Agenda Item Wording:
title
Presentation for possible tax measure - Receive initial presentation from HdL Companies on a possible local cannabis tax measure on the November 2024 ballot.
body
Deadline for Action: 5/20/2024
Submitting Department: Community Development
Contact Name and Phone Number:
Devon Jones, Economic Development Manager, devon.jones@visalia.city <mailto:devon.jones@visalia.city>, (559) 713-4190,
Department Recommendation:
Receive initial presentation from HdL Companies, provide staff and consultant any direction on the local cannabis tax measure to be included on the November 2024 ballot, and authorize staff to bring forward an ordinance to include a local cannabis tax measure for voter consideration on the Tulare County November 2024 General Election ballot.
Summary:
HdL Companies was hired to assist with the development of a local cannabis tax measure, including drafting of the ordinance, preparation of the ballot resolution, revenue estimates, and assistance with the ballot statement. HdL is conducting their initial presentation to Council this evening to gather input to inform this process so staff can bring back an ordinance for City Council consideration.
Background Discussion:
Senate Bill (SB) 1186, the “Medicinal Cannabis Patients’ Right of Access Act” was signed into law in late 2022. This state law, which became effective on January 1, 2024, prohibits local agencies from enforcing any local regulations that prohibit the retail sale by delivery of medicinal cannabis. After this date, “delivery only” (i.e., delivery of medicinal cannabis) businesses will be permitted, subject to reasonable zoning regulations for public health and safety, within the City of Visalia. This means that warehouse-based businesses could legally operate in the City of Visalia as long as they sold medicinal cannabis via delivery only (i.e., no retail store front).
On July 17, 2023, Council authorized staff to initiate a zoning ordinance update to implement reasonable zoning regulations in response to SB 1186. On November 20, 2023, Council conducted the second reading and adoption of Ordinance No. 2023-13 for Zoning Text Amendment No. 2023-02, a request by the City of Visalia to amend Visalia Municipal Code Chapter 17.25, add Section 17.32.167, amend Chapter 8.64, and add Chapter 5.66 in order to address upcoming state mandated changes as a result of the passage of SB 1186, and to establish objective standards for permitting delivery only medical marijuana retail establishments within the City of Visalia. To date, staff is aware of one such business type interested in Visalia and many others amongst storefront retail cannabis operators.
Also on July 17, 2023, Council authorized staff to hire a consultant through sole source contract process to assist staff with the preparation of a potential local sales tax measure specifically for cannabis sales for the 2024 general election and to identify potential revisions to cannabis regulations in Visalia so the City would be ready in the event additional state mandates prevent local agencies from restricting other types of cannabis businesses, or should the Council later decide to permit such businesses to operate in Visalia.
The local tax measure would not be proposing to legalize other types of cannabis sales, the tax would only authorize the City of Visalia to collect additional tax revenue from cannabis sales that state law has authorized to be conducted in Visalia or if the City Council, at a later date, decided to allow cannabis sales. Applicable local taxes can be charged under SB 1186, but no specific excise tax for cannabis currently exists within the city. At this time, should any applicable delivery only medicinal cannabis retailers open in the city only the normal business license fees and general sales tax apply.
On November 6, 2023, Council authorized the City Manager to award a contract to HdL Companies for an amount not to exceed $35,000, with a total budget of $40,000, and a contract to Fairbank, Maslin, Maullin, Metz & Associates (FM3 Research) for an amount not to exceed $39,500, with a total budget of $45,000, and appropriate $85,000 from the General Fund. FM3 Research was tasked specifically with public opinion research to inform the potential local tax measure efforts.
FM3 Research presented their survey findings on May 6th and identified, among other things, that the majority of Visalia residents support allowing cannabis businesses to operate in Visalia and support the passage of a local tax measure on cannabis businesses. Council then authorized staff to continue working with HdL on the preparation of the tax measure materials and to appropriate $20,000 from the general fund for the development of informational materials for the potential tax measure.
HdL Companies is tasked specifically with development of the cannabis tax measure, including drafting of the ordinance, preparation of the ballot resolution, revenue estimates, and assistance with the ballot statement. They will also assist with drafting the regulatory framework should the state mandate local agencies to allow other types of cannabis businesses or the council later decide to allow such businesses. HdL Companies is conducting their initial presentation to Council this evening in order to gather input to prepare the ordinance and resolution for Council to take action on. Some specific questions that they and staff would like input on include:
1. Where in the Municipal Code would the ordinance be placed?
Recommendation: Title 3 Revenue and Finance would be the logical section of the Municipal Code for the tax. If at a later time, an ordinance allowing these types of businesses were approved then additional changes would need to occur in Title 5 Business Regulations, Title 17 Zoning, and Title 8 Health & Safety.
2. Should the tax be applied by gross receipts, square footage, or other?
Recommendation: Gross receipts given square footage is typically used only for cultivation while retail (and others) is typically assessed by gross receipts.
3. What will the maximum tax rates be?
Recommendation: Generally, ordinances only include a maximum tax rate, allowing the Council to set the initial tax rate by resolution after adoption and to adjust it at any time as the Council sees fit. This allows the city to make adjustments without having to revise the ordinance itself. So, the recommendation would be to establish a maximum rate only at this time and set that rate at 10% of gross receipts. This is consistent with the maximum rate charged across the region. Additionally, the conceptual ballot language proposed in the public opinion survey indicated, “taxing cannabis businesses’ gross receipts not exceeding 10% on retail, delivery, manufacturing, and testing”.
4. Shall we set the initial rates now or by resolution?
Recommendation: Only set the maximum rate and allow the Council to set the initial rate after adoption by the voters, should the State mandate or a Council choose to move ahead with allow sales.
5. Shall payments be remitted monthly or quarterly?
Recommendation: That taxes be remitted monthly. This ensures that the city will be immediately aware if a business falls in arrears, rather than waiting three months to learn of this information.
6. Will the City require audits?
Recommendation: Yes, require audits. Cannabis businesses are still largely a cash heavy industry which makes reporting more difficult to track. Audits are recommended to ensure the business is reporting and remitting the proper amount of revenue to the city. Additionally, the conceptual ballot measure language proposed in the public opinion survey indicated requiring audits.
7. Who will hear appeals?
Recommendation: City Manager or designee, similar to what has been implemented in other provisions of the municipal code related to appeals.
8. Charge a fee for issuing the business license?
Recommendation: Yes, but given the Council is not currently considering an ordinance to allow such businesses and additional considerations to determine exact costs would need to be assessed, such as actual cost to administer a potential program (remittance payments, audits, code compliance, etc.), staff would not recommend identifying that detail at this time. This type of fee would not need to be determined unless an ordinance allowing these types of businesses were approved.
9. Updated initial revenue estimates range from $500,000 to $1 million annually, depending on the tax rate. $1 million was the amount estimated in the conceptual ballot language shared during the public survey. Based on the updated revenue estimates, an estimate of $750,000 or less may be more accurate. Does the City Council want to identify a different estimated annual amount for the ballot language?
Recommendation: Estimate $750,000 annually. Given this action does not include establishing an ordinance allowing cannabis businesses to operate in Visalia, and therefore does not take into consideration further analysis of potential industry segments to allow, number of establishments to allow, and other considerations, utilizing an estimate amount that is essentially the median of the estimated range is sufficient. Particularly given more analysis would be conducted if later action is taken to allow cannabis businesses to operate in Visalia.
10. FM3 Research polled versions of the ballot language with and without ‘state mandate’ language. The results were nearly the same (see below). Shall we indicate a ‘state mandate’ in the ballot language?
Recommendation: Include mandate language. Because the potential for a state mandate is a genuine concern of Council and because the added language also includes, “or the city approves an ordinance allowing such businesses”, staff would recommend including such language.
Fiscal Impact: N/A
Prior Council Action:
• On May 6, 2024 - Council authorized staff to continue working with HdL to develop a local cannabis tax measure and ballot language to be included on the November 2024 ballot.
• On November 11, 2023 - Council authorized the City Manager to award a contract to HdL Companies for an amount not to exceed $35,000, with a total budget of $40,000.
Other: None
Alternatives: Per Council direction
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to receive initial presentation from HdL Companies and authorize staff to present Council an ordinance to include a local cannabis tax measure for voter consideration on the Tulare County November 2024 General Election ballot.
end
Environmental Assessment Status: N/A
CEQA Review: N/A
Attachments: HdL Companies presentation