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Author: Neil Hall

Just a year after the California legislature approved new regulations for medical marijuana, 56% of the State’s voters approved legalizing non-medical adult consumption of marijuana. California joins Alaska, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington, and Washington D.C. in making non-medical marijuana available to adults 21 years and older.

While a ban makes sense in some cities and counties and implementation in others, all need to understand and plan their next steps. We recommend a five-step cannabis approach for implementation in most public agencies: assess, implement, regulate, tax and compliance monitoring.

Assess Community Preferences

Conveniently, Proposition 64 contributed valuable assessment information. Local communities can spend time to research and analyze the voting results for Proposition 64 and evaluate support levels compared with the Statewide average. Once the easy work is done, undertake a valid survey of the community to gauge attitudes for regulation as well as taxes. Do residents prefer medical and non-medical be available and taxed, do they want them sold in separate locations, etc. While it may not happen in your city or county, misreading or ignoring the community’s attitudes can be risky. We’ve seen some examples of what can happen when a community assessment is not done. Competing local initiatives to allow retail sales appear on the ballot. Often, a voter initiated ordinance provides less tax revenue and fewer regulations than a measure written by the City or County

Implement

The second step is to develop an implementation plan that incorporates community preferences, a regulatory ordinance, a tax ordinance and appropriate monitoring and follow-up. Part of the assessment of preferences is determining an appropriate tax level, what regulations are necessary and what fees need to be levied to pay for this new industry. Just reviewing State mandated regulations in each of the license categories illustrates the need for careful oversight and expert advice on what activities are required to ensure smooth implementation. City or county staff must be part of a stakeholder group to ensure that areas like planning, finance and public safety are included in the implementation plan. Because of the publicity and potential revenue, we recommend using a consultant to help review applications and make selections. As a recent League of California Cities presentation concluded, using a consultant to accept and review applications and make recommendations in a scoring system method of selection can be preferable to using City or County staff.

Regulate

Both the MCRSA and Proposition 64 allow local public agencies to charge fees for compliance and regulation to industry participants. Undertaking a local fee study for commercial cannabis activities can be daunting, especially if you are not a marijuana expert. Minor things like the storage of CO2 containers in cultivation or nursery sites can be a substantial hazard if they are not correctly anchored. We recently engineered a fee structure for manufacturing, cultivation, dispensaries, distribution, testing and transportation for a city in the Central Valley. Under Proposition 26, the fees must be justified by the activities they require. Ensuring those fees are correct protects the tax revenue established by the city or county that was intended to provide additional revenue for specific or general fund services. The goal of the fees is to provide safety, transparency and a sustainable path for a cannabis business. The engineering and fees are charged back to the entities who received licenses.

Tax Revenue

SCI analyzed the best practices and missteps of taxes enacted in Colorado, Oregon and Washington as well as in cities and counties in California that tax medical marijuana. We can assist public agencies who need to decide what activities will be taxed, how they will be taxed and what tax mechanism is most suitable. Our revenue model can predict the potential revenue to a city or county based on several variables as well as the commercial activity being taxed. Whether the tax is based on receipts, square footage, is flexible or fixed and applies to medical, non-medical or both are extremely important decisions.

Compliance Monitoring

The fifth and final step is the most overlooked yet the most critical component of a public agency’s adoption of cannabis regulations – ensuring compliance. The size and complexity of implementing commercial cannabis activities requires routine, specialized monitoring. For instance, cash is still exchanged for cannabis products. Verifying that the money is accounted for prevents diversion of product and ensures the projected tax revenue. Utilizing track and trace software, visual inspections of property and video monitoring are some of the techniques SCI employs to make sure commercial activities comply with local and State regulations. Requiring compliance benefits cannabis businesses as well by keeping the “playing field” level for all participants. Our staff are trained and experienced in what to look for and we can start and stop compliance activities on very short notice. We can transfer the knowledge and train City or County staff to take over the compliance once all activities are in place and become routine. And keep in mind that all the costs of monitoring and compliance should be part of the regulatory fees paid for by industry participants – not the City or County.

Whether you welcomed or dreaded the passage of Proposition 64, every public agency will need to gauge the results in their community and begin planning their next steps. For more help, contact: Neil Hall at 707-430-4300 x 124 or neil.hall@sci-cg.com.

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