HomeMy WebLinkAboutItem 3AFrom:City of Palm Springs
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Date:Thursday, February 8, 2024 7:21:23 AM
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Please limit the amount of Cannabis retailers. Limiting to 25 is still over saturated for our small community, but it’s a
start.
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City of Palm Springs
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02/08/2024
Public Comment
Item 3A
From:Steven Wijatyk
To:Jeffrey Bernstein; Ron deHarte; Grace Garner; Christy Holstege; Lisa Middleton
Cc:Brenda Pree; City Clerk
Subject:Item 3A Response by Reefer Madness
Date:Wednesday, February 7, 2024 8:41:41 PM
Attachments:Feb 8th 2024 notes for council_Rev1.docx
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Dear honorable City Council,
Attached is my 7-page response to Item 3A, along with its points, examples and facts. Below
is a short summary of that response:
1) Cannabis Taxes:
I would like to respectfully request a 6-month total suspension of retail cannabis tax to
attract cannabis business back to Palm Springs. Surrounding cities such as
Cathedral City reduced their tax down to 5% long before Palm Springs, causing
shopping habits to shift outside Palm Springs.
After 6 months, let’s resume at the proposed 5% retail tax rate. Distribution tax
should stay at 0% indefinitely so our local distributors don’t move to other cities where
the tax is zero. We want local distributors in Palm Springs to maintain an affordable
and fast supply for local retailers. Supporting local also reduces the carbon footprint.
I respectfully request these changes happen immediately, since PSMC 3.42.090
allows the council to make this adjustment with a simple vote. Please refer to the
attached report for supporting evidence and reasons, which include an explanation of
how the state "taxes the tax" at alarming rates, no matter what we do, and how IRS
280e disallows income tax deductions.
2) Cannabis Fees:
Other cities’ renewal fees are much lower than Palm Springs. $10,000 each year is
too much. A renewal is simpler than a new permit, and as such, should cost less.
The renewal fee can be cut in half. Please see attached report for supporting
evidence.
3) Cannabis Accessories and Branded Merchandise:
Is the city redefining Cannabis Accessories so they can tax it the same way as
cannabis? They shouldn’t. Palm Springs tobacco smoke shops only charge sales
tax on accessories. They carry many of the same accessories that I carry. If my
customers are charged another tax on accessories, they will shop online or at a
tobacco smoke shop instead.
02/08/2024
Public Comment
Item 3A
The state doesn’t charge cannabis tax on accessories, so neither should the city.
Let’s also make sure dispensaries can sell branded merchandise like hats and t-
shirts, which should be subject to sales tax only. Cannabis is a nascent struggling
industry. Let’s encourage customers to make the dispensary their “one stop shop.”
See attachment for support.
4)Code Compliance:
In an effort to work together, there should be written warnings for first time issues,
which is how the Department of Cannabis Control (the state level authority) operates.
The city already has a record of issuing warnings at their discretion, so why not make
it the law? This is a nascent industry. Development requires working together.
5)Other Requests:
Page 13 mentions the need for a “one-owner/one-dispensary requirement.” It should
be the opposite. Law-abiding dispensaries that pay their taxes on time should be
allowed a second location in Palm Springs to best serve our customers, but no owner
should be allowed 3 dispensaries, and that includes those applicants in the pipeline.
Page 1 of the staff report mentions an update to the definition of “gross receipts” and
details what is taxable. It mentions that “service costs” are taxable. Credit and Debit
card service charges for cannabis can be as high as 8%, because of the risks and the
limited cannabis processors available. Any card fee passed on to the customer
should not be taxed. The way it’s currently written, it seems that the city could tax it
like they would any other service charge - but they shouldn’t, because all these taxes
already hurt pretty bad.
Background Checks
There’s no mention of background checks in the report. Background Checks for
employees should remain Mandatory. However, because of difficulties with hiring
and expecting potential employees to wait, owners should be allowed the decision to
start employees when they submit their live scan.
Zero local tax for cannabis purchases by patients with a valid Medical
Recommendation
There’s no discussion of benefits for medical cannabis patients in the staff report. 5%
of customers have a valid Medical Recommendation from their doctor to be able to
purchase more cannabis at a time, and about half of all my customers are over 55
years old, using cannabis for medical reasons. Let’s put medical patients first and not
require them to pay the local tax if they present a valid recommendation from a
medical doctor. Recommendations are typically good for 1 year and require a visit
with their doctor.
Respectfully,
Steven Wijatyk
02/08/2024
Public Comment
Item 3A
Response to the February 8, 2024
City Council Staff Report
Steven Wijatyk
Reefer Madness
2/7/2024
02/08/2024
Public Comment
Item 3A
1) Cannabis Taxes :
From Staff Report Page 12:
“WHEREAS, Sec�on 3.42.090 of the Palm Spring Municipal Code allows the City Council to set
the cannabis tax at or below the maximum found in the Chapter or otherwise amend, modify,
change, or revise any provision of the Chapter as the City Council deems in the best interest of
the City;”
Response:
- I would like to respectfully request a 6-month total suspension of retail cannabis tax to
attract cannabis business back to Palm Springs. Surrounding cities such as Cathedral City
reduced their tax down to 5% long before Palm Springs, causing shopping habits to shift
outside Palm Springs. After 6 months, let’s resume at the proposed 5% retail tax rate.
Distribution tax should remain at 0% so our local distributors don’t move to other cities
where the tax is zero. We want local distributors in Palm Springs to maintain an affordable
and fast supply for the retailers. Supporting local also reduces the carbon footprint.
Other reasons the tax should be suspended and reduced:
o On January 1st, 2023, CDTFA shifted the excise tax collection to the retailer on gross
receipts, increasing the total tax burden. Prior to that date, excise tax was collected
by the distributor, at a different rate, based on wholesale cost, not gross receipts.
After this shift, CDTFA reported that only about half of retailers were able to
make their Q1 excise tax payment on time. A late excise tax payment now
carries a 50% penalty.
o CDTFA requires that the Retail Cannabis Tax, the Excise Tax, and the Sales Tax be
“stacked,” and not “separate,” further increasing the reach of each tax.
o Cannabis retailers are subject to IRS Code Section 280e, which disallows normal
federal income tax deductions such as employee pay and marketing expenses. It will
remain this way until Cannabis is rescheduled from a “1” to a “3.” The city cannot
speed up the fed’s progress, but we can reduce the local tax.
From Staff Report Page 13, top paragraph:
“WHEREAS, removing the State excise tax from the City’s calcula�on of gross receipts will set the
cannabis tax below the maximum rate found in Sec�on 3.42.030 and the City Council finds that it
is in the best interest of the City to remove the State excise tax in order to maintain and atract
successful cannabis businesses in the City;”
Response:
- This statement is misleading and needs to be clarified. In revising the code, the city simply
aligns their definition to match the California Department of Tax and Fee Administration
(CDTFA) requirements, and that does not reduce the total tax in any way. CDTFA already
requires licenses to pay “taxes on the taxes.” It is already the practice of the city to follow
CDTFA’s requirements. The correct procedure, per CDTFA’s guidelines, is to stack the excise
tax on top of the local tax, followed by the sales and use tax. Changing the order of stacking
02/08/2024
Public Comment
Item 3A
does not reduce the total tax amount, which is currently 38.2% after any combination of
stacking. Stacking vs. separate tax, at the current rates, results in a 4% increase in the total
tax. CDTFA requires stacking, to collect more money. The stacking issue can only be
addressed by changes at the state level. This is more the reason to reduce the local cannabis
tax as much as possible.
- See example below, from the link to CDTFA’s website, on how they require cannabis taxes to
be stacked (“taxing the tax”):
https://www.cdtfa.ca.gov/industry/cannabis.htm#Retailers
-
2) Cannabis Fees:
From Staff Report Page 9, sec�on �tled “Permi�ng Fees”:
“A complete analysis of the cannabis permit fees calcula�on can be found in the April 22, 2021,
staff report.”
Response:
- The staff report referenced is almost 3 years old, and Palm Springs fees are scheduled to
increase. It’s time to look at this again. I am told by various sources that Cathedral City’s
fees are nearly half Palm Springs.
02/08/2024
Public Comment
Item 3A
“As explained to Council at the April 22, 2021, mee�ng, the program requires annual facility
inspec�ons and on-going proac�ve inves�ga�ons for compliance with regula�ons and laws. As
such, renewal permits should have the same fee as an ini�al permit – whether it is the first year
or fi�h year of a cannabis opera�on.”
Response:
- I can’t see how a renewal should cost $10k every year. A renewal is easier to process than a
new permit. For example, Building and Planning department evaluations are not repeated
during a renewal. Things like the Odor Control Plan evaluation are also not repeated during
renewal.
3) Cannabis Accessories and Branded Merchandise:
From Staff Report Page 3, top paragraph:
“Lastly, the defini�on of ‘cannabis accessory,’ the defini�on is consistent with the State’s
defini�on found in California Health and Safety Code Sec�on 11018.2. and will provide
consistency with the City’s ordinance and State law.”
Response:
- Is the city proposing to apply the local cannabis tax to cannabis accessories? They should
not apply the local cannabis tax to accessories. If they do, customers will go buy their
accessories online or at one of the tobacco smoke shops in Palm Springs, where they are not
subject to an additional tax. Examples of such accessories are glass pipes, bongs, and rolling
papers.
From Staff Report Page 14, Sec�on 3, “code amendment”:
“’Cannabis accessories’ means any equipment, products or materials of any kind which are used,
intended for use, or designed for use in plan�ng, propaga�ng, cul�va�ng, growing, harves�ng,
manufacturing, compounding, conver�ng, producing, processing, preparing, tes�ng, analyzing,
packaging, repackaging, storing, smoking, vaporizing, or containing cannabis, or for inges�ng,
inhaling, or otherwise introducing cannabis or cannabis products into the human body.”
Response:
- Clarifying the definition to match state law is good, but let’s clarify that the cannabis tax
should not apply to accessories. Taxing accessories beyond the normal Sales and Use Tax
will only lead customers to buy accessories online or at a local smoke shop where they are
not subject to additional tax. An additional tax on accessories puts cannabis retailers at a
disadvantage against smoke shops. Also, what about branded merchandise, such as T-
shirts and Hats? We should be allowed to sell them, and they should not be subject to the
local cannabis tax.
- CDTFA does not charge excise tax on accessories, so why should the city charge anything
more than the 9.25% sales tax?
02/08/2024
Public Comment
Item 3A
4) Code Compliance:
From Staff Report Page 9, sec�on �tled “Code Compliance”:
“On September 29, 2021, the City adopted Administra�ve Regula�on, Authority for the Issuance
of Administra�ve Cita�ons, elimina�ng the pre-cita�on no�ce for cannabis cita�ons.”
Response:
- This law needs to be updated. According to the staff report, the city is already providing
courtesy notices, just not all the time. Why not make this the law, and treat everyone the
same way? The bottom chart on staff report page 26 shows that (5) Courtesy Notices and (9)
Notices of Violation W/ Citation were given out. Citations should not be issued without a
Courtesy Notice. In an effort to work together in a nascent industry, there should be
warnings for first time issues, which is how the Department of Cannabis Control (the state
level authority) operates.
“Code Compliance has worked extensively providing outreach to operators and working with
them to correct minor viola�ons rather than immediate cita�on issuance. Cita�ons are issued for
severe viola�ons and viola�ons that were not corrected in a �mely manner.”
Response:
- In an effort to be fair with everyone, why not update the 2021 laws to make courtesy notices
standard for non-offenders?
“In 2021, the city revised the licensing fees for cannabis permi�ng. The fee is not a revenue
stream for the City; rather, it encompasses the costs for the administra�on of cannabis
permi�ng and regula�on.”
Response:
- Can we please take a closer look into what happens with all the money collected and how it’s
applied? The fees are currently higher than other nearby cities. $10k every year for a license
renewal seems excessive.
5) Other Requests:
From Staff Report Page 10, sec�on �tled “Fiscal Impact”:
“The reimplementa�on of a 2% distribu�on tax could generate $200,000 annually in revenue
further minimizing the effect of the retail tax reduc�on.”
Response:
- Distributors operate on slim margins, and most are operating through cities that currently
have zero distribution tax. If the city places a tax on my local distributors, they will move to
Cathedral City and Palm Springs won’t benefit from local distribution at all. Local
02/08/2024
Public Comment
Item 3A
distributors allow a cost-effective and fast supply for local retailers. If we lose the local
distributors, we will hurt the local retailers.
- Here are some zero tax distributors that supply my shop, by location:
o “Nabis” operates from Woodlake, CA at 0% distribution tax rate. At least 30% of
brands I carry are distributed through Nabis.
o I order products from 8-track (Flagship Distribution) and SD-Strains, both located in
Palm Springs. Due to quality and price, 8-track is one of our top selling flower
ounces. 8-track restocks my store the same day I place an order. I order between
$10k and $15k worth of 8-track each month.
o Humboldt Distribution operates out of Eureka at 0% and I have ordered from them
three times recently.
o Kind House Distribution operates out of Santa Rosa at 0%, and I order about $3k a
month worth of products from them.
From Staff Report Page 13:
WHEREAS, specifically, the City desires to amend its Adult-Use Cannabis regula�ons to: (i) cap
the number of Adult-Use Cannabis Permits for dispensaries issued by the City; (ii) curtail the
renewal of Adult-Use Cannabis Permits for businesses that are not opera�onal; (iii) implement a
one-owner/one-dispensary requirement;
Response:
- There should not be a one-owner/one dispensary rule. There is already a dispensary with
two operating locations in Palm Springs, and that same dispensary has a third application
pending. It wouldn’t be fair to prevent a law-abiding dispensary like mine from having a
second location in Palm Springs to best serve our customers. No owner, should be allowed 3
dispensaries, and that includes those applicants in the pipeline.
From Staff Report Page 1:
“SECTION 2. Code Amendment. Sec�on 3.42.020 (M) of the Palm Springs Municipal Code is
hereby amended to read as follows: M. Except as otherwise specifically provided in this code or
by regula�on authorized by this code, “gross receipts” means the total amount actually received
or receivable from all sales; the total amount or compensa�on actually received or receivable for
the performance of any act or service, of whatever nature, for which a charge is made or credit
allowed, whether or not such act or service is done as a part of or in connec�on with the sale of
materials, goods, wares or merchandise; discounts, rents, royal�es, fees, commissions,
dividends, and gains realized from trading in stocks or bonds, however designated. Included in
“gross receipts” shall be all receipts, cash, credits and property of any kind or nature, without
any deduc�on or set off therefrom on account of the cost of the property sold, the cost of
materials used, labor or service costs, interest paid or payable, or losses or other expenses
whatsoever. Collec�on of any State excise tax shall be excluded from ‘gross receipts.’”
- Please notice the highlighted text above. It seems that when this old law was written, debit
and credit cards weren’t popular at dispensaries. Now, paying with a card is a popular
option at dispensaries, with several compliant options available, but they have large fees
02/08/2024
Public Comment
Item 3A
that are often passed off to the customer. I’ve experienced fees as high as 8%. Credit and
Debit Card processing fees should not be subject to the retail cannabis tax. I am requesting
the amendment to the text clarify that.
Live Scan Requirements (not men�oned in staff report):
- Background Checks for employees should remain Mandatory. However, because of
difficulties with hiring and expecting potential employees to wait, owners should be allowed
the decision to start employees when they submit their live scan. In the past, I lost a few very
good potential hires because while they were waiting for their live scan results, they were
offered a job from another industry in which they were allowed to start work immediately.
Propose zero local tax for cannabis purchases by pa�ents with a valid Medical
Recommenda�on:
- Currently, about 5% of my customers have a valid Medical Recommendation from their
doctor. A Medical Rec allows the patient to purchase more cannabis at a time (8 ounces of
flower instead of only 1 ounce, and unlimited concentrates instead of only just 8 grams).
Medical customers should also be given a break on local taxes.
- About half of all my customers are over 55 years old, using cannabis for medical reasons.
- The California Department of Public Health's (CDPH) has a Medical Marijuana Identification
Card Program (MMICP) that was established to create a state-authorized medical marijuana
identification card (MMIC), along with a registry database for verification of qualified
patients and their primary caregivers. Under this program, patients are exempt from sales
tax on cannabis. The problem is that the card is expensive and challenging for medical
patients to get. Most patients get their medical recommendation, which is a pre-requisite to
the MMIC, but they get stuck at that step. I propose that we allow patients with the medical
rec to save on cannabis by exempting them from the local retail cannabis tax. Put the
medical patients first.
- Recommendations are typically good for 1 year, and require a visit with their doctor.
02/08/2024
Public Comment
Item 3A
From:Steven Wijatyk
To:Jeffrey Bernstein; Ron deHarte; Grace Garner; Christy Holstege; Lisa Middleton
Cc:Brenda Pree; City Clerk
Subject:Additional support for my point #5; Item 3A
Date:Thursday, February 8, 2024 12:03:43 AM
Attachments:246953666853.png
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unless you are sure the content is safe.
Dear honorable City Council,
Attached I have provided additional support for my point #5. Some of you may not know
what a "Medical Rec" looks like pursuant to CA Health and Safety Code 11362.5, the
Compassionate Use Act of 1996 (Prop 215) and Senate Bill 420. Attached is an example of a
fully verifiable, expired, medical recommendation. The medical rec holder, Jason, gave me
permission to share this with the council and the public for educational purposes.
Best regards,
Steven Wijatyk
Owner
(602) 618-8127
www.reefermadnesslounge.com
Facebook - Instagram
02/08/2024
Public Comment
Item 3A
02/08/2024
Public Comment
Item 3A
From:Julie Canby
To:Jeffrey Bernstein; Ron deHarte; Grace Garner; Christy Holstege; Lisa Middleton
Cc:Brenda Pree; City Clerk
Subject:Item 3A Response by Evolved Engineering
Date:Thursday, February 8, 2024 11:14:32 AM
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unless you are sure the content is safe.
Dear Honorable City Council,
I know the cannabis moratorium is being driven largely by the oversaturation of retail dispensaries.
However, the cap on permits and transfers should not apply to microbusinesses, which are fully
vertically-integrated businesses (there should also be exceptions allowed for a good reason like a
medical hardship). A microbusiness license grants the holder the right to engage in cultivation,
manufacturing, and distribution, not just retail. In fact, part of the reason my own microbusiness is
not yet operational is that it has taken years to acquire all the permits that would allow me to
perform cultivation and manufacturing at my selected location.
When I began my cannabis business journey five years ago, I had such genuine excitement about
building up my operation into a thriving business in Palm Springs. However, during the intervening
years of obtaining all the necessary licenses and permits (the final one was just issued), my health
has deteriorated to the point that this dream is no longer possible. Over the last four years, I started
developing problems, first, just in my neck and shoulder. It slowly spread to the front of my neck and
all the way down to the bottom of my back. My spine and all of the muscles hurt all the time now. At
first I consulted with around a dozen doctors, but now I am receiving treatment from a neurologist.
The treatment includes everything from massage to Botox injections which paralyze damaged areas.
Starting one year ago, when my lower back became involved, I developed neuropathy in my feet,
where pain and numbing occurs.
Over this last year, I could no longer stand or even sit upright for more than an hour before my back
becomes too painful. Only lying back in a zero G position reduces my pain. This has all dramatically
changed my life and the way I envisioned my future. It became obvious that there is no way I can
open the microbusiness anymore.
To add to the trouble, I was diagnosed with breast cancer, and had a mastectomy two years ago. I
healed very poorly, getting several infections in the mastectomy area. One of those infections was so
serious, I had to have surgery while awake, without the standard general anesthesia because it was
such an emergency. Since the surgeon told me that he had never had any patient take pain like I did,
I can assume now that the pain I endure each day is not minor.
Starting the business has always been a financial necessity, and now, selling it is. My resources have
been drained, so I cannot even hire people to start the business for me. Not being physically able to
proceed is equally as depressing as the physical deterioration. Allowing a buyer to take over my
vision of all that the business should be will benefit the city as well because they will be able to open
quickly, generating tax revenue and helping civic appearances. I encourage you to begin allowing
microbusinesses to transfer licenses (including amending §5.55.130, since there would be no way for
a new owner to obtain their own permit if there is a cap on new permits). At the very least, I hope
you will incorporate a carveout for good-cause exceptions—in this case, a medical hardship.
Thank you,
Julie Canby
Evolved Engineering
02/08/2024
Public Comment
Item 3A
From:Flinn Fagg
To:City Clerk
Subject:FW: Public Comment - Item 3A on Agenda for February 8, 2024
Date:Wednesday, February 7, 2024 7:41:21 AM
Begin forwarded message:
From: Steve Rosenberg <steverosenberg@aol.com>
Date: February 6, 2024 at 6:57:46 PM PST
To: Jeffrey Bernstein <Jeffrey.Bernstein@palmspringsca.gov>, Ron deHarte
<Ron.deHarte@palmspringsca.gov>, Grace Garner
<Grace.Garner@palmspringsca.gov>, Christy Holstege
<Christy.Holstege@palmspringsca.gov>, Lisa Middleton
<Lisa.Middleton@palmspringsca.gov>, Scott Stiles <Scott.Stiles@palmspringsca.gov>
Cc: Brenda Pree <Brenda.Pree@palmspringsca.gov>
Subject: Item 3A on Agenda for February 8, 2024
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open attachments unless you are sure the content is safe.
Steve Rosenberg
1725 N. Via Miraleste
Unit 2116
Palm Springs, CA 92262-3108
Home Phone: 760-318-0191
Cell Phone: 760-464-5520
Email: SteveRosenberg@aol.com
February 6, 2024 Subject: Item 3A on Agenda for
February 8, 2024
Mr. Jeffrey Bernstein, Mayor
Mr. Ron deHarte, Mayor Pro Tem
02/08/2024
Public Comment
Item 3A
Mr. Grace Elena Garner, Councilmember
Ms. Christy Holstege, Councilmember
Ms. Lisa Middleton, Councilmember
Mr. Scott C. Stiles, City Manager
City of Palm Springs
3200 East Tahquitz Canyon Way
Palm Springs, CA 92262-6959
Dear Mayor, Council Members & City Manager,
Last fall a discussion began regarding the Cannabis industry in Palm
Springs. Specifically, it was noted that many of the Cannabis businesses
in the City were struggling financially and some had closed.
The question was “What can the City do to assist this nascent industry?” Like many other things in life, this question suffered from mission creep
and became “How should the City change the regulations that apply to
the Cannabis industry?”
In my comments that follow I will focus on the original question which is“How can the City help?”
Staff focused on seven (7) items and two (2) sub-items.
1. Local Tax – Reduce local retail gross receipts tax from 10%
to 5%.
Does this help – Yes
Local Tax – Implement a 2% gross receipts tax fortransportation and distribution.
Does this help – NO
Adding taxes cannot benefit a business.
02/08/2024
Public Comment
Item 3A
2. Allocation of Cannabis Tax Revenue – Allocate somepercentage of Cannabis Tax Revenue to social good and socialequity programs.
Does this help – NO
While these uses and programs are laudable, they do NOTaffect operating businesses.
3. Cannabis Tax Definitions – Revise the definition of “grossreceipts” to exclude State’s excise tax.
Does this help – Yes
It removes the “tax on a tax” folly we have now.
Cannabis Tax Definitions - Define the term “cannabis
accessory.”
Does this help – NO
It depends on what the new definition is. Possible very minorbenefit.
4. Cap on Retail Dispensaries – Establish a cap.
Does this help – Yes
UNLESS it reduces the existing licensees. If existing licensesare grandfathered, are their current rights to sell their businessgrandfathered also?
5. Criteria for Transfer of Retail Dispensaries – Set forth criteriaa business adheres to in order to transfer their business.
Does this help? Emphatic NO.
The language above is gobbledygook. Any prohibition ontransfer takes away the value of the license. In fact, it makesthe value zero. This may very well be an illegal “taking” by thegovernment and deserves serious legal analysis. Any goodbusiness should have an exit strategy. This would prohibithaving one. Further, under existing rules, a transfer requires anentirely new application, including background checks, from the
new owners. What additional criteria are the City talking about?
6. Non-renewal of Inactive Cannabis Permits – Non-operational
businesses cannot renew.
02/08/2024
Public Comment
Item 3A
Does this help? NO
It is a bad policy steeped in contestable circumstances. For
example, suppose a business has a water leak. They would be
closed while repairs were made and would be unable to renew.
That is nonsense. Suppose their security guard quits. Currently
it takes a month to six weeks to get a background check doneon a new hire. They could NOT operate without one, andhence could NOT renew. Again, we have a City mandatedCatch-22.
7. Educational Materials for Dispensaries and Lounges -Mandatory educational materials provided to customers.
Does this help? NO
There is no benefit to the business by providing literature. There is an expense to the business if this is implemented. Worst of all – Who is going to determine what is or is noteducational? Who will determine what is mandatory? Thegovernment should not be in the business of being the“thought police.” Do liquor establishments have to provideeducational literature to their customers? Of course not.
In summary of the nine (9) points raised above, there are three (3)“Yeses”, and six (6) “Noes.”
Some additional thoughts:
This report states that 79.7% of cities and counties that have distribution,
tax at rates from 0% to 15%. Appendix B lists the details. There are two
typos here. The correct percentage is 77.9% and the taxes range from1% to 15%. The report FAILS to mention that our two (2) neighbor citiesof Desert Hot Springs and Cathedral City do NOT tax distribution. Addinga distribution tax would bring some additional revenue to the although theamount is NOT stated. There is NO stated benefit to the Cannabisoperators affected. Indeed, there is none.
Regarding excluding the State Excise Tax from Gross Receipts, the Staffreport states the “clarification is warranted because … without this explicitremoval … required Staff to direct licensees to pay taxes on taxes. This isa bit of white wash since such collection is NOT legal under SB 512, andStaff MUST STOP such collection immediately AND refund any prior
collections.
02/08/2024
Public Comment
Item 3A
Staff states that “Prior to the number of dispensaries falling below thecap, Staff will return to Council with criteria for the vetting of newcannabis retail operations. We already have the most detailed andconvoluted application process of any entity in Southern California. Whatin the world is Staff planning to add to the already cumbersome process
that takes on average three (3) to four (4) months to get a permit???
Staff states that “criteria for the transfer of business WILL BEREQUIRED.” They further state “The criteria includes that the businessmust be operational … must have a two-year history of operations, and
must be in compliance….” They do NOT state what other criteria might
be required nor how those criteria will be determined and by whom.
Requiring a business to be operational, closes off an exit strategy for the
owner(s) whatever their problems might be. Admittedly, this wouldreduce the number of existing permits, but solely at the expense of thosepermit holders. What is the rational for a two-year history of operations? Suppose an operator is losing money and wants to sell after one (1) year. Is the City going to require him to continue operating at a loss for anadditional year just to rec-coup some of his or her investment? Thismakes NO economic NOR regulatory sense.
Staff clearly spent a lot of time and effort gathering a comprehensivenarrative about how other cities have, or have not, capped the number ofdispensaries. While greatly detailed, one metric was NOT included. Specifically, how many dispensaries are there per square mile? This
relates to the density of the City by area and not population. Then you
can be compared to other cities of similar physical size. This is an
important metric because access to legal dispensaries can vary greatly
depending on the size of the city and its metropolitan publictransportation availability.
It is worth noting that Staff did NOT include any of these metrics for Palm
Springs. How in the world are we to form any conclusions without this
vital information? I also note that the staff did NOT in their narrativesuggest a specific cap for Palm Springs. There also is NO discussion onwhich metrics Staff feels are relevant to Palm Springs.
I do note with great concern that Staff has buried a cap of twenty-five
dispensary licenses in the proposed ordinance revisions in Attachment A. Again, there is NO discussion or justification for this number. It appearsto be entirely arbitrary.
There is a gaping hole in the proposed ordinance. Namely, when the
number of operating permitted dispensaries falls below 25, how will the
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opening be filled? Who will decide from among, potentially, multiple
applicants? What criteria will be used to make this decision? This iscritically important to be determined now if a cap is being imposed.
Attachment C covers Code Compliance. This detailed listing FAILS to state
what time period it covers. We must therefore assume it is cumulative
from day one. While there are all kinds of fancy numbers and charts, thebottom line is this: There have been, fortunately, only a handful ofserious violations. There has NOT been one instance of sales to minors. There has NOT been one reported instance of illness or death attributedto Cannabis. Many of the violations that the Department of SpecialProgram Compliance considers “Serious” would in any other industry beconsidered “Minor.” For example, not having the employee roster up to
date. This violation happened twenty (20) times. But I ask this question:
Even if the roster is completely up to date, what does the City use it for?
The answer is NOTHING.
This begs another question. Why does the City require employees to
undergo a background check? With a four (4) to six (6) week processing
time this is a huge obstacle to finding and hiring good employees. What if
they have a disqualifying conviction from 10 or 20 years ago? Removing
this requirement would be a huge bureaucratic relief, not to mention thecost savings to the operator.
On the issue of Permitting Fees, California law requires that the fees do
NOT exceed the costs of administration. It is completely disingenuous to
suggest that it “costs” $10,000 to process an application. It is downrightludicrous to say that ongoing annual administrative expenses for renewalare anywhere near this amount. This MUST be addressed beforesomeone files a lawsuit against the City for violating State law.
Re-inspections of the facility are a nothing burger because there are rarelyany changes from one year to the next. And any such changes shouldhave gone through the Building Department, with inspections during andafter completion. Naturally, there are fees for this. So is CodeCompliance, going to be vetting facility changes already approved by theBuilding Department?
Further, an inspection rarely takes more than a couple of hours. If we saytwo (2) hours average and allow an additional two (2) hours forpaperwork, then one (1) Code Compliance Officer should easily be able toinspect EVERY Cannabis facility monthly. What else would he or she do atan annual inspection?
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Staff are to be commended for the outreach they made to stakeholders. It is unfortunate that this was NOT done before a moratorium wasimposed. They state in their report:
“Additional items of concern included State taxes, federal prohibition,limited access to banking and capital, illegal operations, code complianceand local permitting fees. Distributors expressed their opposition to thereimplementation of the distribution tax.”
Obviously, the City has no authority and cannot address State taxes,federal prohibition, limited access to banking. That leaves illegaloperations, code compliance and local permitting fees.
Staff continues “While many of the issues raised by stakeholders are beingaddressed in the proposed revisions, code compliance and local permittingfees are NOT included. Code compliance and permitting fees areaddressed below.”
What follows is a lame discussion of Code Compliance and permittingfees. NO changes of any kind are proposed. How does this address thestakeholder concerns? It does NOT.
And now the elephant in the room. For a department with a multimillion-dollar budget, why is NOTHING being done about the illegal operators? Yet the staff is completely silent on this issue.
Staff spends a great deal of time, money and effort doing “sting”
operations on unlicensed vacation rentals. Yet the have NEVER doneanything about illegal Cannabis operations. We are talking arrests,prosecutions, and jail. They could easily set up “sting” operations fordelivery. Why haven’t they? Hopefully, there is no graft involved here.
Economically speaking, the illegal operations represent half the financialproblem that legitimate Cannabis operators face. The Department hasNEVER even suggested how they might stifle the illegal operations. Instead, they worry about employee rosters not being up to date.
I decline to write in detail about the proposed ordinance itself. Thatwould be a meaningless exercise until the plethora of comments raised in
this letter are addressed and resolved.
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In summary, most of the time and effort being spent on these “revisions”
does not help the legitimate Cannabis operators at all. Some of these“revisions” even hurt them.
And please, always remember the original question –
“What can the City do to assist this nascent industry?”
Sincerely,
Steve Rosenberg
CC: Ms. Brenda Pree, City Clerk
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From:Kevin Spring
To:Jeffrey Bernstein; Ron deHarte; Grace Garner; Christy Holstege; Lisa Middleton; Brenda Pree; City Clerk
Subject:Points To Consider Before Tonights" City Council Meeting from a local distributor
Date:Thursday, February 8, 2024 4:44:07 PM
NOTICE: This message originated outside of The City of Palm Springs -- DO NOT CLICK on links or open attachments
unless you are sure the content is safe.
Esteemed City Council of Palm Springs,
Thank You all for taking a moment to consider this argument against proposing a new
Cannabis Distribution Tax to our already struggling industry. This City Council nearly six years
ago chose to honor a business model that included Zero Distribution Tax. Reasons for that
successful vote included that taxes were already rampantly high throughout the industry and
there was thought that distributors would flock to Palm Springs, which would result in many
Cannabis Brands being distributed from this fine city. Distributors are often stable, key players
in the industry and at the time were trusted to collect the state excise taxes for retailers. It is
distributors that purchase from manufacturers. It is distributors that offer various brands help
to get to retail shelves.
Palm Springs has always been known to remove the barriers to entry so that small businesses
could flourish rather than big corporations monopolizing the Cannabis Industry. Those big
companies are certainly on their way.
Our industry has so many challenges and many have already failed. Challenges include:
High Prices to Rent Property
High Prices to Use Banking
High Prices for Specialized Insurance
Heavy Regulation
Heavy Taxation (incl 280E... No Write Offs)
But Most Of ALL, A BLACK MARKET TO CONTEND AGAINST!!
Virtually every industry, taxes are charged and collected at the end point of sale. Please do
not consider this experiment of taxing in the middle of our business chain.
Neighboring cities don't do it. The top ten Cannabis Distributors choose to only operate from
cities that do NOT impose a distribution tax. Although there are some cities that have tried to
impose a distribution tax, many have later amended their plan to attract or keep their
distributors.
Simply put, an intelligent and goal-oriented distributor will choose to operate from a zone that
does NOT impose a specialized specific tax to distribution.
Distributors serve brands, and retailers, however a brand will choose to use a distributor that
doesn't have to add extra tax because they operate from a uniquely taxed city. And Retailers
choose to buy from distributors that offer the best price, selection, and service.
Certainly a related topic, is that this evening you plan to finally implement the retail city tax
reduction from 10% down to 5%. This will be "Keeping Up With The Jones'" (our neighbor
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cities who already lowered their retail tax to 5%)
Is this the reason you look to find another way to tax the industry? If you are keeping up with
the neighbor cities, won't you consider that with distribution? Neither Cathedral City, Desert
Hot Springs, or Palm Desert charge a distribution tax. (Veronica's report that shows Palm
Desert charging 2% distribution tax is false as I have confirmed with the Head of Cannabis
Dept. in Palm Desert. They do charge a 2% manufacturing charge to manufacturers.)
This may be a case of "Robbing Peter To Pay Paul" if you try to reduce the retail tax but make
up for it by taxing distribution in the middle of our business chain. This certainly WILL affect
the end user at the point of sale, but it will just be hidden from the customer's receipt. Again,
I say, This seems like an experimental tax that will backfire.
Some of us are in a spot where it is time to sign a lease renewal, and with talk of this city
council imposing a new tax on our struggling industry, we must consider where we will
operate for the next years.
The top 10 Cannabis distributors operate from Santa Rosa, Arcata, Eureka, Sacramento, and
Oakland. None of these cities charge a specific distribution tax.
Please ask yourself, why did we start with 0% distribution tax? What will the outcome be for
our existing distributors if we make a change? What new distributors will come to our city if
we make this change?
Not only do I ask that you reconsider, but I ask that you announce that YOU WILL NOT charge
a distribution tax so that we can plan to continue our businesses in Palm Springs.
Sincerely,
Kevin Spring
CEO of SD Strains Inc
02/08/2024
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