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HomeMy WebLinkAboutCannabis - Presentation for 9.26.20230Palm Springs Cannabis September 26, 2023 O F F I C E O F S P E C I A L P R O G R A M S Cannabis in Palm Springs O F F I C E O F S P E C I A L P R O G R A M S •April 2, 2014, Ordinance 1845 was adopted, creating a comprehensive regulatory program for Medical Cannabis Collective or Cooperative “MCCC”. The number of MCCC was restricted to six (6) in 2015. •December 14, 2016, Ordinance 1909 was adopted creating a regulations for medical cultivation, dispensaries, manufacturing, testing, and delivery establishing 5.45 of the Palm Springs Municipal Code (PSMC). •July 26, 2017, Ordinance 1933 was adopted creating rules and regulations for commercial medical and adult-use cannabis establishing PSMC 5.55 and amending 5.45. •December 4, 2019, Ordinance 2005 and 2007 were adopted updating and centralizing the City’s regulations for commercial cannabis and zoning in the City, amending PSMC 5.55 and Palm Springs Zoning Code 93.23.15 and establishing 92.28.00. Core Requirements of Regulated Cannabis in Palm Springs O F F I C E O F S P E C I A L P R O G R A M S •Permit Required: Local permitting process requires applicants to obtain an Adult -Use Cannabis Permit. Permits must be renewed annually. Permits are non-transferable and specific to the location issued for. •Cannabis Tax: Cannabis tax rates established in PSMC 3.42. Retail sales tax of 10% of gross receipts, manufacturing 2% of gross receipts, distribution and testing labs 0%. An annual cultivation tax of $5 per square foot of cultivation canopy space. •Zoning Restrictions: Special standards for cannabis facilities, included separation requirements from protected uses, parking requirements, architectural review requirements, and provisions specific to cannabis lounges. Ordinance 2005 Noteworthy Modifications O F F I C E O F S P E C I A L P R O G R A M S Section:Regulation: 5.55.080 Cannabis Permit Application Process. Established expiration date for Conditional Cannabis Permits. 5.55.095 (k)Required Findings and Conditions for Dispensaries. Established requirements to appoint an on-site community relations employee to communicate if there are operational problems with the establishment. 5.55.140 (E)(2)Requirements Before Permittee May Commence Operations. Established insurance coverage limits. 5.55.210 (A)(8)Allows for cannabis businesses to employ armed security. 92.28.00 Created the “Cannabis Overlay Zone”, restricting cultivation and manufacturing Types 6 and 7 to the defined area North of the 10 freeway. Permittee Review O F F I C E O F S P E C I A L P R O G R A M S As of September 1, 2023 Since the implementation of adult use cannabis regulations, the City has permitted: •42 Dispensaries with 17 lounges; •17 Cultivation •22 Manufacturing •26 Distribution NOTE: Cannabis businesses may have one permit with multiple cannabis business activities. Cannabis Applications by Year O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S Permit Operational Status Active Permits O F F I C E O F S P E C I A L P R O G R A M S Challenges for the Cannabis Industry O F F I C E O F S P E C I A L P R O G R A M S •Federal Status of Cannabis. The federal prohibition of cannabis creates a lack of access to capital and banking. Additionally, distressed cannabis businesses cannot access the federal bankruptcy system to restructure debts or liquidate their assets. •Complex Legal Rules and Regulations. The complex legal landscape makes conducting business difficult for cannabis companies. •Illicit Market. The cannabis illicit market continues to grow, with legal businesses unable to compete. •Market Saturation. Overall trend of reduced traffic and sales due to over-saturation of cannabis businesses in the Coachella Valley •Taxes. Tax concerns about the impact of taxes and fees across multiple levels of government. O F F I C E O F S P E C I A L P R O G R A M S California’s Cannabis Taxes Tax Type Rate State Retail Excise Ad valorem tax primarily on wholesale taxes Nominally 15 percent of retail price. In practice: •For most sales, administratively determined percentage of wholesale price. •For some sales 15% of retail price State Cultivation Tax Weight-based tax on harvested cannabis The cultivation tax is presently suspended California Cannabis Tax Overview Proposition 64 imposes two State Excise Taxes on Cannabis, 15% on retail sales and 15% on cultivation. Like other businesses, cannabis businesses must pay broad-based taxes such as income taxes and sales taxes. Additionally, Proposition 64 established State excise taxes on cannabis. California Cannabis Tax Revenues O F F I C E O F S P E C I A L P R O G R A M S Cannabis sales in California declined last year for the first time since becoming legal in 2018, according to data from the state’s Department of Tax and Fee Administration.Total taxable sales (encompassing both recreational and medical marijuana) totaled $5.3 billion in California last year, down from approximately $5.8 billion in 2021. Sales were highest in the second quarter of the year when they topped $1.4 billion and lowest in the final quarter to $1.27 billion. That marked the lowest dollar value in the state since Q2 of 2020, when $1.15 billion of cannabis was sold. California collected roughly $1.1 billion in cannabis taxes last year, down from around $1.4 billion in 2021. O F F I C E O F S P E C I A L P R O G R A M S $800,000,000 $900,000,000 $1,000,000,000 $1,100,000,000 $1,200,000,000 $1,300,000,000 $1,400,000,000 $1,500,000,000 $1,600,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 Taxable Sales California Cannabis Tax Revenues O F F I C E O F S P E C I A L P R O G R A M S $50,000,000 $150,000,000 $250,000,000 $350,000,000 $450,000,000 $550,000,000 $650,000,000 $750,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 Collected Tax By Category Excise Tax Cultivation Tax Sales Tax Total Tax O F F I C E O F S P E C I A L P R O G R A M S California Cannabis Tax Updates Assembly Bill 195, a budget “trailer bill,” was enacted on June 30, 2022, to provide tax relief to the state’s struggling legal cannabis industry. The bill contains several tax provisions including the following: •Eliminating the cultivation tax. •Freezing the cannabis excise tax rate at 15% for the next three fiscal years (Note that the bill includes language to incrementally increase the excise tax (not to exceed 19 percent) after the three-year window expires). •Allowing certain cannabis retailers to reinvest 20% of the excise taxes they collect into their own businesses. •Shifting the collection of the cannabis excise tax to the cannabis retailer beginning on January 1, 2023; and •Earmarking $40 million in tax credits for qualified cannabis retailers and equity operators. Local Taxes O F F I C E O F S P E C I A L P R O G R A M S •Ordinance No. 1946, adopted by the voters of the City on December 6, 2017, amended Chapter 3.42 of the Palm Springs Municipal Code regarding cannabis taxation. •Resolution No. 24339, adopted on December 13, 2017, set the City’s initial tax rates at ten cents ($0.10) of every dollar of gross receipts for cannabis businesses, and ten dollars ($10) per square foot of cannabis cultivation area. •Resolution No. 24569 adopted on February 20, 2019, reduced the cannabis business activity tax rate on manufacturing to two percent, and suspended the tax on transportation and distribution and testing facilities. Like the State and other local jurisdictions that have permitted recreational cannabis, the City has experienced a decline in cannabis tax reporting. Tax revenue dropped in four of the five Coachella Valley cities that allowed dispensaries: Cathedral City, Desert Hot Springs, Palm Desert and Palm Springs. Local operators have attributed the decrease in sales to high local and state taxes, which in turn is causing price markups for consumers and over saturation Palm Springs Fiscal Year Cannabis Tax Revenue O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S Tax Comparisons O F F I C E O F S P E C I A L P R O G R A M S So Cal City Cannabis Retail Tax Rates Long Beach 8% Recreational 6% Medical Pasadena 4% Recreational and Medical Culver City 6% Recreational 5% Medical Malibu 2.5% Recreational 0% Medical West Hollywood 7.5% Recreational 0% Medical San Diego 5% Recreational 0% Medical Sacramento 4% Recreational and Medical Coachella Valley Cannabis Retail Tax Rates Cathedral City 5% Recreational and Medical Coachella 6% Recreational and Medical Desert Hot Springs 10% Recreational and Medical Indio 6% Recreational and Medical Palm Desert 5% Recreational and Medical Palm Springs 10% Recreational and Medical Coachella Valley Tax Revenue O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S Oversaturation O F F I C E O F S P E C I A L P R O G R A M S Cannabis retail has experienced the most saturation with 42 permitted dispensaries, 33 of those dispensaries are permitted to operate, 22 operating and 9 completing the permitting process. There is even evidence to support that Palm Springs might be the most dispensary-saturated City in the nation. A January 2023 report from trade publication Ganjapreneur ranked Missoula, Montana first with 18.1 dispensaries per 50,000 people. Palm Springs has nearly twice that per capita amount. There is an undue concentration of dispensaries in Demuth Park and the Palm Canyon corridor as demonstrated in the heat maps. O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S O F F I C E O F S P E C I A L P R O G R A M S Cannabis business owners struggle to remain viable in a saturated and increasingly competitive market. The number of competitors has grown; however, overall sales have decreased. There are approximately 207 cannabis operations in the Coachella Valley. Approximately one-third are storefront dispensaries, with Indio recently permitting 5 dispensaries (not reflected below). O F F I C E O F S P E C I A L P R O G R A M S Cannabis Social Equity O F F I C E O F S P E C I A L P R O G R A M S The City’s social equity program, when initially adopted in March 2019, established assistance to qualified applicants by waiving cannabis business application and permitting fees, providing education on the licensing and permitting process, as well as expedited processing. Recognizing the need to provide assistance to establish and maintain a cannabis business the City revised the equity program in November, 2020 to provide financial assistance, education, skill-based training, and tools for success in the cannabis industry. The goal of the program is to provide participants the tools and training necessary to apply, obtain a license, and sustain their business. To date, the City has secured $2,422,526.08 in equity funding. Equity funding has assisted three 100% equity owned businesses to become licensed in the City. O F F I C E O F S P E C I A L P R O G R A M S California Board of State and Community Corrections Prop 64 Public Health & Safety Grant In 2021, the City partnered with the Boys and Girls Club of Palm Springs to apply for the Board of State and Community Corrections (BSCC) Prop 64 Public Health & Safety Grant. The City’s application was ranked second in the State and $1 million dollars was awarded. The grant funds have been utilized to construct and staff the Cannabis Education Center, opened on May 6, 2023. The City serves as lead public agency working with the Boys and Girls Club of Palm Springs. The City with the Boys and Girls Club has secured a second grant award, BSCC Prop 64 Cohort 3 funding in the amount of $3 million dollars in 2023.