City Council
Report
City Council Meeting: October 24, 2023
Agenda Item: 8.C
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Introduction and First Reading of an Interim Zoning Ordinance Amending the Text of the Zoning Ordinance to: (1) Replace the Term “Medical Marijuana Dispensary” with “Medicinal Cannabis Retailer”; (2) Remove Certain Requirements for Medicinal Cannabis Retailers for Consistency with State Law; and (3) Permit Medicinal Cannabis Retailers To Deliver, Cultivate, and Sell Adult-Use Cannabis or Adult-Use Cannabis Products to Persons 21 Years of Age and Over
Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of Categorical Exemption pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines.
2. Introduce for first reading an Interim Zoning Ordinance amending the text of the Zoning Ordinance to replace the term “Medical Marijuana Dispensary” with “Medicinal Cannabis Retailer”, to remove certain requirements for Medicinal Cannabis Retailers for consistency with State law, and to permit Medicinal Cannabis Retailers to deliver, cultivate, and sell adult-use cannabis or adult-use cannabis products to persons 21 Years of Age and Over.
3. Introduce for first reading an Ordinance amending Section 6.203.010 of the Santa Monica Municipal Code to allow medicinal cannabis retailers with medicinal cannabis permits issued before October 10, 2023, to deliver, cultivate, and sell adult-use cannabis and adult-use cannabis products to persons 21 years of age and over, subject to Santa Monica Municipal Code Section 9.31.185.
Summary
On June 13, 2023, the City Council received a presentation on key policy considerations for allowing adult-use cannabis businesses and other non-retail cannabis business types within the City of Santa Monica. The City Council also discussed options for 2 of 9
allowing adult-use cannabis sales and associated regulatory restrictions and provided the following direction to staff:
• Return to Council with an Ordinance allowing for adult-use cannabis retail business and non-retail business types within the City. • Conduct an equity study and create a cannabis social equity program to help ensure that the communities most impacted by federal and state cannabis enforcement policies are provided an opportunity to benefit from the cannabis industry.
• Begin by initially returning to Council with an Ordinance permitting the two previously approved Medicinal Cannabis Retailers to sell adult-use cannabis.
Accordingly, the proposed Interim Zoning Ordinance would permit the two Medicinal Cannabis Retailers in the City with active Conditional Use Permits to sell adult-use cannabis or adult-use cannabis products to persons of 21 years of age or over. The Interim Zoning Ordinance would also replace the term “Medical Marijuana Dispensary” with “Medicinal Cannabis Retailer” and remove certain requirements for Medicinal Cannabis Retailers for consistency with State law. The proposed Ordinance amends Section 6.203.010 of the Santa Monica Municipal Code to allow medicinal cannabis retailers with active Conditional Use Permits issued before October 10, 2023, to engage in retail cannabis sales subject to Santa Monica Municipal Code Section 9.31.185.
Background
The City of Santa Monica first adopted regulations for medical marijuana (medicinal cannabis) in June of 2015 as a part of the City’s comprehensive Zoning Ordinance update (Article 9 of the Santa Monica Municipal Code) which enabled up to two medicinal cannabis retailers within the City subject to a regulatory permit and selection process. All other cannabis-related uses were prohibited. The dispensaries were allowed only along limited sections of Wilshire Boulevard and Santa Monica Boulevard within the Mixed-Use Boulevard Low (MUBL), Mixed-Use Boulevard (MUB) or General Commercial (GC) zones subject to a Conditional Use Permit. 3 of 9
On October 24, 2017, the City Council adopted an Interim Zoning Ordinance (IZO) adding Section 6.200 to the Santa Monica Municipal Code, which established general regulations and definitions for commercial cannabis activities, including a regulatory permit process for medicinal cannabis retailers and light (non-volatile) manufacturing.
The IZO also made other changes as needed including replacing the term “Medical Marijuana Dispensary” with “Medicinal Cannabis Retailer” and removing certain requirements for Medicinal Cannabis Retailers in SMMC Section 9.31.185 for consistency with State law. The ordinance prohibited all adult-use commercial cannabis activities including retail, cultivation, testing, distribution, and manufacturing. The IZO has subsequently expired. After a prolonged selection process, two medicinal cannabis retailers were selected. One of the retailers began operations recently at 925 Wilshire Boulevard. The second retailer located at 1416 Wilshire Boulevard is still in the permitting process.
California’s cannabis regulations allow that cannabis can be sold commercially for either medicinal or recreational adult-use purposes. Medicinal cannabis is available only to persons 18 years or older who have a valid recommendation from a physician.
Medicinal cannabis patients also have the option of obtaining a State-issued Medical Cannabis Identification Card (MMIC), but this is not required. Both the physician’s recommendation and the identification card are required to be renewed every year. Only 3,199 such cards were issued in all of California in 2022. Adult-use cannabis can be sold to anyone age 21 years or older without a physician’s recommendation.
The State of California’s Department of Cannabis Control (DCC) may issue licenses for either medicinal (M) or adult-use (A), or for both medicinal and adult-use (M/A). Initially, California’s cannabis program required that all cannabis and cannabis products had to be designated for either the medicinal or adult-use market through all stages of the supply chain, but later revisions changed this so that product grown or manufactured for either market can be shifted to the other up until the point of sale. This makes the medicinal or adult-use designation largely meaningless for wholesale cannabis businesses as it does not predetermine how the product will eventually be sold. 4 of 9
Of over 11,000 DCC business licenses in California, 1,360 are for medicinal cannabis only (12%). The rest are for either adult-use or for both medicinal and adult-use. Among the state’s 1,891 retailers (including retailing microbusinesses), only 31 are licensed for just medicinal cannabis sales.
Medicinal cannabis is estimated to make up only around 9% of cannabis retail sales in California. The primary advantage for consumers to purchase cannabis through the medicinal market is an exemption from regular sales tax only for those qualifying patients who present a Medical Marijuana Identification Card at the time of purchase (a savings of 7.25% to 10.25%, depending on the jurisdiction). The small number of patients with valid MMIC cards makes their impact on tax revenues statistically insignificant.
Expanding adult-use cannabis retail in the City can also help with economic recovery efforts. As a result of the COVID-19 Declaration of Emergency, the City of Santa Monica, County of Los Angeles, and State of California maintained public health measures that included, at differing times, strict limitations on public gatherings, required closures of certain businesses, and strict limitations and protocols for the operations of businesses permitted to remain open. The local, state, and federal emergency declarations have since concluded, but the economic impacts of the COVID19 closures of, and limitations on, businesses and resulting behavior changes continue to affect the local Santa Monica economy. As the commercial and economic landscape evolves, the City’s economic recovery and competitive advantage will depend on its ability to deliver on a diverse range of unique dining, retail, commercial, and entertainment uses and other revenue streams. The City has an important governmental interest in maintaining a thriving business community and protecting the health, safety, and economic welfare of its citizens and businesses.
Accordingly, on July 26, 2022, the City Council voted to place a cannabis business license tax measure (Measure HMP) on the November 2022 ballot, imposing a tax on all commercial cannabis activities at initial rates of 3% of gross receipts for adult-use cannabis retailers, 2% for medicinal cannabis retailers, and 1% on other cannabis 5 of 9
business types. Measure HMP was approved by over 66% of voters in November 2022.
The voter-approved rates are included in Santa Monica Municipal Code (SMMC) Chapter 6.204.
At its June 13, 2023, study session, City Council considered various policy considerations for allowing adult-use cannabis businesses and other non-retail cannabis business types within the City and directed staff to return to Council with an Ordinance permitting the two previously approved Medicinal Cannabis Retailers to sell adult-use cannabis.
Past Council Actions
Meeting Date Description
10/24/17 (attachment A) Adoption of Interim Ordinance Replacing the Term "Medical Marijuana Dispensary" with "Medicinal Cannabis Retailer" Throughout the City's Zoning Ordinance, Chapter 9.01 Through Chapter 9.52 of Article 9 of the Santa Monica Municipal Code; Creating a Definition for "Medicinal Cannabis Retailer" to Replace the Definition for "Medical Marijuana Dispensary" to Conform With State Law; Removing Certain Requirements for Medicinal Cannabis Retailers for Consistency with State Law and to Allow for Separate Regulation and Rulemaking; and Modifying the Definition of "Industry, Limited" to Allow for Medicinal Cannabis Light Manufacturing
02/25/20 (attachment B) Adoption of Interim Zoning Ordinance Extending Interim Zoning Ordinances Number 2557 (CCS) and 2566 (CCS), Which
Replaced the Term "Medical Marijuana Dispensary" with
"Medicinal Cannabis Retailer" Throughout the City's Zoning Ordinance, Chapter 9.01 Through Chapter 9.52 of Article 9 of the Santa Monica Municipal Code; Created a Definition for "Medicinal Cannabis Retailer" to Replace the Definition for "Medical Marijuana Dispensary" to Conform with State Law; Removed Certain Requirements for Medicinal Cannabis
Retailers for Consistency with State Law and to Allow for Separate Regulation and Rulemaking; and Modified the
Definition of "Industry, Limited" to Allow for Medicinal Cannabis Light Manufacturing
06/13/23 (attachment C) Adult-Use Cannabis Study Session Discussion
The Zoning Ordinance refers to a Medicinal Cannabis Retailer as a “Medical Marijuana Dispensary” and has the following broad definition:
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Medical Marijuana Dispensary. Any facility, building, structure, or fixed location where one or more qualified patients and/or persons with identification cards and/or primary caregivers cultivate, distribute, sell, dispense, transmit, process, exchange, give away, or otherwise make available marijuana for medical purposes. The terms “primary caregiver,” “qualified patient,” and “person with an identification card” shall be as defined in California Health and Safety Code Section 11362.5 et seq.
This terminology and the definition of Medical Marijuana Dispensary had been changed in the 2017 IZO to be consistent with terminology used in adopted State law and the cannabis industry replacing the use of the word “dispensary” with “retailer”, using the term “cannabis” instead of “marijuana”, and using the term “medicinal” instead of “medical” when referring to permitted business activities. The new definition for Medicinal Cannabis Retailer in the 2017 IZO was changed as follows:
Medicinal Cannabis Retailer. A licensed premises which is a physical location from which retail medicinal cannabis or medicinal cannabis products are intended to be sold for use, pursuant to the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code, by a medicinal cannabis patient in California who possesses a physician’s recommendation.
The premises may be closed to the public; sales may be made exclusively by delivery.
The IZO expired in January 2023 at which time the terminology, definition of Medicinal Cannabis Retailer, and other modified use standards in SMMC Section 9.31.185 reverted back to the outdated language in the Zoning Ordinance which references Medical Marijuana Dispensaries. The proposed IZO would make the same changes to the terminology, definition, and use standards as the prior 2017 IZO to be consistent with State law and the cannabis industry.
In order to allow the two previously permitted Medicinal Cannabis Retailers to sell adultuse cannabis or cannabis products, staff is proposing a further modification to the definition of Medicinal Cannabis Retailer to include the following additional language:
“Subject to the provisions of SMMC Section 9.31.185, Medicinal Cannabis Retailers shall be permitted to deliver, cultivate, or sell adult-use cannabis or adult-use cannabis 7 of 9
products, as licensed and regulated by Business and Professions Code Section 26000 et seq, and as amended from time to time, to persons 21 years of age and over.” Santa Monica Municipal Code Section 9.31.185 provides a range of specific use standards for Medicinal Cannabis Retailers including a requirement that each of the two Medicinal Cannabis Retailers obtain a Conditional Use Permit which both Medicinal Cannabis Retailers have done. The proposed IZO includes new language in SMMC Section 9.31.185 to permit the delivery, cultivation, and sale of adult-use cannabis or adult-use cannabis products to persons 21 years of age and over only in locations with active Conditional Use Permits for Medicinal Cannabis Retailer uses as of October 10, 2023. The existing Conditional Use Permits would remain in effect, but conditions prohibiting the adult-use of cannabis will not be enforced.
Certain regulations found in SMMC Section 9.31.185 regulating the operations of Medicinal Cannabis Retailers were written prior to the adoption of comprehensive State laws regulating cannabis. The proposed IZO removes sub-sections I, K, and L of Section 9.31.185 that address Staffing and Security, Required Patron Notification, and Prohibited Activities which are either addressed in State law or can be more effectively addressed through the regulatory ordinance and rules.
SMMC Section 6.203.010 currently prohibits commercial nonmedicinal cannabis sales in the City. The proposed ordinance would create an exception to this general prohibition for the two entities that have been issued medicinal cannabis permits pursuant to Chapter 6.201 of the Santa Monica Municipal Code. A medicinal cannabis retailer that chooses to engage in nonmedicinal retail sales must comply with the provisions set forth in SMMC Section 9.31.185.
The sales of adult-use cannabis products or adult-use cannabis products would be subject to the cannabis business tax regulations of SMMC Chapter 6.204. The cannabis business tax imposed upon any retailer of adult-use non-medicinal cannabis or adult-use non-medicinal cannabis products is three (3) percent of the gross receipts derived from the retail sale of adult-use non-medicinal cannabis or adult-use non- 8 of 9
medicinal cannabis products. The tax rate may be adjusted by the City Council but shall not exceed the maximum tax rate of ten percent without voter approval.
Environmental Analysis
The proposed interim ordinance is categorically exempt from the provisions of California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of the State Implementation Guidelines (common sense exemption). Based on the evidence in the record, it can be seen with certainty that there is no possibility that the proposed interim ordinance may have a significant effect on the environment. The change in terminology from “Medical Marijuana Dispensary” to “Medicinal Cannabis Retailer” and the additional revisions to the requirements for Medicinal Cannabis Retailers within the City are consistent with recent changes to State law. The sale of adult-use cannabis or adult-use cannabis products at Medicinal Cannabis Retailers with active Conditional Use Permits are consistent with existing land uses and will not change the approved commercial land use for these locations. (See e.g., Lucas v. City of Pomona (2023) 92 Cal.App.5th 508 (holding that substantial evidence supported city’s determination that proposed commercial cannabis activities were exempt from CEQA as consistent with existing retail land uses and density covered by previous EIR). Therefore, no further environmental review under CEQA is required.
Financial Impacts and Budget Actions
There is no budget action necessary as a result of the recommended action. Staff has not included tax revenue projections associated with adult-use cannabis sales in the FY 2023-24 budget; however, the potential revenue anticipated from the currently authorized businesses is nominal. Future year revenues based on the upcoming ordinance will be included in future year budgets.
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Prepared By: Tony Kim, Principal Planner
Approved Forwarded to Council
Attachments:
A. October 24, 2017 Council Meeting Cannabis Interim Zoning Ordinance (Web Link)
B. February 25, 2020 Council Meeting Cannabis Interim Zoning Ordinance Extension (Web Link)
C. June 13, 2023 Council Meeting Adult-Use Cannabis Study Session D. Ordinance Amending Section 6.203.010 09.27.23 (001) (clean) E. Interim Zoning Ordinance to Allow Adult-Use Cannabis F. Written Comments
G. PowerPoint Presentation