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DISCUSSION
City of San Bernardino
Request for Council Action
Date: June 5, 2024
To: Honorable Mayor and City Council Members
From: Rochelle Clayton, Acting City Manager;
Gabriel Elliott, Director of Community Development and
Housing
Department: Community Development & Housing
Subject: Commercial Cannabis Regulatory Program Update
(All Wards)
Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino, California, receive and file the oral report on the Commercial Cannabis Regulatory Program.
Executive Summary
This agenda item is an overview of the status of the City of San Bernardino’s Commercial Cannabis Program. There is no fiscal impact associated with this item. It is recommended that the Mayor and City Council receive and file the Annual Update on the Commercial Cannabis Regulatory Program.
Background
The San Bernardino Municipal Code (SBMC) Chapter 5.10 establishes the regulations and standards for Commercial Cannabis Business (CCB) activities in the City. The City Council initially adopted Chapter 5.10 through Ordinance MC-1464 in March 2018. In October 2018, the City Council amended Chapter 5.10 with Ordinance MC-1503. The City Council then adopted Resolution 2018-227 to place Ordinance MC-1503 on the November 2018 ballot for voter approval. In November 2018, the voters approved Ordinance MC-1503.
Under Chapter 5.10 of the SBMC, to operate a Commercial Cannabis Business in the City, a person must obtain a valid CCB Permit from the City and a valid license from the California Department of Cannabis Control (SBMC § 5.10.060). The City offers six 2 0
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types of permits: cultivation; distribution; manufacturing; microbusiness; retail; and testing. (SBMC § 5.10.060). Chapter 5.10 currently caps the number of Commercial Cannabis Business Permits that the City may issue at 17 retail, and unlimited for all other license types.
Discussion
Current Status of Permits
Currently, the City has 16 commercial cannabis businesses, comprised of eight (8) retail locations, six (6) microbusinesses with a retail component, and two (2) cultivation facilities. Additionally, there is one unopened business under construction.
The business that is currently under construction has experienced extenuating circumstances that have caused delays in the process. Staff are actively working with the applicant and outside resources to assist with project completion, including mitigating concerns with electrical service. The applicant anticipates being issued a Cannabis Business Permit to operate towards the end of this year (2024).
On November 28, 2023, staff issued a revocation of the Cannabis Business Permit (CBP) 20-001 to Empire Connect / Herban Kulture. The revocation was issued for failure to remain current on Cannabis Tax Reporting and Remittance. Similarly, the City’s Business Registration division also issued a revocation for the Operator’s Business License. On December 6, 2023, an appeal request form was received and on December 28, 2023, an appeal hearing was conducted. On January 11, 2024, an Administrative Hearing Decision and Order was received upholding the revocation.
On March 27, 2024, staff issued a Letter of Forfeiture for Commercial Cannabis Business (CCB) Permit 18-0048 issued to 14 Four. Subsequently, on March 28, 2024, staff issued a Letter of Forfeiture for CCB 18-0012 to Orange Show Cultivators. In accordance with the ”Failure To Take Further Actions” guidelines adopted by Mayor and City Council through Resolution No. 2020-253, both letters were issued due to the lack of pursuing and obtaining their permits to operate.
On April 3, 2024, staff was notified that Have a Heart, DBA Hightimes, located at 590 S. E Street, had closed its doors as of March 25, 2024, and may be surrendering its cannabis license to the Department of Cannabis Control (DCC). If they do not surrender their license, it will automatically expire on June 13, 2024. By surrendering it to or allowing the license to expire with the DCC, they will simultaneously be surrendering their permit, CBP 22-001, with the City of San Bernardino. This comes after months of non-compliance in reporting and remittance of their Cannabis Tax and non-payment of their 2024 Annual Regulatory fee. Staff is currently working in conjunction with DCC on the surrender/expiration of this license.
The table below provides a list of the cannabis businesses in the City and the location and status of each one.
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Revenues
The Commercial Cannabis Regulatory Program requires applicants to pay fees to recover the City’s costs in processing applications, permits, inspections and audits.
The program also requires quarterly Cannabis Tax payments that are incorporated into the General Fund and get allocated to projects where it is most needed in the community, such as police services, road repairs, parks, and libraries.
Since the beginning of Fiscal Year 2019/2020, and as of May 6, 2024, the Commercial Cannabis program has drawn in just over $726,477 in Application and Annual Regulatory Fees. It was anticipated that the City would collect just over $255,000 in FY 23/24, however, with the unanticipated closure of Hightimes, the City came in slightly under the annual projection. In Fiscal Years 24/25 and 25/26, the City will start to see a steady flow of revenue projections as it maintains the number of operators within the City.
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Since the beginning of Fiscal Year 2019/2020, and as of April 30, 2024, Commercial Cannabis Taxes have brought in just over $10.3 million. The spike in collected Tax Revenues occurring in FY 21/22 is attributed to the influx of taxes paid as a close out to an agreement reached with Captain Jack’s and Shatter. The difference in collected and anticipated Tax Revenues in FY 23/24 is attributed to the revocation of Empire Connect and the closure of Hightimes.
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Cannabis Crime Stats
The Police Department, through the Crime View Dashboard database, tracks crime statistics throughout all 219 reporting districts within the City limits. Staff maintain contact with the Police Department as it relates to confirming crime at the City’s current active and operating CCBs as part of meeting the Commercial Cannabis Regulatory program requirements.
The Police Department ran an incident analysis report from July 2022 to April 2024, and the calls consisted mainly of false alarms, collision reports, vandalism, and other unrelated calls not associated with the cannabis operations themselves. In nearly two years, there have only been two significant calls for service for theft at a licensed dispensary.
Since the inception of the Cannabis Task Force, the Code Enforcement Division, along with the San Bernardino Police Department in collaboration with the California Department of Tax & Fee Administration, have investigated and closed 48 illegal marijuana dispensaries, “seshs” and indoor grows. There are currently nine open and ongoing investigations.
Process Updates
Staff have effectively implemented enhancements to the City’s operational procedures, application protocols, and overall process flow. These improvements are designed to streamline future operations, ensuring efficiency and ease for all stakeholders.
On October 19, 2022, staff brought a Development Code Amendment before City Council that streamlined the land use tables contained within the Development Code to reflect cannabis land uses more accurately. Updating the land use table assists in
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being able to find the most suitable locations for the different types of cannabis license types.
Financial and Compliance Audits
Staff are working with the Cannabis Consultant, SCI Consulting, to conduct Financial and Compliance Audits for all licensed Commercial Cannabis operators. Staff anticipate the completion of these audits by October 2024. This initiative underscores our commitment to regulatory excellence and transparency.
Program Maintenance and Operator Success
Staff’s recommendation is to continue the current Commercial Cannabis Program structure. The focus will continue to remain on strengthening partnerships with existing operators and providing them with the support needed to thrive and adhere to all regulatory requirements. This includes the timely reporting and remittance of Regulatory Fees and Cannabis Taxes, which are vital to the program’s integrity and success.
2021-2025 Strategic Targets and Goals
The Annual Update on the Commercial Cannabis Regulatory Program is consistent with Key Target No 1: Improved Operational & Financial Capacity. Specifically, the multiple streams of revenue through Regulatory Fees, Cannabis Tax and Cannabis Sales Tax provide a long-term revenue source. Commercial Cannabis Regulatory Program Applicants are required to pay application fees to recover the City’s costs in processing permits, conducting inspections, along with Cannabis Tax and Cannabis Sales Tax. The Cannabis Tax Revenue stream goes to improvements throughout the city as allocated through the budget process.
Fiscal Impact
Commercial Cannabis Regulatory Program Applicants are required to pay application fees to recover the City’s costs in processing the permits, along with Cannabis Tax and Cannabis Sales Tax.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino, California, receive and file the oral report on the Commercial Cannabis Regulatory Program.
Attachments
Attachment 1 - Commercial Cannabis Update PowerPoint
Ward:
All Wards
Synopsis of Previous Council Actions:
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March 17, 2018, Mayor and City Council adopted Ordinance MC-1464 establishing regulations and standards for Commercial Cannabis.
August 1, 2018, Mayor and City Council adopted Resolution No. 2018-277 placing Ordinance No. MC-1499 establishing Cannabis Tax on the November ballot which was approved by the voters.
August 17, 2022, Mayor and City Council received and filed an Annual Update on the Commercial Cannabis Regulatory Program.