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After Nov. 2017 Threshold Council Vote (5-3) To Allow Rec Pot Shops In LB, Council Votes (7-1) In June 2018 To Approve Ordinance Enabling Them (See Details)


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(June 20, 2018) -- The Long Beach City Council has cast the first to two votes to enact an ordinance governing "recreational" or "adult" marijuana use (as opposed to strictly medicinal use) enabling adult consumers to buy the substance from City of Long Beach licensed vendors. The measure passed on a 7-1 vote (Mungo dissenting, Austin absent) on June 19.

To view the ordinance text [prior to relatively minor floor amendments] and an accompanying staff report, click here. The measure, amended slightly to reduce some operating hours (per Price: shops to close at 9 p.m. instead of 10 p.m., but deliveries till 10 p.m.) and increase the number of required "social equity" hired employees (details below), will return for a second enacting vote at the next Council meeting. City staff estimated that the earliest that adult-use/recreational cannabis sales could begin is August 2018.

Areas eligible for adult use cannabis operations and buffers are shown in Council district maps attached as Exhibit A at this link

[Scroll down for further.]


The new ordinance requires the co-location of medical and recreational marijuana sales for dispensaries. Since current LB law allows up to 32 medical marijuana outlets (9 have opened thus far, 23 still in permitting process), the new ordinance means there could up to 32 recreational pot selling outlets in LB. (Co-location is optional for non-dispensary cannabis operations (cultivators, manufacturers, testing laboratories and distributors.)

City staff displayed the chart below showing current cannabis activities in Long Beach.


City staff Power Point presentation, June 19, 2018 City Council meeting.

The key decisional vote to allow recreational marijuana sales actually came eight months earlier on Nov. 14, 2017, when the Council had choice of saying "yes" or "no" to allowing sales of recreational marijuana [under a CA voter approved petition initiative.] In November 2017, Councilwoman Suzie Price made a motion to continue the city's current ban on "recreational" marijuana sales until all 32 LB-allowed medical marijuana dispensaries were up and operating and the results could be evaluated; Councilwoman Gonzalez made a substitute motion to develop a plan allowing businesses to sell "recreational" marijuana, saying the public had spoken at the ballot box in allowing adult recreational marijuana use...and Vice Mayor/9th dist. Councilman Rex Richardson made a substitute-substitute motion (seconded by Andrews) that built on Gonzalez's motion, arguing that if the Council didn't allow recreational pot shops, the City could face a ballot measure to allow them on terms written by proponents. Richardson's substitute-substitute motion also directed development of a plan to allow recreational pot shops that included "social equity" and diversity components...and passed with the "yes" votes of Councilmembers Gonzalez, Pearce, Andrews, Uranga and Richardson (Austin was present earlier but left before the vote.)

Sponsor

Sponsor

When the Council-requested city staff-drafted plan returned to the Council on June 19, Councilwoman Price offered a minor tweak (in hours of operation and delivery); Councilman Supernaw indicated he was supportive; and Councilwoman Stacy Mungo made floor attempts to persuade motion-maker Vice Mayor Rex Richardson to accept an amendment that would add a requirement of six months of demonstrated good neighborly behavior by medical marijuana dispensaries before they could begin selling recreational marijuana.

Richardson [knowing he had sufficient votes for passage] declined to accept Mungo's proposed amendment and with Price and Supernaw supporting the proposed ordinance, Mungo declined to offer a substitute motion (that would likely die for lack of a second), voiced some polite displeasure and voted "no," producing a 7-1 outcome (Mungo dissenting, Austin absent.)

Sponsor

Sponsor

Regarding "fiscal impact," city staff's agendizing memo stated [tables omitted]:

Approval of the proposed Ordinance will result in increased expenditures in the General Fund. In FY 18, staff estimates a one-time cost of $266,000 to develop the Program, based on assumed applicant volume. This cost is made up of $200,000 for the PGWIN to establish the Equity Hire program, $50,000 for the Development Services Department to offset the cost of providing automatic expedited plan checks to equity applicants, and $16,000 for the Equity Office to coordinate the Fresh Start Program. This one-time cost of $266,000 is anticipated to be offset by citywide budget savings in excess of established Department General Fund savings targets in FY 18.

However, regardless of these savings, it is uncertain whether the General Fund will end the year in a net surplus or deficit and it is possible this one-time cost could add to a budget shortfall.

Ongoing costs related to PGWIN oversight ofthe Equity Hire program will be offset through an Equity Hire fee charged to adult-use cannabis businesses. Establishment of the fee will be requested through proposed changes to the Master Fees and Charges Schedule following passage of the proposed Ordinance. The annual fee amount will depend on the number of businesses that apply for an adult-use cannabis license. Staff estimates the annual Equity Hire fee to be approximately $2,000 per cannabis business. The fee will be dedicated to funding PGWIN's ongoing role in overseeing the Equity Hire program.

Ongoing costs related to automatic plan checks for equity applicants are difficult to project, and will depend on the number of equity applications received by the City. Outside of the proposed Program, staff does not anticipate requiring additional resources in FY 18 to regulate the adult-use cannabis industry. Existing staff levels should be sufficient to process adult-use cannabis applications and regulate businesses in the current fiscal year. It is unclear what the ongoing costs will be to regulate the cannabis industry beginning in FY 19. Staff will evaluate both medical and adult-use cannabis regulatory and enforcement costs through the FY 19 Proposed Budget development process. Staff will also propose new fees to fully recover the cost of licensing and regulating adult-use cannabis businesses in Long Beach.

Approval of the proposed Ordinance will result in an increase in business license tax revenues above what is currently collected from the medical cannabis market. Staff projects a potential increase of up to $750,000 in FY 19 General Fund tax revenues from authorization of commercial adult-use cannabis. This projection is based on a gross receipts tax rate of 8 percent applied to all adult-use cannabis sales, as opposed to the 6 percent tax rate for medical cannabis sales at dispensaries and will be further analyzed as part of the FY 19 Proposed Budget process.

However, it should be noted that FY 18 medical cannabis tax revenues are projected to end the fiscal year significantly below budget. The Adopted FY 18 General Fund budget assumed $5.2 million for medical cannabis business license tax revenues. Staff estimates actual year-end General Fund revenues will be approximately $2.0 million. See the table below for a summary of estimated FY 18 medical cannabis revenues: [SUBTOTAL $1,980,801]

The primary reason for the projected FY 18 deficit is the current pace of medical cannabis business openings. The pace of openings is outside of the City's control and is dependent on applicants submitting plans and completing construction ofthe cannabis facility. During the FY 18 budget adoption cycle, staff anticipated a greater number of medical cannabis businesses would be licensed and operating by this time. Thus far, most applicants have proceeded to the plan check or construction phase, but have not yet completed project construction. Businesses will not be authorized to open until they are inspected and found to meet standard California Codes for construction.

Recently, a significant number of medical cannabis businesses have made notable progress on construction, which has been reflected in an uptick in business openings. As a result, staff is projecting a significant growth in medical cannabis business license tax revenues in FY 19 to approximately $4.5 million. See the table below for a summary of estimated FY 19 medical cannabis revenues. [SUBTOTAL $4,477,748] Staff will revisit General Fund cannabis revenue projections through the FY 19 budget development process.


Sponsor

The measure as adopted includes a "social equity" component (at the November 2017 request of Vice Mayor Richardson. City management's memo described it as follows:

On November 14, 2017, the City Council directed staff to research social equity policies for consideration as part of the proposed Ordinance. Since that time, the Office of Cannabis Oversight (OCO) has worked with the Office of Equity to prepare recommendations on a potential Cannabis Social Equity Program (Program) in Long Beach. The recommendations are based on research into other California cities that have passed cannabis social equity laws, as well as meetings with City departments that would be responsible for implementing the Program.

The goal of cannabis social equity is to recognize and address the impact that federal and state cannabis enforcement policies have had on low income communities across the country. Specifically, low income communities have experienced the greatest impact of arrests and convictions for low-level offenses such as cannabis use and possession.

Cannabis convictions have led to permanent loss of property, disqualification from employment opportunities, reduced earnings potential, exclusion from public benefits such as housing assistance or student financial aid, and other negative impacts.

Recently, California citizens voted to decriminalize cannabis activity at the state and local level. Cities have taken this a step further by working to ensure equal opportunity in the cannabis industry for individuals who may have been impacted by previous cannabis laws.

California cities that have adopted cannabis equity ordinances include Los Angeles, San Francisco, Sacramento, and Oakland. In addition, state legislatures have begun to consider cannabis social equity programs, including California, Florida, Ohio, Pennsylvania, and Massachusetts.

Staff is proposing a Program for Long Beach that is consistent with the general framework created by other jurisdictions. Specifically, staff recommends establishing the following criteria to qualify an individual for the Program:

1. Annual family income at or below 80 percent ofthe Area Median Income (AMI), and net worth below $250,000;

2. At least one of the following:

a. Was arrested or convicted for a crime relating to the sale, possession, use, or cultivation of cannabis in Long Beach prior to November 8, 2016 that could have been prosecuted as a misdemeanor or citation under current California law; or,
b. Lived in a Long Beach census tract for a minimum of three years where at least 51 percent of current residents have a household income at or below 80 percent of the AMI.

Income limits will allow the City to target Program benefits to only those individuals with the greatest need for assistance. Proof of a cannabis arrest or conviction will identify individuals who were directly impacted by the enforcement of cannabis laws that are no longer considered serious crimes. Geographic criteria will qualify individuals from neighborhoods whose communities have the greatest need for assistance.

Individuals who are eligible for the Program may receive benefits in two ways:

1. Cannabis application benefits; or

2. Cannabis employment opportunities.

Proposed application benefits include fee waivers, expedited application reviews, expedited plan checks, tax deferrals, and access to workshops to help navigate the City's licensing process. The proposed application benefits are intended to help Program applicants overcome barriers to entry into the cannabis market. In addition, Proposition 64 created a process whereby individuals may petition a judge to have prior cannabis convictions reclassified or dismissed. DHHS has proposed hosting "Fresh Start" clinics to facilitate the dismissal process. Cannabis-related reclassification or dismissal for Program applicants can serve to further mitigate market barriers such as the inability to obtain a loan or lease agreement based on prior criminal history.

The second category of benefits involves employment opportunities in the cannabis industry. Staff has proposed a 25 percent "Equity Hire" requirement for all adult-use cannabis businesses. To meet this requirement, businesses must ensure that at least 25 percent [raised by Council June 19 amendment to 40%] of annual work hours are performed by employees who are eligible for the Program. Businesses will be expected to meet the 25 percent Equity Hire requirement beginning their second full year of operation. Staff from the Pacific Gateway Workforce

Innovation Network (PGWIN) will have the authority to reduce or grant exemptions from the 25 percent hire requirement upon determination that an insufficient labor pool exists to meet employer demand. PGWIN may also reduce or grant equity hire exemptions for businesses that show a good-faith effort to hire Program employees. This includes, but is not limited to, submitting documents demonstrating Program hiring efforts to the PGWIN for review. Failure to meet minimum Equity Hire requirements or show a good-faith effort to hire Program employees will result in warnings, administrative citation, or other violations under the authority of Chapter 5.92 of the LBMC.

In addition, for consistency purposes, staff recommends mandating that all adult-use cannabis businesses enter into a labor peace agreement or collective bargaining agreement with a labor union that represents cannabis workers in Long Beach. This requirement is consistent with the labor provision that voters approved for medical cannabis businesses through Measure MM, now Chapter 5.90 of the LBMC. The requirement for a labor peace agreement will ensure the jobs made available through the 25 percent Equity Hire requirement are union represented positions consistent with voter intent through Measure MM...


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LBREPORT.com is reader and advertiser supported. Support independent news in LB similar to the way people support NPR and PBS stations. We're not non-profit so it's not tax deductible but $49.95 (less than an annual dollar a week) helps keep us online.


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