Measure P, Stockton's newly enacted cannabis ordinance, was borne out of a privately-funded local ballot initiative supported by a signature gathering campaign which garnered the signatures of 12,000 Stocktonians open to the prospect of two additional cannabis dispensary storefronts and four legally-permitted indoor cultivation facilities in the City of Stockton. Before its passage, two dispensaries were operating and a total of three were allowed within the city, while commercial cannabis cultivation was prohibited entirely.
Initially proposed to City Council at a June 7, 2016 meeting, the original seven-page ballot initiative was referred to the City Attorney's office for modification to more closely reflect the regulatory and licensing structure of the Medical Cannabis Regulation and Safety Act ("MCRSA"), enacted by the legislature to regulate and license medical cannabis businesses in California, and Proposition 64, also known as Adult Use of Marijuana Act ("AUMA").
With the June 28 deadline for local governments to place local tax measures onto the ballot for November 2016 looming, city staff had a mere three weeks to consider the best course of action. City staff had little time to come up with more comprehensive regulations for these prospective businesses, as well as a local tax measure to attach to the multi-million-dollar potential of a local cannabis market. It is important to note that the City Attorney's office shrewdly included a provision in the ordinance that granted City Council discretion to amend the ordinance by future ordinance. Had this provision not been included, the specific regulations passed through the initiative would have precluded any future changes to those regulations absent a subsequent ballot initiative and vote of the people.
There would be no direct economic benefit to the City of Stockton absent a tax structure applicable to recreational sales. Such a structure exists for medical cannabis dispensaries under 2010's Measure I, which established a tax rate of $25.00 for each $1,000.00 of gross receipts for medical dispensaries. Although its customer base was limited to medical cannabis patients with valid doctors' recommendations, the third highest taxpaying entity to the City of Stockton as of June 2016 was The Clinic, a small dispensary in Stockton's Eastland Plaza. Only Costco and Target, respectively, stand ahead of "The Clinic" in this regard. Accordingly, the City Council approved both Measure P and Measure Q, which applies a new 3.5% to 5% tax on gross sales of medical cannabis and a 5% tax on recreational sales, to appear on the ballot for the November election.
Measure P passed the November ballot by a 12% margin and will be implemented by the Stockton Police Department, and Stockton Economic Development and Planning Department in the coming weeks and months. Measure Q passed by an even greater margin.
Specifics about Measure P and the licensing process and local regulatory structure is sets up follow below.
Dispensary locations will be restricted to "Industrial General," "Industrial Limited," "Commercial General" and "Commercial Large Scale" zoning districts within the City of Stockton. Cultivation facilities will be restricted to "Industrial General," "Industrial Limited" and "Port District" zones. In addition to zoning requirements, the ordinance includes sensitive use distancing restrictions that are more stringent than those set forth by the state. Cannabis businesses must be located at least 1,000 feet away from one another; 1,000 feet away from any school or park; 600 feet away from any childcare center, family day care, religious facility, drug abuse or alcohol treatment facility, or theater; and 300 feet from any residential zone. Cannabis businesses must also be located within a fully enclosed building with the interior not visible from the public right of way.
A multi-tiered application process will be utilized to facilitate the procurement of various permits necessary for legal operation under the new ordinance. There will be a non-refundable application fee as determined by City Council, and upon the granting of a permit, an annual renewal fee will be charged.
Conditional Use Permit Associated with Location
Conditional use permits will be necessary for the operation of dispensaries and cultivation facilities. These applications will be submitted to the Planning Department and must include a site plan, lighting plan, security plan and floor plan of the facility as well as a neighborhood context map. The Planning Commission may address the development and operational standards through conditions placed on the granting of conditional use permits as determined necessary or appropriate for the permit application under consideration.
"Cannabis businesses must be located at least 1,000 feet away from one another; 1,000 feet away from any school or park; 600 feet away from any childcare center, family day care, religious facility, drug abuse or alcohol treatment facility, or theater; and 300 feet from any residential zone."
Operator's Permit Associated with Persons Running the Business
Operator's permits will also be required by the specific owner-operator and business personnel affiliated with the facilities. These applications will require the submission of the names, addresses, and personal histories, including employment records and criminal records, of all owners, officers, and employees of the facility within ten years prior to the submission of the application to the Chief of Police. Denial of the operator's permit may be subject to appeal to the City Manager within 10 days of such a denial.Upon approval, the operator's permit will remain valid for one year, with application for renewal of the permit required at least 60 days prior to its expiration.
Employee Work Permits
Under the ordinance, it is unlawful for a permittee to employ any person who is not the holder of a valid work permit and registration identification card issued by the City. Every operator, employee, volunteer, or other person working or assisting in any way in the operation, including security personnel, is considered an employee. Applications for work permits will require applicants to submit finger prints to the Stockton Police Department to run background checks. The Chief of Police may deny the application for an employee work permit for specified reasons primarily relating to criminal convictions. Denial of the work permits may also be subject to appeal to the City Manager. The work permits will remain valid for one year from the date of issuance. The background and criminal history investigations associated with approval and renewal of these permits will be annually updated. Once obtained, the employee ID cards issued by the City must be prominently and legibly displayed at chest height and worn by employees at all times while on premises. A permittee must inform the City of any change in employment status within five days of the change, including termination, leave of absence, promotion, or any other change in position or title.
"Measure P permits two additional cannabis dispensary storefronts and four legally-permitted indoor cultivation facilities within the City of Stockton."
Quarterly Auditing & Annual Reports
Permittees will be required to submit signed and certified quarterly statements showing gross revenues derived during the applicable period. The city also has the discretion to require payment of gross revenue taxes via wire transfer on a more frequent basis. In addition to the payment of taxes, the operators will be subject to an auditing fee as determined by the City Council. At the end of each fiscal year, the City will, at the expense of the operators, employ a council-approved certified public accountancy firm to conduct an audit of financial records associated with the business in accordance with generally accepted auditing standards and any additional standards set forth by the City Manager. Permittees will also be required to provide an annual update of their own self-evaluations of internal accounting and administrative controls.
Access to Records and Facilities
Permittees will be required to allow the Chief of Police unrestricted access to all books, records, and facilities and all audio and video tapes pertaining to the facility. Any information obtained pursuant to this provision will be deemed confidential in character and not subject to public inspection except in connection with enforcement. The cannabis businesses will be required to maintain detailed records at the location accurately and truthfully documenting employees, receipts, transactions, and inventory. These records must be maintained for five years and be made available to the Police Department upon request. The records must be maintained on-site in printed format, with any loss, damage or destruction of said records reported to the Police Department within twenty-four hours.
Hours of Operation & Other Operating Regulations
Hours of operation shall be limited to between 7:00 a.m. and 8:00 p.m. The presence of minors on premises is prohibited unless the minor is a qualified medical cannabis patient in the presence of his or her parent or legal guardian.Dispensaries may not dispense, distribute, sell, transfer or provide cannabis by any means other than direct, face-to-face, in-person transactions with a patient or caregiver at a permitted facility. A sign shall be posted at the entrance of the medical cannabis facility with the name and functioning telephone number of a twenty-four hour on-call person engaged in the management of the business who will be required to receive, log, and respond to complaints and other inquiries.
The approval and enactment of Measure P is a victory for patients who use medical cannabis, and an opportunity for potential applicants for the two as-yet-unissued licenses. However, given the zoning and sensitive use distancing requirements, applicants will be initially restricted by the availability of commercial real estate. The onerous licensing processes, record keeping and reporting requirements, and the close involvement of the Police Department and city staff are also carefully designed to limit entry into the medical cannabis dispensary business to applicants committed to strict compliance with state and local laws and regulations.