DATE: APRIL 26, 2022
DEPARTMENT: COMMUNITY DEVELOPMENT
FROM: MeGAn Hunter, DIRECTOR
BY: COURTNEY GROSSMAN, PLANNING MANAGER
TITLE: AGREEMENT WITH SCI CONSULTING GROUP FOR CANNABIS TAX ASSESSMENT SERVICES RECOMMENDED MOTION:
A motion to approve a resolution authorizing the City Manager or designee to negotiate and execute a final Agreement with SCI Consulting Group with a not to exceed compensation amount of up to $150,000 to provide Commercial Cannabis Tax Assessment Services and authorizing an increase to the General Fund Cannabis Monitoring appropriation of up to $120,000 and corresponding revenue budget for cannabis tax assessment and monitoring services including auditing, inspection, and cannabis tax rate analysis and recommendations.
RECOMMENDATION:
It is recommended that the City Council approve a resolution authorizing the City Manager or designee to negotiate and execute a final Agreement with SCI Consulting Group with a not to exceed compensation amount of up to $150,000 to provide Commercial Cannabis Tax Assessment Servicesand authorizing an increase to the General Fund Cannabis Monitoring appropriation of up to $120,000 and corresponding revenue budget for cannabis tax assessment and monitoring services including auditing, inspection, and cannabis tax rate analysis and recommendations.
EXECUTIVE SUMMARY:
The City of Salinas regulates the establishment and the operation of a limited number of commercial cannabis businesses, including cultivation, dispensaries, manufacturing, distribution, and delivery services. To ensure that permitted cannabis business are operating in compliance with established regulations, including payment of required taxes, the City of Salinas engaged a consulting firm, Marcias Gini and O’Connell LLP (MGO) to prepare commercial cannabis compliance reports and tax assessments. Late 2021 MGO notified the City that it was no longer able to provide commercial cannabis tax assessment services, and a Request for Proposals (RFP) was issued to identify a new firm. In March 2022, the Community Development Department sent out a Request for Proposals (RFP), provided as an attachment to this report, seeking a new consultant team to provide cannabis tax assessment and monitoring services including auditing, inspection, and cannabis tax rate analysis and recommendations.
It is recommended that the City Council authorize the City Manager or designee to negotiate and execute a final Agreement with SCI Consulting Group, the selected consultant with a not to exceed compensation amount of up to $150,000 to provide Commercial Cannabis Tax Assessment Services. The City collects fees to cover the cost associated with the cannabis tax assessment and monitoring. The tax rate analysis and recommendation report is not directly covered by cannabis permittees, however, the City collects tax revenue annually that could support this cost, which should not exceed $30,000. This report was requested by City Council to ensure that the tax rates are reasonable and will not negatively impact the long-term sustainability of commercial cannabis businesses in Salinas.
BACKGROUND:
Commercial Cannabis is regulated in the City of Salinas by Municipal Code Chapter 5 – Public Peace and Morals under Article VII Cannabis. The City of Salinas regulates the establishment and the operation of a limited number of commercial cannabis businesses, including cultivation, dispensaries, manufacturing, distribution, and delivery services. Permits are awarded on a competitive basis and applications are only accepted during specified permitting rounds. To ensure that cannabis businesses are operating in compliance with regulations, including payment of required taxes, the City of Salinas had engaged consultant services to prepare commercial cannabis compliance reports and tax assessments. In the past, Marcias Gini and O’Connell LLP (MGO) prepared the assessment and compliance reports for the operational cannabis businesses. In late 2021, MGO indicated they would no longer provide the service to the City of Salinas.
Additionally, concerns over the City’s cannabis tax rates arose during the City’s annual Cannabis Report to the City Council on February 15, 2022, prompting a request to evaluate the tax rates and prepare a Cannabis Taxation Recommendation Report. In March 2022, the Community Development Department sent out a Request for Proposals (RFP), provided as an attachment to this report, seeking a new consultant team to provide cannabis tax assessment and monitoring services including auditing, inspection, and cannabis tax rate analysis and recommendations.
DISCUSSION:
Selection and Qualifications
Two proposals were received in response to the City’s RFP. Staff rated and ranked the proposals based on the five key criteria outlined in the RFP, which is attached to this staff report. SCI received the highest ranking based upon its expert knowledge of the local California cannabis industry coupled with its broad experience providing municipalities with regulation, implementation, tax consulting, public opinion research (polling) and tax-related community outreach consulting services. SCI qualifications include:
35 years of expertise in assisting public agencies in California with developing policy, and planning, justifying, and successfully establishing new revenues (taxes, fees, assessments, regulations) for their service and capital improvement needs and objectives and managing special levies, being the very first consulting firm to provide a full suite of local cannabis policy implementation services to California municipalities, developing the “6 Key Elements of Cannabis Implementation” approach that is the standard of the industry today, and assisting for over 30 California municipalities with regulated cannabis policy and implementation over the past five years.
Scope of Work:
The proposed scope of work is comprised of three (3) components described below.
Commercial Cannabis Tax Assessments: SCI will subcontract with The Pun Group LLP, Certified Public Accountants, and Business Advisors, a full-service accounting firm, to provide a comprehensive annual auditing of cannabis businesses to ensure that the city receives full payment of all Measure L taxes and ensuring compliance with applicable laws.
Compliance Inspections and Reporting: SCI will provide onsite facility inspections for each commercial cannabis business and report to the City the results of inspections relative to the City’s local regulations and ordinances, conditions of approval, and State law.
Cannabis Taxation Recommendation Report: SCI will perform a comprehensive, financially focused analysis of the cannabis industry in the city, model different taxation methodologies and prepare a Cannabis Taxation Recommendation Report which makes recommendations regarding the optimal taxation approach. SCI recommendations are to be presented to City Council in August 2022.
A draft Agreement for Professional Services with SCI is attached to this report. It is recommended that the City Council authorize the City Manager or designee to negotiate and execute a final agreement with a not to exceed compensation amount of up to $150,000. Scope of work items 1 and 2 listed above are based on a set cost per cannabis business, the number of which can vary, but would not exceed the number of allowed permits. The term of the Agreement would be for one year.
CEQA CONSIDERATION:
The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) per Guidelines Section 15378. Because the matter does not cause a direct or foreseeable indirect physical change on or in the environment, this matter is not a project. Any subsequent discretionary projects resulting from this action will be assessed for CEQA applicability.
STRATEGIC PLAN INITIATIVE:
This staff report and recommendations align with the following City Council Goals and Strategies of Economic Development and Effective and Culturally Responsive Government. Services provided under the proposed Agreement will support an efficient and well-run Cannabis Program that allows permitted cannabis businesses to operate and grow, resulting in increased revenue for the city.
DEPARTMENTAL COORDINATION:
Community Development Department staff consulted with Legal to develop the draft Agreement. Should the Council authorize the City Manager to enter into the Agreement, the Community Development Department will continue to collaborate with Legal and the City Manager’s Office to finalize and execute the document.
FISCAL AND SUSTAINABILITY IMPACT:
Existing cannabis annual monitoring and application fees will offset the cost of services under this Agreement. The Cannabis Taxation Recommendation Report, which is budgeted for less than $30,000 is not offset by the permittees and would be covered by the General Fund. However, this cost can be absorbed by the existing FY 21/22 Current Planning Division budget. Funds will be encumbered for this cost. The tax reports and monitoring services will be encumbered in different phases as work is needed.
ATTACHMENTS:
Resolution
Draft Agreement for Professional Services
RFP for Commercial Cannabis Assessment and Monitoring Services (March 2022) SCI Consulting Group Proposal (March 2022)
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