Proposal
CITY OF SALINAS
In Response to:
Request for Proposal – Commercial Cannabis Tax
Assessments
March 28, 2022
Submitted via electronically
[email protected]
Maira Robles,
Administrative Aide, Community Development Department
City of Salinas
Subject: Response to Request for Proposals
Commercial Cannabis Tax Assessments
Dear Maira:
SCIConsultingGroup (“SCI”) and The Pun Group LLP, (collectively known as “the SCI Team”) are pleased to submit this proposal in response to the City of Salinas’ (“City”) March 10, 2022, Request for Proposal for cannabis-related consulting and compliance services. The SCI Team has reviewed the RFP and relevant information and proposes to comprehensively provide the cannabis-related services, as fully described in the Scope of Services:
1. Commercial Cannabis Tax Assessments
2. Compliance Inspections and Reporting
3. Cannabis Taxation Recommendation Report
SCI is one of California’s top local cannabis policy consulting firms as well as one of the State’s top firms for implementing revenue programs in general (fire services, parks and recreation, storm drainage, local infrastructure, etc. – in fact, we are currently working with the City of Salinas on dedicated funding for storm drainage)
We have assisted with regulated cannabis policy and implementation for over 30 California municipalities over the past five years. We believe our expert knowledge of the local California cannabis industry coupled with our broad experience providing municipalities with regulation, implementation, tax consulting, public opinion research (polling) and tax-related community outreach consulting services, will serve the City well.
We look forward to the opportunity to assist the City with this important project. If you have any questions or require additional information, please do not hesitate to contact me. I can be reached via e-mail at [email protected] or on my cell phone at (707) 208-0940.
Sincerely,
John Bliss, P.E.
President, SCI Consulting Group
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Page ii
Table of Contents
Executive Summary .................................................................................................... 3 SCI Consulting Group ................................................................................................................. 3 The Pun Group ........................................................................................................................... 4 Lead Project Contact .................................................................................................. 5 Project Team .............................................................................................................. 6 SCI Consulting Group ................................................................................................................. 6 Sub-Contractor (The Pun Group) ............................................................................................... 7 Firm Experience and Qualifications ............................................................................. 9 Project References .................................................................................................................... 9 Scope of Work .......................................................................................................... 11
1. Commercial Cannabis Tax Assessments ....................................................................... 11
2. Compliance Inspections and Reporting ........................................................................ 12
3. Cannabis Taxation Recommendation Report ............................................................... 13 Budget Estimate ....................................................................................................... 14 Project Schedule....................................................................................................... 16 Timeline ................................................................................................................................... 16 General Contract Requirements ................................................................................ 17 Proof of Insurability ................................................................................................................. 17 Concurrence with Contract Provisions .................................................................................... 18 City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Executive Summary
SCI Consulting Group
SCI is a public finance and urban economic consulting firm with over 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.
We were the very first consulting firm to provide a full suite of local cannabis policy implementation services to California municipalities and develop ed the “6 Key Elements of Cannabis Implementation” approach that is the standard of the industry today:
1. Community Research and Outreach (Meetings & Surveys)
2. Health and Safety & Land Use Regulations (Ordinance(s))
3. Full Cost Recovery (Regulatory Fees)
4. Revenue (Taxation Ballot Measures)
5. Local Industry Selections (Application and Selection Process)
6. Monitoring and Compliance
as well as more recently adding…
7. Social Equity
Our core philosophy and approach towards the implementation of local cannabis policy is mo re broadly balanced than that of our competitors. Our philosophy comes from our genesis as a solution-based engineering firm that has evolved and developed in -house expertise in public policy, community outreach, and social equity. Although our quantitati ve and regulatory rigor, and attention to detail are unsurpassed, we balance this with realistic approaches to a real-world challenge, fully understanding and supporting the City’s challenging transition into a regulated and legal cannabis business arena. Hence, SCI balances enforcement of local and State code along with the need to support viable cannabis businesses and to shepherd non -compliant businesses into a safe and regulated environment.
We have assisted with regulated cannabis policy and implement ation for over 30 California municipalities over the past five years. We believe our expert knowledge of the local California cannabis industry coupled with our broad experience providing municipalities with regulation, implementation, tax consulting, pub lic opinion research (polling) and tax -related community outreach consulting services, will serve the City well.
Additionally, we have assisted with the successful implementation of funding (fees, taxes and assessments) in Monterey County including:
• City of Salinas (currently assisting with funding for storm drainage) City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
• Carmel Valley Fire Protection District (voter approved funding measure in 2009) • Monterey Peninsula Regional Park District (voter approved funding measure in 2016) • Northern Salinas Mosquito Abatement District (voter approved funding measure in 2015)
• North County Fire Protection District (voter approved funding measure in 2021) • Spreckels Community Services District (currently assisting with funding for infrastructure)
The Pun Group
The Pun Group LLP, Certified Public Accountants, and Business Advisors, founded in 2012, is a limited liability partnership. We are a full- service accounting firm comprised of forty (40) professionals providing auditing, accounting, and advisory services to our c lients. Our Governmental Division consists of thirty-five (35) full-time individuals. The Firm has no part-time employees. The Firm’s headquarters located in Orange County, California, with four branches in San Diego (California), Walnut Creek (California), Las Vegas (Nevada), and Phoenix (Arizona).
The combination of our hands -on experience and practical knowledge exercised by our audit professionals makes the Firm unique in our field. Our technical expertise and thorough understanding of current regulat ions and issues —along with the Firm’s commitment to hard work, integrity, and teamwork on every engagement—enable us to help our clients succeed.
Our Partners’ Group—which includes Kenneth H. Pun, Coley Delaney, Frances J. Kuo, Kenneth A.
Macias, Vanessa I. Burke, John F. Georger, Jr., Gary M. Caporicci, and Heidy K. Chow —provide auditing, accounting, and advisory services to numerous governmental entities throughout the United States. With more than two hundred (200) years of combined experience in the industry, we have become a trusted business partner and are well -respected as leaders in the industry in one of the fastest-growing firms. With nearly 100 government and not-for-profit audit clients, our Partners have a real passion for the industry and be lieve we are unmatched regarding our municipal experience.
The Pun Group LLP is an independent member of Allinial Global, an association of over 100 independent accounting and consulting firms. Based in North America, Allinial Global offers international s upport by connecting its member firms to providers and global networks of accounting firms worldwide.
In 2018, The Pun Group teamed up with a Canadian Certified Public Accounting Firm to provide professional auditing services to a Los Angeles base Cannabis business (Cultivator and Distributor) to assist them in their Initial Public Offering (IPO) process. Furthermore, the Cities of Stockton and San Bernardino hired the Pun Group to conduct annual audits of commercial cannabis businesses.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Lead Project Contact
Kyle Tankard, Senior Consultant
SCI Consulting Group
(707) 430-4301 x 103
[email protected]
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Project Team
Kyle Tankard, Senior Consultant and Cannabis Services Group Leader at SCI, will serve as the project leader and day -to-day project manager for the SCI portion of the work. Arcelia Herrera and John Bliss will support Kyle’s efforts. David Siris, of the Pun Group, will lead the financial audit work with support from Vanessa Burke and Ken Pun.
The SCI Team has a combined staffing level of over 40 employees, including 5-10 employees specializing in cannabis projects. The SCI Team does not have work commitments that would interfere with their ability to successfully complete this project. Each employee is available to focus primarily on this project with 20%-50% of their time.
SCI Consulting Group
John Bliss M.Eng., P.E., President
John Bliss, a professional engineer and President of SCI, specializes in local cannabis policy, and special revenue consulting. He was instrumental in developing the now-standard implementation process used by most municipalities in California to implement local cannabis policy. John has had a long career developing and implementing equity, diversity and inclusion policy reaching back almost 30 years to the ground-breaking implementation for the City of San Francisco public works construction employment following the Rodney King uprising in 1991. He is a graduate of Brown University with a Bachelor of Science Degree in Engineering. He holds a master’s degree in Civil Engineering from The University of California, Berkeley, where he was a Regent's Scholar. He is a licensed Professional Civil Engineer in the State of California and is a LEED accredited professional.
Kyle Tankard Senior Consultant – Cannabis Business Leader Kyle Tankard serves as the Cannabis Business Leader at SCI providing local cannabis policy expertise in California since 2016. He plays a diverse role, assisting municipalities with all aspects of local cannabis implementation including regulatory and equity program development, taxation policy and cost recovery, cannabis compliance, application review, and cannabis -related public education. Kyle has also established himself as a leader in cannabis equity, assisting with the development and implementation of local cannabis equity programs for the Cities of Richmond, Palm Springs, and Stockton. He currently manages a po rtfolio of over 15 cannabis clients, providing a variety of ongoing cannabis-related services including application review, plan checks, compliance inspections, and equity analysis and program development.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
During his tenure at SCI, Kyle has worked extensively with California cities, counties, and special districts providing local funding and policy solutions. He contributes over 10 years of experience as a results-driven project manager, delivering his projects on time, under tight deadlines and high pressure situations.
Kyle received his bachelor’s degree in Environmental Studies from the University of California, Santa Cruz, with emphases in geographic information systems (GIS).
Arcelia Herrera Senior Consultant
Arcelia Herrera contributes over 14 years of experience in consulting and administration for public agencies and over five years in local cannabis policy in California. She is responsible for the development and management of the cannabis monitoring and compliance program at SCI. She has extensive experience conducting on -site facility inspections, ensuring local and State compliance. In addition, Arcelia has expertise in the creation and administration of assessments and fees, database management, and community educational outreach. She has conducted several Proposition 26 compliant cost recovery fee study analyses for cities and counties to develop fees for commercial cannabis businesses. Her expertise in communication is with local LatinX communities.
Sub -Contractor (The Pun Group)
Kenneth H. Pun CPA, CGMA
With over twenty years of public accounting experience in the State and Local Government sector, Mr. Pun is the Managing Partner and an Assurance Partner at the Firm. Ken specializes in audits and management co nsulting for governmental organizations and has served as the Contract Deputy Finance Director for the City of San Marino in 2017. Mr. Pun also serves as the Chair of the California Society of CPAs Governmental Auditing Accounting Committee. He has been nominated for this year’s Innovative Practitioner of the Year 2020 award by AICPA’s CPA.com.
David Siris CPA, Engagement Manager
David Siris draws more than nine years of governmental accounting experience. Mr. Siris has successfully performed audits and other attestation services for several governmental and non - profit agencies. Working as an Engagement Manager, he will assist Mr. Pun in all issues related to cannabis tax policies, fiscal analysis, compliance reviews, tax audits/assessments, and providing best practices to ensure all state and local laws are followed.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Venessa Burke CPA, CFO Vanessa Burke is an Assurance and Consulting Services Partner. She has over 30 years of extensive experience in providi ng audit and advisory services to federal, state, and local government agencies, including cannabis, public pension plans, state departments, cities, community colleges, hospitals, school districts, county offices of education, special districts, and joint powers insurance authorities. She has previously held positions in the government and private sector as Controller and CFO, where she served on the leadership team and managed budgets and financial reporting for government organizations with budgets in e xcess of $650 million and over 100 employees.
She is a Certified Public Accountant and a Certified Public Finance Officer. Ms. Burke will function as the Concurring Partner and provide a second partner review of significant high-risk areas, audit reports, and resolution of significant accounting, auditing, and reporting matters.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Firm Experience and Qualifications
SCI provides cannabis-related advice and broad consulting services to municipalities throughout California, including community support analysis, ord inance development, fee studies, taxation, implementation, application process development, application review and scoring, monitoring and compliance, business tax auditing, community outreach and engagement, and social equity consulting.
Over the last five years, SCI has emerged as one of California’s premier local cannabis policy firms offering a full range of “one -stop-shop” services in support of the successful implementation of regulated cannabis business within a City or County. However, as we empha sized above, our approach is different that our competitors as we “balance enforcement of local and State code along with the need to support viable cannabis businesses and to shepherd non -compliant businesses into a safe and regulated environment.”
SCI has considerable experience providing cannabis compliance services for local municipalities in California. Beginning in 2017, SCI conducted some of the first onsite cannabis compliance inspections in the State of California for the City of Coalinga. Since t hen, SCI has expanded its services to the Cities of Colfax, Dunsmuir, Fairfield, Merced, San Bernardino, Shasta Lake, and Woodlake. To date, SCI has conducted over 500 on -site compliance inspections for various cannabis businesses including cultivation, distribution, manufacturing, and retail.
Additionally, The Pun Group LLP has performed numerous audits of organizations subject to financial and compliance audits. These audits were performed under auditing standards generally accepted in the United States, Government Auditing Standards, Uniform Guidance (formerly known as OMB Circular A -133), and its Compliance Supplement (when applicable), Office of the State Controller’s Minimum Audit Requirements and Reporting Guidelines. The Pun Group currently provides cannabis business tax audits for the Cities of Chula Vista, Fairfield, San Bernardino, and Stockton.
Project References
City of Shasta Lake
Project: Commercial Cannabis Implementation and Monitoring and Compliance Contact: Jessaca Lugo, City Manager [email protected]; (530) 275-7464
Start/End Dates: December 2017 – Present
Description:
Beginning in 2017, SCI provided cannabis -related implementation services to the City of Shasta Lake. These services included cannabis -related public education and stakeholder/community City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
meetings; ordinance development; development of a regulatory fee progra m; comprehensive support for the City’s cannabis -related local tax measure, and development of an annual monitoring and compliance program. Shasta Lake was one of the State’s early adopters and now supports robust and vibrant cannabis industry, with over 20 operational cannabis businesses. SCI continues to assist the City with bi -annual facility compliance inspections and ongoing technical support.
City of San Bernardino
Project: Commercial Cannabis Monitoring and Financial Audit Services Contact: Stephanie Sanchez, Economic Development Specialist [email protected]; (909) 384-5357
Start/End Dates: December 2019 – Present
Description:
In 2019, the City of San Bernardino engaged SCI and The Pun Group to provide cannabis monitoring and compliance services and annual financial audits. These services include plan checks and review, background checks, annual compliance audits, and annual financial audits. On an annual basis, SCI and the Pun Group provide compliance inspections and financial audits for each commercial cannabis business operating in the City.
City of Fairfield
Project: Commercial Cannabis Management and Monitoring Services Contact: David Feinstein, Planning Manager [email protected]; (707) 428-7448
Start/End Dates: September 2021 – Present
Description:
In 2021, the City of Fairfield engaged SCI and The Pun Group to provide commercial cannabis management and monitoring services. To date, SCI has provided the City with pre -operational compliance assistance and inspections and employee background checks for the City’s five cannabis businesses that were awarded cannabis business permits in 2021. The Pun Group will kick off their annual financial audits for each operational business.
A full list of our current and past cannabis clients is listed below:
Cities Counties
Alameda El Monte National City Santa Clara Alameda
Avalon Encinitas Nevada City Shasta Lake San Benito
Coalinga Fairfield Oroville Stockton San Luis Obispo
Colfax La Mesa Palm Springs Vallejo Tuolumne
Concord Livingston Richmond West Hollywood
Davis Lompoc San Bernardino Woodlake
Dunsmuir Merced San Carlos Yreka
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Scope of Work
SCI Team will conduct a project kick-off meeting with City staff to establish project priorities and goals, communication protocols, and timelines. Further, we will gather and review all applicable information needed to perform the required tasks. SCI will be available to meet via teleconference call on a regular basis when work is in progress and will be available to attend regularly scheduled coordination meetings as necessary when work is in progress.
1. Commercial Cannabis Tax Assessments
The SCI Team, led by the David Siris of The Pun Group for this task, will provide comprehensive annual auditing of cannabis businesses in order to ensure that the City receives full payment of all Measure L taxes, and ensuring compliance with applicable laws.
We will perform the following steps to deliver the services requested by the City:
Cannabis
Business Gross
Receipts and
Square Footage
Taxes
• Evaluate consistency between gross receipts and other information reported on financial statements to what was reported to the C DTFA for sales and use tax, cannabis excise tax, and/or cultivation tax.
• Evaluate consistency between gross receipts reported on financial statements to gross receipts reported to the City.
• Verify cultivation canopy as compared to maximum canopy reported on t he business license application.
Collection and
Audit
of any Cannabis
Tax
• Ensure each cannabis facility is complying with applicable portions of the City’s Code and is submitting the true amount of gross receipts and tax. • Review business license tax returns submitted by the business and collected by the City and compare to each business’s records for the time period identified by the City to determine accuracy and timeliness of gross receipts returns filed with the City.
• Trace and verify the gross receipts reported on the quarterly gross receipts returns prepared by the business to gross receipts recorded in the business’s accounting records to verify that these were in accordance with the City’s regulations. • Verify reasonableness of reported revenues
• We will issue all reports to the City in accordance with applicable standards from generally accepted auditing standards (GAAS).
• The report for each cannabis business license tax audit will include the following information:
• The overall conclusion of whether or not the cannabis business paid all required business license taxes and fees for the time period specified. • Any exceptions, errors, or areas of noncompliance were identified as a result of the procedures performed. This includes any significant deficiency in the design or operation of the internal control structure, including but not limited to the following areas: cash handling, inventory control, point of sale systems, and any other areas City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
that the auditor deems necessary for purposes of accurately reporting business license taxes due to the City.
• Express an opinion regarding the taxes remitted to the City by the cannabis business, or state that an opinion cannot be expressed in the auditor’s report. If the Firm concludes, it cannot express an overall opinion. The engagement team will state the reasons, therefore, in the auditor’s report.
• Examine records and documentation that demonstrates that all cannabis goods have been obtained from, and are provided to, other licensed cannabis businesses and that details all the revenues and expenses, and assets and liabilities of the business.
• Examine books of account, invoices, copies of orders and sales, shipping instructions, bills of lading, weigh bills, bank statements including canceled checks and deposit slips, and all other records necessary to show all transactions of the cannabis business.
State Rule
Making
Interpretation
and
Implementation
• Check for compliance with the latest officially approved state regulations for cannabis businesses across the supply chain. Licensees are required to comply with all rules and regulations pertaining to their license type, as well as follow all other applicable state laws.
Deliverables:
• Prepare and send notification letters to each cannabis business • Annual Financial Audit and Audit Report for each cannabis business
2. Compliance Inspections and Reporting
For this task, Kyle Tankard of 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. SCI will prepare an inspection checklist for each cannabis activity. Prior to conducting each inspection, SCI will prepare notification to the businesses to schedule inspections. Following the inspection, SCI will provide the City with a written report detailing the results of the compliance inspection including photo documentation of any violations. SCI will provide follow -up support to the City and cannabis businesses to provide recommendations to address and correct any deficiencies.
Among the elements and activities SCI will inspect and monitor are as follows:
• Product: Inventory management, seed-to-sale tracking, packaging and labeling verification, product testing protocols, etc.
• Record Retention: Review and confirm employee records, business records, tax information records, transportation manifests, video surveillance retention, equipment certifications, training programs and safety programs.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
• Security and Surveillance: Verify video surveillance equipment, camera placement, alarm systems, locks, facility access control, security guards, occupational badges, and other security and safety processes.
• Facility Compliance: Verify facility’s operational compliance including waste management, odor control, pesticide and solvent storage, signage, cash handling procedures, product shipment and receival procedures, etc.
Deliverables:
• Conduct onsite facility inspections
• Provide written report detailing the findings of inspections • Provide follow-up support and recommendations
3. Cannabis Taxation Recommendation Report
SCI will perform a comprehensive, financially-focused analysis of the cannabis industry in the City, model d ifferent taxation methodologies and prepare a Cannabis Taxation Recommendation Report which makes recommendations regarding the optimal taxation approach . The recommended approach will be carefully designed to balance the City’s need for a solid and reliable revenue stream, while ensuring that local cannabis businesses are not over-burdened.
The analysis will consider existing sales revenue and taxation data, analyze any financial constraints, and determine the City’s costs and revenue potential that each cannabis business and business/license type is likely to generate. SCI will evaluate tax rates regionally to better understand competitiveness and if this is a barrier to growing the industry in the City. SCI will make revenue projections and model diff erent tax rate/structure scenarios and associated revenue generated.
Deliverables:
• Cannabis Taxation Recommendation Report
• Presentation to City Staff
• Attendance at two (2) in-person meetings
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Budget Estimate
In consideration for the Tasks as detailed in th e Scope of Work, the estimated compensation is detailed below by task:
Work Plan Fee
1. Commercial Cannabis Tax Assessments $ 6,500 (per audit)
2. Compliance Inspections & Reporting $ 1,700 (per inspection)
3. Cannabis Taxation Recommendation Report $ 15,650
SCI Staff Hourly Rate
John Bliss, President $ 290
Kyle Tankard, Cannabis Services Leader $ 300
Arcelia Herrera, Senior Cannabis Consultant $ 250
The Pun Group Staff Hourly Rate
Ken Pun, Engagement Partner $ 200
Venessa Burke, Partner $ 200
David Siris, Manager $ 175
Masood K. Yousufzai, Assistant Manager $ 150
Incidental costs incurred for the purchase of additional travel and other out- of-pocket expenses will be reimbursed at actual cost, with the total not to exceed $ 3,500 per year without prior authorization from the City. The scope of services includes one face-to-face staff planning meeting. Any additional face-to-face meetings, if required, shall be billed at the rate of $1,500 per person, per meeting. SCI is available to meet via teleconference call on a regular basis at no additional charge.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Project Schedule
Timeline
Project start date April 2022
Kick-off Meeting April 25, 2022
Cannabis Taxation Recommendation Report:
Data Collection April 25 – April 29, 2022
Analyses May 1 – June 13, 2022
Draft Report Submission June 13, 2022
Internal City Staff Meeting June 20, 2022
Final Report Submission July 11, 2022
Cannabis Sub Committee July 13, 2022
City Council Meeting July 26, 2022
Commercial Ca nnabis Tax Assessments
The Pun Group is available to begin the Commercial Cannabis Tax Assessments upon execution of the contract. An initial meeting with the City’s dedicated team will be coordinated to determine the competition schedule of the audits of business licenses and finalize the report template. On average, a typical financial audit takes 4-6 weeks.
Compliance Inspections & Reporting
SCI is available to begin onsite compliance inspections for operational cannabis businesses upon execution of the contract. If conducting annual inspections, the inspections will take place mid - year for each cannabis facility. If ad ditional inspections are requested, they will be scheduled proportionately throughout the year.
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
General Contract Requirements
Proof of Insurability
City of Salinas
Proposal for Commercial Cannabis Tax Assessments
By SCIConsultingGroup, March 2022
Concurrence with C ontract Provisions
The SCI Team accepts the provisions of the Cit y’s standard contract as attached to the RFP .
Furthermore, The SCI Team understands that under certain circumstances, and subject to the discretion of the City, some provisions of the contract may be modified upon final contract negotiations with the selected consultant.