensure sustained health, resulting in a sustainable source of revenue?Can big tobacco, big pharma, or private equity be combined with local stakeholders in a strategy to capture wealth in the local community?What tools and techniques are jurisdictions using successfully to ensure that significant benefits accrue to communities in need?What is the most direct path to wealth creation? What cities have tried other approaches, and how do the results contrast with Sacramento’s approach? The Study summarizes the cannabis industry’s footprint in Sacramento, followed by national, state, and local industry trends. Several qualitative trends and issues are examined to establish a foundation for developing a successful regulatory framework, including:

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 4 OVERVIEWLand Use Regulation -Identifycomparable city regulations related to the location of cannabis industry uses and adjacent uses.Ownership: Structure and Ability to Transfer -Explore the range of ownership structures prevalent in the industry, any emerging trends, and how ownership is controlled and monitored by various jurisdictions.Taxation and Fees -Investigate tax revenue generation sources and trends, including types of taxes, changes in rates, and exemptions. Identify other jurisdictions’ strategies for allocating tax revenues.

POLICY FOCUS AREASThe Study sought to understand how other jurisdictions have handled cannabis regulatory issues, as well as emerging practices. The policy review is organized into the following subject areas:

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 5 OVERVIEWCase Studies –Based on initial evaluations, several cities were identified as case studies, including Long Beach, Oakland, Seattle, and Denver;Stakeholder and Key Informant Interviews -The EPS team conducted wide-ranging and confidential interviews. Real Estate Performance Evaluations -EPS conducted detailed evaluations of cannabis uses in the City on residential sales prices and commercial lease rates. Fiscal Impact Analysis. EPS estimated the industry’s net effect on the City’s General Fund; examining both tax revenues and costs for public services.Economic Impact (Input-Output) Analysis (EIA). The EIA measures the total economic contribution of the industry to Sacramento County, in terms of jobs and economic output.

METHODOLOGIESA variety of methodologies were used in the analysis, including:

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 6 OVERVIEWRestitution –The War on Drugs is generally accepted to have harmed communities. Jurisdictions across the country have sought to make reparations through increased access to equity opportunities in the cannabis industry.Economic and Community Development– Cannabis brings a new and growing industry that provides jobs and stimulates economic activity. However, there are concerns that cannabis businesses have displaced other established businesses and priced them out of the City. Additionally, concern has been raised about potential adverse effects on residential uses nearby.Fiscal -The industry generates significant revenues to the City General Fund; however, ensuring future revenue generation from a viable industry requires balancing revenue goals with business sustainability.Health and Well-Being- Cannabis-derived products offer alternative medical treatments that are used by many, with the potential for additional uses as research continues.

ISSUES AND FACTORSPolicy goals driving regulation and taxation considerations include the following:

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 7 CHIEF FINDINGS1.The industry is growing and diversifying rapidly at the local, regional, State, national, and global levels.2.Dispensary sales indicate Sacramento is a net exporter of cannabis to the region and other parts of California.3.A short-lived spike in industrial rents following legalization appears to have eased.4.Cannabis businesses have not had a negative impact on other nearby retail or industrial uses.5.Cannabis businesses have not had a negative impact on nearby home values.6.Cannabis businesses have not created increases in crime beyond the levels generated by other businesses.7.Cannabis is important to the City General Fund.8.Cannabis is a significant driver of the Sacramento economy.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 8 CHIEF FINDINGS9.The industry is on the cusp of a profound change with federal legalization combined with massive and ongoing technological innovation.10.Smaller local players may be partially protected through “protectionist” policies of the City.11.A major cultivation oversupply is working its way through the market, with prices dropping precipitously.12.Sacramento is well positioned to command a strong position in the State’s trade of legal cannabis, even after federal legalization.13.The industry does not appear to produce negative economic effects on commercial and residential districts.14.Local areas of potential saturation concern include cultivation and delivery services in Districts 2 and 6.15.Many small and local firms need assistance in funding start-up capital or ongoing operations.16.While OCM has been successful in obtaining major grants from the State to fund specific needs, a sustained allocation of revenue for said purposes will be more predictable than the pursuit of grants.

INDUSTRY OVERVIEW
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 10 CANNABIS INDUSTRY FUNCTION GROUPSPrimary Industry Function Groups (IFGs) in the Industry Supply Chain are Cultivation, Distribution, Manufacturing, Testing, and both Storefront and Delivery Retail Sales.Distributors are particularly important as they collect and pay cultivation and excise taxes to the State .Distributors also control what product gets to the market through their relationships with Cultivators, Manufacturers, and Retailers.They are increasingly Multi-state operators looking to Federal legalization and large market share.SUPPLY CHAIN CATEGORIES

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GEOGRAPHY OF CANNABIS IN SACRAMENTO

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 12 GEOGRAPHY OF CANNABIS IN SACRAMENTO0 M5 M10 M15 M20 M25 M30 M1 2 3 4 5 6 7 8Floor Area (Millions of Square Feet)City Council DistrictIndustrial Floor Area by Council District Source: City of Sacramento, Sacramento County Assessor's Office, EPS.8511225273020406080100120Light Industrial Zone Heavy Industrial Zone Heavy Commercial Zone General Commercial Zone Industrial and Transit-AreaZoneLocation of Cannabis Businesses by Zoning DesignationSource: City of Sacramento Office of Cannabis Management, City of Sacramento Open Data Portal, EPS.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 13 CANNABIS IN SACRAMENTOBased on taxes remitted to the City by cannabis businesses, the cannabis industry in Sacramento is estimated to have generated more than $800 million in gross receipts in 2021, as shown in the table below.The industry’s 2021 income is more than 3.5 times the income of the industry during the first full year of legalization in 2018.Consumer spending on cannabis products in Sacramento, measured by gross receipts at delivery and dispensary businesses, was nearly $400 million in 2021. IndustryFunctionGroup2013 2014 2015 2016 2017 2018 2019 2020 2021Dispensary [1] $35.9 M $57.5 M $84.2 M $117.4 M $129.9 M $138.8 M $161.0 M $219.9 M $295.8 MDelivery [2] - - - $0.001 M $0.001 M $7.5 M $25.2 M $60.6 M $102.0 MDistribution [3] - - - - - $6.7 M $23.4 M $93.9 M $173.3 MTesting [4] - - - - - $0.5 M $1.5 M $4.1 M $9.0 MMicrobusiness [5] - - - - - - $0.9 M $2.9 M $3.8 MManufacturing [6] - - - - - $49.2 M $40.7 M $8.9 M $41.0 MCultivation [7] - - - - $0.0 M $15.8 M $36.3 M $69.0 M $195.5 MTOTAL$35.9 M$57.5 M$84.2 M$117.4 M$129.9 M$218.6 M$289.0 M$459.3 M$820.4 MEstimated Gross Receipts (Millions, per year)Note GROWTH OF THE INDUSTRYCity of Sacramento Gross Receipts by Industry Function Group Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 14 CANNABIS IN SACRAMENTOGross receipts across most types of cannabis businesses in Sacramento have increased every year since legalization. GROWTH BY INDUSTRY FUNCTION GROUP (IFG)City of Sacramento Gross Receipts by Industry Function Group DispensaryDeliveryDistributionTestingMicrobusinessManufacturingCultivation - $50 M $100 M $150 M $200 M $250 M $300 M $350 M2015201620172018201920202021Source: City of Sacramento, EPS.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 15 CANNABIS IN SACRAMENTOBased on a survey by the City’s OCM, it is estimated there are approximately 8,000 people employed directly by the cannabis industry in the city.It is estimated that more than half (53 percent) of those employed in the industry are in the cultivation sector, making this by far the most labor-intensive sector of the industry in Sacramento.Cannabis is in the top 10 industries by number of employees in the City, contributing significantly to the local economy.

INDUSTRY JOBSTop 10 Industries by Employment in City of Sacramento (2021) RankNumber Employed in City of Sacramento [1]1 25,0002 11,5003 11,4004 10,8005 9,0006 8,9007 8,5008 8,3009 8,000107,800Source: IMPLAN, EPS.[1] Cannabis [2]Other Real EstateIMPLAN is a private economics firm that provides data and software for analyzing local and regional economies. Employment data from IMPLAN is available at the County level - City estimates for Sacramento were produced from this data by adjusting IMPLAN totals based on the proportion of total County residents that live within the City (83 percent) and rounded to the nearest 100.

IndustryState GovernmentLocal Government - EducationTransit and Passenger TransportationIndividual and Family ServicesFull-Service RestaurantsHospitalsLimited-Service RestaurantsEmploment Services Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 16 1234567TotalIndustry Function Group Cultivation 1 19 0 2 4 63 089Distribution 0 7 0 2 5 21 035Manufacturing 0 6 1 1 4 15 027Transport 0 0 0 0 0 3 03Micro 0 3 0 0 1 2 06Subtotal Production13515141040160Lab 0 3 0 0 0 1 04Delivery 0 10 0 11 3 34 058Storefront 0 7 1 10 3 8 130Total [1]155226201471252Source: City of Sacramento Office of Cannabis Management, EPS. [1] Includes businesses with active licenses as of July 2021. City Council DistrictCANNABIS IN SACRAMENTOAs shown in the table below, the industry is not distributed evenly across the City Council districts.Council District 8 is the only District to not have any cannabis businesses.Council Districts 1, 3, and 7 have a total of 4 between them.IFGs BY COUNCIL DISTRICT The uneven distribution is due to 2 primary factors:1. The location of zoning districts that allow cannabis uses, and2. the location and availability of industrial buildings well-suited for cannabis business users.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 17 CANNABIS IN SACRAMENTOBased on taxes remitted to the City by cannabis businesses, the cannabis industry in Sacramento took in more than $800 million in 2021. The industry’s 2021 income is more than 3.5 times the income of the industry during the first full year of legalization in 2018. Consumer spending at Sacramento’s cannabis retailers has increased rapidly, with annual year-over-year increases of 51 percent and 42 percent respectively in the past 2 years.While consumer spending at storefront cannabis dispensaries grew steadily from 2013 to 2021, spending on cannabis delivery sales has grown dramatically in the last 4 years, accounting for more than a quarter of cannabis retail sales in Sacramento in 2021.The cannabis industry is now among the top 10 employment sectors in the City, with approximately 8,000 workers, half of whom are estimated to be in the cultivation sector.Council District 4 (Midtown) continues to have the highest concentration of storefront dispensaries in the City, while District 6 contains more than half of the City’s non-storefront delivery dispensaries.District 6 contains a majority of production-related cannabis operations, with 104 of the 160 such operations in the City (as of July 2021); District 2 has the next highest production concentration with 35 operations (as of July 2021).

INDUSTRY SUPPLY CHAIN
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 18 ECONOMIC TRENDSGlobal market that is projected to grow from $28.3 billion in 2021 to $197.7 billion in 2028, an annual growth rate (CAGR) of 32 percent. North America dominates the international market and was valued at $16 billion in 2020.As the first of the G12 (industrially advanced) nations to fully legalize cannabis, Canada has become the leader in the medical cannabis sector. The international picture is evolving rapidly; cannabis usage is at varying stages of legality and decriminalization in several countries in Europe, South America, and parts of Asia. INTERNATIONAL MARKET DYNAMICSInternational research and development are contributing to an evolving product market. Multi-national corporations are consolidating and expanding into international markets.Pharmaceutical giant Pfizer invested $6.7 billion in 2021 to acquire Arena Pharmaceutical.

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ECONOMIC TRENDSKEY MULTINATIONAL CANNABIS COMPANIES

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 20 NATIONAL TRENDSLarge corporate players are investing billions in capital to acquire footholds in legalized states in anticipation of national legalization.Vertically integrated multi-state operators (MSOs) are acquiring cultivation, distribution, manufacturing, and retail sales companies to control the supply chain from seed to sale.Companies such as Scotts Miracle Grow are entering into the cultivation space.Molson Coors, Constellation Brands and many others are entering the beverage space both for CBD and THC products.Beauty and wellness companies are investing in heavily in the market.

NEW PRODUCTS, NEW MARKETS AND CONSOLIDATION
■Medical■RecreationalNote: Thi smapdoesnot include states that havelegalizedonly CBD-b asedoils.

W AO RNVAZMTWYNMNDSDIDUTN EK SOKTXMNWIIAMOILINMIOHP AN YK YWVV ATNNCS CG AALM SA RLAFLM AVT NHM EC OR ICTN JD E MDDCAKHICAStates with Legalized Medical and Recreational Cannabis And recently Arena Pharmaceuticals, Inc. was acquired by pharmaceutical giant Pfizer in an all-cash transaction, for a total equity value of approximately $6.7 billion.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 21 NATIONAL TRENDSFlower and Pre-roll continue to dominate legal sales.Extract and Edible sales continue to increase.The 2019 spike in vaping has reduced moderately.LEGAL AND ILLICIT SALES Edible, 11%Extract, 11%Flower and Preroll, 50%Vape, 26%Other, 3%Share of US Cannabis Sales by Product TypeGraphic Data Courtesy of New Frontier Data 2021 Mid-Year Market Update The unregulated industry remains large in scale and sophisticated in its logistic and operational capabilities.The trend toward increasing legal sales is putting some downward pressure on the illicit market – but price parity is essential.$5.9 B$9.1 B$11.5 B$13.0 B$14.0 B$14.8 B$15.5 B$7.4 B$11.2 B$13.4 B$18.2 B$21.8 B$25.0 B$27.4 B$66.3 B$58.9 B$0 B$10 B$20 B$30 B$40 B$50 B$60 B$70 B2019 2020 2021 2022 2023 2024 2025Billions of DollarsEstimated Annual Growth of U.S. Legal Cannabis Industry 2019-2025 Adult-Use SalesMedical SalesIllicit MarketGraphic Data Courtesy of New Frontier Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 22 ECONOMIC TRENDSThe 8 northernmost counties in California with licensed cannabis as a group have the highest per capita cannabis sales in the State.The area is known for high-quality cannabis and is a net exporter.Per capita cannabis sales in Sacramento County have typically been close behind those of the northern counties and significantly higher than the statewide average.

STATE TRENDS – SALES DYNAMICSAnnual Licensed Cannabis Sales per Capita 2018–2021

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0.0M sq ft0.5M sq ft1.0M sq ft1.5M sq ft2.0M sq ft2.5M sq ft2015201620172018201920202021CultivationManufacturingMicrobusinessTestingDistributionDeliveryDispensarySource: City of Sacramento Office of Cannabis Management, EPS.

ECONOMIC TRENDSDispensary consumer spending in the City has grown steadily, with a CAGR of 30 percent between 2013 and 2021. Delivery has grown far more dramatically, with a CAGR of 138 percent since 2018.The space occupied by cultivation has increased far more dramatically than the gross receipts from cultivation. Dispensary square footage has been static in recent years as gross revenues have continued to grow.The 2018 spikes in revenues per square foot for several IFGs, particularly manufacturing, correspond with spikes in asking lease rates (rents) in industrial zones throughout the City in 2018.

STATE TRENDS – INDUSTRY METRICSCity of Sacramento Occupied Square Footage by IFGDispensaryDeliveryDistributionTestingMicrobusinessManufacturingCultivation$0$500$1,000$1,500$2,000$2,500$3,0002015201620172018201920202021Source: City of Sacramento, EPS. City of Sacramento Gross Receipts per Square Foot by IFG Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 24 STATE TRENDSLarge scale mixed light cultivators such as Glass House Farms have consolidated 6 million square feet of greenhouse cultivation facilities.Cresco Labs purchase of Origin House allows Cresco Labs to get its products into approximately 575 California dispensaries, representing about 65% of all legal retail locations in the state.The $2.1 billion acquisition of Harvest Health & Recreation by Florida cannabis behemoth Trulieve Cannabis Corp. has creatied the largest marijuana company in the U.S., with a combined 149 dispensaries and operations in 11 states including 5 in California.Many smaller MSOs as well as single state operators are investing heavily in the California market.

BIG PLAYERS INVESTING IN CALIFORNIA MARKET5.5 Million Square Feet of Cultivation in Camarillo, CA Vertically integrated TerrAscend with a $2 billion market cap has seed to sale operations in northern California including 5 dispensaries and 9 brands across all product lines.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 25 $191.4 M$310.7 M$571.9 M$675.4 M$36.8 M$87.6 M$144.3 M$166.4 M$169.5 M$240.4 M$394.3 M$460.6 M$0 M$200 M$400 M$600 M$800 M$1,000 M$1,200 M$1,400 M 2018 2019 2020 2021 [1]Sales TaxCultivation TaxExcise Tax[1] 2021 estimates extrapolated from Q1-Q3 revenues.Source: CDTFA; EPS.

STATE TRENDSTAX REVENUEState of California Cannabis Tax Revenue 2018-2021 Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 26 STATE TRENDSCalifornia cultivates more than 3 times the amount of cannabis it can consume.Only roughly 37% of California communities allow legal adult use cannabis businesses.It is estimated that 70-80% of the market is illicit sales.Legal businesses suffer from high taxation, the inability to depreciate costs, and lack of access to banking.Licensed storefront retail flower prices are 25% higher than unlicensed prices.The cultivation flat tax is fueling ”burner” license distributors.

LEGAL AND ILLICIT MARKET COMPETITIONEstimated Licensed and Unlicensed Retailers by Region262121321931673216419468178801002003004005006007008009001000NorthernCaliforniaGreaterBay AreaCentralCalifornia (Incl.Sacramento)Los AngelesCountyOther SouthernCaliforniaNumber LicensedNumber UnlicensedSource: Goldstein et al, Giannini Foundation of Agricultural Economics, University of California.

COMMERCIAL REAL ESTATE IMPACTS
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 28 COMMERCIAL/INDUSTRIAL REAL ESTATE IMPACTSZones for commercial real estate analysis drawn around each cannabis business or cluster of businesses citywide.Analysis zones varied by type of location and number of cannabis businesses:–Single cannabis business in Midtown = 500 ft radius–Single cannabis business on a commercial strip/arterial = 700 ft radius–Small cluster of cannabis businesses = 1,000 – 1,200 ft radius–Large cluster of cannabis businesses = specific geography identified

METHODOLOGY
19thSt & S St - 500’Examples of Analysis ZonesPower Inn & 14thAve ZoneEl Monte & Colfax – 1200’Stockton Blvd – 700’

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 29 IMPACTS ON NEARBY INDUSTRIAL SPACECOMMERCIAL/INDUSTRIAL REAL ESTATE IMPACTS93%96%97%96%97%94%97% $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.000.0 M SF10.0 M SF20.0 M SF30.0 M SF40.0 M SF50.0 M SF60.0 M SF2015 2016 2017 2018 2019 2020 2021Citywide Industrial Occupancy & RentOccupiedVacantAsking RentInventory Rent (annual)Source: Costar; EPS.
93%95%97%97%96%91%95% $- $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.000.0 M SF5.0 M SF10.0 M SF15.0 M SF20.0 M SF25.0 M SF2015 2016 2017 2018 2019 2020 2021All Cannabis Zones Industrial Occupancy & RentOccupiedVacantAsking RentInventory Rent (annual)Source: Costar; EPS.
Industrial space near cannabis businesses, which tends to be located in areas with smaller, older building stock, experienced low vacancy levels and a surge in rental rates that coincided with legalization but has since abated. Citywide, the impact from legalization was less pronounced, with a more dramatic increase in rental rates recently driven by new construction and distribution operations in other areas of the City.

RESIDENTIAL REAL ESTATE IMPACTS
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 31 HOME PRICES AND CANNABIS USESEvery SFH Sale since Jan. 1, 2015. Excludes:–Vacant lots–Single transactions involving multiple properties–Sales under $20,000Analysis–Price PSF•Sales within ¼-mile of cannabis business•Sales between ½- and ¼-mile of cannabis businessAnalysis split between cannabis production and cannabis dispensaries

METHODOLOGY
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 32 HOME PRICES AND CANNABIS USESRESULTS$200$240$280$320$360$4002015 2016 2017 2018 2019 2020 2021Average Price Per Square FootYear of SaleSingle-Family Home Sales Near DispensariesControlWithin 1/4-mileSource: City of Sacramento Office of Cannabis Management, Sacramento County Assessor's Office, EPS.$140$190$240$290$340$3902015 2016 2017 2018 2019 2020 2021Average Price Per Square FootYear of SaleSingle-Family Home Sales Near Production UsesControlWithin 1/4-mileSource: City of Sacramento Office of Cannabis Management, Sacramento County Assessor's Office, EPS.

CRIME AND CANNABIS BUSINESSES
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 34 CRIME AND CANNABIS BUSINESSESLITERATURE REVIEWAuthor(s) Year Location Geography FindingHuber, Newman, & LaFave 2016 U.S. StateReduction in property crime due to legalization of medical marijuana, no effect for depenalizationConnealy, Piza, & Hatten 2019 Denver Street SegmentIncrease in property crime on street segments with dispensaries. Contreras 2016 Los Angeles BlockMedical marijuana dispensaries associated with increase in crime on block and surrounding areas.Kepple & Freisthler 2009 Sacramento Census TractMedical marijuana dispensaries not associated with increased crime in census tracts.Brinkman, Mok-Lamme 2019 Denver Census TractRecreational dispensaries associated with reduction in crime rate in census tracts.Freisthler, Ponicki, Gaidus, Gruenewald 2016 Long Beach Census Block GroupMedical Marijuana dispensaries not associated with crime rates.

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CRIME AND CANNABIS BUSINESSESIN SACRAMENTO
318430604794206252
050100150200250300350
2018 2019 2020 2021 [2]Crimes at Cannabis BusinessesLicensed Cannabis Businesses

ECONOMIC IMPACT
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 37 ECONOMIC IMPACT ANALYSISMETHODOLOGYThis economic impact analysis estimates the quantifiable ongoing operational impacts of the cannabis industry, including direct, indirect, and induced impacts to the City and County through an industry contribution multiplier analysis.

DIRECT IMPACTS INDIRECT IMPACTS INDUCED IMPACTSOperating revenues and employmentExample: Operational spending and onsite employment of cannabis operations.Business-to-business transactionsExample: Cannabis businesses purchases goods, such as office supplies and equipment from businesses in the County. Spending of employee income Example: An office employee spends their salary on groceries and household expenses, generating sales for other local businesses.

Total Economic ImpactsSource: EPS.
•The direct effect represents the annual output or employment attributable to cannabis business operations. •The indirect effect results from industry-to-industry transactions required to satisfy the direct effect. This effect is a measure of the change in the output of suppliers linked to the cannabis industry.•The induced effect consists of impacts from employee spending in the local economy. Specifically, the employees of directly and indirectly affected businesses generate this effect by purchasing goods and services in the local economy.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 38 ECONOMIC IMPACT ANALYSISCANNABIS INDUSTRIES LINKAGE TO OTHER INDUSTRIESThe cannabis industry is comparable to other industries in several ways, there are also significant additional benefits and industry synergies beyond those seen by other similar operations.

Cultivation and Indoor Greenhouses
Cannabis and Food ManufacturingCultivation businesses serves as a significant catalyst for R&D, including the genetic innovations resulting in new strains and development of new growing technologies. Proximity to the University of California at Davis creates the opportunity for the Sacramento Region to become a hub for cannabis growing technology and research.Maintaining proper dosage throughout the manufacturing process requires very specific technology and, at times, a more intensive manufacturing operation.

Additional LinkagesCannabis manufacturing is commonly compared to craft brewery operations, which undergo similar stages of testing and development of new brewing methods.Seed variety innovations relate strongly to life and seed science research activity, including genetics research and tie-in to wider innovation in the ag industry.Distribution operations of the cannabis are similar to many non-cannabis operations choosing Sacramento as a hub for transportation and distribution infrastructure, serving growing markets throughout the western United States.

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ECONOMIC IMPACT ANALYSIS SUMMARY OF RESULTS
Sacramento County
City of SacramentoAnnual Economic OutputAnnual Jobs Supported7,9692,6081,841 AnnualEconomic Output$1,487 M$284 M$201 MAnnualJobs Supported7,9691,6951,197 $2,233 Million in Total Output$1,972 Million in Total Output12,400 Total Jobs Supported10,900 Total Jobs Supported$1,487 M$437 M$309 M

FISCAL IMPACTS
Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 41 FISCAL IMPACT ANALYSISMETHODOLOGY AND PURPOSEThe fiscal analysis examines the estimated annual net fiscal impact on the City’s General Fund budget resulting from cannabis operations, based on the approved City of Sacramento Fiscal Year 2021/22 BudgetSpecifically, the fiscal analysis estimates whether estimated General Fund revenues attributable to cannabis operations adequately covers the cost of delivering General Fund municipal services (e.g., police and fire protection) to the cannabis businesses, as well as provide ongoing funding for the OCM.

Major Sources of Fiscal Revenues AnalyzedProperty Tax RevenuesSales Tax RevenuesBusiness Operations Tax RevenuesBusiness Permitting Fee RevenueNeighborhood Plan Area Fee Revenue (Non-General Fund) Major Sources of Fiscal Expenditures AnalyzedGeneral City Operational ExpendituresCannabis Operations Expenditures–Cannabis Management–Governmental Services–Fire–Police Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 42 FISCAL IMPACT ANALYSISSUMMARY OF FISCAL RESULTSItemCultivationManufacturingDistributionRetailDeliveryTotal City General Fund Net Fiscal ImpactsAnnual General Fund Revenues$6.5 M$1.2 M$5.8 M$13.8 M$4.8 M$27.3 MAnnual General Fund Expenditures$2.2 M$0.4 M$1.7 M$2.5 M$1.1 M$7.5 MAnnual Net General Fund Surplus/(Deficit)$4.3 M$0.9 M$4.1 M$11.3 M$3.7 M$19.8 MAdditional Cannabis Fiscal RevenuesNeighborhood Responsibility Plan Fee$0.9 M$0.2 M$1.2 M$2.2 M$0.7 M$5.2 MAnnual Fiscal Impact Summary by Business Group (Millions) Cannabis-related revenues are estimated to account for approximately 5 percent of all General Fund revenues budgeted for FY 21/22Business operations taxes are the largest revenue source for cannabis operation in the City, anticipated to generate $20.7 million in FY 21/22 (73 percent of off all business operations taxes generated in the City).In addition to the estimated General Fund revenues, the neighborhood responsibility plan fee generates an additional $5.2 million in revenues.

POLICY DISCUSSION - OWNERSHIP
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OWNERSHIP
The Sacramento Office of Cannabis Management (OCM) is responsible for issuing business operating permits (BOPs) to state licensed business owners. Both the State-granted licenses and City-granted BOPs are based on the individual applicant’s/entity’s qualifications and have no value. They cannot be transferred, sold, or assigned. SACRAMENTOSacramento does not limit the number of BOPs an individual or entity can have, except for retail storefront dispensaries.Under the City ordinance, no single person or entity is allowed to have ownership interest in more than one dispensary.The 10 new CORE dispensary BOPs will also be subject to this restriction.Sacramento does not prohibit vertical integration at all levels of the seed to sale chain. This includes current dispensary owners.However, a business owner that holds a testing license cannot hold any other cannabis licenses.Sacramento has a moratorium on any change of ownership for the 30 existing dispensaries that is set to expire on May 11.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 45 OWNERSHIP TRACKINGSACRAMENTOAn overwhelming majority have opted to structure themselves as corporations. Many of these corporate entities have the potential themselves to be owned by other corporate entities and even holding companies, The 10 new CORE dispensary BOPs will also be subject to this restriction.Multi-layering of ownership presents considerable challenges in uncovering and tracking a complete ownership structure.Tracking ownership in other IFGs is primarily linked to background checking. Ownership in more than one storefront dispensary is prohibited, and with a cap on these dispensaries, ownership can be extremely valuable. Once the ownership moratorium expires, a new corporate ownership tracking methodology will need to be developed for storefront retail dispensaries. Sacramento city code requires that every director and any individual/entity who owns more than 20 percent of a cannabis business, regardless of their authority over that business, must submit for a background check and be tracked by the OCM. If the cannabis business is a storefront dispensary, every director and owner, regardless of percentage of ownership, must be tracked.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 46 OWNERSHIP TRANSFERSACRAMENTOThe moratorium on selling dispensary ownership is set expire May 11, 2022. Transfer of ownership must be reported to the OCM on the Cannabis Business Information Change Form, which must be completed with both the information of any entity relinquishing ownership, regardless of the percentage owned, and the information of any potential new ownership.The form must list any new person who has an aggregate ownership interest of 20% or more in the cannabis business. If a holding company has an ownership interest of 20% or more in the business, that holding company and its ownership percentage must be listed as well as the individuals that own the company. The CEO and members of the board of directors of the business and any holding company must be listed regardless of the percentage of their ownership interests. The State allows ownership in a cannabis business to be transferred. Partial ownership transfer is allowed when the new owner is deemed to be qualified by the State. Full transfer requires a new license.The City allows the transfer of part or all of a cannabis business ownership except for storefront retail dispensaries.

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OWNERSHIP
OAKLANDThe City of Oakland adopted a landmark social equity policy in 2017 in which there must be a 1:1 ratio of social equity and non-equity permits.Applicants for ownership apply through the City Administrators office CASE STUDIESThe city put an initial cap on dispensary permits at 4 and includes a provision for the Oakland City Administrator to allow up to 8 new dispensary licenses per year. Complete vertical integration is allowed. No individual or entity shall have a direct or indirect interest in more than 2 dispensary permits.The City of Oakland did not put the caps on non-storefront retail delivery permits, and there are no other limits on the number or type of permits individuals or entities can hold. The City of Oakland allows for both outside investment and vertical integration.Social equity businesses must maintain at least 51% equity ownership.

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OWNERSHIP TRACKING
OAKLANDThe City of Oakland does not expressly define a methodology of tracking ownership other than the information that is required in the initial application. CASE STUDIESThe application requires definition of the type of business structure being used, as well as a list all persons directly or indirectly interested in the permit sought, including all officers, directors, general partners, managing members, stockholders, and partners. Equity applicants are required to file additional qualifying information.

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OWNERSHIP TRANSFER
OAKLANDOakland does not limit the sale of cannabis ownership for general permit holders. New ownership interests are required to obtain State licensing. CASE STUDIESA general applicant can transfer their ownership in a cannabis business to anyone, provided the new permittee submit their own application and go through background check and the permit process.The city’s general business transfer code has language that the city interprets to preclude transfer of equity ownership interest to a non-equity business.The city is exploring allowing the transfer of equity permits to anyone after a 3-year vesting period.

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OWNERSHIP
LONG BEACHThe Office of Cannabis Oversight (OCO) regulates the local cannabis industry in Long Beach.There are 3 new programs within the city to encourage social equity applicant participation including shared use manufacturing (passed), retail delivery licenses and 8 new equity owned retail storefront dispensaries (in ordinance development).CASE STUDIESIn their original ordinance, the city limited dispensary licenses to 32, which were quickly spoken for by the existing medical dispensary owners. The city does not have language in its ordinance that limits ownership in other allowed cannabis businesses.The city allows for vertical integration under the State’s microbusiness license designation. The new retail delivery permit program is introducing an unlimited number of retail delivery ownership opportunities exclusive to equity applicants. Social equity businesses must maintain at least 51% equity ownership.

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OWNERSHIP TRACKING
LONG BEACHThe City of Long Beach does not expressly define a methodology of tracking ownership other than the information that is required in the initial application. The city does define what constitutes an owner in its ordinance. CASE STUDIESThe application requires definition of the type of business structure being used, as well as a list of all owners and managers in the permit sought, including all officers, directors, general partners, managing members, stockholders, and partners. Equity applicants are required to file additional qualifying information. The ordinance defines an owner as any person with an ownership interest of 10% or more in the cannabis business. It defines owners in general partnerships, non-profits, corporate structure, LLCs, and associations.It requires shareholders with 10% of issues or outstanding stock to be named owners.

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OWNERSHIP TRANSFER
LONG BEACHLong Beach allows for the transfer of ownership of cannabis permits through a process with the Office of Financial Management (OFM). It does require any new ownership interest to acquire State licensing. CASE STUDIESA Minor Cannabis Transfer of Ownership Application is required when a business is adding owners to their license whose ownership percentage totals between 10 percent and 49 percent of the business. The Long Beach OFM does not stipulate a process for transferring more than 49 percent of ownership but does have an application and review process when a business owner is transferring their interest to another party through a business license application. The new equity-focused shared use is not intended as a salable ownership but rather an opportunity to provide equity applicants an existing facility in which to operate under an established owner.The city is working through how the new equity storefront retail dispensary program will address sales of equity dispensary ownership.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 53 OWNERSHIPDENVERThe Department of Excise and Licenses is responsible for issuing cannabis business licenses and permits.Initially Denver did not limit business ownership and currently there are more than 1,100 business licenses operating out of more than 500 locations.CASE STUDIESDenver allows for both vertical integration and outside investment in cannabis businesses.A 2021city bill reserves new ownership opportunities to social equity for retail store, cultivation and most other cannabis licenses until 2027, and retail delivery licenses to social equity applicants until 2024.The new retail hospitality, retail hospitality and sales, and mobile hospitality ownership opportunities are also reserved for social equity applicants. Denver is accepting new applications from non-social equity owners for a medical or retail testing facility or R&D license or for a retail cannabis business license that will be co-located with a medical cannabis business of the same type.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 54 OWNERSHIP TRACKINGDENVERDenver keeps a database for active individual and business licenses, as well as inactive licenses; however, it is for all business license types and is limited to identifying the applicant. The city database does not address ownership structure. CASE STUDIESAs Denver rolls out its opportunities for social equity applicants and attempts to regulate the transfer of social equity ownership to maintain 51 percent social equity through July 1, 2027, a more advanced tracking system will be imperative.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 55 OWNERSHIP TRANSFERDENVERIn general, all cannabis businesses are transferable from one person to another on approval by the Director of Marijuana. CASE STUDIESThere are additional requirements for transfers of marijuana transporter businesses, which are subject to limitations set by Colorado state law. Transfer of ownership of cannabis off-premises storage facility permits or cannabis delivery permits have additional requirements.Before July 1, 2027, equity applicants can transfer ownership as long as 51 percent or more of the business is held by one or more social equity applicants. After July 1, 2027, social equity owners can transfer ownership to any applicant following an approval process. Denver also has a common ownership restrictions for multiple licenses sharing the same premise.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 56 OWNERSHIP AND SOCIAL EQUITYSeattle’s ownership requirements initially did not include an equity component and were among the least restrictive, favoring well-capitalized local legacy owners. Recently, the state has directed that all cannabis retail licenses that have been subject to forfeiture, cancellation, or revocation or licenses that were not previously issued by the WSLCB will be filled through the Cannabis Social Equity Program. Oakland’s 1:1 permit requirement provides both initial equal opportunities for social equity applicants and an avenue to allowing equity owners to sell to general applicants without depleting the equity permit pool. Sacramento and Long Beach both limit dispensaries and are permitting new storefront dispensaries exclusively to social equity applicants. Long beach is also now allowing unlimited non-storefront retail delivery permits and shared manufacturing permits for social equity applicants. Both cities will have to develop methodologies that both allow for wealth creation for social equity owners and continued availability of social equity business opportunities.Sacramento currently allows sale of social equity businesses after 10 years (Oakland is currently considering allowing sale after 3 years). Denver was also without a social equity program initially and has opened up capped storefront retail, cultivation and most other permits exclusively to social equity applicants through 2027.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 57 OWNERSHIPHow can the city provide more social equity ownership opportunities.The city currently has a cap on storefront dispensaries that makes these permits very valuable.Vertical integration and consolidation are rapidly expanding throughout the supply chain threatening small local owners.New state policies regarding consumption lounges have the potential to open new markets for ownership.

CONCERNSThe potential to adopt a 1:1 social equity to general ownership model for all IFGs moving forward.OPTIONSThe potential to identify ownership growth areas in the industry and direct those opportunities to social equity applicants.The potential to provide incentives and programs for small local owned businesses over large corporate MSOs through grants, loans, and reduced fees.The potential to open an entirely new IFG and perhaps restaurant niche in the space of consumption lounges, combined with food production and service.

Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 58 OWNERSHIP TRACKINGComplex ownership structures of individual IFG owners.Vertically integrated corporations already have established footholds in Sacramento. Ownership tracking is one of the more difficult puzzles to solve in the current ownership cap structure. CONCERNS1. Hire an outside consultant/firm to manage and implement the tracking through IRS, banking, and other industry methods.OPTIONS2. Create a position or positions in the OCM and hire experienced staff to manage and implement the tracking in house.3. Remove the one permit restriction on retail storefront dispensary ownership and streamline the individual/entity ownership reporting requirements to promote transparency.Options 1 and 2 both would require significant resources to implement but, given the complexity of the corporate structures, may be necessary to uphold the provision of the ordinance. The risk of Option 3 is that the recent trends of publicly traded companies buying multiple dispensary licenses in locales contribute to consolidation and monopolization of the market. CONSIDERATIONS Economic & Planning Systems, Inc. (EPS)EPS PPT Presentation | 59 OWNERSHIP TRANSFEROngoing ownership transfer in IFGs other than storefront dispensaries has the potential to lead to monopolization.Social Equity ownership transfer requirements restrict the potential financial gains.If social equity dispensary ownership can be transferred to non-equity buyers, the equity pool will be depleted.

CONCERNSIncentivize smaller local cannabis businesses through reduced fees, grants, or other financial programs.OPTIONSCreate a path for social equity owners to maximize their investment following a vesting period as Oakland is looking to do. Create a program to replenish the social equity dispensary pool any new dispensary allocations to be dedicated to social equity applicants until the agreed upon balance is achieved.The current moratorium on ownership transfer for storefront dispensaries is set to expire in May. Multiple owners have expressed the need for outside investment help their businesses. Should Sacramento remove the ownership dispensary ownership restrictions?Ownership in all other IFGs can be transferred through the city and state defined process. How can Sacramento best serve its existing local cannabis industry in the prospect of federal legalization and corporate consolidation? CONSIDERATIONS Economic & Planning Systems, Inc.T h e E c o n o m i c s o f L a n d U s e455 Capitol Mall, Suite 701 nSacramento, CA 95814916.649.8010 nwww.epsys.com