Agenda Item Wording:
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Cannabis Business Update - Provide staff direction on potential next steps pertaining to the authorization of Cannabis Businesses in the City of Visalia and depending upon the option selected, amend the contract, and appropriate $5,000 from the General Fund.
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Deadline for Action: 3/3/2025
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 the staff report and presentation and authorize staff to proceed with one of three potential courses of action:
1. Proceed with drafting a cannabis business ordinance for adoption and during the adoption process set the number of businesses permitted to operate in the City of Visalia to zero effectively establishing the regulatory framework for such businesses but not yet permitting such businesses to operate within the City.
a. This would require a contract amendment for an additional $17,050 due to $7,550 remaining on the current contract. Actual cost is dependent on in person attendance required of HdL consultant for any City Council meetings.
2. Proceed with drafting a cannabis business ordinance and potentially allowing such businesses to operate within the City upon adoption of the ordinance.
a. This would require a contract amendment for an additional $17,050 due to $7,550 remaining on the current contract. Actual cost is dependent on in person attendance required of HdL consultant for any City Council meetings.
3. Do not proceed with drafting a cannabis business ordinance and instead acquire cannabis ordinance examples and a conceptual work plan from HdL for potential use at a later time.
a. This approach should not require an amendment to the existing service contract.
Staff is also proceeding with assistance from HdL to determine an appropriate apportionment formula and policy to collect any such voter approved taxes on cannabis deliveries currently coming into the City from businesses located outside of the City. HdL will also assist in identifying potential businesses that may be making such deliveries.
Summary:
In November 2024, voters of the City of Visalia voted to approve Measure O, the City’s cannabis tax measure, with an approval rate of 70.7%. Major elements of the cannabis business tax ordinance include:
• The Cannabis Business Tax is a general tax enacted solely for general, governmental purposes of the city and not for specific purposes. All of the proceeds from the tax imposed shall be placed in the city's general fund and be available for any lawful city purpose.
• The maximum tax rate is ten percent (10%) of gross receipts.
o The actual tax rate can be set lower by Council, at a later date, and vary by industry segment.
• Taxes are to be remitted monthly.
• Audits will be allowed by the city or third-party designee.
• Personal cultivation for personal consumption is not subject to the tax.
• The option for a tax rate per square footage for cultivation businesses should the Council later decide to allow, or the state mandate that the city allow cultivation type businesses as well as retail.
Passage of the local tax measure does not legalize other types of cannabis sales to operate in the City of Visalia (beyond “delivery only” of medicinal only cannabis businesses which are now required to be permitted in the City by State law, SB 1186, subject to reasonable zoning regulations). The tax measure only authorizes the City of Visalia to collect additional tax revenue from cannabis sales that state law has authorized to be conducted in Visalia (such as “delivery only” of medicinal only cannabis) or if the City Council, at a later date, decides to permit other forms of cannabis businesses to operate within the City.
The City has an existing service agreement with HdL Companies that included assisting with the preparation of the local tax measure but also includes identifying potential revisions to cannabis regulations in Visalia, or drafting a new regulatory framework for cannabis business operations 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, subject to a new ordinance that regulates cannabis businesses. There is $7,550 remaining in the original contract that Council authorized for a total contract not to exceed $35,000 for the project, which equates to another $17,050 amendment to the contract (total new scope of work is $24,600). Depending on direction provided by Council, staff is requesting an amendment to the contract of $17,050 for estimated costs associated with establishing the regulatory framework for cannabis businesses, whether allowing such businesses to operate upon adoption of the ordinance or not allowing such businesses at that time.
Staff is seeking Council direction on next steps pertaining to their potential services and Cannabis business operations within the City of Visalia. In order to best leverage the services of HdL, staff recommends either proceeding with drafting a cannabis business ordinance but initially setting the number of businesses permitted to operate in Visalia to zero; effectively establishing the regulatory framework for such businesses but not yet permitting such businesses to operate within the City. A second consideration for Council would be to direct the drafting of a cannabis business ordinance and permitting such businesses to operate within the City upon adoption of the ordinance. Doing either allows staff to utilize HdL’s assistance and technical expertise to see the process completed effectively but leaves it up to Council as to when to begin allowing cannabis businesses to operate within the City. Additionally, establishing the regulatory framework positions the City to be “readily” responsive in the event the State mandates local jurisdictions to permit additional types of cannabis business operations within the City through changes in State law.
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 are 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 interested in Visalia, but none are currently operating. There have been multiple inquiries from businesses that would be interested in operating as 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 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.
In November 2023, Council authorized the City Manager to award a contract to HdL Companies for an amount not to exceed $35,000, , and a contract to Fairbank, Maslin, Maullin, Metz & Associates (FM3 Research) for an amount not to exceed $39,500, . In addition, a contract was issued to Tripepe Smith for outreach. The project total budget was $85,000 from the General Fund. FM3 Research was tasked specifically with public opinion research to inform the potential local tax measure efforts and HdL Companies was tasked with the development of the tax measure.
FM3 Research presented their survey findings on May 6, 2024 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 an additional $20,000 from the General Fund for the development of informational materials for the potential tax measure. This brought the total project to $105,000 ($85,000 + $20,000). A copy of FM3 Research’s report of findings is attached.
HdL Companies conducted their initial presentation to Council on May 20, 2024 to gather input to prepare the draft business tax ordinance that was adopted on June 17, 2024. The first reading of this ordinance was conducted on June 3, 2024 and adopted on June 17th. On June 3rd, Council also adopted Resolution 2024-24 to place a cannabis tax measure on the November 2024 general election ballot.
Apportionment:
There is a section in the Cannabis Tax Ordinance, that could potentially yield tax revenues now (upon establishing the policy and internal procedures) on deliveries into Visalia from dispensaries located outside of Visalia. This is covered under the “Apportionment” section that states the following:
3.14.170 Apportionment.
If a person subject to the tax is operating both within and outside the City, it is the intent of the City to apply the cannabis business tax so that the measure of the tax fairly reflects the proportion of the taxed activity actually carried on in the City. To the extent federal or state law requires that any tax due from any taxpayer be apportioned, the taxpayer may indicate said apportionment on his or her tax return. The Tax Administrator may promulgate administrative procedures for apportionment as he or she finds useful or necessary.
To fully implement this provision, staff needs to determine an appropriate apportionment formula for businesses located outside of Visalia but making deliveries in Visalia and establish a policy. Staff also needs to determine potential businesses this should apply to in order to pursue compliance. HdL, City staff, and the City Attorney’s Office are currently working to develop this type of process.
Fiscal Impact:
HdL’s contract currently has $7,550 remaining and would require an amendment to their contract of $17,050 to prepare a cannabis ordinance for a total of $24,600. This capital project has $23,000 remaining in the budget and will require an additional appropriation of $1,600 if approved by Council. To ensure there is sufficient funds for any unexpected items, staff is requesting an additional $3,400 bringing the total additional appropriation to $5,000.
Prior Council Action:
• On July 15, 2024, Council adopted an amended Resolution 2024-24 to place a cannabis tax measure on the November 2024 general election ballot.
• On June 17, 2024, Council conducted the second reading and adoption of Ordinance No. 2024-06, adding Chapter 3.14 (Cannabis Business Tax) to Title 3 of the Visalia Municipal Code to establish a tax on cannabis business activities within the city.
• On June 3, 2024, Council conducted the first reading of Ordinance No. 2024-06, adding Chapter 3.14 (Cannabis Business Tax) to Title 3 of the Visalia Municipal Code to establish a tax on cannabis business activities within the city and adopted Resolution 2024-24 to place a cannabis tax measure on the November 2024 general election ballot.
• On May 20, 2024, Council authorized staff to present an ordinance to include a local cannabis tax measure for voter consideration on the Tulare County November 2024 General Election ballot.
• 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 and appropriated $20,000 from the general fund for the development of tax measure informational materials.
• 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.
• 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.
• On November 6, 2023, the City Council authorized the City Manager to award a contract to FM3 Research for an amount not to exceed $39,500, with a total budget of $45,000.
• On July 17, 2023, Council directed staff to initiate a zoning ordinance update to implement reasonable zoning regulations in response to SB 1186 and hire a consultant, via a sole source contract, to assist staff with the preparation of a potential tax measure specifically for cannabis sales for the 2024 general election and to identify potential revisions to cannabis regulations in Visalia.
Other: N/A
Alternatives: The City Council may, in lieu of one of the staff recommendations continue this discussion to a future meeting date.
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to receive presentation and authorize staff to: (select one, or a Council identified alternative)
1. Proceed with drafting a cannabis business ordinance for adoption and during the adoption process set the number of businesses permitted to operate in the City of Visalia to zero effectively establishing the regulatory framework for such businesses but not yet permitting such businesses to operate within the City, and amend the existing contract with HdL to include the additional scope of work totaling $24,600 and appropriate an additional $5,000 from the General Fund.
2. Proceed with drafting a cannabis business ordinance and potentially allowing such businesses to operate within the City upon adoption of the ordinance, and amend the existing contract with HdL to include the additional scope of work totaling $24,600 and appropriate an additional $5,000 from the General Fund
3. Do not proceed with drafting a cannabis business ordinance and instead acquire cannabis ordinance examples and a conceptual work plan from HdL for potential use at a later time.
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Environmental Assessment Status: The staff report is exempt from California Environmental Quality Act, Public Resources Code Sections 21000 et seq. (“CEQA”) and 14 Cal. Code Re. Sections 15000 et seq. (“CEQA Guidelines”). N/A
CEQA Review: This item is exempt from the California Environmental Quality Act, Public Resources Code Sections 21000 et seq. (“CEQA”) and 14 Cal. Code Re. Sections 15000 et seq. (“CEQA Guidelines”). The analysis conducted is not for any particular project or action that would result in a potentially significant physical impact on the environment.
Attachments:
1. HdL executed service contract
2. Visalia Cannabis Tax Ordinance
3. Ordinance No. 2023-13
4. FM3 Research report