Commercial Cannabis Industry Annual Update
Courtney Grossman, Planning Manager
Community Development Department
February 15, 2022
Salinas Cannabis Industry
An annual update to City Council on the cannabis industry is required by SMC Sec. 5-07.49 The City issues two types of commercial cannabis business permits: Commercial Cannabis Permits (CCP) and Administrative Permits (AP) CCPs are applicable to Cultivation, Delivery, Dispensary, Distribution, and Manufacturing APs are applicable to Testing Laboratories, Small Distribution (business premises under 500 square feet), Research and Development Facilities, and Nurseries
Commercial Cannabis Permit Status
The City has issued 21 permits out of a total of 23
At or near permit quota for dispensary, distribution, and manufacturing 11 businesses are operational and have received a certificate of occupancy 10 businesses working on land use entitlements or building permits Business Type
Permit Quota
Active Permits*
Operational Businesses*
Cultivation
5 3
1 Delivery
3 3
3 Dispensary
5 5
3 Distribution
5 5
2 Manufacturing
5 5
2 Total
23 21
11 *As of January 2022.
Fiscal Impact of Cannabis
The City collects monitoring fees to compensate for costs relating to monitoring and enforcement of commercial cannabis businesses Approximately $177,627 in monitoring fees were collected in 2021 Over $13,000 in permit application and renewal fees to cover application processing expenses was collected.
Monitoring Department
2021 Total
Police
$75,275
Community Development Department
$20,057
City Attorney’s Office
$6,574
Financial Consultant (MGO)
$69,721
Total:
$171,627
Employment & Community Impacts
In 2020 there were three crimes tied to cannabis operations in Salinas Conducting business and transporting product without a license Embezzlement
Robbery
In 2021, no crimes identified
In 2020 approximately 393 people were directly employed by cannabis businesses In 2021, approximately 323 people were employed
Tax Revenue
Cannabis Business Tax effective January 1, 2017
In December 2019, Council voted to forgo a scheduled tax increase under SMC Sec. 19A.10.070 Tax applies to Cultivation (including Nurseries), Manufacturing, Dispensary, and Delivery Business Type
Current Rate
Cultivation
$15 per square foot
Delivery
5% of Gross Receipts
Dispensary
5% of Gross Receipts
Distribution
N/A
Manufacturing
5% of Gross Receipts
Nurseries
$2 per square foot
Testing Laboratory
N/A
Tax Revenue
Taxes for 2020, excluding some 4th quarter numbers, were over $1.8M Tax revenue increased by 12 percent from 2019 to 2020
Tax revenue from 2021 will likely exceed 2020 by approximately $200,000 if trends from the previous three quarters remain the same Year
Q1
Q2
Q3
Q4
2018
$120,736
$143,838
$328,894
$276,979
2019
$343,833
$432,000
$409,701
$442,778
2020
$470,916
$503,765
$357,502
$509.849
2021
$536,363
$525,501
$514,153
n/a
Q = quarter (three month period)
Industry Challenges
In last year’s annual report, concerns related to costs for business applicants and improvements to the City’s regulation of the industry and processes were summarized Similar to 2020, much of the same concerns were applicable to 2021 Key industry challenges:
Cannabis business profitability due to high taxes/fees/regulatory burdens State, Federal, and Local Taxes
Compliance with strict product testing, monitoring, and security requirements
Cannabis Cultivation Tax Rates
Jurisdiction
Cultivation Tax Rate as of January 2022
Notes
City of Santa Cruz
6% gross receipts
City of San Jose
4% gross receipts
City of Watsonville
$10 per square-foot of canopy space
Reduced in 2021
Monterey County
$8 per square-foot of canopy space
San Luis Obispo County
$7 per square-foot of canopy space
Can go up to $10
Santa Barbara County
4% gross receipts
City of Paso Robles
$10 per square-foot of canopy space
City Regulatory Challenges
Potential Municipal Code Updates:
Establish time extensions and limit indefinite extensions, consistent with planning entitlement requirements Address Inactive Permits
Address cannabis uses in the Zoning Code
Reconsider sensitive use restrictions to allow for more appropriate and flexible siting Reconsider CCP application process
Establish a single date for permit renewals
Proximity to Sensitive Uses: 1,000’ Map 600’ Map
Cannabis Subcommittee
Subcommittee met on February 8, 2022:
Tax Collection and Rates – Recommended engaging with a Consultant to identify best practices for tax collection and rates Revocation/Expiration of Inactive Permits – Recommended revoking inactive permits Location of Commercial Cannabis Businesses—Proximity to Sensitive Uses - Recommended addressing inactive permits before expanding available sites / Concerns raised with compatibility Staff will be moving in the direction as described above Subcommittee will be meet again in the next 90 days
Conclusions
The Salinas cannabis industry has demonstrated sustainable profitability and regulatory compliance, but requires many staff resources The City is covering most of its costs with required monitoring and permit fees Updates to the Municipal Code and permitting process could improve transparency, consistency, and create a more streamlined process Prevention: The City is preparing a plan to release a Request for Proposal (RFP) regarding prevention
The Cannabis Industry
Nursery
Grows/Clones Immature Plants
Sells to Retailer and Cultivation
Statewide Market
Taxed at $2/square foot
Administrative Permit
No Maximum
None Approved
None Operating
The Cannabis Industry
Cultivation
Grows/Harvests Mature Plants
Sells to Retailer and Manufacturer
Statewide Market
Taxed at $15/square foot
CC Permit
Five Maximum
Three Approved
One Operating
The Cannabis Industry
Manufacturer
Oil Extraction/Infusion, Product Manufacture
Sells to Retailer
Statewide Market
Taxed at 5% GR
CC Permit
Five Maximum
Four Approved
Two Operating
The Cannabis Industry
Retailer (Dispensary)
Sells Directly to the Consumer
Storefront
Local Market
Taxed at 5% GR
CC Permit
Five Maximum
Five Approved
Three Operating
The Cannabis Industry
Retailer (Delivery)
Sells Directly to the Consumer
Non-Storefront
Regional Market
Taxed at 5% GR
CC Permit
Three Maximum
Three Approved
Three Operating
The Cannabis Industry
Distribution
Moves Product Between Licensees
Acts as Broker and Collects State Taxes
Statewide Market
Not Taxed
CC Permit
Five Maximum
Four Approved
Two Operating
The Cannabis Industry
Testing Lab
Ensures Product Safety and Potency
Tests Samples When Product is Moved
Local/Regional Market
Not Taxed
Administrative Permit
No Maximum
Two Approved
Two Operating