City Council
Report
City Council Meeting: December 12, 2023
Agenda Item: 10.B
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Introduction and First Reading of an Interim Zoning Ordinance Extending Interim Zoning Regulations Adopted by Interim Zoning Ordinance 2764 (CCS) to Amend 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 extending interim zoning regulations adopted by Interim Zoning Ordinance 2764 (CCS) 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 sell adult-use cannabis or adult-use cannabis products to persons 21 years of age and over.
Summary
On October 24, 2023, Council adopted Interim Ordinance Number 2764 (CCS) (IZO 2764) which adopted interim zoning regulations 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 sell adult-use cannabis or adult-use cannabis products to persons 21 years of age and over. In accordance with Santa Monica Municipal Code Section 2 of 7
9.46.090(C), IZO 2764 becomes effective on December 14, 2023, and is set to expire on February 12, 2024. Staff proposes an extension of the interim zoning regulations that would continue until February 12, 2026. Over this timeframe, staff will return to Council with an ordinance allowing for adult-use cannabis retail business and non-retail business types within the City and will 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. Depending on the circumstances, Council could make amendments to the IZO or repeal it.
Discussion
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.
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 3 of 7
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.
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 4 of 7
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.
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On November 14, 2023, Council adopted IZO 2764 replacing the term “Medical Marijuana Dispensary” with “Medicinal Cannabis Retailer”, removing certain requirements for Medicinal Cannabis Retailers for consistency with State law, and permitting Medicinal Cannabis Retailers to sell adult-use cannabis or adult-use cannabis products to persons 21 years of age and over. Council added a requirement to the IZO that the sale of adult-use cannabis or adult-use cannabis products to persons 21 years of age and over shall be permitted only if a regulatory permit for adult-use cannabis has been obtained by the two retailers by June 1, 2024.
The interim ordinance becomes effective on December 14, 2023, and is set to expire on February 12, 2024. Council may extend the interim ordinance until December 14, 2028, allowing the IZO to be in effect up to 60 months in accordance with Santa Monica Municipal Code (SMMC) Section 9.46.090(C).
Staff recommends extension of the IZO for 24 months until February 12, 2026. The proposed extension would allow staff to return to Council with an ordinance allowing for adult-use cannabis retail business and non-retail business types within the City and to 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. The proposed extension would not preclude Council from revisiting the IZO prior to its expiration to potentially amend the provisions or duration of the IZO. Depending on the circumstances, Council could make amendments to the IZO or repeal it.
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 6 of 7
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 11/14/23 (attachment D) Adoption of 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
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 7 of 7
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.
Prepared By: Tony Kim, Principal Planner
Approved Forwarded to Council
Attachments:
A. Interim Zoning Ordinance Extension
B. October 24, 2017 Council Meeting Cannabis Interim Zoning Ordinance (Web Link)
C. February 25, 2020 Council Meeting Cannabis Interim Zoning Ordinance Extension (Web Link)
D. June 13, 2023 Council Meeting Adult-Use Cannabis Study Session E. November 14, 2023 Council Meeting Adult-Use Cannabis Interim Zoning Ordinance (Web Link)
F. PowerPoint Presentation