Law & Legislation Committee
Recommendations on
the Comprehensive
Cannabis Study
Presented by the Office of Cannabis Management
May 31, 2022
Workshops at Law & Legislation Committee
Three workshops were held on March 15, April 5, and April 19 Main topics were overview of EPS study, cannabis business ownership issues, locations of cannabis businesses, and taxation
A fourth workshop on May 10 consolidated staff and committee recommendations from the previous workshops for public
comment, further discussions/changes and a Committee vote Nine recommendations were approved on a unanimous vote Other items placed in “parking lot” for additional work/data collection
Law & Leg Committee: “Parking Lot” Items
CORE Ownership Term for
a Storefront Dispensary
Permit
• Awaiting data from Equity
Study to present a
comprehensive cannabis
equity plan
Odor and Cultivation
• OCM and Code continuing to
work together and will
return to L&L, as warranted
Review Security
Requirements for
Continued Effectiveness
and Modify as Necessary
• PD and OCM continuing to
work together on this
endeavor
Review 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
Regulation of Cannabis
Advertising on Billboards &
Adult-use High THC
Product Limitations
• OCM staff working with City
Attorney
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
All jurisdictions are struggling with ownership issues
Policy Goals for Ownership Recommendations
Diverse &
Equitable
• Encourage more
diverse and
equitable
ownership of a
limited permit
type
Regulatory
Balance
• Seek a balance
on regulatory
oversight
Investment
• Allow business
owners to
obtain
investment in
their business
and perform
succession
planning
No Monopolies
• Discourage
monopolization
of a limited
permit type and
disincentivize
exceeding
ownership
limits
Law & Leg Recommendations: Ownership
Recommendation 1 – Transfers of Storefront Ownership
A. Take no action on expiring prohibition for transfer of storefront dispensary ownership, and
B. Storefront Business Ownership Transfers (Modified State Version):
1. Less than 100% transfers allowed (ex. A can transfer 30% of their 100% ownership to B)
2. If 100% transfer , then new application must be submitted a. New application must be approved within 90 days or permit subject to revocation/denial
b. Continued business operation allowed during 90 days
3. Transfers may not occur more frequently than every 6 months Law & Leg Recommendations: Ownership
Recommendation 2 – One-person-one-dispensary
Up to 5% ownership allowed in an unlimited number of dispensaries (ex. A can own 4% of Storefront 1 and 3% of Storefront 2, but A cannot own 28% of Storefront A and any percentage in any other storefront) Recommendation 3 – Storefront Dispensary Franchises
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. No franchisee/franchisor may have more than one cannabis storefront dispensary franchise in the City (all storefront ownership restrictions still apply)
Law & Leg Recommendations: Ownership
Recommendation 4 – Ownership Definition for All Cannabis Businesses Modified State Model: Owner means any or all of the following A. 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
B. Board of directors of a corporation, regardless of whether they are shareholders C. Chief executive officer, president or their equivalent, or an officer, vice president, general manager or their equivalent if any of the individuals holding these positions are shareholders in the business
D. The members and managing members of an LLC
E. General partners of a business organized as a partnership F. Franchisor and franchisee
G. Company managing a cannabis business in which it has any amount of ownership H. Trustee(s) and all persons who have control of the trust for a cannabis business that is held in trust
Law & Leg Recommendations: Ownership
Recommendation 5 – Tracking Ownership for All Cannabis Businesses A. Disclose all owners and submit documents, including approved state application for ownership changes, showing 100% of ownership, and
B. Submit 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
Study Key
Takeaways:
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 over time
Policy Goals for Cannabis Business
Locations
Still Useful?
Determine if
current zoning
and sensitive
use restrictions
are still serving
their purposes
Reduce
Pressure
Reduce
pressure in
current zones
that allow
cannabis
Equity
Allow for
more
equitable
distribution of
cannabis
businesses in
the City
Better
Regulation
Encourage
regulation of
the cannabis
industry on a
holistic level
Incubation
Encourage
incubation
Law & Leg Recommendations:
Business Locations
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 cultivation 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 Law & Leg Recommendations:
Business Locations
Recommendation 7 – District-based Caps
A. Take no action on the expired delivery dispensary district- specific cap
B. Consider removing distribution from the current uses that are subject to a district-based square-footage cap
Recommendation 8 – Shared Cannabis Facilities
A. Support shared premises for cannabis business types (besides manufacturing), while still including security and accountability requirements
Study Key
Takeaways:
Taxation
Sacramento cannabis business operating taxes are in
line with the region, do not appear to be overly
burdensome, and do not appear to be driving
businesses away
Cannabis business operating tax is a significant
contributor to the City’s General Fund
State cultivation and excise taxes appear to overly
burden the industry and encourage the underground
market
Proposals for imposition of new taxes at federal level
and reductions at state level create uncertainties
about future tax rates
Policy Goals for Taxes
Maintain Tax Rate
Maintain a local
cannabis tax rate that
is not overly
burdensome to
industry, but still
provides City with
stable tax revenue
Be Flexible
Flexability to be able
to respond to changes
in taxation at state
and federal levels
Assist CORE
Assist CORE businesses
so they can stay
operational during the
first few years of
business
Law & Leg Recommendations: Taxes
Recommendation 9 – Taxes
A. Monitor tax-related legislation and regional tax rates to allow the City to make an informed decision on the issue, as warranted, and 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
- Tax-relief/rebates for CORE business
- Different tax rates for different cannabis business types, up to 4%
- Consider graduated tax rate, depending on volume of
business/gross receipts
- Note: Change in tax rates will not be revenue neutral Action
Priorities
• Position the City to be able to make future changes
to tax rates, which may include putting an item on
the ballot for voter approval
• Possible future tax changes:
• Tax-relief/rebates for CORE businesses
• Different tax rates for different cannabis
business types
• Graduated tax rate, based on gross receipts
Tax Items
• Requests for Planning and Design Commission to
consider zoning and sensitive use considerations
Business Location
• Ordinances on ownership definitions, ownership
tracking, and ownership transfers
Ownership Changes
Council Action: Taxes
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
1. Tax-relief/rebates for CORE businesses, and/or
2. Different tax rates for different cannabis business
types, up to 4%, and/or
3. Consider graduated tax rate based on volume of gross receipts, with top rate at 4%
Council Action: Business Locations
1. 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
2. Specific Options for PDC consideration:
a. Consider opening additional zones for delivery-only dispensaries and non-volatile manufacturing (infusion and packaging)
b. Consider storefront dispensaries as an allowable use in Residential Mixed Use (RMX) and/or C-3 zones
c. Consider limiting cannabis sensitive uses to schools, youth centers, drug and alcohol treatment centers, neighborhood and community parks, and faith-based institutions d. Consider reviewing suitability of mixed light cultivation uses in industrial/manufacturing zones and whether new mixed light facilities should be constructed to be able to be re-purposed
e. Consider a zoning and permit type for cannabis R&D facilities f. Consider removing distribution from the current uses that are subject to a district - based square-footage cap
3. Support shared premises for cannabis business types, with security and accountability requirements
Council Action: Ownership Part One
1. Less than 100% transfer of a storefront dispensary allowed. If 100% transfer , then new application must be submitted and approved.
Transfers limited to once every 6 months.
2. Up to 5% ownership allowed in an unlimited number of storefront dispensaries
3. All franchisees/franchisors must identify themselves as such. No franchisee/franchisor may have more than one cannabis storefront dispensary franchise in the City.
4. Disclose and provide documentation of 100% ownership in all cannabis businesses and submit signed affidavit that information is correct, or all cannabis permits with incorrect ownership information subject to revocation/denial.
Council Action: Ownership Part Two
5. Ownership Means the following for All Cannabis Businesses A. 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
B. Board of directors of a corporation, regardless of whether they are shareholders
C. Chief executive officer, president or their equivalent, or an officer, vice president, general manager or their equivalent if any of the individuals holding these positions are shareholders in the business D. Members and managing members of an LLC
E. General partners of a business organized as a partnership F. Franchisor and franchisee
G. Company managing a cannabis business in which it has any amount of ownership
H. Trustee(s) and all persons who have control of the trust for a cannabis business that is held in trust