At their meeting of February 23, 2016, the City Council requested an update and discussion regarding regulations permitting Medical Marijuana dispensaries, including the possibility of permitting cultivation.

In 2011, City Staff pursued generating a permit process for Medical Marijuana Dispensaries, which included requiring background information, paying a fee, providing information such as a business description, employee identification, criminal background check, and other operational characteristics of the business, as part of a multi-phase approach to Dispensary permitting in the City.  A second phase included a land use permit process, similar to a Conditional Use Permit application, which would have allowed the City to collect business operational information, maps, plans, and other required material, along with proof of insurance and the list of products and services to be provided at the business.  A third and final phase would have included an internal review and approval by all City Departments.

Phases one and two determined land use permitting zones, such as retail commercial locations, along with distance requirements to other uses such as residential properties and schools.  Also included were the floor plan layout and size of tenant space, the provision of a security plan and lighting plan, assurance that disabled access requirements were met.  These phases also required the payment of fees.  It was considered at the time that the third phase would be subject to approval before a regulatory body, such as the Zoning Administrator or Planning Commission for final approval or denial of the application, which would have been based on the information provided through phases one and two.

Many of the regulations that were considered in 2011 may not be applicable today because they addressed dispensaries based on the then existing model of marijuana cooperatives and collectives, rather than the new retail model of dispensing marijuana supported by the 2015 Medical Marijuana Regulation and Safety Act discussed below.

Due to various changes in the case law and in the administration of the law at the time, including the Federal Government's classification of Marijuana as a Class 1 drug, which classifies it as dangerous with no accepted medical use, the City in 2011 ultimately elected not to pursue regulation and banned all Medical Marijuana activity in the City. 

Last year, the State enacted a set of laws commonly known as the Medical Marijuana Regulation & Safety Act (the “Act”).  The Act is comprised of three discreet pieces of legislation, each signed by the Governor on October 9, 2015.  Assembly Bill 266 establishes a dual licensing structure requiring state licenses and a local license or permit for commercial cannabis businesses, with the State Department of Consumer Affairs heading an overall regulatory structure establishing minimum health and safety and testing standards.  Assembly Bill 243 establishes a regulatory and licensing structure for cultivation sites under the Department of Food and Agriculture.  Senate Bill 643 establishes criteria for licensing medical marijuana businesses, regulates physicians, and recognizes local authority to levy taxes and fees.  As to dispensaries and cultivation, the Act authorizes the State Department of Consumer Affairs and Department of Food and Agriculture to establish minimum standards for dispensaries and cultivation, including the following:

• Standards for pesticides in marijuana cultivation, and maximum tolerances for pesticides and other foreign object residue.

• Standards for production and labelling of all edible medical cannabis products.

• Establishment of a dual licensing system where the State will issue licenses, and local governments will issue permits or licenses to operate marijuana businesses, according to local ordinances. State licenses will be issued beginning in January 2018.

• Caps total cultivation for a single licensee at four acres statewide, subject to local ordinances.

• Establishment of uniform health and safety standards, testing standards, and security requirements at dispensaries and during transport of marijuana products.

• Standards for certification of testing labs, and specified minimum testing requirements. Prohibits testing lab operators from being licensees in any other category of the marijuana business activities.

• Provides for labor peace agreements under which unions agree not to engage in strikes, work stoppages, etc. and employers agree to provide unions reasonable access to employees for the purpose of organizing them.

• Provides for civil penalties for unlicensed activity, and specifies that applicable criminal penalties under existing law will continue to apply.

•  Phases out the existing model of marijuana cooperatives and collectives one year after he Department of Consumer Affairs announces that state licensing has begun.

The matter of medical marijuana has again become of topic of discussion concerning the growing, dispensing, and usage for medicinal purposes.  It is expected that a ballot measure addressing recreational use of marijuana will qualify for the ballot in November of this year.  Should the City consider allowing the cultivation, dispensing, and usage, certain considerations and provisions should be discussed and possibly put in place to address the sale, dispensing, and use of marijuana products and related paraphernalia.  These provisions would pertain to development, performance, and operational standards applied to all dispensaries, as well as create development standards for marijuana cultivation and manufacturing.

Development standards to be considered commences with a discussion regarding specific zones in which the different marijuana business activities would be allowed, the places of cultivation, distances from other dispensaries, distances from schools and residential zones, and other possible impacted land uses.  Standards could also require each use to be subject to a Conditional Use Permit with conditions of approval to provide appropriate security, lighting, noise and odor control, and hours of operation.  Other measures could ensure that ample parking is provided, disabled accessibility is met, development and other regulatory fees are paid, the requirement for background checks of the operators, proper insurance, and the business' operational characteristics to ensure compliance with minimum State requirements and the City’s own requirements. 

The Act provides the City ample regulatory authority to regulate marijuana related businesses within the City.  The Act, at Business and Professions Code section 19316(a) provides,

Pursuant to Section 7 of Article XI of the California Constitution, a city, county, or city and county may adopt ordinances that establish additional standards, requirements, and regulations for local licenses and permits for commercial cannabis activity. Any standards, requirements, and regulations regarding health and safety, testing, security, and worker protections established by the state shall be the minimum standards for all licensees statewide.

Currently, the City has a ban on all marijuana commercial activities.  In addition to standards already considered in 2011 that may apply to the new retail model of dispensing marijuana, additional regulations could be developed after completing an analysis and discussions with other cities that currently allow, and/or have considered, allowing marijuana businesses and activities.  Learning from other jurisdictions could assist in developing regulations to address possible concerns and issues experienced in these other cities, which could include a consideration of their development standards, their fee schedules taxation approaches, and law enforcement considerations. 

The Act further recognizes the City’s authority to establish fees and taxes applicable to marijuana activities.  However, the California constitution as amended by Proposition 218 in 2006 requires that all new general taxes be approved by a majority of the City’s voters at a regularly scheduled election.   Thus, if the Council wishes to consider lifting the current ban on marijuana activities to generate additional revenue in the form of a tax on the sale of marijuana products, the November 2016 election presents the first opportunity to place a tax measure for voter approval.  The next available regularly scheduled election will not take place until 2018.  Based on the Election Code, the last day to submit a measure for inclusion in the November 2016 election ballot, is August 12, 2016.  However, the Registrar of Voters recommends that election resolutions be adopted no later than June 20, 2016.  It should be noted that the City Council may place a measure approving an ordinance establishing a tax rate for marijuana commercial activities prior to the adoption of regulations permitting the activity.  The tax ordinance can stipulate that it is effective only in the event the City Council adopts an ordinance permitting commercial marijuana activities.

In regard to the 2011 action, it was anticipated that commercial zones were deemed appropriate zones for medical marijuana dispensaries at that time.  However, since 2011, the City has rezoned several properties from traditional commercial zones to mixed-use zones.  Thus, additional review is appropriate to determine if marijuana uses are compatible within the new mixed-use zoning districts.  No review has been undertaken to date with respect to the appropriate zones in which to permit commercial cultivation of marijuana.

Staff is continuing to research appropriate regulations for commercial marijuana activities, including the appropriate level of taxation and the actions and experiences of other cities that have implemented or are in the process of implementing regulations and taxation ordinances for commercial marijuana activities.  A more detailed report pertaining to possible regulation of commercial marijuana businesses for the City will be brought back to Council in the near future.  At the meeting of February 23rd, Council Member Bui suggested that the City should conduct hearings to hear public input while developing regulations for the City.  Land use regulations will be subject to public hearings before the Planning Commission, but a tax ordinance will not be subject to Planning Commission review or public hearings.  However, as mentioned above, a tax ordinance is subject to voter approval.  Staff wishes to receive direction from the City Council on whether to hold community meetings for all aspects of any proposed commercial marijuana regulations prior to finalizing them.

The financial ramifications, in terms of revenue generation and enforcement costs, are not known.   Review of the experiences in other communities that permit dispensaries or cultivation may provide some degree of financial impact information.  This review has not yet been completed.

It is recommended that the City Council take the following action:

• Discuss the matter and provide direction to staff.