CITY OF SAN PABLO
COUNCIL CONSIDERATION TO ADOPT A RESOLUTION
PLACING A CANNABIS BUSINSS LICENSE TAX
MEASURE ON THE NOVEMBER 5, 2024 BALLOT
Presented to:
CITY COUNCIL
July 15, 2024
OVERVIEW:
I. Background – Prop. 64 and AUMA
II. FY 2023-25 City Council Priority Workplan – Current Adopted Policies III. Summary Findings from Cannabis Fiscal Analysis by HdL Consultants IV. Recent Survey Results from SRI, Inc. (Annual and Electorate Survey Results) V. Proposed Ballot Language for November 5, 2024 Ballot VI. Questions (Q & A)
• In 2016, California voters passed Proposition 64, known as the Adult Use of Marijuana Act (AUMA), legalizing the recreational use of cannabis in California for adults 21 and over. • AUMA established a state-level regulatory framework for the cultivation, distribution, and sale of cannabis, while also imposing state taxes on such activities, including a 15% excise tax on retail sales.
• Notwithstanding statewide legalization under AUMA, California cities and counties continue to retain broad independent authority to permit, regulate, and tax cannabis businesses within their respective jurisdictions.
• Though California cities are now required to allow limited indoor cultivation for personal use, and the delivery of cannabis to consumers from state-licensed cannabis delivery businesses, cities continue to maintain discretion over whether to further allow additional business activities such as commercial cultivation or retail sales.
• The City of San Pablo currently prohibits these additional commercial activities. To the extent the City Council may decide to allow additional cannabis uses in the future, it also retains the authority to regulate the location, operation, and licensing of such uses, as well as the authority to impose additional local taxes, with voter approval
, for the privilege of engaging in such business activities.
BACKGROUND – PROP 64 & STATE LAW
FY 2023-25 COUNCIL PRIORITY WORKPLAN
During previous City Council deliberations, the current adopted FY 2023-25 Council Priority Workplan contains the following adopted policies which have been added to the Workplan via previous adopted Resolutions, as follows:
UNDER MAJOR POLICY: FOCUS ON ECONOMIC DEVELOPMENT AND FISCAL DIVERSIFICATION • Policy #410: Explore and Research Cannabis Commercial Uses and Impacts • Policy #414: New Strategic Budget Initiatives to Address New Structural Deficits Forecasted for FY 2025-2027 Period
#3). Identify New General Fund Annual Revenue Sources
Primary Purpose:
Given the City’scurrent financial condition as of December 13, 2023, there is a critical need to generate new annual revenue sources for our City’sGF Budget. Additional revenues from a commercial cannabis business license tax, once established, would yield a new source of revenue to create or expand new City program and service delivery, including but not limited to: police services, homeless outreach services, youth and senior programs, rent control program (per Prop. 33 if passed by state-wide voters), and other general government uses, etc.
HdL CANNABIS FISCAL ANALYSIS (MAY 2023)
Following City Council policy direction via the Workplan, the City Manager and staff obtained a fiscal analysis from HdL Consultants who conducted a Fiscal Analysis of the Commercial Cannabis Industry for the City of San Pablo.
HIGHLIGHTS INCLUDE:
• HDL indicated that setting future tax rates is equally important as setting a clear and unambiguous direction for future City regulatory policy on regulating this industry in the City. • The City’s best opportunity for developing tax revenue would come from cannabis retailers (both storefront and delivery- only), as there is both the greatest unmet consumer demand, and the greatest return in terms of revenue. • The City should set its tax rates for cannabis retailers to be competitive with the average of the other cities in the East Bay region. Of nearly 7 nearby jurisdictions, HdL sampled, five (5) which impose a average tax rate of 5.0%. This falls in the midpoint of HdL’s commonly recommended range, which runs from 4.0% up to 6.0% (See Figure 1 –HdL Fiscal Analysis below)
HdL CANNABIS FISCAL ANALYSIS (CONTINUED)
HIGHLIGHTS INCLUDE: (CONTINUED)
• While HdL recommends these tax rates to be competitive, the City should not anticipate any significant revenues from other (non-retail) cannabis businesses at this time. While it is certainly possible that some such businesses may choose to locate in the City, non-retail businesses are difficult to anticipate, making it very hard to provide revenue projections for future GF budgeting purposes.
• Projected Commercial Cannabis Retail Revenue: HdL projects that licensed, commercial cannabis retailers in the City of San Pablo could generate between $1.5 million and $2.2 million in annual cannabis tax revenue. These projections assume that commercial cannabis retailers are well-located to attract consumers from the surrounding service area, stretching from Albany to the south and to the Carquinez Bridge to the north (See Figure 6 – HdL Fiscal Analysis below).
Business Type Number Low Rate Revenue High Rate Revenue Retailers 2 4.00% $1,470,000 6.00% $2,200,000
Manufacturer 1 2.00% $50,000 4.00% $100,000
Distributor 1 2.00% $50,000 3.00% $100,000
Cultivation (Indoor) 1 $7/sf $70,000 $10/sf $100,000
Testing 0 1.00% $0 2.00% $0
Total $1,640,000 $2,500,000
HdL CANNABIS FISCAL ANALYSIS (CONTINUED)
HIGHLIGHTS INCLUDE: (CONTINUED)
• Alameda County Cannabis Industry Market Impacts: HdL reports that the current concentration of cannabis businesses demonstrates that the East Bay region (Alameda County) and Oakland, CA in particular have a strong presence within California’s commercial cannabis industry, with a large and diverse industry cluster that can both support and provide competition for additional cannabis businesses (See Figure 4 – HdL Fiscal Analysis below) FIGURE 4:
ACTIVE CANNABIS LICENSES IN THE EAST BAY REGION
City/County Cultivation/
Nursery
Distributor Manufacturer Retailer Microbusiness Testing Laboratory
Total
Albany 0 0 0 0 0 0 0
Berkeley 0 5 5 2 2 1 15
El Cerrito 0 0 0 1 0 0 1
Emeryville 0 2 0 3 3 0 0
Hercules 0 0 0 0 0 0 0
Oakland 77 78 55 132 47 0 389
Pinole 0 0 0 0 0 0 0
Richmond 19 3 2 3 0 0 27
Co. Unincorporated 0 0 0 1 0 0 1
San Pablo 0 0 0 0 0 0 0
Total 96 88 62 142 52 1 441
All data as of January, 2023. The number of licenses may not denote the number of businesses, as individual businesses may hold multiple licenses. In addition, DCC data may attribute some licenses to cities though the location is in the adjacent unincorporated area
HdL CANNABIS FISCAL ANALYSIS (CONTINUED)
HIGHLIGHTS INCLUDE: (CONTINUED)
• San Pablo Retail Market Service Area: In January 2023, HdL obtained data from the State of CA Department of Cannabis Cultivation showing that there are currently 5 licensed cannabis retailers within the San Pablo service area (260,000 pop.), giving a current density of one (1) retailer for roughly every 52,000 people, far lower than the concentration when we include retailers in Alameda County and City of Oakland. This suggests that there is still opportunity for additional retailers in the Richmond/San Pablo area, despite the outsized impact of the City of Oakland on the region. (See Figure 9 – HdL Fiscal Analysis below)
• NOTE: HdL estimates a total $22.5M in cannabis retail market gross receipts could be generated from the San Pablo Service Area (from the Carquinez Bridge to Albany) which can support +13 additional commercial cannabis retailers (Page 14 – Figure 10 of HdL Fiscal Analysis)
Cannabis Retailers in the San Pablo ServiceArea
City/County Population Retailer Retailing
Microbusiness
Total Population per
Retailer
El Cerrito 25,845 1 0 1 25,845
Hercules 26,091 0 0 0 N/A
Pinole 18,821 0 0 0 N/A
Richmond 115,639 3 0 3 38,546
Nearby Unincorporated 42,118 1 0 1 N/A
San Pablo 31,773 0 0 0 N/A
Total 260,287 5 0 5 52,057
SRI COMMUNITY OUTREACH – 2023-24 ANNUAL SURVEY RESULTS
• 2023 Annual City Survey Results: Between December 2023-January 2024, SRI conducted the City’s Annual Survey which solicited feedback from the community at-large of those surveyed on allowing the sale of cannabis in the City due to the City’s current fiscal condition:
2023-24 Annual Survey
Results were presented
to the City Council last
February 5, 2024
SRI COMMUNITY OUTREACH – 2024 ELECTORATE SURVEY RESULTS • 2024 Electorate Survey Results: Between June – July 2024, SRI conducted an electorate survey to solicit feedback from local voters on allowing the sale of cannabis and testing the proposed ballot language for the cannabis business license tax for the November5, 2024 ballot.
Rates Under the Proposed Business License Tax
• The following table provides a summary of both the maximum and the initial tax rates contained in the proposed ballot measure Ordinance.
These rates may be adjusted in the future by Resolution the City Council, and they will only apply if and when the City Council authorizes any of the specific uses.
Business Activity Maximum Tax Rate Initial Tax Rate
Retail sales or delivery business 7% 5%
Testing Laboratory 2% 2%
Manufacturing, processing, or distribution 6% 4%
Cultivation – Artificial Lighting $10.00 per square foot of canopy space $8.00 per square foot of canopy space Cultivation – Artificial and Natural Lighting $8.00 per square foot of canopy space $6.00 per square foot of canopy space Cultivation – No Artificial Lighting $4.00 per square foot of canopy space $4.00 per square foot of canopy space Cultivation – Nursery $2.00 per square foot of canopy space $2.00 per square foot of canopy space PROPOSED BALLOT LANGUAGE: NOVEMBER 5, 2024 ELECTION
PROPOSED BALLOT LANGUAGE FOR CITY COUNCIL CONSIDERATION:
The proposed Resolution would place an enabling Ordinance on the November 5, 2024 ballot to enact a business license tax on any potential cannabis activities that the City Council may choose to authorize in the future. The question to be placed before the voters is:
Since the revenue may be used for all general municipal services, and is not restricted to any particular purposes, it is a general tax and will require the approval of a majority (more than 50%) of qualified electors casting votes.
CITY COUNCIL ACTION: REQUIRES 4/5THS VOTE (OR SUPERMAJORITY) OF COUNCILMEMBERS TO ADOPT AND PLACE MEASURE ON THE NOVEMBER 5, 2024 BALLOT
“Shall the measure imposing a cannabis (“marijuana”) business license tax of up to 7% of gross receipts, or $10 per square foot of commercial grow area, lasting until voters end it, and estimated to generate $1,500,000 to $2,200,000 annually to provide City services such as police protection, recreational services, services to local youth and seniors, community grant programs, and for general government use, with all funds staying local and subject to audit, be adopted?” QUESTIONS?