Report to Mayor and City Council
Thursday, August 11, 2016
Discussion
SUBJECT:
Title
OVERVIEW OF PROPOSITION 64 (THE ADULT USE OF MARIJUANA ACT) AND CONSIDERATION OF CITY ACTION CONCERNING PROPOSITION 64, INCLUDING POSSIBLY SENDING BALLOT MEASURES TO THE CARSON VOTERS TO REGULATE, RESTRICT, AND/OR TAX ALL CANNABIS RELATED BUSINESS AND ACTIVITIES WITHIN THE CITY OF CARSON (CITY COUNCIL)
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I. SUMMARY
This report summarizes the impact on the City if Proposition 64 - the Adult Use of Marijuana Act (AUMA) - is approved statewide by California voters on November 8, 2016; briefly summarizes existing California marijuana law; and, requests direction, including on whether to send ballot measures to the Carson voters on ordinances to regulate and tax marijuana cultivation and activities.
If AUMA is approved by CA voters:
• Individuals - Adults 21 years of age or older will under State law legally be able to grow, possess, and use small amounts of marijuana for personal nonmedical purposes. Local control will be preempted over such personal marijuana activities. Cities cannot prohibit such uses.
• Businesses - In 2018 the state will begin to license and regulate 19 different types of nonmedical marijuana businesses (ranging from various cultivation operations and retail sales to testing facilities). Cities can prohibit, permit or regulate any of the nineteen different marijuana businesses. If a city regulates such uses, it can also tax the use and generate local taxes.
• Taxes - The state will tax the growing and selling of medical and nonmedical marijuana. The Legislative Analyst’s Office estimates state revenue from a few hundred million dollars to $1 billion. Revenue will go to (in part) youth programs, research, environmental protection, and law enforcement. Cities are eligible for certain grants funded by the new state revenue for law enforcement, fire protection and public health and safety; however, Cities are not eligible for these state grants if cultivation of marijuana or retail sales of marijuana are banned locally. Cities may also impose local taxes on marijuana businesses. Any City taxes must be approved by the voters.
If AUMA is not approved by CA voters: Growing, possessing, or using marijuana for nonmedical purposes remains illegal under California law. Growing, possessing, or using marijuana for medical purposes remains legal under California law pursuant to the voter approved Compassionate Use Act of 1996. And, pursuant to the Medical Marijuana Regulation and Safety Act of 2015, in 2018 the state will begin to license and regulate 19 different types of medical marijuana businesses (being largely equivalent to the types of businesses AUMA proposes to legalize for nonmedical marijuana operations).
Should Proposition 64 pass in November the City Council will have some decisions to make related to banning or regulating marijuana in the city of Carson. The City will have one year to decide what policies they want to put in place related to nonmedical marijuana activity in Carson. Enclosed in this report is:
● A matrix outlining the nonmedical marijuana activities that would be allowed/not allowed under the law should proposition 64 pass in November.
● Pros and Cons of regulating marijuana in the city vs. banning marijuana in the City.
Staff recommends that Council analyzes the impact on the City should AUMA pass, and then provide direction to staff on how to proceed (if at all) with respect to restricting, regulating, and taxing marijuana businesses and activities. If the City decides to ban some or all marijuana business activities within the city limits (if AUMA passes), then an express ban on some or all of the 19 different types of marijuana businesses is recommended to take place no later than January 1, 2018.
Based on estimates by the Legislative Analyst’s Office, AUMA could generate tax revenues for the state of several hundred million to one billion dollars, between $80 million and $180 million of which could become available to local governments in the form of grants. However, no grants will be provided to “local governments which have banned the cultivation, including personal cultivation under Section 11362.2(b)(3) of the Health and Safety Code, or retail sale of marijuana or marijuana products pursuant to [proposed] Section 26200 of the Business and Professions Code or as otherwise provided by law.”
An ordinance to regulate and restrict cannabis business and activities, including cultivation, testing and manufacturing, dispensaries (both medical and nonmedical), and an ordinance to tax these marijuana business activities, including an ordinance that combines regulation and taxation, are both provided for Council review and possible submission to the voters of Carson. If the Council desires to submit any combination of these ordinances to the Carson voters for the November 8, 2016 election, then action taken by the Council must be forwarded to the County by 5 pm on August 12 to meet election deadlines. Some cities are placing advisory measures before their electorate requesting consensus on the issues.
II. RECOMMENDATION
Recommendation
REVIEW the information in this staff report and TAKE one or more of the following actions:
1. Direct staff to take no immediate action, with the understanding that further direction may be provided at a future date and prior to 2018, if AUMA passes;
2. Direct staff to prepare an ordinance for Council consideration to prohibit all marijuana activities;
3. Direct staff to prepare an ordinance to restrict and regulate some or all of the medical marijuana operations currently allowed under state law and/or, contingent on passage of AUMA, some or all of the nonmedical marijuana businesses (which will be allowed under state law if AUMA passes).
4. CONSIDER sending ballot measures for consideration to the voters regulating and restricting all cannabis related businesses and activities and/or taxing same.
5. IF DECISION is to send ballot measure for consideration to the voters regulating and restricting all cannabis related businesses and activities, THEN WAIVE further reading and ADOPT attached resolutions:
a. Resolution No. 16-112 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, ORDERING THE SUBMISSION TO THE QUALIFIED ELECTORS OF THE CITY OF A CERTAIN MEASURE TO ADOPT AN ORDINANCE REGULATING AND RESTRICTING ALL CANNABIS RELATED BUSINESSES AND ACTIVITIES, AT THE GENERAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 8, 2016”
b. Resolution No. 16-113 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, SETTING PRIORITIES FOR FILING WRITTEN ARGUMENT(S) IN SUPPORT AND DIRECTING THE CITY ATTORNEY TO PREPARE AN IMPARTIAL ANALYSIS, REGARDING THE MEASURE TO ADOPT AN ORDINANCE REGULATING AND RESTRICTING ALL CANNABIS RELATED BUSINESSES AND ACTIVITIES”
c. Resolution No. 16-114 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, PROVIDING FOR THE FILING OF REBUTTAL ARGUMENTS REGARDING THE MEASURE TO APPROVE AN ORDINANCE REGULATING AND RESTRICTING ALL CANNABIS RELATED BUSINESSES AND ACTIVITIES”
6. IF DECISION is to send ballot measures for consideration to the voters on taxing cannabis related businesses and activities, THEN WAIVE further reading and ADOPT attached resolutions:
a. Resolution No. 16-115 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, ORDERING THE SUBMISSION TO THE QUALIFIED ELECTORS OF THE CITY OF A CERTAIN MEASURE TO APPROVE TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES AT THE GENERAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 8, 2016”
b. Resolution No. 16-116 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, SETTING PRIORITIES FOR FILING WRITTEN ARGUMENT(S) IN SUPPORT AND DIRECTING THE CITY ATTORNEY TO PREPARE AN IMPARTIAL ANALYSIS, REGARDING THE MEASURE TO APPROVE TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES”
c. Resolution No. 16-117 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, PROVIDING FOR THE FILING OF REBUTTAL ARGUMENTS REGARDING THE MEASURE TO APPROVE TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES”
7. If DECISION is to send ballot measures for consideration to the voters on restricting, regulating, and taxing cannabis related businesses and activities, THEN WAIVE further reading and ADOPT attached resolutions:
a. Resolution No. 16-118 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, ORDERING THE SUBMISSION TO THE QUALIFIED ELECTORS OF THE CITY OF A CERTAIN MEASURE TO ADOPT AN ORDINANCE RESTRICTING, REGULATING, AND TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES AT THE GENERAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 8, 2016”
b. Resolution No. 16-119 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, SETTING PRIORITIES FOR FILING WRITTEN ARGUMENT(S) IN SUPPORT AND DIRECTING THE CITY ATTORNEY TO PREPARE AN IMPARTIAL ANALYSIS REGARDING THE MEASURE TO ADOPT AN ORDINANCE RESTRICTING, REGULATING, AND TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES”
c. Resolution No. 16-120 titled “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARSON, CALIFORNIA, PROVIDING FOR THE FILING OF REBUTTAL ARGUMENTS REGARDING THE MEASURE TO ADOPT AN ORDINANCE RESTRICTING, REGULATING, AND TAXING CANNABIS RELATED BUSINESSES AND ACTIVITIES”
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III. ALTERNATIVES
TAKE another action the City Council deems appropriate.
IV. BACKGROUND
Brief History of Marijuana State and Federal Law
In 1996, California voters passed the Compassionate Use Act (i.e., Proposition 215) (CUA) which decriminalized medical marijuana.
In 2003, the Medical Marijuana Program Act (MMPA) established a voluntary program for medical marijuana identification cards and provided state criminal immunity to certain medical marijuana activities.
The federal Controlled Substances Act of 1970 (CSA) prohibits the manufacture, distribution or possession of marijuana.
In 2013 the U.S. Justice Department ordered enforcement of the CSA a low priority in states like California which regulate medical marijuana.
On December 9, 2014 the U.S. Congress passed the Rohrabacher-Farr amendment, which specifically prohibits federal funds from being used to prevent states from implementing laws authorizing the use, distribution, possession or cultivation of medical marijuana.
On October 19, 2015 a U.S. District Court affirmed that the Rohrabacher-Farr amendment prevents the U.S. Justice Department from prosecuting otherwise lawful state medical marijuana businesses. Despite these recent change in the federal stance regarding CSA enforcement, the CSA remains valid federal law.
In 2015, Sacramento passed the Medical Marijuana Regulation and Safety Act (MMRSA) to establish a statewide regulatory system for licensing and operation of cultivation, processing, transportation, testing, distribution and use of medical marijuana.
State licenses for these medical marijuana activities will likely start being issued in January, 2018. The MMRSA is three bills (AB 266, AB 243 and SB 643) and over fifty pages of legislation largely amending the Business & Professions Code.
Proposition 64 - Adult Use of Marijuana Act
A California ballot measure to legalize nonmedical marijuana called the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA) has been certified for the November 8, 2016 statewide ballot.
If the measure passes, AUMA will legalize personal use and cultivation of marijuana, provide for (by 2018) 19 different types of state licenses for commercial marijuana businesses, establish a statewide marijuana regulatory system, and levy a 15% percent marijuana excise tax and a marijuana cultivation tax (on both nonmedical and medical).
The 62 page ballot measure designated as Proposition 64 adds to or amends parts of the California Business and Professions, Health and Safety, Labor, Revenue and Taxation, and Food and Agricultural Codes. AUMA also makes a few changes to medical marijuana laws.
AUMA would preempt local control over personal use, possession and cultivation of marijuana up to certain amounts (although cities may prohibit outdoor personal cultivation). However, AUMA would provide for local control, or complete prohibition, of nonmedical marijuana businesses through local ordinance or regulation.
BANNING VS. REGULATING
The City Attorney’s Office and City staff have reviewed literature from several sources and here are the points of interest. Should Proposition 64 pass in November, here are some considerations to be reviewed by the City Council on banning marijuana in the City vs. regulating marijuana in the city.
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Banning marijuana in the city |
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A city may adopt and enforce a local ordinance to completely prohibit the establishment or operation of one or more types of businesses licensed. The arguments that opponents bring against the measure generally fit into two categories. Some opponents reject the initiative because they do not support the full legalization of marijuana, while other opponents reject it because they do not support some of the provisions specific to this initiative. |
Supporters say this:
● City would continue their message of taking a zero-tolerance approach on drugs in Carson.
● Criminal penalties can continue to apply to an unlicensed person engaging in commercial marijuana activity in violation of Prop 64 (which means certain uses will still be allowed even if city bans all activities of Prop 64).
● Prop 64 allows cities the flexibility to selectively ban the type of marijuana business. For example, if a city did not ban a scientific research company, but it banned retail sales, this type of selectivity is allowed.
Opposition says this:
● Cities that ban marijuana businesses involving cultivation or retail sales under Prop 64, are not eligible for the State grants specifically designated for local law enforcement. It is estimated by the Legislative Analyst’s Office tax revenue estimates that between $80 million and $180 million could become available to local governments the form of grants to use for extra law enforcement. Cities that prohibit cultivation and retail sales will not be eligible to receive such funding.
● Cities that ban marijuana businesses involving cultivation or retail sales under Prop 64, are not able to ban the transportation of marijuana through their jurisdictions or the secondary effects of their neighboring cities who will allow marijuana uses or the personal uses allowed under state law but these cities will not have the benefit of receiving the extra grants from the state which could be millions of dollars for additional law enforcement efforts and/or educational efforts.
● It is unclear how vigorously the state will enforce local prohibitions, especially since Health and Safety Code section 26200(b) provides that the state is not required “to undertake local law enforcement responsibilities, enforce local zoning regulations, or enforce local licensing requirements.” So it is argued Cities will be in a better position to use the state available grants to provide local law enforcement.
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TAKING CONTROL AND Regulating marijuana in the city |
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A city may adopt and enforce a local ordinance to restrict and regulate operations of any of the 19 commercial marijuana types of businesses and tax any regulated uses |
Supporters say this:
● Cities that allow marijuana businesses, even if a limited amount, as long as they allow it, under Prop 64, are eligible for the State grants specifically designated for local law enforcement. It is estimated by the Legislative Analyst’s Office tax revenue estimates that between $80 million and $180 million could become available to local governments the form of grants to use for extra law enforcement. Cities that prohibit cultivation and retail sales will not be eligible to receive such funding whereas cities that regulate such uses even if they allow minimum amount of permits can still benefit from these grant monies.
● Cities could require nonmedical marijuana businesses to obtain local licenses, excise tax and restrict where they could be located. Cities could also completely ban marijuana-related businesses. However, they could not ban the transportation of marijuana through their jurisdictions or personal uses or the spill over and secondary effects of neighboring cities and they will have no grant money to deal with those issues and would have to use their general fund for the additional services needed as a city to deal with spillovers of Prop 64.
● The medical marijuana industry is already being regulated by multiple state agencies and it is presumed that the role these agencies play would expand to regulate the adult use as well:
Bureau of Medical Cannabis Regulation (located within the Dept. of Consumer Affairs) to license distributors, transporters, testing facilities and retailers.
Dept. of Food and Agriculture to license and regulate medical marijuana growers.
Dept. of Public Health to license and regulate the producers of edible marijuana products.
State Water Resources Board to regulate the environmental impacts of marijuana growing on water quality.
Dept. of Fish and Wildlife regulate the environmental impacts of growing marijuana
Dept. of Pesticide Regulation regulates pesticide use for growing marijuana.
Opposition says this:
● No additional taxes could be levied by the city related to commercial marijuana activities. (Staff comment: The source of this criticism is unclear.)
● It will be difficult to keep legalized marijuana out of the hands of persons younger than 21 years of age.
● Large scale cannabis cultivation operations typically generate garbage, chemical containers, and other hazardous waste. Waste that is not properly collected and/or treated can contaminate nearby water supplies.
● Carson’s perspective on drugs in the city would change when looking at previous Council actions. In the past Council has adopted Resolution 08-107 Declaring Carson a Drug Free City and Resolution 07-133 Declaring the last week of October as Red Ribbon Week - a drug prevention campaign.
Proposed Ballot Measures
Ballot measures for three ordinances are provided for Council consideration on whether to send the ordinances to the voters of Carson. All three ordinances, if approved by the voters, can be amended by the City Council to further their purposes.
The first ordinance is to restrict and regulate all marijuana related activities, medical and nonmedical, limiting permits to three only per each category. The nonmedical sections of the ordinance are only operative if AUMA, or similar state legislation, is passed and only if the accompanying tax measure is passed. The permits mirror the state licenses created by MMRSA for medical marijuana and AUMA for nonmedical marijuana. All business activities are limited to industrial zones. No minors are allowed at the businesses. Strong procedures for application, review and revocation of permits are provided. Permits must be renewed annually. All businesses are required to have security cameras, alarm systems and odor control. All businesses must indemnify and defend the City for any legal issues caused by the businesses, must allow City inspection of the premises and business records, and must have background checks on all employees.
A simple majority vote of the City Council is required to pass the resolution to send to the voters a ballot measure on the regulatory ordinance. The ordinance would need to be approved by a majority of voters. The ordinance becomes operative only if the companion cannabis tax measure is also passed by the voters.
The second ordinance is to levy taxes on all marijuana related businesses and activities. Cultivation will be annually taxed at a maximum rate of $25 per square foot (the actual rate to be determined by the City Council), the maximum rate to be adjusted upwards annually under CPI. All marijuana businesses and activities shall be taxed at up to 10% monthly (the actual rate to be determined by the City Council). This second tax is not a sales tax.
A two-thirds (i.e., 4 Councilmembers) vote of all members of the City Council (Cal. Const. art. 13C, § 2(b) and Gov’t Code § 53724(b)) is required to pass the resolution to send to the voters a ballot measure on the tax ordinance. The proposed taxes will generate revenue, deposited in the general fund, available for any general governmental purpose. Thus the taxes are considered “general taxes.” Under Proposition 218, the levy of a new general tax must be approved by a majority of voters. (Cal. Const. art. 13C, § 2(b).). The City can choose to submit the tax measure to the voters without the regulatory ordinance, and later adopt regulations on cannabis businesses and activities.
A third ballot measure combines the regulatory scheme and taxation for all cannabis related businesses and activities in one ordinance. This measure is substantively identical to the separate measure, but combines them into one measure. Because this measure also proposes a tax, a two-thirds vote of the Council is required to send the measure to the voters.
V. FISCAL IMPACT
The ordinance would authorize a cultivation tax at up to $25 per square foot for cultivation. The ordinance would allow three of each type of issued indoor cultivation permits in the City. It is likely that the absolute square footage would not be used at every site. An estimated range of a cultivation tax would be $1.85 million to $3.7 million annually. It is also difficult to estimate revenues based on an operations tax, since these businesses would be new and have not been taxed before. In comparison, Palm Springs has a 10% tax based on gross receipts with six permitted medical marijuana dispensaries, with estimated revenues of $1.1 million annually. The City of Santa Ana has a 5% tax on gross receipts on twenty dispensaries, collecting $1.5 million annually.
The City Council has already asked the County to consolidate the general municipal election. The additional cost of adding this item to the ballot has been requested from the County and the City Clerk will have that information at the meeting.
VI. EXHIBITS
1. Matrix: Proposition 64 Legalizes Nonmedical Marijuana Activities, with Restrictions. (pg. 11)
2. Draft Ordinance Regulating and Restricting All Cannabis Related Business and Activity. (pgs. 12-36)
3. Draft Resolution No. 16-112. (pgs. 37-38)
4. Draft Resolution No. 16-113. (pgs. 39-40)
5. Draft Resolution No. 16-114. (pgs. 41-42)
6. Draft Ordinance Regulating and Restricting all Cannabis Related Businesses and Activities and Implementing Taxes. (pgs. 43-76)
7. Draft Resolution No. 16-115. (pgs. 77-78)
8. Draft Resolution No. 16-116. (pgs. 79-80)
9. Draft Resolution No. 16-117. (pgs. 81-82)
10. Draft Ordinance to Send Ballot Measure for Consideration to the Voters Approving and Implementing a Tax for Cannabis Related Businesses and Activities. (pgs. 83-94)
11. Draft Resolution No. 16-118. (pgs. 95-96)
12. Draft Resolution No. 16-119. (pgs. 97-98)
13. Draft Resolution No. 16-120. (pgs. 99-100)
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Prepared by: Lisa Berglund, Principal Adminsitrative Analyst and City Attorney's Office