Title:
Title
Ordinance Amending Section 5.150.350 of the Sacramento City Code Relating to Storefront Cannabis Dispensaries and a Resolution Establishing the City’s Storefront Cannabis Dispensary Lottery Procedures (Majority Vote Required) [In Lieu of Pass for Publication to Be Published in Its Entirety]
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FileID
File ID: 2020-00917
Location
Location: Citywide
End
Recommendation:
Recommendation
1) Pass a Motion by a majority vote suspending Rule 13 of Council Rules of Procedures requiring the Law and Legislation Committee’s action prior to bringing an item before City Council; 2) adopt an Ordinance amending section 5.150.350 of the Sacramento City Code to increase the number of allowed storefront cannabis dispensary permits, to be published in its entirety within ten days of adoption in lieu of pass for publication per City Charter section 32(d); and 3) adopt a Resolution establishing the lottery procedures for available storefront cannabis dispensary permits.
FileName
Contact: Davina S. Smith, Cannabis Manager, (916) 808-4772; Zarah Cruz, Program Specialist, (916) 808-8925, Office of Cannabis Management, Office of the City Manager
Body
Presenter: Davina S. Smith, Cannabis Manager, (916) 808-4772; Office of Cannabis Management, Office of the City Manager
Attachments:
1-Description/Analysis
2-Ordinance Amending Chapter 5.150 (Clean)
3-Ordinance Amending Chapter 5.150 (Redline)
4-Resolution Establishing Lottery Procedures
5- Exhibit A: Lottery Procedures
Description/Analysis
Issue Detail: The City of Sacramento (“City”), currently has an allowed limit of 30 permitted storefront cannabis dispensaries (“storefront dispensary” or “dispensary”) under Sacramento City Code (“SCC”) section 5.150.350.
On November 12, 2019, the Mayor proposed the addition of storefront dispensary permits exclusive for participants in the City’s Cannabis Opportunity Reinvestment and Equity (“CORE”) program and directed staff to bring an item to Council for consideration. On January 14, 2020, Council held a workshop and engaged in a robust discussion that included public input and centered on the appropriate number of new dispensary permits that should be added for CORE participants and how long these permits should remain exclusively CORE in order to meet the City’s goal of 50% CORE ownership of all cannabis businesses and provide long-term economic opportunity for CORE members. The Council discussed options ranging from keeping the additional dispensary permits 100% CORE ownership in perpetuity to requiring a dispensary permittee to be majority CORE-ownership only until the permit was issued and then letting the free-market forces decide if the permit remains in CORE ownership. Council also discussed if a CORE majority owner should receive less than majority profit-sharing.
Ultimately, a majority of the Council agreed that in order to best effectuate the twin goals of 50% CORE cannabis business ownership and bringing long-term economic opportunity to CORE participants, the dispensary permits should be majority CORE-owned, with proportional profit-sharing, for a 10-year period of time to allow the businesses to provide economic opportunity for their owners, but not restrict the ownership to CORE in perpetuity. Council provided the following specific direction:
|
Issue |
Council Direction |
|
1. Adjustment to the allowed limit on dispensary permits? |
Add 10 new dispensary permits (five to be issued in 2020 and five to be issued in 2021). |
|
2. Eligibility for the new permits: CORE and General Public vs. CORE exclusive? |
CORE exclusive. |
|
3. Term and ownership of permits issued to CORE participants? |
Permits must maintain at least 51% CORE ownership and at least 51% CORE profit-sharing for 10 years. |
|
4. Storefront Dispensary Locations? |
Add shopping center (SC) zone for storefront dispensary use; and limit Arden Way/Del Paso Special Planning District (SPD) cannabis uses to storefront dispensary only. |
|
5. Timeline by which new storefront dispensaries must be operational? |
Three years after being selected from the lottery. |
Collectively, the direction to provide CORE participants exclusive access to the new permits, the 10-year permit term, the 51% ownership requirement and the three-year timeframe to open a storefront dispensary are all aimed at affording CORE participants selected in the lottery the ability to achieve and sustain a successful cannabis business and meet the City’s goal of 50% CORE-owned cannabis businesses.
On June 30, 2020, the City Council approved ordinances amending SCC Title 17 (issue 4 above) to allow certain cannabis uses in the Shopping Center Zone (SC) and the Del Paso/Arden Way Special Planning District, which addressed the fourth issue above.
If adopted, the proposed Ordinance will amend SCC section 5.150.350 to address the first issue above and increase the number of storefront dispensary permits to a total of 40. The City Manager may then conduct a lottery pursuant to procedures approved by resolution of the Council to award the opportunity to apply for a permit.
The attached Resolution (Attachment 4), if approved by Council, will establish a lottery procedure that reflects Council’s direction for the second, third, and fifth issues above. Specifically, the lottery procedures, among other things, provides:
o Exclusive access to the dispensary permits for CORE participants,
o Requirements to participate in the lottery,
o A certification to maintain 51% CORE ownership and profit-sharing for 10 years, and
o An alternate lottery procedure due to the current COVID-19 social distancing restrictions.
In the six months following the January 14, 2020 Council workshop, five stakeholder meetings were held. During these meetings, questions related to Council direction on storefront dispensaries were discussed and input was received from CORE stakeholders interested in becoming storefront dispensary permit applicants. If Council approves staff’s recommendations, the lottery for the first five permits is anticipated to occur in October 2020.
Policy Considerations: The addition of 10 new storefront dispensaries in the city requires amendments to SCC chapter 5.150. The proposed amendment to chapter 5.150 will change the current storefront dispensary allowed limit from 30 to 40. Ordinances amending Title 17 were adopted by the City Council on June 30, 2020 and will provide the new storefront dispensary applicants additional potential locations.
Economic Impacts: None.
Environmental Considerations: This action is exempt from the California Environmental Quality Act (CEQA) because it is the adoption of an ordinance, rule, or regulation that requires discretionary review, including environmental review, and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity (CEQA Guidelines sections 15061(B)(1), California Business and Professions Code section 26055(h)) and because it does not have the potential for causing a significant effect on the environment (CEQA Guidelines section15061(b)(3)).
Sustainability: Not applicable.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: All 30 storefront cannabis permits were initially issued as medical dispensaries, with the last of the 30 dispensary permits issued in May 2015. The number of permits has remained the same for nearly five years as a result of the current allowed limit. With the legalization of retail recreational cannabis on January 1, 2018, the same 30 permittees were afforded the opportunity to expand their operations to add retail adult use cannabis to their medicinal cannabis dispensary permits. As a result, no new businesses have had the opportunity to apply for a retail cannabis storefront permit.
The CORE program was established in August of 2018 to assist individuals and communities impacted by the disproportionate enforcement of cannabis-related crimes by helping eligible applicants start a cannabis business or become otherwise involved in the cannabis business industry (e.g., employees or ancillary businesses). A storefront dispensary is the most sought-after business model among CORE participants. However, with the allowed limit in place, there is no opportunity for CORE participants to open a storefront dispensary, even after completing business training and mentorship through the CORE Program. The addition of 10 new storefront dispensary permits, exclusive to CORE participants, will provide CORE participants the opportunity to be a storefront dispensary owner and is a major step towards achieving the City’s goal of 50% of all cannabis business permits being owned by CORE participants and providing long-term economic opportunity to the permit holder.
Financial Considerations: BOP fees for CORE participants in classifications 1 or 2 are waived pursuant to Council Resolution 2018-0323, so there will be no revenues from program fees from the 10 storefront permits. All cannabis businesses are required to pay a four percent gross receipts tax, so the 10 new storefront permits will generate new Business Operating Tax (“BOT”) revenues for the City. The current annual BOT paid by storefront dispensaries ranges from $81,000 to $650,000 annually.
Local Business Enterprise (LBE): Not applicable.