Law & Legislation
Cannabis Workshop #4:
Recommendations
May 10, 2022
Presented by the Office of Cannabis Management
Workshop #4 Roadmap
• Present EPS Cannabis study key takeaways for each subject area covered by the workshops
• Present policy goal(s) & recommendations for each subject area • Review list of future items and items not yet ready for consideration • Ask Committee to discuss and, after public comment, take a vote on recommendations*
• Including recommendations the Committee reached consensus on previously * Staff recommendations are in bold
Law & Legislation Workshop #1
Cannabis Business Ownership
EPS Study Key Takeaways: Ownership
• Cannabis industry is evolving towards consolidation and vertical integration with multi‐state operators and non‐cannabis big business seeking involvement
• Cannabis industry is evolving towards complex corporate structures and multi‐layered ownership
• No other industry regulated by the City has the same level of ownership oversight
• Direct comparisons with other cities are difficult to find due to the limited number and the limitations on having an ownership interest in more than one storefront dispensary in Sacramento
Policy Goals: Transfers of Storefront
Dispensary Ownership
• Encourage a more diverse and equitable ownership of a limited permit type
• Seek a balance on regulatory oversight
• Allow business owners to obtain investment in their business and perform succession planning without losing their investment Recommendation 1: Transfers of Storefront
Dispensary Ownership
A. Allow prohibition on transfer of storefront dispensary ownership to expire
B. Ownership Transfer Options:
1. Status quo: incremental ownership change of business holding the dispensary permit allowed with continuity
2. Modified State Version: less than 100% transfers allowed. If 100% transfer, then new application must be submitted and approved within 90 days or permit subject to revocation/denial. Transfers may not occur more frequently than every 6 months
3. Allow transfers of ownership to occur only once a year
4. Allow transfers of ownership only up to a certain percentage and all transfers over that are not allowed
5. Allow all transfers of ownership
Policy Goals: One‐Person‐One‐Storefront‐
Dispensary
• Discourage monopolization of a limited permit type
• Encourage more diverse and equitable ownership interests of a limited permit type
• Allow for more investment in the business, while prohibiting controlling ownership interest in multiple dispensaries • If multiple ownership interest allowed, need to disincentivize exceeding those limits
Recommendation 2: Storefront Dispensary
Ownership Options
A. Status quo: “One person, one dispensary” . As of 11/2019, ownership interest in no more than one storefront dispensary B. Percentage ‐based (5%/10%/20%) ownership allowed in an unlimited number of dispensaries
C. Percentage ‐based (10%/20%/40%) ownership in a limited number (2/3/5) of dispensaries
D. If ownership exceeds allowed limits, all storefront dispensaries under that ownership are subject to revocation/denial
Policy Goals: Storefront Dispensary Franchises
• Discourage monopolization of a limited permit type
• Encourage more diverse and equitable ownership interests in a limited permit type
• Franchisees may have lower cost of entrance and the franchise may have a different owner than franchisor, but required to be branded like franchisor and are often limited on independent business choices and must meet metrics or can be dispossessed of their franchise
Recommendation 3: Storefront Dispensary
Franchise Options
A. All storefront dispensary franchisees must identify themselves as such to the City, regardless of whether they have a different ownership than the franchisor
B. Options:
1. No franchisee/franchisor may have more than one cannabis storefront dispensary franchise in the City (all storefront ownership restrictions still apply)
2. No cannabis storefront dispensary franchisees may be permitted in the City Policy Goals: Defining & Tracking Ownership
for All Cannabis Businesses
• Balance between regulating business without overburdening • Conserve City resources by allowing business self‐reporting • Remove confusion over who is an owner
• Simplify tracking of ownership interest changes
• Disincentivize incorrect self‐reporting of ownership
Recommendation 4: Defining Ownership
Options for ALL types of cannabis businesses
A. Status quo: “’Ownership interest’ means all forms of legal or beneficial ownership including the following: stock, partnership, limited liability company, joint tenancy, leasehold, proprietorship, trust, beneficiary, proxy, power‐of‐attorney, option, warrant, and any other interest that evidences ownership or control, whether direct or indirect”
CONTINUED ON NEXT SLIDE
Recommendation 4: Defining Ownership (continued)
B. Modified State Model: Owner means any or all of the following
1. Person/business with any amount of legal ownership in a business that has applied for or received a cannabis business operating permit, unless the interest is solely a security, lien, or encumbrance
2. Board of directors of a corporation, regardless of whether they are shareholders
3. Chief executive officer, president or their equivalent, or an officer, director, vice president, general manager or their equivalent if any of the individuals holding these positions are shareholders in the business
4. Person/business with any amount of legal ownership in a business that has applied for or received a cannabis business operating permit, unless the interest is solely a security, lien, or encumbrance
5. Board of directors of a corporation, regardless of whether they are shareholders
6. Chief executive officer, president or their equivalent, or an officer, director, vice president, general manager or their equivalent if any of the individuals holding these positions are shareholders in the business
7. The members and managing members of an LLC
8. General partners of a business organized as a partnership
9. Franchisor and franchisee
10. Company managing a cannabis business in which it has any amount of ownership
11. Trustee(s) and all persons who have control of the trust and/or the commercial cannabis business that is held in trust
Recommendation 5: Tracking Ownership
Options:
A. Status quo: Submission of business formation documents and breakdown of business ownership of 20% of more for non‐storefront and 100% of ownership for storefronts. Submission must be within 30 days of a business ownership change for City staff to review for continuity and approve B. Disclose all owners and submit documents, including approved state application for ownership changes, showing 100% of ownership prior to application approval, at renewal, and at business ownership change, along with a signed affidavit that list of owners and their
percentages/relationship to business is correct and that providing information that is not correct regarding ownership may result in an immediate permit revocation/denial
Law & Legislation Workshop #2
Cannabis Business Locations
EPS Study Key Takeaways: Cannabis Business
Locations
• Current zoning and sensitive uses limit cannabis business locations • Cannabis businesses do not appear to affect commercial or residential land values over time
• Areas surrounding cannabis businesses are generally not causing neighborhood problems
• Interest in indoor cultivation permits may decrease
• Opportunities exist to expand other permit types
Policy Goals: Cannabis Business Locations
• Determine if current zoning and sensitive use restrictions are still serving their purposes
• Reduce pressure in current zones that allow cannabis
• Allow for more equitable distribution of cannabis businesses in the City
Recommendation 6: Business Locations
A. Direct the Planning and Design Commission (PDC) to review current cannabis business zoning and sensitive uses to determine if they are still serving their purposes
B. Specific Options:
1. Consider opening additional zones for storefront and delivery‐only dispensaries and non‐volatile manufacturing (including infusion and packaging)
2. Consider storefront dispensaries as an allowed use in Residential Mixed Use (RMX) or C‐3 zones
3. Consider limiting cannabis sensitive uses to schools, youth centers, drug and alcohol treatment centers
Policy Goals: District‐Based Caps
• Removes economic uncertainty and risk to businesses trying to open under a district‐based cap
• Allows for better regulation of the cannabis industry as districts can change
Recommendation 7: District‐Based Caps
A. Allow district‐based cap on cannabis delivery‐only dispensaries to expire
B. Remove distribution from the current uses that are subject to a district‐based square‐footage cap
Policy Goals: Shared Cannabis Facilities
• Encourage the development of small businesses
• Encourage incubation
• Lower costs of entrance into cannabis industry
Recommendation 8: Shared Cannabis
Facilities
A. Add to legislative platform support for the state to allow for shared premises for cannabis business types (besides
manufacturing)
Law & Legislation Workshop #3
Taxation
EPS Study Key Takeaways: Taxation
• Regulated cannabis businesses are a significant driver of the local economy
• Cannabis industry is a major employer in the City
• Cannabis business operating tax is a significant contributor to the City’s General Fund.
Goals: Taxation
• Maintain a local cannabis tax rate that is not overly burdensome to industry
• Maintain flexibility to be able to respond to changes in taxation at state and federal levels
Recommendation 9: Taxation
Both:
A.Monitor tax‐related legislation and regional tax rates to allow the City to make an informed decision on the issue, as warranted B. Take necessary steps to position the City to be able to make future changes to the tax rates, as warranted.
Future Items
1. Term of CORE ownership of a business holding a storefront dispensary permit
2. Waiver/rebate of tax payments for CORE businesses
OCM Staff is awaiting data and outcomes from the Equity Study to present a comprehensive cannabis equity plan to address these and other issues
3. Odor and cultivation
OCM and Code continuing to work together and will return to L&L, as warranted
4. Review security requirements for continued effectiveness and provide options to cannabis facilities as necessary
PD and OCM continuing to work together on this endeavor
5. Review of options to assist neighborhoods impacted by the War on Drugs OCM will reach out to City Attorney, Neighborhood Development Action Team and Office of Community Engagement
6. Regulation of cannabis advertising on billboards
7. Adult ‐use high THC products limitations
OCM staff working with City Attorney
Items Not Ready for Consideration
• To be considered upon Council direction:
• Repeal district‐based square footage caps on cultivation and distribution • Areas where Cannabis businesses could be allowed by right • Can more cannabis business CUP hearings be heard by the Zoning Administrator
• Cannabis consumption lounges
• Venues apart from Cal Expo that could hold a temporary cannabis event • Current surplus city properties that can be used for cannabis
Voting on Nine Recommendations (1‐2)
Recommendation 1 –T r a n s f e r s of Storefront Ownership Both:
A. Take no action on expiring prohibition on transfer of storefront dispensary ownership
B. Ownership Transfer Options:
2. Modified State Version: less than 100% transfers allowed. If 100% transfer, then new application must be submitted and approved within 90 days or permit subject to revocation/denial. Transfers may not occur more frequently than every 6 months Recommendation 2 – One‐person‐one‐dispensary
B. Up to 5% ownership allowed in an unlimited number of dispensaries Voting on Nine Recommendations (3)
Recommendation 3 –S t o r e f r o n t Dispensary Franchises Both:
A. All storefront dispensary franchisees must identify themselves as such to the City, regardless of whether they have a different ownership than the franchisor
B. Options:
1. No franchisee/franchisor may have more than one cannabis storefront dispensary franchise in the City (all storefront ownership restrictions still apply)
Voting on Nine Recommendations (4)
Recommendation 4 – Ownership Definition for All Cannabis Businesses
B. Modified State Model: Owner means any or all of the following
1. Person/business with any amount of legal ownership in a business that has applied for or received a cannabis business operating permit, unless the interest is solely a security, lien, or encumbrance
2. Board of directors of a corporation, regardless of whether they are shareholders
3. Chief executive officer, president or their equivalent, or an officer, director, vice president, general manager or their equivalent if any of the individuals holding these positions are shareholders in the business
4. The members and managing members of an LLC
5. General partners of a business organized as a partnership
6. Franchisor and franchisee
7. Company managing a cannabis business in which it has any amount of ownership
8. Trustee(s) and all persons
Voting on Nine Recommendations (5)
Recommendation 5 –T r a c k i n g Ownership for All Cannabis Businesses B. Disclose all owners and submit documents, including approved state application for ownership changes, showing 100% of ownership prior to application approval, at renewal, and at business ownership change, along with a signed affidavit that list of owners and their percentages/relationship to business is correct and that providing information that is not correct regarding ownership may result in an immediate permit
revocation/denial
Voting on Nine Recommendations (6)
Recommendation 6 – Cannabis Business Locations
A. Direct the Planning and Design Commission (PDC) to review current cannabis business zoning and sensitive uses to determine if they are still serving their purposes
B. Specific Options:
1. Consider opening additional zones for storefront and delivery‐only dispensaries and non‐ volatile manufacturing (including infusion and packaging)
2. Consider storefront dispensaries as an allowed use in Residential Mixed Use (RMX) or C‐3 zones
3. Consider limiting cannabis sensitive uses to schools, youth centers, drug and alcohol treatment centers, neighborhood and community parks, and faith‐based institutions
4. Consider reviewing suitability of mixed light cannabis uses in industrial/manufacturing zones and whether new mixed light facilities should be constructed to be able to be re‐ purposed
5. Consider a zoning and permit type for cannabis R&D facilities Voting on Nine Recommendations (7‐8)
Recommendation 7 –D i s t r i c t‐based Caps
Both:
A. Allow district‐based cap on cannabis delivery‐only dispensaries to expire B. Consider removing distribution from the current uses that are subject to a district‐based square‐footage cap
Recommendation 8 –S h a r e d Cannabis Facilities
A. Add to legislative platform support for the state to allow for shared premises for cannabis business types (besides manufacturing), while still including security and accountability requirements
Voting on Nine Recommendations (9)
Recommendation 9 –T a x e s
Both:
A. Monitor tax‐related legislation and regional tax rates to allow the City to make an informed decision on the issue, as warranted
B. Take necessary steps to position the City to be able to make future changes to the tax rates, as warranted.
‐ If needed, put item on ballot to allow for
‐ Different tax rates for different cannabis business types, up to 4% ‐ Tax‐relief/rebates for CORE business
‐ Consider graduated tax rate, depending on volume of business/gross receipts * Add surplus property inquiry to Equity Study item, Per CM Valenzuela