Commercial Cannabis Industry 2022 Annual Update
Courtney Grossman, Planning Manager
Community Development Department
August 22, 2023
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 19 permits out of a total of 23:
At permit quota for dispensary, distribution, and manufacturing 9 businesses are operational and have received a certificate of occupancy 11 businesses are not operational – only 5 have shown recent activity Business Type
Permit Quota
Active Permits*
Operational Businesses*
Cultivation
5 3
1 Delivery
3 1
1 Dispensary
5 5
3 Distribution
5 5
2 Manufacturing
5 5
2 Total
23 19
9 *As of July 2023.
Fiscal Impact of Cannabis
The City collects monitoring fees to compensate for costs relating to monitoring and enforcement of commercial cannabis businesses Approximately $169,824 in monitoring fees were collected in 2022 Over $13,000 in permit application and renewal fees to cover application processing expenses was collected.
Monitoring Department
2022 Total
Police
$78,216
Community Development Department
$20,826
City Attorney’s Office
$6,831
Financial Consultant
$63,951 (estimate)
Total:
$169,824
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, no data for 2022
In 2020 approximately 393 people were directly employed by cannabis businesses In 2021, approximately 323 people were employed, no data for 2022
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 Manufacturing and Cultivations rates reduced 50% in Q4 2022 Business Type
Current Rate
Cultivation
$7 per square foot (was $15)
Delivery
5% of Gross Receipts
Dispensary
5% of Gross Receipts
Distribution
N/A
Manufacturing
2.5% of Gross Receipts (was 5%)
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 in 2021 exceeded $2M, but declined to $1.5M in 2022 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
$457,919
2022
$455,822
$381,604
$383,861
$298,658
Q = quarter (three month period)
Industry Challenges
Economic challenges and inflation during the previous year Reductions in the price per pound of cannabis due to the growing of more product than there are storefronts to sell Regulatory burdens from State and local levels
Businesses with CCPs in Salinas not becoming operational Competition with the illegal market, an issue directly reported from CCP holders Reductions in tax rates in Quarter 4 2022
City Regulatory Challenges
Potential Municipal Code Updates:
Establish time extensions and limit indefinite extensions, consistent with planning entitlement requirements Address Inactive Permits / create opportunities for new permits Address cannabis uses in the Zoning Code
Reconsider sensitive use restrictions to allow for more flexible siting – GIS Reconsider CCP application process
Establish a single date for permit renewals
Proximity to Sensitive Uses: 1,000’ Map 600’ Map
Conclusion
The Salinas cannabis industry has demonstrated stabilization with some of the main permit holders Challenges for other permit holders to become operational Requires substantial staff resource and consultants
The City is covering most of its costs with monitoring and permit fees Updates to the Municipal Code and permitting process could improve transparency, consistency, and create a more streamlined process
End of Presentation
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