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Home My WebLink AboutItem 09 - Cannabis Business Program and Regulation UpdatesItem 9 �t�x ofi Council- d. Report ti ttjs o Department Name: Cost Center: For Agenda of: Placement: Estimated Time: FROM: Greg Hermann, Deputy City Manager Prepared By: Georgina Bailey, Management Fellow Administration 1001 January 19, 2021 Public Hearing 30 minutes SUBJECT: CANNABIS BUSINESS PROGRAM AND REGULATION UPDATES RECOMMENDATION 1. Receive an update on the City's Cannabis Business Program; and 2. Adopt a Resolution that updates the Cannabis Fee Schedule (Attachment A); and 3. Introduce and adopt an Ordinance amending Municipal Codes Section 9.10 and 5.10 (Attachment C) that renews all operator permits at the beginning of the fiscal year. 4. Adopt a Resolution that waives the operator permit renewal fee for a cannabis business being annexed into the City of San Luis Obispo from the date of annexation to July 1, 2021 (Attachment D). REPORT -IN -BRIEF The City of San Luis Obispo adopted regulations to implement a Cannabis Business Program after the passage of Proposition 64 that were informed through public engagement, industry outreach and City Council direction. The initial regulations were adopted by the City Council on November 27, 2018. Staff returned on December 3, 2019, a year after the regulations were adopted to provide a cannabis program update and City Council adopted recommended changes to application fees and cannabis regulations. City Council directed staff to return with an update regarding the implementation of the Cannabis Business Program and potential updates to the regulations in the next year. This staff report intends to inform and recommend to the City Council updates to the Cannabis Business Program based on the City's experience over the last year. During that time, the City has opened two rounds of cannabis business application periods: 1) January 15 — February 18, 2020, and 2) July 1-31, 2020. In parallel, staff worked to continually develop the administrative and operational guidelines necessary to fully implement the Cannabis Business Program. Staff has continued to follow the City's process to comply with State mandates allowing operators licensed outside of the City to deliver into the City, while enforcing compliance with the City's Business License and Tax Ordinance. Staff has conducted analysis, research and outreach to businesses on the operator permit renewal fee and is recommending a change to the operator permit fee paid by all applicants. Staff is also recommending waiving the operator permit renewal fee of a cannabis business being annexed into the City from the time of annexation to the start of the next fiscal year. Packet Page 89 Item 9 Informed by staff s experience and community feedback with operator permit renewals and operator permit activations within the current Municipal Code 9.10 and 5.10, staff is recommending changes to both sections of the Municipal Code that place all operators on an operator permit renewal cycle in line with the fiscal year. DISCUSSION Background Cannabis Business Program Update Following the passage of Proposition 64 in 2016 with 57% Statewide voter approval, the initiative to legalize cannabis in the state of California became law on November 9, 2016, allowing for recreational cannabis sales as of January 1, 2018. Following the passage of the City's Cannabis Business Tax on November 6, 2018, on November 27, 2018 the City Council approved the fee structure, application criteria and zoning regulations to allow for cannabis businesses to operate in the City. Since the City Council has adopted the cannabis business program, staff has provided an annual update with recommendations for improvements. Application Update In order to choose the most qualified operators, the City Council established an application and approval process for applicants wanting to operate cannabis businesses in the City. In 2020, based on feedback from businesses, staff improved that process by creating a completeness check for all non-competitive applications. This process provides an independent review of the application to determine if any required information is missing prior to scoring. The applicant is provided with a list of any missing information and an opportunity to submit before the application is deemed complete and scored. This process was added to better support non- competitive applicants move through the City's application process and receive operating permits. The process has been successful in both application periods in 2020, with two applicants being issued contingent operator permits out of three total applications. Both of those operators are currently moving through the background investigation process to receive final operator permits. In December, the City prevailed in a lawsuit filed by an unsuccessful retail applicant challenging the City's rejection of its application for providing false information in the application process. The favorable conclusion of that lawsuit ends any uncertainty related to the City's review process or the status of the three retail cannabis permits that were issued to other businesses in that selection process. Business Update On November 25, 2019, the City's first cannabis non -storefront retail opened and has since been operating. On August 1, 2020, the City's first cannabis retail storefront opened. Cannabis was deemed by the State of California to be an essential service during the initial COVID-19 Statewide Stay at Home Order which went into effect on March 19, 2020. As such, operators in the City have been able to stay open throughout the COVID-19 pandemic. Packet Page 90 Item 9 The State and City have also provided an avenue for cannabis operators to conduct curbside pickup, however, retailers are also able to continue in person shopping in compliance with public health guidelines. The remaining two retail storefront operators are at various stages of the permitting process. One retail storefront has completed the land use permitting process and is expected to open by April 2021. The other retail storefront operator is working through the land use permit process. The City's first microbusiness is expected to be open by June of 2021. The below table summarizes the status of businesses who have been granted permits by the City. Business Business Status Retail Storefront Megan's Organic Market Open and operating in the City. Natural Healing Center Received a Commercial Cannabis Operator Permit on October 22, 2019. Received a Conditional Use Permit on November 13, 2019 The businesses operator permit requires the business be open by April 2021. SLO Cal Roots Received a Commercial Cannabis Operator Permit on March 23, 2020 and is now completing the land use permit process. Manufacturing, Distribution and Retail (Non -Storefront) Coastal Delivery SLO Open and operating in the City. Element 7 Received a Commercial Cannabis Operator Permit on December 6, 2019. Received a Conditional Use Permit on August 24, 2020. The businesses operator permit requires the business be open by June 2021. Cali Direct Received a Contingent Commercial Cannabis Operator Permit on May 19, 2020 and is currently completing the background check process. Pure SL Received a Contingent Commercial Cannabis Operator Permit on November 2, 2020 and is currently completing the background check process. Mobile Deliveries from Outside of the City The State Bureau of Cannabis Control (BCC) has implemented rules that mandate cities to allow delivery within their jurisdiction from licensed operators outside of the City, consistent with Section 5416 (d) of the BCC' s cannabis regulations which states: "d) A delivery employee may deliver to any jurisdiction within the State of California provided that such delivery is conducted in compliance with all delivery provisions of this division." Packet Page 91 Item 9 In 2019, the City developed a process to both bring licensed delivery businesses into compliance with City business license and tax provisions and to enforce City and State laws against unlicensed and illegal businesses delivering in the City. The City continued these efforts in 2020 and as a result of education and enforcement, several businesses outside of the City have come into compliance and have been remitting taxes. The City has also been successful in receiving back taxes from businesses operating in the City prior to coming into compliance and has been successful in reporting illegal and out of compliance businesses to the BCC. Since the start of this program the City has registered 11 of these businesses and has received over $100,000 in cannabis taxes from these businesses. The City remains one of the only cities in the State and only city in the County that has been successful in bringing these businesses into compliance. Staff will continue this process as resources and staff time allow in 2021. Annexation of a Cannabis Business into the City City staff learned after City Council approved the Fiero Lane Annexation at the November 19, 2019 City Council meeting that one of the businesses being annexed into the City was a non - storefront retail and small-scale manufacturing cannabis business currently permitted by the County of San Luis Obispo (County). As a licensed cannabis business by the County and BCC the business is eligible to continue its business operations in the City once the annexation occurs. This is the first existing cannabis business being annexed into the City, and the current cannabis regulations, Chapters 9.10, 5.10 and Section 17.86.080, do not provide explicit direction for cannabis business annexations. To this end, Section 9.10.250 of the City' s cannabis ordinance authorizes the City Manager to determine any administrative regulations necessary to implement the requirements and fulfill the purposes and policies of the City's cannabis regulations. Working within the Municipal Code, informed by other municipalities best practices, BCC policies, internal multi -department staff teams and the direction of the City Manager, the City created a process within the administrative guidelines to bring annexed cannabis businesses under the City's cannabis regulations. Cannabis businesses annexed into the City are not required to complete the new cannabis business application process or pay any application fees, as the existing land use related approvals must be honored by the City. The City does, however, require cannabis businesses conform to the regulatory standards of Municipal Code 9.10 and 5.10, along with all other general annexation regulations in Chapter 17 of the Municipal Code. Likewise, the cannabis business must complete a background check based on the BCC's background check requirements and requires businesses to submit their Security Plan approved by their previous jurisdiction and BCC for the City's records. Annexed cannabis businesses must also pay the operator permit renewal fee for a cannabis operator permit in the City at the rate set by the City Council as the business will be operating in the City under a City issued operator permit. City staff met with the business multiple times to discuss the annexation process and the City's proposed approach to bring the business under the City's cannabis regulations. Through meeting with the business on June 22, 2020, and a follow up meeting on September 24, 2020, the City developed the approach outlined above and shared that with the business. The business did express significant concerns regarding the operator permit renewal fee. The City understands the concerns given the business structure was based on County operating permit fees. Packet Page 92 Item 9 As such, staff is recommending the City Council adopt a resolution that will waive the business' operator permit renewal fee obligation from the time of annexation to July 1, 2021 in order to support the successful transition and continued operation of the existing business in the City's jurisdiction, while still being issued a commercial cannabis operator permit to operate in the City during that time (Attachment D). The recommendation to waive the operator permit renewal fee for the annexed cannabis business for six months is in intended to provide the business time to make any adjustments to the business structure and/or determine other options with goal of retaining the business in the City. The City Cannabis Business Tax would still be remitted during this time period. Cannabis Operator Permit Renewal Fee On November 27, 2018, the City Council approved both application and operating license fees for the Cannabis Business Program. These fees were based on estimated staff time and other costs required to administer the adopted regulations and were developed by a consultant with specific experience including work with other California cities in developing similar fees. On December 3, 2019, the City Council approved a change to the cannabis application fees that allowed all operators to pay an initial application fee and a secondary fee once the contingent operator permit was granted, thus lowering the initial application fee. Staff also committed to bring back an analysis of operator license fees after one full year of operations to collect information on actual time spent compared to the assumptions used in developing the original fees. Regulatory fees must be based on an assessment of the reasonable costs incurred to provide the regulatory service. To accomplish this, staff worked with a consultant, HdL, to conduct a new fee study that analyzed staff time spent on operator permits of cannabis businesses within the City which includes all the necessary time to implement and oversee the City's cannabis regulations for each business and the overall program. Furthermore, the fee study examined the complexity of the regulatory roles, the frequency of the duties, the appropriate level of the staff and/or contractors involved and the legal restrictions in implementing the cannabis program in the City. The fee study captures the total costs involved in the administration of the Cannabis Business Program to ensure the City is recovering costs for the staff time, contractors, and other expenses required to manage the program. Staff also recommends that the operating permit fee be consistent across all cannabis business types. This recommendation is based on the results of the fee study which revealed staff spent approximately the same amount of time for oversight and regulation for each cannabis business permitted in the City regardless of the type of cannabis business. This is also consistent with fee structures of other cities in California including Watsonville, Goleta, Salinas, Modesto, Placerville, Vista, Redwood City and Los Angeles. Packet Page 93 Item 9 The current and proposed fees are listed in the chart below. Business Type Current Fees Proposed Fees Retail $96,074.11 $39,638.38 Manufacturing $76,407.43 $39,638.38 Cultivation $76,629.12 $39,638.38 Other Businesses $69,890.40 $39,638.38 Staff also recommends that the two operators who have already paid their operator permit renewal fee for the current year are reimbursed the difference between the proposed and current fees. This approach is consistent with the requirement of fees assessed by the City to only cover the reasonable costs associated with the fee for service. While initial efforts to establish the program and get businesses operational and compliant, was significant, staff believes the adjusted fees are reflective of ongoing costs of program administration. Fee Comparison with Other Jurisdictions The following table summarizes the proposed operator permit renewal fee for various business types that are allowed in the City, as compared with other jurisdictions that have adopted similar fee schedules. In general cannabis business permit fees will vary depending on the level of oversight of the business operations, city policies on cost recovery and amount of regulations that need to be administered. The range of regulatory permit fees statewide is about $1,028 to $143,000 and in most cases larger markets have higher fees to address more complexities more commonly impacting larger cities. Below is a table that provides several annual license renewal fees for retail businesses in California cities. Cities whose retail annual license renewal fee is the same for all types of businesses have a "*" symbol. Retail Operator Permit Renewal Fee Santa Cruz No Annual Fee Monterey County* $1,028 Watsonville* $2,800 San Francisco $4,354 San Luis Obispo County* $3,728 or $6,836 Santa Barbara $6,945 Vallejo $8,288 Los Angeles* $8,486 or $9,735 Salinas* $9,854 Goleta* $11, 879 Oakland $15,151 Grover Beach $20,000 Sacramento $20,800 Modesto* $21,740 Placerville* $22,841 Vista* $28,001 Packet Page 94 Item 9 Redwood City* $29,530 San Luis Obispo* $39, 638 Davis $42,359 San Jose $143,333 The City's recommended fees are higher than many jurisdictions, but a major contributing factor is the level of cost recovery associated with the fees. The City is one of the few jurisdictions to establish a 100% cost recovery goal for cannabis business fees, which creates a higher fee when compared with cities with a lower cost recovery goal. Operator Permit Renewal Timing Staff also recommends a minor ordinance amendment to Chapter 9.10 and Chapter 5.10 of the Municipal Code that requires all operators to renew their operator permit on the City's Fiscal Year, starting July lst and ending June 30th of each year (Attachment C). This recommendation is consistent with how all other types of Business Licenses and Tax Certificates under Municipal Code Chapter 3 are currently renewed in the City of San Luis Obispo. For businesses that activate their operator permit outside of the start of the fiscal year, the fee will be prorated from their activation date and will renew on July I". This recommendation will create a more efficient and consistent process for processing renewals, thereby minimizing unnecessary administrative time that could drive additional costs. Policy Context The updates to the cannabis regulations are consistent with overall goals of the Cannabis Business Program, the City's 2020-2021 Meta Major City Goal and the applicable sections of the Municipal Code. The updates are also consistent with Chapters 9.10 and 5.10 of the Municipal Code and Section 17.86.080 of the Zoning Code, which outline that the provisions of each code are guided by principles to protect, the health, safety, and welfare of the residents of the City. Furthermore, it is the general best practice for the City to provide the most clear and concise regulations to benefit the community, businesses, staff, and the City Council. It is also a general best practice for economic development to lower the operator permit renewal fee when it is appropriate to support businesses and business sustainability. The recommended amendments will not only provide more clarity for cannabis operators during operator permit renewals but will also streamline the process administratively for both businesses and staff. Likewise, the reduced cost of the operator permit renewal fee will benefit businesses, while not sacrificing the City Council's fiscal responsibility goals for full cost-recoveryl. 1 Financial Plan Policies: Section 2. D. Factors Favoring High -Cost Recovery Levels The use of service charges as a major source of funding service levels is especially appropriate under the following circumstances: 1. The service is similar to services provided through the private sector. 2. Other private or public sector alternatives could or do exist for the delivery of the service. 3. For equity or demand management purposes, it is intended that there be a direct relationship between the amount paid and the level and cost of the service received. 4. The use of the service is specifically discouraged. Police responses to disturbances or false alarms might fall into this category. Packet Page 95 Item 9 Public Engagement The current ordinance and resolutions were considered and adopted City Council on May 15, 2018, October 16, 2018, November 27, 2018, and December 3, 2019. Since that time, staff have been in regular communication with applicants, business operators and industry representatives, receiving feedback on a wide range of issues related to the implementation of the Cannabis Business Program. In addition, the information contained in this report was shared in advance with businesses that have received permits from the City. The Council has recently received request for policy modifications in anticipation of hearing this item. Should Council want to proceed with any changes, staff would recommend a study session to explore each of the policy areas and receive specific direction about any changes as the current regulatory framework is an outcome of intensive public outreach and public hearings. CONCURRENCE A Steering Committee and Cannabis Team of City staff members including Administration staff, City Attorney, the Community Development Director and staff, Finance Director and staff, and Police Chief and staff, was convened to guide the process of developing updates and regulations for consideration by the City Council. ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended actions in this report, because none of the actions constitute a "Project" under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Budget Year: 2021 Funding Identified: Yes Fiscal Analysis: Funding Sources Current Budgeted Fees Revised Budgeted Fees Change in Budgeted Fees Annual Ongoing Cost General Fund $320,937 $220,402 $100,535 $0 State Federal Fees Other: Total $320,937 $ 220,402 $100,535 1 $0 5. The service is regulatory in nature and voluntary compliance is not expected to be the primary method of detecting failure to meet regulatory requirements. Building permit, plan checks, and subdivision review fees for large projects would fall into this category. Packet Page 96 Item 9 On June 2, 2020 City Council adopted fee revenues for the cannabis program for Fiscal Year 2020-21 of $320,937 based on the fees collected from applications and operator permits. Because staff proposes to reimburse operators the difference, there will be a budget shortfall for Fiscal Year 2020-21 in the actual fees collected. However, staff is confident that the amounts collected in Cannabis tax will exceed the budgeted $400,000 and eliminate most if not all of the fee shortfall. Staff will provide an update on revenue levels at mid -year and incorporate the new fees into the revenue assumptions for the 2021-23 Financial Plan. ALTERNATIVES 1. Do not adopt staff recommendations. The recommendations proposed represent the changes necessary to maintain the direction provided by the City Council to this point. For requested modifications, the Council should provide guidance on specific changes desired. 2. Modify and Direct the Proposed for the Cannabis Business Annexation. The City Council has the latitude to make modifications to the proposed action for the cannabis business annexed into the City. The Council has the policy direction to adjust the proposal for the cannabis business and Staff will be prepared to offer any ideas for any adjustments. 3. Modify and Direct the Proposed Fee Recommendation. The City Council has the latitude to make modifications to the Cannabis Fee Schedule. The Council has the policy discretion to adjust fees and Staff will be prepared to offer any ideas for any adjustments. 4. Modify and Direct the Proposed Ordinance Amendments. The City Council has the latitude to make modifications to the 9.10 and 5.10 Municipal Code Ordinance Amendments. The Council has the policy discretion to adjust the Operator Permit Renewals and Staff will be prepared to offer any ideas for any adjustments. Attachments: a - Draft Resolution - Amendments to Cannabis Master Fee Schedule b - Cannabis Fee Study Executive Summary c - Draft Ordinance d - Draft Resolution - Waive Papa Bear Farms Yearly License Renewal Fee for FY 20-21 Packet Page 97 Item 9 RESOLUTION NO. (2021 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AMENDING THE CITY'S MASTER FEE SCHEDULE WITH UPDATED USER AND REGULATORY FEES FOR VARIOUS COMMERCIAL CANNABIS BUSINESS ACTIVITIES WHEREAS, it is the City's policy (User Fee Recovery Goals - Financial Plan Section H) to assess service charges based on specific policies for cost recovery of services provided; and WHEREAS, on May 15, 2018, the City Council adopted Ordinance No. 1647 (2018 Series) establishing a comprehensive regulatory program for the evaluation and permitting of commercial cannabis business operations within the City; and WHEREAS, on November 27, 2018, the City Council adopted Resolution 10965 (2018 Series) which updated the City's Master Fee Schedule to include the one-time application fees and yearly license renewal fees; and WHEREAS, on December 2, 2019, the City Council adopted Resolution 11066 (2019 Series) which updated the City's Master Fee Schedule that updated the one-time cannabis application fee for all types of cannabis businesses permitted within the City; and WHEREAS, Section 9.10.050 of the Municipal Code says that the City Council shall adopt fees necessary to implement the regulations in relation to Commercial Cannabis Operator Permits; and WHEREAS, the City has contracted with a consultant, HdL, to prepare a fee study for the purpose of identifying appropriate fees to assess for various activities associated with implementing and overseeing the City's cannabis regulations for each business in the City of San Luis Obispo; and WHEREAS, the City has completed one full year of operations to collect information on actual time spent compared to the initial cannabis yearly license renewal fees City Council adopted through Resolution 10965 (2018 Series), upon which staff has concluded it necessary to adjust the yearly license renewal fees for all types of cannabis businesses permitted within the City; and WHEREAS, public outreach was conducted through outreach by staff members to cannabis businesses impacted by the newly proposed fees and through publication of the proposed fee schedule on the City's website in advance of the City Council's consideration of the newly proposed fees; and WHEREAS, on November 27, 2018, the City Council adopted a fee schedule; and WHEREAS, on December 3, 2019 City Council adopted an updated fee schedule; and Packet Page 98 Item 9 Resolution No. (2021 Series) Page 2 WHEREAS, on January 19, 2021 the City Council held a public hearing to review and discuss the updated proposed fee schedule, receive public input, and consider the recommendations of its staff. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Findings. The City Council makes the following findings: 1. That the above recitals are true and correct. 2. That the proposed user and regulatory fees are consistent with the City's cost recovery goals (Financial Plan Section M, and that the established fees do not exceed the estimated reasonable cost of providing the service or performing the activity for which the fee is imposed. Packet Page 99 Item 9 Resolution No. (2021 Series) Page 3 SECTION 2. Action. The City Council takes the following actions: 1. The City' s Master Fee Schedule is hereby amended to include updated user and regulatory fees for cannabis business operator applications and annual operator permit licenses as provided in Exhibit A attached hereto. 2. The City will reimburse operators through the Finance Department who have already paid their 2020-2021 yearly license renewal fees the difference of what the operators paid based on the City's 2020-2021 Master Fees and the newly proposed fees in Exhibit A attached hereto. 3. This resolution supersedes Resolution 11066 (2019 Series) to the extent inconsistent herewith. Upon motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this day of 2021. Mayor Heidi Harmon ATTEST: Teresa Purrington City Clerk APPROVED AS TO FORM: J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on Teresa Purrington City Clerk Packet Page 100 Resolution No. (2021 Series) CITY OF SAN LUIS OBISPO Cannabis Fee Schedule One Time Application Fees All Commercial Cannabis Business Applicants: Initial Application Fee Final Application Fee when permit issues Total One Time Application Fees Yearly License Renewal Fees All types of Cannabis Businesses permitted within the City . _ • MIS•• !1 �)• ��nT1�nTrlwl•��•r r I I L • _ vie 0 •� � Gi : rn i �mrrr�i�irur � Item 9 Page 4 EXHIBIT A $5,087.79 $18,797.63 $23,885.55 $39,638.38 \\ Packet Page 101 Cannabis Business Permit Fee Analysis Executive Summary Cannabis Business Permit Fee: Ito 9 HdLQ Companies In the past five years, HdL has conducted application reviews for over 2,500 cannabis businesses in California and gathered essential data during this time to evaluate the complexity of managing a cannabis program for cities. In addition, its staff has conducted compliance and financial reviews for over 16,000 cannabis businesses while working as regulators in California, Colorado, and Nevada which has provided the Consultant a great understanding of the roles and responsibilities needed to regulate the Cannabis Industry in San Luis Obispo. Since HdL staff has been pioneers in developing regulatory management schemes for over 9 years at the state, county, and local levels it has been able to incorporate "risk assessment" strategies which have proven to be effective, efficient, and economical. The core development of this program was established by adopting the Colorado Marijuana Enforcement Divisions approach of regulating nearly 1,700 businesses but modifying it to work at the local agency level with city staff which can also be augmented with third -party consultants. As part of the fee evaluation process for the City, the Consultant interviewed key staff from various departments which had been identified as playing a role in the Cannabis Management Program (CMP). These departments consist of the following: Administration, Attorney's Office, Community Development, Finance, Fire, Information Technology, and Police Department. Furthermore, as part of this process HdL examined the complexity of the regulatory roles, the frequency of the duties, the appropriate level of the staff involved and the legal restrictions surrounding the course of action in implementing a CMP. Therefore, as part of this process we have captured the total costs involved in the CMP to ensure the City is 100% reimbursed for the staff time, consultants fees, and other expenses which are essential to managing the program. The recommended permit fee is based on the cost of annually reviewing cannabis businesses and the cost of overseeing the City's proposed regulatory enforcement strategy. The regulatory enforcement strategy is designed to monitor licensed cannabis businesses within the City of San Luis Obispo on a monthly, quarterly, and annual basis to ensure compliance with the City's rules and regulations throughout the year. The total enforcement time is broken into five performance activities intended to balance proactive and reactive work that is critical to industry compliance. It is anticipated that the City will have issued a total of four (4) to six (6) cannabis retail storefront and non -storefront permits by the end of calendar year 2021 with the anticipation of issuing others in future years. As such, we have determined the following factors which are illustrated in the chart below. The study identified that 55% of the overall strategy will be in the form of proactive enforcement (Risk -Based Reviews/Inspections & Stakeholder/Training), while 45% of the time will be spent engaged in reactive enforcement (Complaints, NQSP & Administrative Actions). The percentage numbers are expected to change over time to a greater percentage of proactive enforcement as the industry and the enforcement strategies mature. 1 Packet Page 102 Item 9 Additionally, the strategy is designed to oversee the licensed businesses by utilizing both non - sworn and sworn personnel. The sworn officers are intended to be used as support to the non - sworn staff and to assist in matters related to complaints, attending stakeholder meetings, and investigating illegal activity or non -qualified sales. The fee analysis determined the total amount of hours involved in administering the CMP for the City. These hours include direct support and contact with businesses, compliance check, annual background checks and internal administrative program support. To achieve full cost recovery for the program, these hours are then apportioned on per business basis (approximately 277 hours). The analysis then determined the total City costs for the CMP by using fully burdened staffing rates, other operating costs and applicable organizational overheard costs. These costs are then included in a general City hourly cost for administering the program. As a result, it is recommended that the Cannabis Business Permit Fee be established at the rate of $39,634.38. In establishing this fee, it is anticipated it will cover the cost associated with the annual management and oversight of the program. Although the previous cannabis fee established different cost for each type of business the "risk assessment" model approach has proven more effective since it is built based upon common categories that all business are regulated regardless of the business activity. These fees should be charged to each business operator prior to the issuance of a Cannabis Business Permit and annually thereafter. For those businesses already operating, the City may wish to prorate the fee so that all the fees will be due on the same date which will streamline the renewal process administratively. Chart #1 below has been broken down to identify the five core areas of the risk base assessment development process. Chart #1 Enforcement Activities Risk -Based Reviews/Inspections Complaints ■ Non -Qualified Sales Program Administrative Actions Stakeholder/Training Meetings 2 Packet Page 103 Item 9 ENFORCEMENT ACTIVITY PER PERMIT STAFF INVOLVED TOTAL HOURS PERCENTAGE Risk -Based Reviews/Inspections Sworn /Non -sworn 108 hours 39% Administrative Support and Actions Sworn /Non -sworn 89 hours 32% Complaints Sworn /Non -sworn 24 hours 9% Stakeholder/Training Meetings Sworn /Non -sworn 44 hours 16% Non -Qualified Sales Programs Sworn /Non -sworn 12 hours 4% Cannabis Management Program Total 277 hours 100% • Risk -Based Reviews/Inspections — It is recommended the City establish "Risk -Based" approach for monitoring compliance of cannabis businesses to make the best use of City resources. o Level 1 Reviews/Inspections are limited to a quick review of the business, which may be conducted either on -site or off -site. These can be done by monitoring social media sites, observations of illegal signage, and illegal activity observed by City staff or the Police Department. o Level 2 Reviews/Inspections involve a thorough inspection of the business and provides a structured and efficient tool to gauge how well a licensed business is meeting compliance standards. This level of review maybe done by the Consultant conducting financial audits which may detect issues during the course of the audit. In addition, businesses are also subject to quarterly compliance reviews and onsite inspections. o Level 3 Reviews/Inspections This level of compliance will be done by the Police Department to address criminal activity which is reported to them by citizens, customers, or other agencies and will be conducted as needed. • Administrative Support and Actions — This function shall serve to establish the primary contacts for the Cannabis Permittees and serve to conduct the duties of coordinating with various departments or state regulatory agencies. In addition, it will be responsible for the collection of tax and fees as well coordinating with the handling of cash payments with armored vehicles and financial institutions. Furthermore, in the event a business is the subject of administrative sanctions, the City shall take the appropriate action to take legal actions, such as notices for non-compliance, fines, suspensions, and permit revocation. Finally, if required it will also escalate increased oversight and reporting requirements for businesses that need additional attention due to regulatory issues. • Complaints — As part of a robust and effective Risk -Based review program, it is imperative for the City to receive, track, and investigate complaints received from external sources in a consistent manner. The evaluation and investigation of complaints should be one of the City's highest priorities. Based on the number and type of complaints, enforcement staff might need to re-classify the risk level and evaluate whether the need for increased enforcement activity might be warranted. 3 Packet Page 104 Item 9 • Stakeholder/Training Meetings — In order to work collaboratively and collectively it will be necessary to have the City Manager or his/her designee to conduct higher level meetings with key City staff, Consultants, and the Cannabis Industry stakeholders. These meetings may be individually or scheduled meetings with staff and/or Cannabis Industry representatives. It may also include research and policy discussion with elected officials as requested. Furthermore, this establishes the need for staff to seek continued education on cannabis regulations, and industry best practices to ensure that the best practices are being adhered to for the oversight of the program. • Non -Qualified Sales Program —The primary objective of a Non -Qualified Sales Program is to test and evaluate the level of compliance with regards to the business's sales activity. Non -Qualified Sales are defined as any sales transactions that are conducted in violation of State and/or local law. This could be in the form of illegal sales of cannabis products or sales to underaged minors. In general Cannabis Business Permit fees will vary depending on the level of oversight of the business operations and individual City goals for cost recovery. We have found the range of regulatory permit fees statewide to be from $143,000-$8,200 and in most cases larger markets having higher fees to address more complexities more commonly impacting larger cities. Chart #2 below illustrates some of the more mature agencies which allow cannabis retail permits. Chart #2 Agency Annual Permit Fee San Jose $143,333 Redwood City $29,530 Vista $28,001 Placerville $22,841 Modesto $21,740 Sacramento $20,800 Grover Beach $20,000 Oakland $15,151 Salinas $9,854 Vallejo $8,288 San Luis Obispo $39,634* Average Annual Permit Fee $31,954 *Proposed fee In conclusion, in comparing the selected agencies annual regulatory permit fees the proposed fee would reflect that it is consistent with the average of all those noted in Chart #2. Furthermore, should the City choose to utilize this fee we recommend that a re-evaluation of these cost be conducted again in two years or if significantly more businesses join the CMP. This would provide the City the opportunity to determine future impacts to staff and any unforeseen issues related to changes in regulations or policy decisions to manage the program. 4 Packet Page 105 Item 9 ORDINANCE NO. (2021 SERIES) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AMENDING TITLE 9 (PUBLIC PEACE, MORALS AND WELFARE), CHAPTER 9.10 (CANNABIS REGULATIONS) AND TITLE 5 (LICENSES, PERMITS AND REGULATIONS), CHAPTER 5.10 (CANNABIS BUSINESS TAX) TO ESTABLISH UNIFORM PERMIT RENEWAL REQUIREMENTS WHEREAS, the City of San Luis Obispo adopted on , 2021, at a public hearing conducted via teleconference, an amendment to the Municipal Code, Chapter 9.10, Regulations for Commercial Cannabis and Personal Cultivation and an amendment to the Municipal Code, Chapter 5.10, Cannabis Business Tax; and NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. Section 9.10.080, subsection A of the San Luis Obispo Municipal Code is hereby amended as reflected in Exhibit A to read as follows: A. Renewal Application Filing Deadline. An application for renewal of a commercial cannabis operator permit shall be filed at least sixty calendar days, but not more than one hundred twenty calendar days, prior to the expiration date of the permit with the city manager or his/her designee. All commercial cannabis operator permits shall have an expiration date of June 30th of each year. If the complete application and fees are timely submitted but the city does not act to approve or reject the renewal prior to expiration, the permittee may continue to operate under the expired permit until the city approves or rejects the application for renewal. SECTION 2. Section 5.10.045, subsection A of the San Luis Obispo Municipal Code is hereby amended as reflected in Exhibit B to read as follows: A. All persons engaging in a cannabis business, whether an existing, newly established or acquired business, shall register with the tax administrator's office by the later of: 1. Thirty days after commencing operation; or 2. January 1, 2019 and shall renew registration annually thereafter by July 1st of each year, with any such renewal becoming delinquent on July 31 st of each year. The Tax Administrator is authorized to prorate existing, newly established, or acquired business registration fees consistent with the intent of this Chapter and as otherwise required by applicable law. Nothing herein is intended, nor shall it be interpreted or applied to increase any tax in excess of the rate approved by the voters of the City of San Luis Obispo and the Tax Administrator shall ensure that no application of the provisions herein are so applied. 0 Packet Page 106 Item 9 Ordinance No. (2021 Series) Page 2 SECTION 3. SECTION 3. Ordinance Number 1673 (2019 Series) and Ordinance Number 1659 (2018 Series) are hereby superseded to the extent inconsistent herewith. SECTION 4. Severability. If any subdivision, paragraph, sentence, clause, or phrase of this Ordinance is, for any reason, held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect the validity or enforcement of the remaining portions of this Ordinance, or any other provisions of the city' s rules and regulations. It is the city' s express intent that each remaining portion would have been adopted irrespective of the fact that any one or more subdivisions, paragraphs, sentences, clauses, or phrases be declared invalid or unenforceable. z Packet Page 107 Item 9 Ordinance No. (2021 Series) Page 3 SECTION 5. A summary of this ordinance, together with the names of Council Members voting for and against, shall be published at least five (5) days prior to its final passage, in The New Times, a newspaper published and circulated in this City. This Ordinance shall go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED on the day of , 2021, AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on the day of , 2021, on the following vote: AYES: NOES: ABSENT: Mayor Heidi Harmon ATTEST: Teresa Purrington City Clerk APPROVED AS TO FORM: J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on Teresa Purrington City Clerk z Packet Page 108 Ordinance No. (2021 Series) Item 9 Page 4 Chapter 9.10 Cannabis Regulations Exhibit A 9.10.010 Purpose and Intent 9.10.020 Definitions 9.10.030 Personal Cultivation Limited 9.10.040 Commercial Cannabis/City Permit and State License Required 9.10.050 Regulations and Fees 9.10.060 Display and Production of Permits 9.10.070 Commercial Cannabis Operator Permit Application Procedures and Requirements 9.10.080 Renewal of Permit 9.10.090 Suspension or Revocation of Permit 9.10.100 Appeal 9.10.110 Right to Occupy and Use Property for Commercial Cannabis Activity 9.10.120 Prohibition on Transfer of Commercial Cannabis Operator Permits 9.10.130 Records and Reporting 9.10.140 Inspection and Enforcement 9.10.150 Outdoor Commercial Cannabis Cultivation and Activities Prohibited 9.10.160 Indemnification, Insurance, Reimbursement, Consent 9.10.170 Compliance with Laws 9.10.180 Permit Violation 9.10.190 Permit Compliance Monitoring 9.10.200 Permit Holder Responsible for Violations by Employees or Agents 9.10.210 Consumption or Use Prohibited On -site and In Public 9.10.220 Concurrent Alcohol Sales or Service Prohibited 9.10.230 Minors 9.10.240 Sale of Cannabis, Cannabis Products or Cannabis Accessories by Vending Machine prohibited 9.10.250 Security Measures 9.10.260 Limitations on City's Liability 9.10.270 Fees Deemed Debt to City 9.10.280 Violation and Penalties 9.10.290 Severability z Packet Page 109 Item 9 Ordinance No. (2021 Series) Page 5 9.10.010 Purpose and intent. A. It is the primary purpose and intent of this chapter to protect the health, safety, and welfare of the residents of the city of San Luis Obispo from the negative impacts of illegal commercial and noncommercial cannabis activity, and of state authorized cannabis activity, by enforcing city ordinances, rules and regulations consistent with applicable state law, including, but not limited to, the Compassionate Use Act, the Medical Marijuana Program Act, the Adult Use of Marijuana Act, and the Medicinal and Adult Use of Cannabis Regulatory and Safety Act. B. This chapter is not intended to, and shall not be construed to, prohibit or interfere with any right, defense or immunity under Health and Safety Code Section 11362.5 (the Compassionate Use Act), or under Health and Safety Code Section 11362.7 et seq. (the Medical Marijuana Program Act). C. This chapter is not intended to, and shall not be construed to, prohibit or interfere with any right, defense or immunity of any person twenty-one years of age or older relating to the adult personal possession or cultivation of cannabis or marijuana consistent with the provisions of the Control, Regulate and Tax Adult Use of Marijuana Act and the Medicinal and Adult Use of Cannabis Regulatory and Safety Act. D. Nothing in this chapter shall be construed to authorize the cultivation, possession or use of marijuana for any purpose inconsistent with state or local law. E. Any reference to California statutes includes any regulations promulgated thereunder and is deemed to include any successor or amended version of the referenced statute or regulation. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.020 Definitions. A. State -Defined Terms. Words or terms used in this chapter that are defined words or terms in Business and Professions Code Section 26001 or Health and Safety Code Section 11362.7 (the "Statutes") shall have the meanings ascribed to them in the Statutes as they now read, or as they may be amended to read. These state- defined words and terms include, but are not limited to "cannabis," "cannabis accessories " "cannabis concentrate,' "cannabis products," "commercial cannabis activity," "cultivation," "delivery," "distribution," "license," "live plants," "manufacture," "operation," "person," "premises," "sell," "sale," "to sell." Some of these terms are also set forth in Chapter 17.156. In the event of conflict in the definitions, the definitions in Chapter 17.156 shall control; provided the terms defined in subsection B of this section shall control over any other definition. B. City -Defined Terms. The following words or terms used in this chapter have the following meanings: 1. "Commercial cannabis business" means any person or entity engaging in any business, operation or activity which is commercial cannabis activity under state law in the city. x Packet Page 110 Item 9 Ordinance No. (2021 Series) Page 6 2. "Commercial cannabis operator permit" means a permit required by the city of San Luis Obispo pursuant to this chapter to conduct commercial cannabis activity or a commercial cannabis business in the city. 3. "Responsible party(ies)" shall be one or more individuals who have an ownership interest in a commercial cannabis activity and are designated to be personally responsible for compliance with all terms and conditions of the commercial cannabis operator permit, all other permits required by the city, and all ordinances and regulations of the city. Any person having an ownership interest of more than fifty percent in a commercial cannabis activity shall be designated a responsible party on the application. If no individual owns more than fifty percent of a commercial cannabis activity, the individual owning the largest share shall be a responsible party, and if multiple individuals have the same percentage interest, each one shall be a responsible party. More than one individual can be designated a responsible party. 4. "Cannabis event" means a public or private event where compensation is provided or exchanged, either directly or indirectly or as part of an admission or other fee for service, for the provision, hosting, promotion or conduct of the event where consumption of cannabis is part of the activities. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.030 Personal cultivation limited. A. Maximum Six Plants Outdoors per Parcel. It shall be unlawful for any person to plant, cultivate, harvest, dry, process, maintain, possess or store outdoors, more than six live cannabis plants on any parcel containing one or more private residences. This limitation on outdoor personal cannabis activities applies per parcel, regardless of the number of residents in each private residence, and regardless of the number of residences on the parcel. This limitation applies to cannabis live plants for either adult recreational use or medicinal purposes. Outdoor personal cultivation shall comply with applicable provisions of Section 17.86.080. B. Maximum Six Plants per Private Residence, Indoors and Outdoors. It shall be unlawful for the cumulative total of cannabis plants per private residence, indoors and outdoors, to exceed six cannabis live plants, regardless of number of persons residing in the private residence. This limitation applies to cannabis live plants for either adult recreational use or medicinal purposes. Any live cannabis plants grown indoors shall comply with applicable provisions of Section 17.86.080. C. No Outdoor Cultivation on Parcel without Private Residence. It shall be unlawful for any person to plant, cultivate, harvest, dry, process, maintain, possess or store any cannabis live plants outdoors on a parcel that does not have a private residence used for residential dwelling purposes by the person cultivating the cannabis live plants. z Packet Page I I I Item 9 Ordinance No. (2021 Series) Page 7 D. Neighborhood Impacts of Personal Cultivation. There shall be no exterior evidence of cannabis cultivation occurring at the property visible by normal unaided vision from a public place or the public right-of-way and any outdoor cultivation shall comply with provisions of Section 17.86.080(D). Personal cultivation of cannabis, for recreational adult use or for medicinal purposes, shall not create odors, dust, heat, noise, light, glare, smoke or other impacts to people of normal sensitivity living, working or lawfully present in the vicinity of the personal cultivation site. Impacts that cross the nearest property line of any other parcel, beyond that parcel on which the personal cultivation is conducted, or that are visible or noticeable with normal unaided vision, from a public place or the public right- of-way, or from any separately owned, leased or controlled private residence or business on the same parcel as the private residence responsible for the personal cultivation, are unlawful. E. No Hazardous Personal Cultivation. Personal cultivation, harvesting, drying, or processing of cannabis, for recreational adult use or medicinal purposes, that uses or stores hazardous or toxic chemicals or materials, creates hazardous or toxic products or wastes, or uses volatile processes or other methods or substances that pose a significant risk to public health or safety, is prohibited and unlawful. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.040 Commercial cannabis/city permit and state license required. A. City Commercial Cannabis Operator Permit Required. No person shall engage in commercial cannabis activity or have an ownership interest in, operate, or manage a commercial cannabis business without obtaining and continuously maintaining a commercial cannabis operator permit pursuant to this chapter. B. Commercial Cannabis Operator Permit and State Licenses Required. It shall be unlawful for any person to own, conduct, manage, operate, engage, or participate in, or work or volunteer at a commercial cannabis activity or commercial cannabis business that does not have a valid commercial cannabis operator permit issued pursuant to this chapter and other city permits or licenses required by this code, in addition to the appropriate license(s) required by state law to conduct the commercial cannabis activity. Any commercial cannabis business or commercial cannabis activity conducted without all required city and state permits and licenses is prohibited and unlawful and is hereby declared to be a public nuisance. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.050 Regulations and fees. The city council shall by resolution or ordinance adopt such forms, fees, regulations, and procedures as are necessary to implement this chapter with respect to the application and qualification for, and the selection, future selection, investigation, process, issuance, renewal, revocation, and suspension of, commercial cannabis operator permits. (Ord. 1647 § 4 (Exh. A (part)), 2018) X Packet Page 112 Ordinance No. (2021 Series) Item 9 Page 8 9.10.060 Display and production of permits. A. Dual Permits Posted and Visible. A copy of the commercial cannabis operator permit issued by the city of San Luis Obispo pursuant to this chapter, together with a copy of the appropriate state license(s) for the commercial cannabis activity being conducted, shall be posted and readily visible to the public at all times, at each location where commercial cannabis activity occurs. B. Production of Originals for Inspection. Any owner, operator, employee or person in charge of a commercial cannabis activity shall produce for inspection and copying, upon request of a city inspector, code enforcement officer, or city police officer during normal operating hours, the original of the current and valid city of San Luis Obispo commercial cannabis operator permit and the appropriate, current and valid license(s) of the state of California for the commercial cannabis activity(ies) or commercial cannabis business(es) being conducted. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.070 Commercial cannabis operator permit application procedures and requirements. A. Application. A person shall apply for a commercial cannabis operator permit by submitting an application to the city during the annual application period or any other period established by the city manager. The city council will, by resolution, adopt criteria by which all applications will be reviewed, applicants qualified and, in the case of retail and cultivation businesses, also ranked. Those applicants that are selected will have the opportunity to apply for a use permit as outlined in Section 17.86.080. Each application shall designate at least one responsible party. If a person is not selected to receive a commercial cannabis operator permit, the person may reapply during the next annual application period or any subsequent application period established by the city manager. B. Application Submittal Time Frame. A person may only submit one application per permit type, per application period, for a commercial cannabis operator permit, during the annual application period designated by resolution of the city council or any subsequent application period established by the city manager. An applicant who is unsuccessful in any application period may submit another application in any subsequent application period. The commercial cannabis operator permit will be valid for twelve months. Once a permit is obtained, the applicant can apply annually for renewal. There is no guarantee that an applicant will receive a commercial cannabis operator permit in the first instance. Due to limitations on the number of certain permits, even a highly ranked applicant for a retail or cultivation permit may not receive a commercial cannabis operator permit and even an applicant who receives a commercial cannabis operator permit is not guaranteed that any subsequent, required land use permit, as outlined in Section17.86.080, will be approved. C. Grounds for Automatic Disqualification. In addition to any other reason that may be established by the city council as a basis for disqualification, an applicant shall be disqualified from applying for, or obtaining, a commercial cannabis operator permit if: 1. The applicant fails to timely file an application during the annual application period. M Packet Page 113 Item 9 Ordinance No. (2021 Series) Page 9 2. The responsible party refuses to sign the application and agree to be personally responsible for compliance, and personally liable for failure to comply, with the provisions of this chapter. 3. The applicant, or any of its officers, directors or owners, or any person listed in the application, has been convicted of a felony or offense referenced in Business and Professions Code Section 26057; or has been subject to fines, penalties, or sanctions for cultivation or production of a controlled substance on public or private lands or for unauthorized commercial cannabis activities as specified in Business and Professions Code Section 26057; or has had a commercial cannabis license suspended or revoked by the state of California or any city or county in any state, within the three years preceding the date the application is filed, or is ineligible to apply for a state cannabis license. No person who has been convicted of such a felony or offense, or subject to such fines, penalties, sanctions, suspension or revocation, may be engaged (actively or passively) in the operation, management or ownership of any commercial cannabis business. A conviction within the meaning of this chapter means a plea or verdict of guilty or a conviction or diversion following a plea of nolo contendere. 4. The applicant made one or more false or misleading statements or omissions in the application process. 5. Any person listed on the application is a licensed physician making patient recommendations for medical or medicinal cannabis pursuant to state law. 6. Any person listed in the application is less than twenty-one years of age. D. Duration and Activation of Permit. Each commercial cannabis operator permit issued pursuant to this chapter shall expire twelve months after the date of its activation. The permittee may apply for renewal prior to expiration in accordance with this chapter. Each commercial cannabis operator permit must be activated within twelve months of issuance. The permit is activated by the issuance of a use permit for the commercial cannabis activity pursuant to Section 17.86.080, together with all other applicable city permits and state licenses, and the commercial cannabis operator thereafter opening and continuously operating the commercial cannabis activity. Failure to timely activate the permit shall be deemed abandonment of the permit and the permit shall automatically lapse. (Ord. 1673 §§ 1, 2 (Exh. A), 2020; Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.080 Renewal of permit. A. Renewal Application Filing Deadline. An application for renewal of a commercial cannabis operator permit shall be filed at least sixty calendar days, but not more than one hundred twenty calendar days, prior to the expiration date of the permit with the city manager or his/her designee. All commercial cannabis operator permits shall have an expiration date of June 30th of each year. If the complete application and fees are timely submitted but the city does not act to approve or reject the renewal prior to expiration, the permittee may continue to operate under the expired permit until the city approves or rejects the application for renewal. O Packet Page 114 Item 9 Ordinance No. (2021 Series) Page 10 B. Rejection of Renewal Application. An application for renewal of a commercial cannabis operator permit shall be rejected if any of the following exists: 1. The commercial cannabis operator permit is revoked at the time of the application or renewal. 2. The applicant conducted unpermitted commercial cannabis activities in the city or continued to conduct formerly permitted commercial cannabis activities after expiration of the permit, other than as expressly permitted by this section. 3. Any of the grounds for disqualification for prequalification set forth in Section 9.10.070(C), or as established by the city council, exist at the time of application for renewal, or the date of renewal. 4. The permittee fails to renew any required state of California license(s), or the state revokes or suspends the license. Revocation, termination, nonissuance or suspension of a license issued by the state of California, or any of its departments or divisions, shall immediately, concurrently revoke, terminate, or suspend, respectively, the commercial cannabis operator permit. Such automatic suspension makes it illegal for a commercial cannabis business or activity to operate within the city of San Luis Obispo until the state of California, or its respective department or division, reinstates or issues the state license. An application for renewal of a commercial cannabis operator permit may be denied if any of the following exists: 1. The application is filed less than sixty days before expiration. 2. The applicant has received an administrative citation for violating any provision of this code relating to its commercial cannabis activity(ies) in the city during the last twelve months, and the administrative citation has not been resolved in the applicant's favor by the date of application for renewal. A pending, unresolved appeal of an administrative citation shall not result in rejection of an otherwise timely and complete application, but resolution of an appeal in a manner that upholds the violation against the applicant during the application review period shall result in the immediate rejection of the application. 3. The commercial cannabis business has not been in regular and continuous operation in the three months immediately prior to the renewal application. 4. The commercial cannabis business fails to conform to the requirements of this chapter, any regulations adopted pursuant to this chapter, or the conditions imposed as part of any use permit or zoning requirements under Section 17.86.080. 5. The commercial cannabis operator permit is suspended at the time of application or renewal. X Packet Page I IS Item 9 Ordinance No. (2021 Series) Page 11 C. Effect of Rejection of Application for Renewal —Operations to Cease Pending Appeals. If a renewal application is rejected, the commercial cannabis operator permit expires on the expiration date set forth in the permit, even if an appeal has been filed. All commercial cannabis activities in the city under the expired permit must stop until all appeals have been exhausted. A person or entity whose renewal application is rejected, and who loses his/her/its appeal, must go through the annual commercial cannabis business operator permit application process. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.090 Suspension or revocation of permit. In addition to any other penalty authorized by law, a commercial cannabis operator permit may be suspended or revoked if the city finds, after notice to the permittee and opportunity to be heard, that the permittee or his or her agents or employees have violated any condition of the permit imposed pursuant to, or any provision of, this chapter. 1. Upon a finding by the city of a first permit violation within any five-year period, the permit shall be suspended for thirty days. 2. Upon a finding by the city of a second permit violation within any five-year period, the permit shall be suspended for ninety days. 3. Upon a finding by the city of a third permit violation within any five-year period, the permit shall be revoked. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.100.1 Appeal. A. Qualification —Ranking of Retailers and Cultivators. A decision of the city to not qualify an applicant for a commercial cannabis operator permit, or to rank applicants for retail or cultivation licenses, or to allow applicants with the highest rankings the first opportunity to apply for a commercial cannabis operator permit, shall be the final action of the city and not appealable. B. Nonrenewal, Revocation or Suspension. A decision of the city to reject an application for renewal, or to revoke or suspend a commercial cannabis operator permit, is appealable to the city manager. An appeal must be filed with the city manager within ten working days after the renewal has been denied, suspended or revoked. A decision of the city manager or his or her designee is appealable to the city council in accordance with Chapter 1.20 C. Effect of Suspension. During a period of license suspension, the commercial cannabis business shall remove from public view all cannabis and cannabis products and shall not conduct any commercial cannabis activity. X Packet Page 116 Item 9 Ordinance No. (2021 Series) Page 12 D. Revocation —Notice to State. Pursuant to Business and Professions Code Section 26200(c), the city manager or his or her designee shall promptly notify the Bureau of Cannabis Control within the Department of Consumer Affairs upon the city's revocation of any local license, permit, or authorization for a state licensee to engage in commercial cannabis activity within the city. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.110 Right to occupy and to use property for commercial cannabis activity. As a condition precedent to the city's issuance of a commercial cannabis operator permit pursuant to this chapter, any person intending to open and operate a commercial cannabis business shall provide evidence satisfactory to the city of the applicant's legal right to occupy and use the proposed location for the proposed use, together with the approval of a use permit from the city for cannabis activity at the location. In the event the proposed location is owned by or to be leased from another person, the applicant for a permit under this chapter shall provide a signed and notarized statement from the property owner agreeing to the operation of a commercial cannabis business on the property. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.120 Prohibition on transfer of commercial cannabis operator permits. A. Business Restriction to Location on Permit. It shall be unlawful for any person to transfer a commercial cannabis operator permit to a location not specified on the permit, or to operate a commercial cannabis business at any place or location other than that identified on the commercial cannabis operator permit issued pursuant to this chapter. B. Transfer or Assignment Prohibited. No person or entity shall encumber, mortgage, lien, hypothecate, give, bequeath, sell, assign or transfer, by operation of law or otherwise, any portion of the ownership or control of a commercial cannabis business or a commercial cannabis operator permit to any person who does not have a commercial cannabis operator permit from the city prior to the effective date of any action described in this sentence. The commercial cannabis operator permittee proposing such an action shall: 1. Notify the city in writing of the proposed action, comply with applicable regulations and provide such information as the city reasonably requests regarding the identity and qualifications of the persons involved, and pay all applicable fees and charges; and 2. Provide proof that the proposed lender, lienholder, recipient, heir, buyer, assignee, transferee, or other potential recipient of any portion of the ownership or control, at the time of the notice and effective date of the proposed action, is qualified by the city to apply for a commercial cannabis operator permit; and the proposed action is conditioned on the city issuing to the person a new or amended commercial cannabis operator permit. 3. Notify the city in writing within ten calendar days of the action becoming final with the names and contact information of the new persons involved, together with a request that the city issue either a new or amended commercial cannabis operator permit, as applicable. M Packet Page 117 Item 9 Ordinance No. (2021 Series) Page 13 C. Assignment Null and Void. Any attempt to transfer, sell, assign, give, or lien, or any transfer, sale, assignment, gift or lien, of a commercial cannabis operator permit issued pursuant to this chapter, by operation of law or otherwise, in violation of this chapter, is prohibited. Any such action immediately voids, nullifies and terminates the commercial cannabis operator permit, which shall be of no further force or effect. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.130 Records and reports. A. City Access to Records. Subject to the Health Insurance Portability and Accountability Act (HIPAA) regulations, each commercial cannabis business shall allow city of San Luis Obispo officials to have access to the commercial cannabis business's books, records, accounts, and any and all data relevant to its permitted activities for the purpose of conducting an audit, examination or inspection. Books, records, accounts, and any and all relevant data will be produced no later than twenty-four hours after receipt of the city's request or within a reasonable time as authorized in writing by the city. B. Annual Audit. Each commercial cannabis business shall file with the city manager or his/her designee an audit of its financial operations for the previous fiscal year, complete and certified by an independent certified public accountant in accordance with generally accepted auditing and accounting principles. The audit shall include but not be limited to a discussion, analysis, and verification of each of the records required to be maintained pursuant to this chapter. The information contained in the audit shall be made available in standard electronic format which shall be compatible with programs and software used by the city, and which can easily be imported into either Excel, Access or any other contemporary software designated by the city manager. C. Inventory Control System. All commercial cannabis businesses shall maintain an inventory control and reporting system that accurately documents the present location, amounts, and descriptions of all cannabis and cannabis products for all stages of the growing and production or manufacturing, laboratory testing and distribution processes until sold or distributed. All commercial cannabis businesses shall maintain records of all sales or transfers of cannabis and cannabis products. D. Employee Registry. Each owner and/or operator of a commercial cannabis business shall maintain a current register of the names and the contact information (including the name, address, and telephone number) of all employees currently employed by the commercial cannabis business and shall disclose such register to any city of San Luis Obispo official upon request. E. Reporting and Tracking of Product and of Gross Sales. Each commercial cannabis business shall have in place a point -of -sale tracking system to track and to report on all aspects of the commercial cannabis business including, but not limited to, such matters as cannabis tracking, inventory data, and gross sales (by weight and by sale) and shall ensure that such information is compatible with the city's recordkeeping systems. The system must have the capability to produce historical transactional data for review by the city of San Luis Obispo. All information provided to the city pursuant to this subsection shall be confidential and shall not be disclosed, except as may otherwise be required under law. O Packet Page 118 Item 9 Ordinance No. (2021 Series) Page 14 F. Maintenance of Records. All records required by this chapter shall be maintained by the commercial cannabis business for a period of not less than seven years and shall otherwise keep accurate records of all commercial cannabis business activity and provide such records for inspection consistent with this code or any rules the city council may adopt by resolution or ordinance. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.140 Inspection and enforcement. A. Unscheduled Inspection during Business Hours. The city manager or his/her designee and any other city of San Luis Obispo official or inspector charged with enforcing any provisions of this code may enter a commercial cannabis business at any time during the hours of operation without notice for the purpose of inspecting the commercial cannabis business for compliance with the provisions of this code, the terms and conditions of the commercial cannabis operator permit or any other city permit or state license, including inspection of the recordings and records maintained pursuant to this chapter or the applicable provisions of state law. The right to inspect under this section includes the right to copy recordings and records. B. Interference with Inspection. It is unlawful for any person who owns, operates, manages or is employed by, or has any responsibility over the operation of, a commercial cannabis business to refuse to allow, or to impede, obstruct, or interfere with, an inspection by the city, or the city's review or copying of recordings (including audio and video recordings) and records, or to conceal, destroy, alter or falsify any recordings or records. C. Obtaining Samples. The city manager or his/her designee or any other person charged with enforcing the provisions of this chapter may enter the location of a commercial cannabis business at any time during the hours of operation and without notice to obtain samples of cannabis and cannabis products to test for law enforcement and/or public safety purposes. Any samples obtained by the city of San Luis Obispo shall be logged, recorded, and maintained in accordance with city of San Luis Obispo police department standards for evidence. At all other times, the city manager or his/her designee may enter the location of a commercial cannabis business to obtain samples of cannabis upon reasonable notice, as otherwise authorized by law or pursuant to a warrant. (Ord. 1647§ 4 (Exh. A (part)), 2018) 9.10.150 Outdoor commercial cannabis cultivation and activities prohibited. A. Outdoor Commercial Cultivation Prohibited. Outdoor commercial cannabis cultivation, including, but not limited to, cultivation in greenhouses, hoop structures, and by mixed light (part daylight/part artificial light), is prohibited and unlawful. This section prohibits all outdoor commercial cannabis cultivation, including cultivation for profit or not -for - profit cultivation, and including commercial cultivation for adult recreational use or medicinal purposes. For purposes of this section, outdoor cultivation of cannabis by cooperatives is prohibited. All commercial cannabis cultivation shall be conducted only inside a fully enclosed structure by a person or entity with a commercial cannabis operator permit, a city use permit, and appropriate state license(s). See also Section 17.86.080(E)(71(c). X Packet Page 119 Item 9 Ordinance No. (2021 Series) Page 15 B. Outdoor Commercial Cannabis Activities Prohibited. Outdoor storage, harvesting, drying, processing, or manufacturing of commercial cannabis or cannabis products is prohibited and unlawful. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.160 Indemnification, insurance, reimbursement, consent. As a condition of approval of any commercial cannabis operator permit issued pursuant to this chapter, the permittee shall, at a minimum: A. Execute an agreement to protect, indemnify, defend (at its sole cost and expense with counsel approved by city), and hold the city of San Luis Obispo and its officers, employees, attorneys, representatives, and agents harmless from and against any and all claims, demands, losses, damages, injuries, costs, expenses (including attorneys' fees), fines, penalties, or liabilities arising from, related to or associated with: the issuance of a commercial cannabis operator permit or use permit; the permitting or approving the operation of a commercial cannabis activity; the collection of any fees, taxes, or charges from a commercial cannabis business; the commercial cannabis business's or any of its owners', operators', managers', employees', or agents' violation of any federal, state or local laws; the city's suspension, revocation or refusal to renew the commercial cannabis operator permit. B. Maintain insurance with standard city coverages and limits, but with additional conditions thereon as deemed necessary by the city attorney. C. Reimburse the city of San Luis Obispo for any and all costs, expenses, attorney fees, fines, penalties and court costs that the city of San Luis Obispo may be required to pay as a result of any legal challenge related to the city's approval of a commercial cannabis operator permit pursuant to this chapter or any other city permit or the city of San Luis Obispo's approval of the operation of a commercial cannabis activity. The city of San Luis Obispo may, at its sole discretion, participate at its own expense in the defense of any such action, but such participation shall not relieve the obligations imposed under this chapter. D. Consent to unscheduled inspections, production of records and recordings, and obtaining of samples of cannabis and cannabis products by authorized city officials during normal operating hours as provided in this chapter. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.170 Compliance with laws. The commercial cannabis business shall operate all times in compliance with all applicable state and local laws, regulations, and any specific, additional operating procedures or requirements which may be imposed as conditions of approval of the commercial cannabis operator permit or use permit or state license(s). Nothing in this chapter shall be construed as authorizing any action which violates state law or local law with respect to the operation of a commercial cannabis activity. (Ord. 1647 § 4 (Exh. A (part)), 2018) X Packet Page 120 Item 9 Ordinance No. (2021 Series) Page 16 9.10.180 Permit violation. Compliance with all local and state cannabis -related laws shall be a condition of a city commercial cannabis operator permit and it shall be a violation of a commercial cannabis operator permit for a permittee or his or her agents or employees to violate any local or state cannabis -related law. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.190 Permit compliance monitoring. Compliance with this chapter shall be monitored by the San Luis Obispo police department, code enforcement staff and/or any other duly authorized agent of the city. Any compliance checks pursuant to this chapter shall be in addition to any under any other ordinances, regulations or permits. At least four compliance checks of each cannabis retailer shall be conducted during each twelve-month period. At least two compliance checks of each commercial cannabis business other than a retailer shall be conducted during each twelve-month period. The cost of compliance monitoring shall be incorporated into the annual renewal fee. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.200 Permit holder responsible for violations by employees or agents. The responsible person and any entity to whom a commercial cannabis operator permit is issued pursuant to this chapter shall be responsible for all violations of the regulations and ordinances of the city of San Luis Obispo committed by the permittee or any employee or agent of the permittee, which violations occur in or about the premises of the commercial cannabis business, even if the responsible person is not present. Violations by an employee or agent may result in the termination or nonrenewal of the permit by the city. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.210 Consumption or use prohibited on site and in public —Cannabis event prohibited. A. It is unlawful for any person or entity: 1. To sell, give, exchange, dispense or distribute cannabis or cannabis products for on -site consumption, use or sampling on any business premises; or 2. To consume or use cannabis or cannabis products, whether by smoking, vaping, inhaling, eating, drinking or any other means: a) In, on or about the premises of any commercial cannabis business; b) In, on or about any publicly owned or operated property; any place open to or accessible by the public; any place smoking is prohibited; or any place visible from any public place with normal unaided vision; c) In on or about any other business, club, cooperative or commercial event, regardless if open to the public or only to members, ticket holders or event invitees; d) Any location where an entry or other fee is charged to attendees or to the host or where a thing of value or consideration is received or exchanged, directly or indirectly, for or related to the provision of cannabis. B. It is unlawful for any person to conduct a cannabis event in the city. (Ord. 1647 § 4 (Exh. A (part)), 2018) X Packet Page 121 Item 9 Ordinance No. (2021 Series) Page 17 9.10.220 Concurrent alcohol or tobacco sales or service prohibited. A. No person shall dispense, serve, store, give away or consume, or cause or permit the sale, dispensing, serving, giving away or consumption of alcoholic beverages or tobacco in or on the premises of a commercial cannabis business. B. No person shall conduct any commercial cannabis activity at any location where alcohol is sold or served. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.230 Minors. A. Minors shall not be allowed on the premises of a commercial cannabis business having either an "A" or "M" license, or both, even if accompanied by a parent or guardian. B. No person under twenty-one years of age shall be allowed on the premises of a commercial cannabis business having either an "A" or "M" license or both. C. Every entrance to an "A" or "M" licensed commercial cannabis business shall be clearly and legibly posted with the following notice: "ENTRY ONTO THESE PREMISES BY PERSONS UNDER 21 YEARS OF AGE IS PROHIBITED BY LAW. VALID PHOTO ID REQUIRED." Each letter of the notice must be at least two inches high and clearly visible. D. No person, business, or other entity conducting a commercial cannabis activity with either an "A" or "M" state license shall employ any person who is not at least twenty-one years of age. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.240 Sale of cannabis products or cannabis accessories by vending machine prohibited. A. No person shall locate, install, keep, maintain, or use, or permit the location, installation, keeping, maintenance or use on his, her or its premises of, any cannabis vending machine used or intended to be used for the purpose of selling any cannabis products or cannabis accessories therefrom. B. No person, business, or other entity shall sell, offer for sale, or display for sale any cannabis product by means of a self-service display or vending machine. All cannabis products shall be offered for sale exclusively by means of vendor/employee assistance. C. "Vending machine" means any electronic or mechanical device or appliance the operation of which depends upon the insertion of money, whether in coin or paper bill, or debit or credit card, or other thing representative of value, which device or appliance dispenses or releases cannabis, cannabis product(s) and/or cannabis accessories. (Ord. 1647 § 4 (Exh. A (part)), 2018) z Packet Page 122 Item 9 Ordinance No. (2021 Series) Page 18 9.10.250 Security and public safety measures. A. The city manager or his/her designee(s) is authorized to promulgate all regulations necessary to implement the requirements and fulfill the purposes and policies of this chapter, including but not limited to enforcement, background checks for applicants, approval and enforcement of a commercial cannabis activity security plan, including audio and video recordings of operations, and verification of compliance. B. Every commercial cannabis activity shall have a security plan approved by the chief of police or designee prior to issuance of a city commercial cannabis operator permit. C. Hours of Operation. a) Retail Storefront. Retail storefront commercial cannabis business shall not operate between the hours of eight p.m. and nine a.m. b) Retail Non -Storefront (Delivery Services). Retail non -storefront (delivery services) commercial cannabis business shall not operate between the hours of ten p.m. and six a.m. c) Commercial Other than Retail. All commercial cannabis activity other than retail is prohibited between the hours of ten p.m. and seven a.m. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.260 Limitations on city's liability. The city shall not be liable for issuing, or failing or refusing to issue, suspending, revoking or failing to renew a commercial cannabis operator permit pursuant to this chapter or otherwise approving or disapproving the operation of any commercial cannabis business pursuant to this chapter. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.270 Fees deemed debt to city. The amount of any fee, cost or charge imposed pursuant to this chapter shall be deemed a debt to the city of San Luis Obispo that is recoverable in any court of competent jurisdiction. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.280 Violation and penalties. A. Misdemeanor. Each violation of the provisions of this chapter shall be a misdemeanor and is punishable as provided in Section 1.12.030; provided, that where the city attorney determines that such action would be in the interest of justice, he/she may specify in the accusatory pleading that the offense shall be an infraction. Any violation of the provisions of this chapter by any person is also subject to administrative fines as provided in Chapter 1.24. B. Infraction Violation. Where the city attorney determines that, in the interest of justice, a violation of this chapter is an infraction, such infraction is punishable by a fine not exceeding one hundred dollars for a first violation, a fine not exceeding two hundred dollars for a second violation of the same provision within one year, and a fine not exceeding five hundred dollars for each additional infraction violation of the same provision within one year. 0 Packet Page 123 Item 9 Ordinance No. (2021 Series) Page 19 C. The fine amounts set forth above may be modified, from time to time, by city council resolution. In no event shall such fine amounts exceed the amounts authorized by state law. D. If the city of San Luis Obispo finds, based on substantial record evidence, that any person has engaged in commercial cannabis activity in violation of this chapter, the city shall fine that person as follows: Each day that person without a commercial cannabis operator permit offers cannabis or cannabis products for sale or exchange shall constitute a separate violation and assessed a fine in accordance with Sections 1.12.080 and 1.24.070(A). E. Each person committing, causing, or maintaining a violation of this chapter or failing to comply with the requirements set forth herein shall be deemed guilty of a separate offense for each and every day during any portion of which any violation of any provision of this chapter is committed, continued, maintained, or permitted by such person and shall be punishable accordingly. F. The violation of any provision of this chapter shall be and is hereby declared to be a public nuisance and contrary to the public interest. Any public nuisance under this chapter may, at the city's discretion, be abated by the city by civil process by means of a restraining order, preliminary or permanent injunction, or in any manner provided by law for the abatement of such nuisance. The city shall also be entitled to recover its full reasonable costs of abatement. The prevailing party in any proceeding associated with the abatement of a public nuisance shall be entitled to recovery of attorneys' fees incurred in any such proceeding if the city has elected at the initiation of that individual action or proceeding to seek recovery of its own attorneys' fees. G. In lieu of issuing a criminal citation, the city may issue an administrative citation to any person responsible for committing, causing, or maintaining a violation of this chapter. Nothing in this section shall preclude the city from also issuing a citation upon the occurrence of the same offense on a separate day. H. The remedies set forth in this chapter are cumulative and in addition to any and all other remedies available at law or equity, whether set forth elsewhere in the San Luis Obispo Municipal Code, or in state or federal laws, regulations, or case law. In addition to other remedies provided by this chapter or by other law, any violation of this chapter may be remedied by a civil action brought by the city attorney, including but not limited to administrative or judicial nuisance abatement proceedings, civil or criminal code enforcement proceedings, and suits for injunctive relief. (Ord. 1647 § 4 (Exh. A (part)), 2018) 9.10.290 Severability. If any section, subsection, subdivision, paragraph, sentence, clause or phrase of this chapter is for any reason held to be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of the remaining sections, subsections, subdivisions, paragraphs, sentences, clauses or phrases of this chapter or the rules adopted hereby. The city council of the city of San Luis Obispo hereby declares that it would have adopted each section, subsection, subdivision, paragraph, sentence, clause, or phrase hereof, irrespective of the fact that any one or more other sections, subdivisions, paragraphs, sentences, clauses or phrases hereof be declared invalid or unenforceable. (Ord. 1647 § 4 (Exh. A (part)), 2018) X Packet Page 124 Item 9 Ordinance No. (2021 Series) Page 20 Chapter 5.10 CANNABIS BUSINESS TAX 5.10.010 Title 5.10.020 Authority and purpose 5.10.030 Intent 5.10.040 Definitions 5.10.045 Registration of cannabis business 5.10.050 Tax imposed 5.10.060 Reporting and remittance of tax 5.10.070 Payments and communications — Timely remittance 5.10.080 Payment — When taxes deemed delinquent 5.10.090 Notice not required by the city 5.10.100 Penalties and interest 5.10.110 Refunds and credits 5.10.120 Refunds and procedures 5.10.130 Personal cultivation not taxed 5.10.140 Administration of the tax 5.10.150 Appeal procedure 5.10.160 Enforcement — Action to collect 5.10.170 Apportionment 5.10.180 Constitutionality and legality 5.10.190 Audit and examination of premises and records 5.10.200 Other licenses, permits, taxes, fees, or charges 5.10.210 Payment of tax does not authorize unlawful business 5.10.220 Deficiency determinations 5.10.230 Failure to report — Nonpayment, fraud 5.10.240 Tax assessment — Notice requirements 5.10.250 Tax assessment — Hearing, application, and determination 5.10.260 Relief from taxes — Disaster relief 5.10.270 Conviction for violation — Taxes not waived 5.10.280 Violation deemed misdemeanor 5.10.290 Severability 5.10.300 Remedies cumulative 5.10.310 Amendment or repeal 5.10.320 Enforcement consistent with business license tax Exhibit B 0 Packet Page 125 Item 9 Ordinance No. (2021 Series) Page 21 5.10.010 Title. This chapter shall be known as the cannabis business tax ordinance. (Ord. 1659 § 1 (part), 2018) 5.10.020 Authority and purpose. The purpose of this chapter is to impose a tax, for revenue purposes, pursuant to Section 203 of the city charter and Sections 37101 and 37100.5 of the California Government Code, upon persons who engage in cannabis business in the city. The cannabis business tax is a general tax enacted solely to raise revenue for general governmental purposes of the city and not for regulation. All of the proceeds from the tax imposed by this chapter shall be placed in the city's general fund and be available for any lawful municipal purpose in the discretion of the city. (Ord. 1659 § 1 (part), 2018) 5.10.030 Intent. The intent of this chapter is to levy a tax on all cannabis businesses that operate in the city, regardless of whether such business would have been legal at the time the ordinance codified in this chapter was adopted. Nothing in this chapter shall be interpreted to authorize or permit any business activity that would not otherwise be legal or permissible under laws applicable to the activity at the time the activity is undertaken. (Ord. 1659 § 1 (part), 2018) 5.10.040 Definitions. The following words and phrases shall have the meanings set forth below when used in this chapter: A. "Business" shall include all activities engaged in or caused to be engaged in within the city, including any commercial or industrial enterprise, trade, profession, occupation, vocation, calling, or livelihood, whether or not carried on for gain or profit, but shall not include the services rendered by an employee to his or her employer. B. "Cannabis" means all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. "Cannabis" also means cannabis as defined by Section 11018.5 of the California Health and Safety Code, by Section 26001 of the Business and Professions Code, and by other state law. C. "Cannabis product" means raw cannabis that has undergone a process whereby the raw agricultural product has been transformed into a concentrate, an edible product, or a topical product. "Cannabis product" also means marijuana products as defined by Section 11018.1 of the California Health and Safety Code and by other state law. X Packet Page 126 Item 9 Ordinance No. (2021 Series) Page 22 D. "Canopy" means all areas occupied by any portion of a cannabis plant whether contiguous or noncontiguous on any one site. When plants occupy multiple horizontal planes (as when plants are placed on shelving above other plants) each plane shall be counted as a separate canopy area. E. "Cannabis business" means any business activity involving cannabis, including but not limited to cultivating, transporting, distributing, manufacturing, compounding, converting, processing, preparing, storing, packaging, delivering, testing, dispensing, retailing and wholesaling of cannabis, of cannabis products or of ancillary products and accessories, whether or not carried on for gain or profit, whether for medical or recreational use, and whether or not such business is licensed by the state. F. "Cannabis business tax" or "business tax" means the tax due pursuant to this chapter for engaging in cannabis business in the city. G. "City manager" means the city manager of the city under Section 703 of the charter or his or her designee under Section 1.08.070. H. "Commercial cannabis cultivation" means cultivation in the course of conducting a cannabis business. "Commercial cannabis cultivation" does not include personal medical cannabis cultivation or cultivation for personal recreational use as authorized by the Medicinal and Adult -Use Cannabis Regulation and Safety Act (MAUCRSA) for which the individual receives no compensation whatsoever. "City permit" means a permit issued by the city to a person to authorize that person to operate or engage in a cannabis business. "Cultivation" means any activity involving the planting, growing, harvesting, drying, curing, grading, or trimming of cannabis and includes, but is not limited to, the operation of a nursery. K. "Delivery" means the transfer for any form of compensation of cannabis or cannabis products to a customer or caregiver at a location that is not a dispensary. L. "Dispensary" means a place at which cannabis, cannabis products, or accessories for the use of cannabis or cannabis products are offered, either individually or in combination, for retail sale, including an establishment that engages in delivery, whether or not from a fixed place of business. M. "Distributor" means a person engaged in procuring cannabis and/or cannabis products for sale to a dispensary or other point of retail sale. "Distribution" means engaging in that conduct. N. "Employee" means each and every person engaged in the operation or conduct of any business, whether as owner, member of the owner's family, partner, associate, agent, manager or solicitor, and each and every other person employed or working in such business for a wage, salary, commission, barter or any other form of compensation. X Packet Page 127 Item 9 Ordinance No. (2021 Series) Page 23 O. "Engaged in business as a cannabis business" means the commencing, conducting, operating, managing or carrying on of a cannabis business, whether done as owner, or by means of an officer, agent, manager, employee, or otherwise, whether operating from a fixed location in the city or coming into the city from an outside location to engage in such activities. A person shall be deemed engaged in business within the city if: 1. Such person or person's employee maintains a fixed place of business within the city for the benefit or partial benefit of such person; 2. Such person or person's employee owns or leases real property within the city for business purposes; 3. Such person or person's employee regularly maintains a stock of tangible personal property in the city for sale in the ordinary course of business; 4. Such person or person's employee regularly conducts solicitation of business within the city; or 5. Such person or person's employee performs work or renders services in the city. The foregoing specified activities shall not be a limitation on the meaning of "engaged in business." P. "Evidence of doing business" means evidence such as, without limitation, use of signs, circulars, cards or any other advertising media, including the use of internet or telephone solicitation, or representation to a government agency or to the public that such person is engaged in a cannabis business in the city. Q. "Calendar year" means January 1 st through December 31 st of the following calendar year. R. "Gross receipts," except as otherwise specifically provided, means, whether designated a sales price, royalty, rent, commission, dividend, or other designation, the total amount (including all receipts, cash, credits and property of any kind or nature) received or payable for sales of goods, wares or merchandise or for the performance of any act or service of any nature for which a charge is made or credit allowed (whether such service, act or employment is done as part of or in connection with the sale of goods, wares, merchandise or not), without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, interest paid or payable, losses or any other expense whatsoever. However, the following shall be excluded from the definition of gross receipts: 1. Cash discounts where allowed and taken on sales; 2. Any tax required by law to be included in or added to the purchase price and collected from the consumer or purchaser; 3. Such part of the sale price of any property returned by purchasers to the seller as refunded by the seller by way of cash or credit allowances or return of refundable deposits previously included in gross receipts; 4. Receipts derived from the occasional sale of used, obsolete or surplus trade fixtures, machinery or other equipment used by the taxpayer in the regular course of the taxpayer's business; 5. Cash value of sales, trades or transactions between departments or units of the same business; z Packet Page 128 Item 9 Ordinance No. (2021 Series) Page 24 6. Whenever there are included within the gross receipts amounts which reflect sales for which credit is extended and such amount proved uncollectible in a subsequent year, those amounts may be excluded from the gross receipts in the year they prove to be uncollectible; provided, however, if the whole or portion of such amounts excluded as uncollectible are subsequently collected they shall be included in the amount of gross receipts for the period when they are recovered; 7. Receipts of refundable deposits, except that such deposits when forfeited and taken into income of the business shall not be excluded when in excess of one dollar; 8. Amounts collected for others where the business is acting as an agent or trustee and to the extent that such amounts are paid to those for whom collected. These agents or trustees must provide the finance department with the names and the addresses of the others and the amounts paid to them. This exclusion shall not apply to any fees, percentages, or other payments retained by the agent or trustees; 9. Retail sales of t-shirts, sweaters, hats, stickers, key chains, bags, books, posters, rolling papers, cannabis accessories such as pipes, pipe screen, vape pen batteries (without cannabis) or other personal tangible property which the tax administrator has excluded in writing by issuing an administrative ruling per Section 5.10.140 shall not be subject to the cannabis business tax under this chapter. However, any retail sales not subject to this chapter as a result of the administrative ruling shall be subject to the appropriate business tax under Chapter 5.01 or any other chapter or title as determined by the tax administrator. S. "Manufacturer" means a person who engages in the production, preparation, propagation, or compounding of cannabis or cannabis products either directly or indirectly or by extraction methods, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis. T. "Nursery" means a facility or part of a facility that is used only for producing clones, immature plants, seeds, and other agricultural products used specifically for the planting, propagation, and cultivation of cannabis. U. "Person" means an individual, firm, partnership, joint venture, association, collective, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit, whether organized as a nonprofit or for - profit entity, and includes the plural as well as the singular number. V. "Sale" means and includes any sale, exchange, or barter. W. "State" means the state of California. X. "Tax administrator" means the finance director of the city of San Luis Obispo or his or her designee. X Packet Page 129 Item 9 Ordinance No. (2021 Series) Page 25 Y. "Testing laboratory" means a cannabis business that (1) offers or performs tests of cannabis or cannabis products, (2) offers no service other than such tests, (3) sells no products, excepting only testing supplies and materials, (4) is accredited by an accrediting body that is independent from all other persons involved in the cannabis industry in the state and (5) is licensed by the Bureau of Cannabis Control. (Ord. 1659 § 1 (part), 2018) 5.10.45 Registration of cannabis business. A. All persons engaging in a cannabis business, whether an existing, newly established or acquired business, shall register with the tax administrator's office by the later of: 1. Thirty days after commencing operation; or 2. January 1, 2019, and shall annual!y renew such registration annually thereafter by July 16f of each year, with any such renewal becoming delinquent on July 31 SI of each year o or -before the anniversary .f the initial registFeAien f that business. 3. The Tax Administrator is authorized to prorate existing, newly established, or acquired business registration fees consistent with the intent of this Chapter and as otherwise required by applicable law. Nothing herein is intended, nor shall it be interpreted or applied to increase any tax in excess of the rate approved by the voters of the City of San Luis Obispo and the Tax Administrator shall ensure that no application of the provisions herein are so applied. B. Registrants shall furnish to the tax administrator a statement sworn under penalty of perjury, upon a form provided by the tax administrator, setting forth: 1. Every name under which the business engages in commercial cannabis activity in the city; 2. The names and addresses of every person who is an owner, principal or manager of the business; 3. The nature or kind of all business activity to be conducted; 4. The place or places, whether or not in the city, where such business is to be conducted; and 5. Any further information which the tax administrator may require to administer the tax under this chapter. C. Registrants shall pay an annual registration fee in an amount established from time to time by resolution of the city to recover the city's costs to implement the registration requirement of this section, and the other provisions of this chapter, other than the duty to pay tax when due. As a regulatory fee, such fee shall be limited to the city's reasonable costs for those activities. (Ord. 1659 § 1 (part), 2018) 5.10.050 Tax imposed. A. Beginning January 1, 2019, there is imposed upon each person who is engaged in business as a cannabis business a cannabis business tax, whether the business has been issued a permit to operate lawfully in the city or is operating unlawfully. 0 Packet Page 130 Item 9 Ordinance No. (2021 Series) Page 26 B. The initial rate of the cannabis business tax shall be as follows, unless adjusted: 1. For every person who is engaged in commercial cannabis cultivation in the city: a. Seven dollars annually per square foot of canopy space in a facility. For purposes of this chapter, the square feet of canopy space for a business shall be rebuttably presumed to be the maximum square footage of canopy allowed by the business's city permit for commercial cannabis cultivation, or, in the absence of a city permit, the square footage shall be the maximum square footage of canopy for commercial cannabis cultivation allowed by the business's state license. Should a city permit be issued to a business which cultivates only for certain months of the year, the city shall prorate the tax as to sufficiently reflect the period in which cultivation is occurring at the business. In no case shall canopy square footage which is authorized by the city commercial cannabis permit, but not utilized for cultivation, be deducted for the purpose of determining the tax for cultivation, unless the tax administrator is informed in writing that such space will not be used and authorizes such reduction for the purpose of relief from the tax prior to the period for which the space will not be used. 2. For every person who engages in the operation of a testing laboratory: one percent of gross receipts. 3. For every person who engages in the retail sales of cannabis as a retailer (dispensary) or non -storefront retailer (delivery) or microbusiness (retail sales): six percent of gross receipts. 4. For every person who engages in a cannabis distribution business: two percent of gross receipts. 5. For every person who engages in a cannabis manufacturing, processing, microbusiness (nonretail), or any other type of cannabis business not described in subsection B 1 , (B 20, B 30 or B 4 of this section: two and one-half percent of gross receipts. C. The city council may, by resolution or ordinance, adjust the rate of the cannabis business tax. However, in no event may the city council set any adjusted rate that exceeds the maximum rate calculated pursuant to subsection D of this section for the date on which the adjusted rate will commence. D. The maximum rate shall be calculated as follows: 1. For every person who is engaged in commercial cannabis cultivation in the city: a. Through January 1, 2021, the maximum rate shall be: i. Ten dollars annually per square foot of canopy space in a facility. b. On January 1, 2022, and on each January 1st thereafter, the maximum annual tax rate per square foot of each type of canopy space shall increase by the percentage change between January of the calendar year prior to such increase and January of the calendar year of the increase in the Consumer Price Index ("CPI") for all urban consumers in the Los Angeles -Long Beach -Anaheim area as published by the United States Government Bureau of Labor Statistics. However, no CPI adjustment resulting in a decrease of any tax imposed by this subsection shall be made. 2. For every person who engages in the operation of a testing laboratory, the maximum tax rate shall not exceed two and one-half percent of gross receipts. X Packet Page 131 Item 9 Ordinance No. (2021 Series) Page 27 3. For every person who engages in the retail sales of cannabis as a retailer (dispensary) or non -storefront retailer (delivery business), or microbusiness (retail sales activity), the maximum tax rate shall not exceed ten percent of gross receipts. 4. For every person who engages in a cannabis distribution business, the maximum tax rate shall not exceed three percent of gross receipts. 5. For every person who engages in a cannabis manufacturing, processing, microbusiness (nonretail activity) or any other type of cannabis business not described in subsection (D)(1), D 2 , Q 3 or (DJ 4 of this section, the maximum tax rate shall not exceed four percent of gross receipts. (Ord. 1659 § 1 (part), 2018) 5.10.060 Reporting and remittance of tax. A. The cannabis business tax imposed by this chapter shall be paid, in arrears, on a monthly basis. For commercial cannabis cultivation, the tax due for each month shall be based on the square footage of the business's canopy space during the month and the rate shall be twelve percent of the applicable annual rate. For all other cannabis businesses activities, the tax due for each month shall be based on the gross receipts for the month. B. Each person owing cannabis business tax for a month shall, no later than the last day of the following month, file with the tax administrator a statement of the tax owed for that month and the basis for calculating that tax. The tax administrator may require that the statement be submitted on a form prescribed by the tax administrator. The tax for each month shall be due and payable on that same date as the statement for the month is due. C. Upon cessation of a cannabis business, tax statements and payments shall be immediately due for all months up to the month during which cessation occurred. D. The tax administrator may, at his or her discretion, establish shorter report and payment periods for any taxpayer as the tax administrator deems necessary to ensure collection of the tax. The tax administrator may also require that a deposit, to be applied against the taxes for a month, be made by a taxpayer at the beginning of that month. In no event shall the deposit required by the tax administrator exceed the tax amount he or she projects will be owed by the taxpayer for the month. The tax administrator may require that a taxpayer make payments via a cashier's check, money order, wire transfer, or similar instrument. (Ord. 1659 § 1 (part), 2018) 5.10.070 Payments and communications — Timely remittance. Whenever any payment, statement, report, request or other communication is due, it must be received by the tax administrator on or before the final due date. A postmark will not be accepted as timely remittance. If the due date would fall on a Saturday, Sunday or a holiday, the due date shall be the next regular business day on which the city is open to the public. (Ord. 1659 § 1 (part), 2018) z Packet Page 132 Item 9 Ordinance No. (2021 Series) Page 28 5.10.080 Payment — When taxes deemed delinquent. Unless otherwise specifically provided under other provisions of this chapter, the taxes required to be paid pursuant to this chapter shall be deemed delinquent if not received by the tax administrator on or before the due date as specified in Sections 5.10.060 and 5.10.070. (Ord. 1659 § 1 (part), 2018) 5.10.090 Notice not required by the city. Failure of the tax administrator to send a notice or bill shall not affect the validity of any tax or penalty due under the provisions of this chapter. (Ord. 1659 § 1 (part), 2018) 5.10.100 Penalties and interest. A. Any person who fails or refuses to pay any cannabis business tax required to be paid pursuant to this chapter on or before the due date shall pay penalties and interest as follows: 1. A penalty equal to ten percent of the amount of the tax, in addition to the amount of the tax, plus interest on the unpaid tax calculated from the due date of the tax at the rate of one percent per month. 2. If the tax remains unpaid for a period exceeding one calendar month beyond the due date, an additional penalty equal to twenty-five percent of the amount of the tax, plus interest at the rate of one percent per month on the unpaid tax and on the unpaid penalties. 3. Interest shall be applied at the rate of one percent per month on the first day of the month for the full month and will continue to accrue monthly on the tax and penalty until the balance is paid in full. B. Whenever a check or electronic payment is submitted in payment of a cannabis business tax and the payment is subsequently returned unpaid by the bank for any reason, the taxpayer will be liable for the tax amount due plus any fees, penalties and interest as provided for in this section, and any other amount allowed under state law. (Ord. 1659 § 1 (part), 2018) 5.10.110 Refunds and credits. A. No refund shall be made of any tax collected pursuant to this chapter, except as provided in Section 5.10.120. B. No refund of any tax collected pursuant to this chapter shall be made because of the discontinuation, dissolution, or other termination of a business. (Ord. 1659 § 1 (part), 2018) 5.10.120 Refunds and procedures. A. Whenever the amount of any cannabis business tax, penalty or interest has been overpaid, paid more than once, or has been erroneously collected or received by the city under this chapter, it may be refunded to the claimant who paid the tax; provided, that a written claim for refund is filed with the tax administrator within one year of the date the tax was originally due and payable. M Packet Page 133 Item 9 Ordinance No. (2021 Series) Page 29 B. The tax administrator, his or her designee or any other city officer charged with the administration of this chapter shall have the right to examine and audit all the books and business records of the claimant in order to determine the eligibility of the claimant to the claimed refund. No claim for refund shall be allowed if the claimant refuses to allow such examination of claimant's books and business records after request by the tax administrator to do so. C. In the event that the cannabis business tax was erroneously paid, and the error is attributable to the city, upon a timely claim the city shall refund the amount of tax erroneously paid in the year preceding the date the claim was received. (Ord. 1659 § 1 (part), 2018) 5.10.130 Personal cultivation not taxed. The provisions of this chapter shall not apply to personal cannabis cultivation as defined in the Medicinal and Adult -Use Cannabis Regulation and Safety Act. This chapter shall not apply to personal use of cannabis that is specifically exempted from the city or state licensing requirements, that meets the definition of personal use or equivalent terminology under state law, and for which the individual receives no compensation whatsoever related to that personal use. (Ord. 1659 § 1 (part), 2018) 5.10.140 Administration of the tax. A. It shall be the duty of the tax administrator to collect the taxes, penalties, fees, and perform the duties required by this chapter. B. For purposes of administration and enforcement of this chapter generally, the tax administrator may from time to time promulgate such administrative interpretations, rules, and procedures consistent with the purpose, intent, and express terms of this chapter as he or she deems necessary to implement or clarify such provisions or aid in enforcement. He or she shall give notice of those regulations in the manner required by law for publication of ordinances of the city council and the regulations shall take effect thirty days after such notice unless otherwise provided in a particular regulation. C. The tax administrator may take such administrative actions as needed to administer the tax, including but not limited to: 1. Provide to all cannabis business taxpayers forms for the reporting of the tax; 2. Provide information to any taxpayer concerning the provisions of this chapter; 3. Receive and record all taxes remitted to the city as provided in this chapter; 4. Maintain records of taxpayer reports and taxes collected pursuant to this chapter; 5. Assess penalties and interest to taxpayers pursuant to this chapter; 6. Determine amounts owed and enforce collection pursuant to this chapter. (Ord. 1659 § 1 (part), 2018) z Packet Page 134 Item 9 Ordinance No. (2021 Series) Page 30 5.10.150 Appeal procedure. Any taxpayer aggrieved by any decision of the tax administrator with respect to the amount of tax, interest, penalties and fees, if any, due under this chapter may appeal to the city manager by filing a notice of appeal with the city clerk within thirty days of the serving or mailing of the determination of tax due. The city clerk, or his or her designee, shall fix a time and place for hearing such appeal, and the city clerk, or his or her designee, shall give notice in writing to such operator at the last known place of address. The finding of the city manager shall be final and conclusive as to the city, but subject to judicial review under Code of Civil Procedure Section 1094.5 and shall be served upon the appellant in the manner prescribed by this chapter for service of notice of hearing. Any amount found to be due shall be immediately due and payable upon the service of the notice. (Ord. 1659 § 1 (part), 2018) 5.10.160 Enforcement — Action to collect. Any taxes, penalties and/or fees required to be paid under the provisions of this chapter shall be deemed a debt owed to the city. Any person owing money to the city under the provisions of this chapter shall be liable in an action brought in the name of the city for the recovery of such debt. (Ord. 1659 § 1 (part), 2018) 5.10.170 Apportionment. If a business subject to the tax is operating both within and outside the city, it is the intent of the city to apply the cannabis business tax so that the measure of the tax fairly reflects the proportion of the taxed activity actually carried on in the city. To the extent federal or state law requires that any tax due from any taxpayer be apportioned, the taxpayer may propose an apportionment on his or her tax return. The tax administrator may accept or reject that apportionment and, if the latter, shall establish an appropriate apportionment on such evidence as is provided by the taxpayer or otherwise available to the tax administrator. The tax administrator may promulgate administrative procedures for apportionment as he or she finds useful or necessary. (Ord. 1659 § 1 (part), 2018) 5.10.180 Constitutionality and legality. A. This tax is intended to be applied consistently with the United States and California Constitutions, state law and the city charter. The tax shall not be applied so as to cause an undue burden upon interstate commerce, a violation of the equal protection and due process clauses of the Constitution of the United States or the state of California, to constitute a special tax, or to cause a violation of any other provision of applicable law. B. The taxes imposed under this chapter are excises on the privilege of engaging in commercial cannabis activity in the city. They are not sales or use taxes and shall not be calculated or assessed as such. Nevertheless, at the option of a cannabis business, the tax may be separately identified on invoices, receipts and other evidences of transactions. (Ord. 1659 § 1 (part), 2018) z Packet Page 135 Item 9 Ordinance No. (2021 Series) Page 31 5.10.190 Audit and examination of premises and records. A. For the purpose of ascertaining the amount of cannabis business tax owed or verifying any representations made by any taxpayer to the city in support of his or her tax calculation, the tax administrator shall have the power to inspect any location where commercial cannabis cultivation or commercial business activity occurs, whether or not located in the city, and to audit and examine all books and records (including, but not limited to, bookkeeping records, state and federal income tax returns, and other records relating to the gross receipts of the business) of persons engaged in cannabis businesses. In conducting such investigation, the tax administrator shall have the power to inspect any equipment, such as computers or point of sale machines, that may contain such records. B. It shall be the duty of every person liable for the collection and payment to the city of any tax imposed by this chapter to keep and preserve, for a period of at least three years, all records as may be necessary to determine the amount of such tax as he or she may have been liable to pay to the city, which records the tax administrator or his/her designee shall have the right to inspect at all reasonable times. (Ord. 1659 § 1 (part), 2018) 5.10.200 Other licenses, permits, taxes, fees or charges. A. Nothing contained in this chapter shall be deemed to repeal, amend, be in lieu of, replace or in any way affect any requirements for any permit or license required by, under or by virtue of any provision of any other chapter of this code or any other ordinance or resolution of the city, nor be deemed to repeal, amend, be in lieu of, replace or in any way affect any tax, fee or other charge imposed, assessed or required by, under or by virtue of any other chapter of this code or any other ordinance or resolution of the city. Any references made or contained in any other chapter of this code to any licenses, license taxes, fees, or charges, or to any schedule of license fees, shall be deemed to refer to the licenses, license taxes, fees or charges, or schedule of license fees, provided for in other chapters of this code unless the context is plain that another meaning is intended. B. Notwithstanding subsection A of this section, a cannabis business shall not be required to pay the license fee required by Chapter 5.01 so long as all of the business's activities within the city that would require payment of a license fee are subject to the cannabis business tax. C. The tax administrator may revoke or refuse to renew the license required by Chapter 5.01 for any business that is delinquent in the payment of any tax due pursuant to this chapter or that fails to make a deposit required by the tax administrator pursuant to Section 5.10.060. (Ord. 1659 § 1 (part), 2018) 5.10.210 Payment of tax does not authorize unlawful business. A. The payment of a cannabis business tax required by this chapter, and its acceptance by the city, shall not entitle any person to carry on any cannabis business unless the person has complied with all of the requirements of this code and all other applicable state and local laws. X Packet Page 136 Item 9 Ordinance No. (2021 Series) Page 32 B. No tax paid under the provisions of this chapter shall be construed as authorizing the conduct or continuance of any illegal or unlawful business, or any business in violation of any local or state law, although businesses illegal under other law are nevertheless subject to tax under this chapter according to its terms. (Ord. 1659 § 1 (part), 2018) 5.10.220 Deficiency determinations. If the tax administrator is not satisfied that any statement filed as required under the provisions of this chapter is correct, or that the amount of tax is correctly computed, he or she may compute and determine the amount to be paid and make a deficiency determination upon the basis of the facts contained in the statement or upon the basis of any information in his or her possession or that may come into his or her possession within three years of the date the tax was originally due and payable. One or more deficiency determinations of the amount of tax due for a period or periods may be made. When a person discontinues engaging in a business, a deficiency determination may be made at any time within three years thereafter as to any liability arising from engaging in such business whether or not a deficiency determination is issued prior to the date the tax would otherwise be due. Whenever a deficiency determination is made, a notice shall be given to the person concerned in the same manner as notices of assessment are given under Section 5.10.240. (Ord. 1659 § 1 (part), 2018) 5.10.230 Failure to report —Nonpayment, fraud. A. Under any of the following circumstances, the tax administrator may make and give notice of an assessment of the amount of tax owed by a person under this chapter at any time: 1. If the person has not filed a complete statement required under the provisions of this chapter; 2. If the person has not paid the tax due under the provisions of this chapter; 3. If the person has not, after demand by the tax administrator, filed a corrected statement, or furnished to the tax administrator adequate substantiation of the information contained in a statement already filed, or paid any additional amount of tax due under the provisions of this chapter; or 4. If the tax administrator determines that the nonpayment of any business tax due under this chapter is due to fraud, a penalty of twenty-five percent of the amount of the tax shall be added thereto in addition to penalties and interest otherwise stated in this chapter and any other penalties allowed by law. B. The notice of assessment shall separately set forth the amount of any tax known by the tax administrator to be due or estimated by the tax administrator, after consideration of all information within the tax administrator's knowledge concerning the business and activities of the person assessed, to be due under each applicable section of this chapter and shall include the amount of any penalties or interest accrued on each amount to the date of the notice of assessment. (Ord. 1659 § 1 (part), 2018) 0 Packet Page 137 Item 9 Ordinance No. (2021 Series) Page 33 5.10.240 Tax assessment — Notice requirements. The notice of assessment shall be served upon the person either by personal delivery, or by a deposit of the notice in the United States mail, postage prepaid thereon, addressed to the person at the address of the location of the business or to such other address as he or she shall register with the tax administrator for the purpose of receiving notices provided under this chapter; or, should the person have no address registered with the tax administrator for such purpose, then to such person's last known address. For the purposes of this section, a service by mail is complete at the time of deposit in the United States mail. (Ord. 1659 § 1 (part), 2018) 5.10.250 Tax assessment — Hearing, application and determination. Within thirty days after the date of service the person may apply in writing to the tax administrator for a hearing on the assessment. If application for a hearing before the city is not made within the time herein prescribed, the tax assessed by the tax administrator shall become final and conclusive. Within thirty days of the receipt of any such application for hearing, the tax administrator shall cause the matter to be set for hearing before him or her no later than thirty days after the receipt of the application, unless a later date is agreed to by the tax administrator and the person requesting the hearing. Notice of such hearing shall be given by the tax administrator to the person requesting such hearing not later than five days prior to such hearing. At such hearing said applicant may appear and offer evidence why the assessment as made by the tax administrator should not be confirmed and fixed as the tax due. After such hearing the tax administrator shall determine and reassess the proper tax to be charged and shall give written notice to the person in the manner prescribed in Section 5.10.240 for giving notice of assessment. (Ord. 1659 § 1 (part), 2018) 5.10.260 Relief from taxes — Disaster relief. A. If a business is unable to comply with any tax requirement due to a disaster, the business may notify the tax administrator of this inability to comply and request relief from the tax requirement; B. The tax administrator, in its sole discretion, may provide relief from the cannabis business tax requirement for businesses whose operations have been impacted by a disaster if such tax liability does not exceed five thousand dollars. If such tax liability is five thousand one dollars or more then such relief shall only be approved by the city manager; C. Temporary relief from the cannabis tax may be relieved for a reasonable amount of time as determined by the tax administrator in order to allow the cannabis business time to recover from the disaster; D. The tax administrator may require that certain conditions be followed in order for a cannabis business to receive temporary relief from the cannabis business tax requirement; E. A cannabis business shall not be subject to an enforcement action for a violation of a cannabis business requirement in which the licensee has received temporary relief from the tax administrator; 0 Packet Page 138 Item 9 Ordinance No. (2021 Series) Page 34 F. For purposes of this section, "disaster" means fire, flood, storm, tidal wave, earthquake, or similar public calamity, whether or not resulting from natural causes. 1. The cannabis business must notify the tax administrator in writing of a request for temporary relief from imposition of the tax requirement pursuant to subsection A of this section, indicating clearly why disaster relief is requested, the time period for which the relief is requested, and the reasons relief is needed for the specified amount of time; 2. The cannabis business agrees to grant the tax collector or his/her designee access to the location where the cannabis business has been impacted due to a disaster. (Ord. 1659 § 1 (part), 2018) 5.10.270 Conviction for violation — Taxes not waived. The conviction and punishment of any person for failure to pay the required tax shall not excuse or exempt such person from any civil action for the tax debt unpaid at the time of such conviction. No civil action shall prevent a criminal prosecution for any violation of the provisions of this chapter or of any state law requiring the payment of all taxes. (Ord. 1659 § 1 (part), 2018) 5.10.280 Violation deemed misdemeanor. Any person violating any of the provisions of this chapter shall be guilty of a misdemeanor punishable under Chapter 1.12 unless the tax administrator provides by regulation that violation of a particular provision of this chapter ought to be enforced as an infraction or if the city attorney determines in his or her discretion that a particular violation ought to be enforced as an infraction in the interests of justice. (Ord. 1659 § 1 (part), 2018) 5.10.290 Severability. If any provision of this chapter, or its application to any person or circumstance, is determined by a court of competent jurisdiction to be unlawful, unenforceable or otherwise void, that determination shall have no effect on any other provision of this chapter or the application of this chapter to any other person or circumstance and, to that end, the provisions hereof are severable. (Ord. 1659 § 1 (part), 2018) 5.10.300 Remedies cumulative. All remedies and penalties prescribed by this chapter or which are available under any other provision of the San Luis Obispo Municipal Code and any other provision of law or equity are cumulative. The use of one or more remedies by the city shall not bar the use of any other remedy for the purpose of enforcing the provisions of this chapter; provided only that the city not recover any sum due under this chapter, including penalties and interest, more than once. (Ord. 1659 § 1 (part), 2018) z Packet Page 139 Item 9 Ordinance No. (2021 Series) Page 35 5.10.310 Amendment or repeal. This chapter may be repealed or amended by the city council without a vote of the people to the extent allowed by law. However, as required by Article XIII C of the California Constitution, voter approval is required for any amendment that would increase the maximum rates of any tax established pursuant to this chapter. The people of the city of San Luis Obispo affirm that the following actions shall not constitute an increase of the rate of a tax: A. The restoration of a tax to a rate or amount that is no higher than that set by this chapter; B. An action that interprets or clarifies the methodology of the tax, or any definition applicable to the tax, so long as interpretation or clarification (even if contrary to some prior interpretation or clarification) is not inconsistent with the language of this chapter; or C. The collection of the tax imposed by this chapter even if the city had, for some period of time, failed to collect the tax. (Ord. 1659 § 1 (part), 2018) 5.10.320 Enforcement consistent with business license tax. Except as otherwise provided in this chapter, the taxes due under this chapter may be enforced in the manner provided by Chapter 5.01 and any policy or regulation adopted or implement pursuant to that chapter. (Ord. 1659 § 1 (part), 2018) z Packet Page 140 Item 9 RESOLUTION NO. (2021 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, WAIVE THE OPERATOR PERMIT RENEWAL FEES FOR FISCAL YEAR 2020 — 2021 FOR COMMERCIAL CANNABIS BUSINESS PAPA BEAR FARMS, LLC WHEREAS, the City of San Luis Obispo' s (City) General Plan and Airport Area Specific Plan call for annexation of the area referred to as the Fiero Lane and Clarion Court Annexation Area; and WHEREAS, City Council approved the Fiero Lane and Clarion Court area annexation on November 19, 2019; and WHEREAS, within the proposed annexation area a Commercial Cannabis Delivery and Small -Scale Manufacturing Business, Papa Bear Farms, LLC licensed by the State of California's Bureau of Cannabis Control (BCC) and County of San Luis Obispo (County) is coming under City jurisdiction; and WHEREAS, a licensed Cannabis Business by the BCC and County is eligible to continue its business operations in the City of San Luis Obispo once the annexation occurs; and WHEREAS, the current cannabis regulations within Chapter 9.10, 5.10 and 17.86.080 do not provide explicit direction for cannabis business annexations; and WHEREAS, Papa Bear Farms, LLC will be required to have a valid City operating permit and pay applicable fees; and WHEREAS, Papa Bear Farms, LLC has expressed significant concerns regarding the impact of the City's operator permit renewal fee on its ability to continue existing operations within City jurisdiction; and WHEREAS, the City acknowledges the existing business structure was based on County operating permit fees; and WHEREAS, Papa Bear Farms, LLC supports City Council's consideration of waived operator permit renewal fees for Fiscal Year 2020 — 2021; and WHEREAS, the City Council has the authority to waive the operator permit renewal fees for Papa Bear Farms, LLC through June 30, 2021; and WHEREAS, on January 19, 2021 the City Council held a public hearing to review and discuss a proposal to waive Papa Bear Farms, LLC operator permit renewal fees through June 30, 2021, receive public input and consider the recommendations of its staff. Packet Page 141 Item 9 Resolution No. (2021 Series) Page 2 NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Findings. The City Council makes the following findings: 1. That the above recitals are true and correct. 2. That the proposed waiving of cannabis operator permit renewal fees is consistent with the City's Municipal Code and cannabis regulations. 3. Support and retention of existing businesses during and following the COVID-19 pandemic emergency is in the public interest of the residents of the City and the City organization. 4. A one-time waiver of fees to advance the retention of an established locally owned and operated business and its continuing operations and tax contributions in City jurisdiction following annexation is in the long-term financial interest of the City and advances the economic development interests of the community as a whole. Packet Page 142 Item 9 Resolution No. (2021 Series) Page 3 SECTION 2. Action. The City Council takes the following actions: 1. The City waives the operator permit renewal fees for Papa Bear Farms, LLC through June 30, 2021. 2. The City will issue Papa Bear Farms, LLC a City of San Luis Obispo Operator Permit for the 2020 — 2021 Fiscal Year ending on June 30, 2021 and the business may continue to operate in the City with a renewal of the operating permit and payment of applicable fees required by July 1, 2021. Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this day of Mayor Heidi Harmon ATTEST: Teresa Purrington City Clerk APPROVED AS TO FORM: J. Christine Dietrick City Attorney 2021. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on Teresa Purrington City Clerk Packet Page 143 Item 9 BLANK PAGE This page is intended to be blank so that you can print double -sided. Packet Page 144 S G� � Y n�, �^�� CITY OF S.fIIl. LEAS OBISPO r4rs o4 Recommendation 1. Receive an update on the City's Cannabis Business Program; and 2. Adopt a resolution that updates the Cannabis Fee Schedule; and 3. Introduce and adopt an ordinance amending Municipal Codes Section 9.10 and 5.10 that renews all operator permits at the beginning of the fiscal year; and 4. Adopt a resolution that waives the operator permit renewal fee for a cannabis business being annexed into the City of San Luis Obispo from the date of annexation to July 1, 2021. Background November 8, 2016: Proposition 64 approved allowing recreational cannabis use in CA May 1, 2018: City Council adopts an ordinance to create land use regulations allowing personal cultivation and commercial cannabis businesses to operate in the City May 15, 2018: City Council considers a proposed ballot measure for the November 2018 election to establish a Cannabis Business Tax if approved by voters October 16, 2018: City Council met to discuss cannabis business operator application requirements and evaluation criteria for ranking operators and provided staff with a list of directional items to incorporate into revised criteria November 6, 2018: Residents voted to authorize the Cannabis Business Tax Measure (Measure F-18), putting Ordinance 1647 in effect. November 27, 2018: City Council adopted the resolution approving the fee schedule and evaluation criteria for the Cannabis Business Operator Permits December 3, 2019: City Council received the first annual cannabis program update and adopted modifications to the application fees, and adopted an ordinance to modify Municipal Code 9.10 Program Update Business Business Status Retail Storefront Me an's Organic Market Open and operating in the City. Natural Healing Center Received a Commercial Cannabis Operator Permit on October 22, 2019. Received a Conditional Use Permit on November 13, 2019 The businesses operator permit requires the business be open by Aril 2021. SLO Cal Roots Received a Commercial Cannabis Operator Permit on March 23, 2020 and is now completing the land use permit process. Manufacturing, Distribution and Retail (Non -Storefront) Coastal Delivery SLO Open and operating in the City, Element 7 Received a Commercial Cannabis Operator Permit on December 6, 2019. Received a Conditional Use Permit on August 24, 2020. The businesses operator permit requires the business be open by June 2021. Cali Direct Received a Contingent Commercial Cannabis Operator Permit on May 19, 2020 and is currently completing the background check process. Pure SL Received a Contingent Commercial Cannabis Operator Permit on November 2, 2020 and is currently completing the background check process. Business Locations within the City SLO Cal Roots Megan's Organic Market O Natural Healing Center 9 Element 7 0 Pure SL Cali Direct Coastal Delivery y San Luis Obispo °Wu 9 S v`4 Madonna Inn© Southst V �y Q S e Irish Hills �'�^ South Hills sr 0—n Rd° of Natural ^'6� Open Space 'd Reserve 0 San Luis Obispo County Regional y Airport 1�1 fi:icklty RBI Johnson Ranch Open Space Mobile Deliveries from Outside of the City Since the start of this program the City has registered 11 of these businesses • The City has received over $100,000 in cannabis taxes from these businesses • Reported uncompliant to the BCC • Enforcement through SLOPD and Administrative Actions • Licensing of out of area operators continues Annexation of Papa Bear Farms • Approved through the Fiero Lane and Clarion Court Annexation • The business is eligible to continue operations in the City • The business expressed significant concerns regarding the operator permit renewal fee • The business structure was based on County operating permit fees Recommendation: Waive the operator permit renewal fee from the date of annexation to July 1, 2021. Operator Permit Fees Retail � $96,074.11 $39,638.38 � Manufacturing � $76,407.43 � $39,638.38 � ■ Cultivation Other Businesses $76,629.12 $691890.40 $39,638.38 $39,638.38 Staff proposes to reimburse operators who have already paid FY 20-21 the difference of the current fees and the proposed fees. ■ Staff also recommends placing all operator permit on a Fiscal Year Renewal Cycle, starting July 1st and ending June 30t" of each year. Costs Included in Fees • Providing Business Support • Compliance Monitoring • Quarterly inspections • Unscheduled inspections • Monthly Sales Tax Monitoring • Annual Financial Audits • Operator Permit Renewals • Community Benefit Agreement Monitoring • Background Checks • Background Checks for New Employees • Complaint Response • Internal Administrative Support • Program Modifications • State Regulation Monitoring • Non -Qualified Sales Program Fiscal Impact Funding Sources Current eted Revised eted Fees Change in Annual Ongoing ..Budgeted Cost Fees —j General Fund $3201937 $220,402 $100,535 $0 State Federal Fees Other: Total $3201937 $ 220,402 $100,535 $0 ■ Because staff proposes to reimburse operators the difference, there will be a budget shortfall for Fiscal Year 2020-21 in the actual fees collected. ■ However, staff is confident that the amounts collected in Cannabis tax will exceed the budgeted $400,000 and eliminate most if not all of the fee shortfall. Recommendation 1. Receive an update on the City's Cannabis Business Program; and 2. Adopt a resolution that updates the Cannabis Fee Schedule; and 3. Introduce and adopt an ordinance amending Municipal Codes Section 9.10 and 5.10 that renews all operator permits at the beginning of the fiscal year; and 4. Adopt a resolution that waives the operator permit renewal fee for a cannabis business being annexed into the City of San Luis Obispo from the date of annexation to July 1, 2021. Alternative Council Action: Papa Bear Farms Current Recommendation: Waive the operator permit renewal fee from the date of annexation to July 1, 2021. Council can direct staff to: 1. Defer instead of waive fees 2. Extend duration of fee waiver • Extend from 6 months to all of FY 21-22 3. Come back with a tiered Fee Structure for Retail Storefront and Non -Retail Storefront 4. Do a combination of any of these options