1 DATE: January 26, 2016
FROM: Christopher A. Callihan, City Attorney
SUBJECT: AN ORDINANCE RELATED TO THE ESTABLISHMENT AND THE REGULATION OF COMMERCIAL CANNABIS BUSINESSES —ADOPTION
RECOMMENDATION:
It is recommended that the City Council consider adopting an ordinance allowing for the establishment of commercial cannabis businesses in Salinas and regulations on the location and the operation of commercial cannabis businesses.
It is further recomm ended that the City Council provide direction to the City Attorney and the City Clerk as to the preparation of a business tax to be submitted to Salinas voters for their approval at the June 2016 statewide presidential primary election.
DISCUSSION:
On January 6, 2016, Council member Lutes introduced an ordinance (as presented) allowing for the establishment and the operation of a limited number of commercial cannabis businesses. Having been introduced, the City Council is now asked to consider adopting t he ordinance which, if adopted, would become effective in thirty (30) days.
The City Council’s introduction of the ordinance represents a significant policy change for the City established in 2007 when the City Council adopted an ordinance prohibiting med ical marijuana dispensaries. With the State’s recent adoption of the Medical Marijuana Regulation and Safety Act, cities across the state are having to address the question whether to allow medical marijuana businesses to open in their jurisdictions or to prohibit them. Like Salinas, those other cities are also looking to balance the needs of their residents who need/use marijuana as medication against those of their residents who do not and who do not want medic al marijuana businesses to open in their communities.
During the City Council’s January 6, 2016 public hearing on the ordinance, Council members Barrera and McShane asked questions concerning the hours and days of operation during which dispensaries may operate. The hours and days, as considered and recommended by the Planning Commission, and set in the ordinance are Monday through Saturday 8:00 A.M. to 7:00 P.M., including holidays.
Council member Barrera questioned whether the hours and days of operation for dispensaries provided sufficient acc ess to patients in need of medication. Council member McShane asked how the hours and days of operation for dispensaries compared to other cities. Provided here is a
REPORT TO THE
CITY COUNCIL
City of Salinas, California
2 comparison of the hours and days of Salinas’s ordinance against the hours and days of th ree local cities:
City Permitted Days Permitted Hours
Salinas Monday – Saturday 8:00 A.M. – 7:00 P.M. (proposed) Del Rey Oaks Monday – Sunday 10:00 A.M. – 8:00 P.M.
Santa Cruz Monday – Sunday 10:00 A.M. – 9:00 P.M.
10:00 A.M. – 7:00 P.M.
8:30 A.M. – 7:00 P.M.
San Jose Monday – Sunday 9:00 A.M. – 9:00 P.M.
During the City Council Subcommittee’s discussions on medical marijuana and the establishment of commercial cannabis businesses in Salinas, they provided direction that a business tax be presented to the voters at a rate of 12% - 15% of the businesses’ gross receipts. To provide flexibility in setting the rate, the City Attorney has recommended that if the business tax rate ceiling is going to be 15% that the ordinance establishing the business tax set the rate as being “up to 15%”, with the rate subject to change (not exceeding that ceiling) by the City Council. Provided here is a comparison of the business tax rates of the three same local cities mentioned above:
City Tax Rate
Del Rey Oaks None
Santa Cruz 7% with an option to increase to
10%
San Jose 10% (initial rate was 7%)
As a point of reference for the City Council as it makes its determination of a business tax rate, City staff are not aware of any city in California with a rate above 10%. This should be taken into consideration as imposing too high a tax rate may have the unintended negative effect of forcing commercial cannabis businesses “underground” and over -burdening them such that they cannot maintain fiscal solvency. If the Ci ty Council provides direction to the City Attorney and the City Clerk to prepare a business tax to be submitted to the voters, the ballot materials will be brought forward to the City Council in late February or early March and will include alternative pro grams for the City Council’s consideration.
As the City Council begins to contemplate the presentation of a commercial cannabis business tax to the voters, the City Council should begin to consider the initial tax rate to be imposed and the possible negat ive effects of too high a tax rate. The imposition of too high a tax may prevent these businesses may cause these businesses to remain “in the shadows”. City staff will prepare different models of taxation and will present those to the City Council’s Fin ance Subcommittee for consideration and a recommendation before consideration by the full City Council.
Adoption of the ordinance has certain benefits including providing Salinas residents more ready access to marijuana medications without having to drive to neighboring cities and bringing medical marijuana businesses “out of the shadows”, making them more mainstream, and incorporating them into the fabric of the community. Knowing where these businesses are located and how they are operating arguably pro vides the City with greater opportunity to address the negative attendant effects of these businesses. Additionally, having these businesses more mainstream and having them 3 incorporate research and innovation into their business models (as recommended by the Planning Commission) mat likely result in a higher quality, safer product for Salinas’s residents who choose to use marijuana as medication; allowing Salinas’s residents more ready access to the medication of their choice and allowing innovative busine sses to open and to establish operations in Salinas may result in a higher quality products being available to the patients, which may not be available “on the street” or in the black market.
After the City Council introduced the ordinance, the Monterey County Health Department provided comments on the City’s ordinance and suggest that the City include provisions for food safety, storage of hazardous materials, and solid waste disposal. Those edits are incorporated into the attached ordinance and are sh own in underlined type -face. As the City’s health officer, the Health Department would enforce compliance with those provisions of the City’s ordinance.
ISSUE
Shall the City Council adopt an ordinance related to the establishment of regulations on comm ercial cannabis businesses?
Shall the City Council provide direction to the City Attorney and the City Clerk as to the preparation of a business tax to be submitted to Salinas voters for their approval at the June 2016 statewid e presidential primary election?
CEQA CONSIDERATIONS
The environmental impacts of the project have been analyzed in accordance with the California Environmental Quality Act (CEQA). The proposed ordinance is exempt from further environmental analysis per CEQA Guidelines Section 150 61(b)(3) because it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.
FISCAL IMPACTS
There are no direct, immediate fiscal impacts to the City with the City Council’s i ntroduction and adoption of the ordinance; however, there will be an impact on City resources associated with the review of applications, processing of permits and other approvals, inspections and background checks, and other support City Staff will provid e to this program. Additional funding is needed to provide and to support the resources necessary to support the program and should be provided through fees charged to the businesses. Fee resolutions will be prepared and will later be presented to the Ci ty Council. In addition, if also directed by the City Council, a tax measure imposing a on commercial cannabis businesses will be prepared and will be presented to the voters for their consideration and approval. Without sufficient resources to manage th is program, the City and the community may realize negative impacts. The City Council is encouraged to consider having the fees in place and the tax measure approved before any permits are issued to commercial cannabis businesses.
TIME CONSIDERATIONS
Unless AB 21 is passed by the State Legislature, there is some ambiguity as to the effectiveness of the March 1, 2016 deadline established in the Medical Marijuana Regulations and Safety Act. As of the 4 preparation of this Report, AB 21 was passed by the Sen ate Health Committee without opposition, but had not yet been considered by the full Legislature. The City currently has moratoria in place on new, additional manufacturing facilities and cultivation facilities, as well as a prohibition on dispensaries (s ince 2007). The City Council could choose to leave the existing prohibitions in place and consider an ordinance at a later date or consider the ordinance now for introduction and adoption.
COUNCIL GOALS
Adoption of the ordinance does not directly advanc e any of the City Council’s goals or initiatives; however, to the extent commercial cannabis businesses are allowed to establish and operate the ordinance includes requirements and operating restrictions designed to mitigate negative impacts on the city and on the community.
ALTERNATIVES AVAILABLE TO COUNCIL
The City Council could choose to n ot i ntroduce the proposed ordinance or to provide direction regarding the preparation of a tax measure.
CONCLUSION
The City’s consideration of an ordinance to per mit the establishment of commercial cannabis businesses and the implementation of regulations upon those businesses is a significant change in policy. The City Council’s Subcommittee directed that an ordinance be prepared to allow for the establishment of a limited number of commercial cannabis businesses and to provide for the regulation of such businesses. The Planning Commission considered a draft proposed ordinance and recommended a final draft ordinance be presented to the City Council with provision s consistent with what the Subcommittee recommended, in addition to other specific considerations. The City Council considered the draft ordinance recommended by the Planning Commission and introduced the same on January 6, 2016. A final draft ordinance (incorporating recent suggested edits by the Monterey County Health Department) is now ready for the City Council’s adoption, with the ordinance effective thirty days thereafter . Following adoption, City staff will prepare application materials, selection criteria, and will prepare a business tax measure for the City Council consideration for presentation to the voters.
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