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  Time Set   #   35.    
Board of Supervisors   
Meeting Date: 08/01/2017  
Brief Title:    Update on Medical Cannabis Cultivation Program and Review Recommendations for Next Step
From: Mindi Nunes, Assistant County Administrator, County Administrator's Office
Staff Contact: Mindi Nunes, County Administrator's Office, x8426


Receive update on the implementation of the interim medical cannabis cultivation ordinance, state regulatory processes, city activities, and fee structure; and provide direction to staff on future considerations regarding the medical cannabis cultivation program. (No general fund impact) (Nunes/Blacklock)

Recommended Action
  1. Receive update on the implementation of the interim medical cannabis cultivation ordinance, state regulatory processes, city activities, and fee structure; and
  2. Provide direction to staff on future considerations regarding the medical cannabis cultivation program.
Strategic Plan Goal(s)
Operational Excellence
Safe Communities
Sustainable Environment
Flourishing Agriculture
Reason for Recommended Action/Background
The interim ordinance regarding medical marijuana cultivation was approved in March 2016. Since that time, the following activities have taken place: 
  • License Applications - 64 licenses have been issued, 6 licenses have been denied, and 5 license denials have been appealed and upheld.
  • Site Visits - There have been 57 scheduled site visits, 15 unannounced task force site visits, and 4 unannounced weekend enforcement visits.
  • Live Scan - 288 growers/owners/employees have been Live Scanned.
  • Track and Trace Program - 80 people (growers/owners/employees) have been trained on the Track and Trace Program. Approximately 54,000 plants have been tagged.
  • Laboratory Testing - Thus far, 83 samples have been collected. None have failed for pesticide use.
  • Staff estimates there are approximately 20 to 25 Central Valley Regional Water Quality Control Board (CVRWQCB) Notices of Applicability (NOA) that met the October 11, 2016 Notice of Intent submittal deadline specified in the County’s interim ordinance, but for which cultivation applications have not been submitted to the County.
  • Enforcement activities have focused on ensuring that licensees are in compliance with all applicable codes. Enforcement action has also been taken on cultivation applicants who were denied licenses but moved forward with cultivation. The County Cannabis Task Force is working with the District Attorney and Sheriff’s Office in developing a process for dealing with illegal grows not associated with the County’s medical cannabis cultivation program.

On July 27, 2017 Governor Brown signed SB 94, the Medical and Adult Use Cannabis Regulation and Safety Act (MAUCRSA), effectively repealing the Medical Cannabis Regulation and Safety Act (MCRSA) and integrating its former provisions with the Adult Use of Marijuana Act (AUMA).  SB 94 was a budget trailer bill which went into effect immediately.

State Regulations
The Bureau of Cannabis Control, the Department of Public Health and the Department of Food and Agriculture have released draft regulations implementing MCRSA and AUMA for public comment. However, with the passage of SB 94/MAUCRSA, the draft regulations will be withdrawn and new regulations proposed, consistent with the changes in law. It is believed that many of the provisions of the previously drafted regulations will carry over to the new regulations. However, the implementation date for the regulations remains January 1, 2018. Staff has and will continue to be involved in reviewing and commenting on the regulations through California State Association of Counties, Regional Council of Rural Counties, and the Agriculture Commissioner’s Association.

The City of Davis prohibits outdoor commercial cannabis cultivation and currently prohibits dispensaries. However, the City allows indoor and outdoor cannabis cultivation for personal use, with limitations regarding the number of plants per household (6) and a plant height limit of 6 feet or the height of the required solid or opaque fence, whichever is lower. The City also allows cannabis manufacturing, testing, research, and distribution uses in certain zones and with land use entitlements.  The City is also considering allowing a limited number of cannabis dispensaries and delivery services.
West Sacramento
The City of West Sacramento has a moratorium on the outdoor cultivation and sales of non-medical cannabis through October 29, 2017. The City also prohibits medical cannabis dispensaries. It does allow personal indoor cultivation of medical marijuana and it recently approved a land use entitlement for a wholesale medical cannabis logistics, distribution, and transportation facility.
City staff have recommended the following:
  • Ban personal outdoor cultivation of medical and non-medical marijuana;
  • Regulate commercial cultivation to indoors in certain zones and requiring a use permit and development agreement;
  • Allow deliveries per state law;
  • Allow laboratory testing in certain zones;
  • Allow distribution of nonmedical cannabis;
  • Allow manufacturing in certain zones and require a use permit, development agreement, and security plan; and
  • Allow bulk storage with distribution and manufacturing in industrial zones, subject to an entitlement process.
The City has a moratorium banning outdoor cannabis cultivation, which expires on October 1, 2017. The City does allow medical cannabis cultivation by a qualified patient or primary caregiver.  At this time, the City is considering extending its temporary moratorium on all outdoor cultivation to permanent status. However, it is continuing discussions regarding the possibility of allowing limited commercial activity in the future.
The City of Winters prohibits dispensaries, manufacturing and commercial cultivation. It does allow personal cultivation for medicinal use. The City Council will be considering an ordinance prohibiting outdoor cultivation of medical cannabis for personal use given concerns regarding odors.

Given the recent passage of SB 94/MAUCRSA, we do not yet know the final form of the state regulations for implementation of the state’s cannabis program. Nevertheless, the County’s Cannabis Steering Committee has identified three options for the Board’s consideration with respect to the County’s interim ordinance. These options are identified and discussed below:
  1. Continue the existing program with modifications;
  2. Expand the existing program to include additional value added processes, such as nurseries and drying/hand-trimming facilities; and  
  3. Unwind/phase-out the existing program.
Continue Existing Program with Modifications
This option contemplates a two-step process: (1) maintain the existing program with minor changes in the near future, and subsequently (2) convert the program into a land use-based approach that would function as part of the Zoning Code.  Based on experience in implementing the program, staff recommends making primarily administrative modifications to the current ordinance within the next couple of months, such as adding clarifying language and additional enforcement provisions. For the long term, staff recommends that the cultivation program be shifted to a land use process, which would better address issues that have arisen under the current program format.  These are discussed further below.

Immediate Modifications
The Steering Committee recommends that the modifications listed below be implemented immediately should the Board choose to continue with the existing program. 
  • The setback requirements from a cultivation site to residential structures on adjacent parcels should be increased from 75 feet to 1,000 feet. The 1,000-foot setback to tribal lands should be limited to lands held in trust for the Yocha Dehe Wintun Nation by the federal government.
  • A methodology should be established to enable a medical cannabis cultivation business license holder to relocate a cultivation site to a location with less community impact. Under the interim ordinance, a business license holder may not transfer the license and CVRWQCB NOA to a different site. This precludes County staff from working with business license holders in finding cultivation sites that could be more suitable than the one for which a license was obtained.
  • Provisions regarding the location of greenhouses to reduce potential impacts of such structures to agriculture on the balance of the parcel.
  • The interim ordinance also contains enforcement provisions for a violation(s) of the ordinance which includes abatement and administrative penalties. Staff recommends that additional enforcement provisions be included, such as:
  1. Business licenses should include language expressly stating that they are revocable in the event of a violation.
  2. Establish standards for levels of contamination and provide authority to destroy crops that test positive for the presence of contaminants that exceed those levels.
  3. Penalties if a cannabis grow exceeds the square foot limitation specified under Section 5-20.04 of the ordinance.
Land Use Process
Under the interim ordinance, a County business license must be obtained in order to cultivate medical cannabis. Should the Board wish to continue the current program, staff recommends the program fall under the County’s land use process with the Planning Commission considering the ordinance and Community Services administering permit applications. This would result in modifications to the cannabis application process such as:
  • Notification during the permitting process to all property owners within 300 feet of the exterior boundaries of the parcel on which medical cannabis cultivation would occur.
  • Imposition of zoning restrictions designating where medical cannabis may be cultivated and where it may not. These restrictions could include, for example:
    1. Prohibiting medical cannabis cultivation in areas zoned Rural Residential or other areas designated for residential uses in the County’s General Plan;        
    2. Restricting cultivation to parcels of a minimum size;
    3. Limiting the number of permits issued in a specific geographic area;
    4. Establishing “no grow” zones within, for example, a quarter mile to a town or city.
  • Entering into development agreements between the County and the cultivator for grows over a certain size or where a cultivator desires long-term regulatory assurances in conjunction with capital investments such as greenhouses and other facilities.
  • Development of a process or transition period for current medical cannabis cultivation business license owners who would no longer be in compliance due to new restrictions.
  • Potentially, a process to ensure appropriate tribal consultation on permit applications (and renewals thereof) with the objective of avoiding impacts to cultural resources.
It’s important to note that under SB 94/MAUCRSA, the California Environmental Quality Act (CEQA) does not apply to the adoption of an ordinance, rule, or regulation by a local jurisdiction that requires discretionary review and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity, including medical marijuana, so long as the discretionary review includes environmental review pursuant to CEQA. Thus should the Board choose to direct staff to include the medical cannabis cultivation program under the County’s land use process, the adoption of the ordinance, rule, or regulation would be exempt from CEQA. This would expedite the time required to effectuate the ordinance. However, this CEQA exemption under SB 94/MAUCRSA expires on July 1, 2019.
Staff believes that an amendment to the existing interim ordinance as recommended above would be exempt from CEQA.

Include Additional Value-Added Processes Under the Program
Currently, only medical cannabis cultivation is allowed under the County’s program. However, additional value-added processes could be included under the program. The Steering Committee recommends:
  • Nurseries – The County could include nurseries under the program and issue a limited number of business licenses for a limited number of nurseries (i.e., one to two in a pilot program). This would enable immature plants, seeds and other agricultural products used specifically for the propagation and cultivation of medical cannabis to be produced under the program. 
  • Drying/Hand-Trimming Facilities – The County could also include drying/hand-trimming facilities under the program and issue a limited number of licenses (i.e., one or two in a pilot program) for these facilities. This would allow multiple growers to utilize a centralized depository for the exclusive use of drying and hand trimming the cannabis in preparation for sale. 
The drying/hand-trimming facility would better ensure that product could be stored in a safe, sanitary, and secure facility for the final sampling until the test results are reviewed. Having multiple growers use the facility would allow staff to maximize its time since sampling could be conducted at one location rather than traveling to numerous grow sites. A consolidated drying/hand-trimming facility would also provide a measure of security for the growers as the product would be held at a secure facility.

As operations of this nature tend to require long-term capital investments in greenhouses or other structures, staff would propose to offer (or require) permit applicants to enter into a development agreement with the County as part of the permitting process.  The development agreement process would enable the County to provide long term regulatory assurances to applicants (e.g., vested rights to operate for a fixed term, such as 15 years) in exchange of “net gains” to the County similar to the per-ton fees and land dedications included in the County gravel mining program.

Unwind/Phase-Out the Program
The County’s medical cannabis cultivation program is operating under an interim ordinance and participants are required to re-apply each year. In addition, under state law a local government can prohibit commercial cultivation of medical cannabis. Nevertheless, should the Board choose to phase-out or unwind the medical cannabis cultivation program, the following steps are recommended:
  • Determine an appropriate phase-out period. Because investments have been made by cannabis cultivation business license holders, the phase-out should be done over a period of time.
  • Develop a methodology for the implementation of the phase-out process.
  • Develop a methodology and funding mechanism to abate non-compliant activities.
Steering Committee Recommendation
The Steering Committee recommends that the Board continue with the existing medical cannabis cultivation program with the suggested modifications (administrative, immediate, and land use process) and add additional value-added processes (nurseries and drying/hand trimming facilities) under the land use process to be developed.
It is important to note that Sheriff Ed Prieto’s preference is to discontinue the program.  However, if it continues, his preference is that there be no increase in the number of available licenses and for all cultivation to occur in greenhouses.
On November 22, 2016, the Board approved five fees to cover the costs associated with implementation of the interim ordinance. The fees for the medical cannabis cultivation program were designed to recover the cost of administering and enforcing the interim ordinance. The program fees adopted in November 2016 were based on estimated costs and staff time, and incorporated the experience of the County’s medical cannabis cultivation task force at that time. Cost models were also used to determine the Annual Certification fees and the enforcement fee. 

Additional fees were approved by the Board on June 27, 2017 for the operation of the Track and Trace program and laboratory testing of the medical cannabis cultivated in the County.  These fees will be charged to and collected from cultivators and passed through to the Track and Trace and laboratory testing vendors SICPA Product Security, LLP (SICPA) and Steep Hill Labs, respectively. The fees adopted in June 2017 were provided by SICPA Product Security LLP, the operator of the County’s Track and Trace Program, and Steep Hill Labs, Inc. who does the cannabis laboratory testing.

As of June 30, 2017, the following fees have been collected:
Revenue based on Fees Collected  
  Fees and Permits* $     29,700
  Cannabis Permit and Application Fee $    120,025
  Cannabis Initial Permit Fee $    406,100
  Annual Certification (Canopy) Fee $1,102,376
  Track and Trace Fee $     77,621
Total Revenue $1,735,822
Total Expenditures Billed to Date  
  Salaries and Benefits $   81,198**
  Services and Supplies $   58,949
  Equipment/Vehicle $   81,982
  Expense Transfer Requirements $ 219,693
Total Expenditures ($ 441,822)
Net $1,294,000
Deferred Revenue Collected*** $  671,750
Total (as of June 30, 2017) $1,965,750


*   These are fees which have been collected but have not yet been allocated to the applicable program fee category.
**  This includes County Environmental Health and Financial Services costs that will be billed by July 31, 2017.
*** Cannabis Annual Certification (Canopy) fees are collected on a calendar year basis. Thus, a portion of the collections represent revenue deferred to the 2017-2018 Fiscal Year.

Additional Program Expenditures Not Yet Billed
The expenditures listed above, do not reflect all of the costs to be incurred by the program this year. It was the intent of the program that the fees would be collected first, to ensure there is adequate funding to cover the expenses.  Given this, there are additional personnel costs and expenses that have not yet been billed but will be in Fiscal Year 17-18. These are listed below:

Position Amount
Rural Fire Dept. Representatives $100,000
Agriculture Dept. Staff Costs $100,000
Agriculture & Standards Inspector I $  83,666
Two Deputy Sheriff Investigator Positions $306,224
Building Inspector $  70,000
Total $659,890

Rural Fire Departments - Recently, a representative of the rural fire departments has joined the County’s Medical Cannabis Cultivation Task Force. Representative(s) of the rural fire departments will participate in application reviews and field inspections to ensure compliance with the fire code. The rural fire departments’ Task Force representative will coordinate participation amongst the rural fire departments. The estimated cost for the rural fire departments’ time in participating in Task Force activities is approximately $100,000/year.
Agriculture Department Staff – Currently there is approximately $100,000 in staff costs that have not yet been charged to the program. In addition, the Agriculture Department intends to hire a new Agriculture and Standards Inspector I to assist with pesticide use enforcement for the program.
Sheriff’s Office – The Sheriff’s Office has requested funding to hire two deputy sheriff investigator positions to be assigned to the Medical Cannabis Cultivation Program to assist with application reviews, security, and enforcement.
Public Works Department – The Public Works Department proposes to hire a building inspector to be dedicated to ensuring building code compliance.
County Counsel’s Office—The County Counsel’s office has devoted considerable time (about 250 hours in the six months since tracking began) to supporting County efforts to develop, implement, and amend the existing ordinance, and also participates regularly in policy discussions and other aspects of the County’s program.  No new staff are presently contemplated, but the role of the office is expected to remain significant for the foreseeable future. 

Below are estimates for one-time expenses which have not yet been billed to the program:
Expense Amount
   Agriculture Department $ 60,000
   Sheriff's Office $140,000
   Sheriff's Office Services and Supplies $    5,000
Track and Trace (SICPA) Program Costs $250,000
 Laboratory Testing (Steep Hill Labs) Costs $500,000
 GIS Layer for Mapping $190,000
 Conference Room Renovations $  40,000
  Sheriff's Office Aero Squad Camera Upgrade for Mapping/Photos $  90,000
Total $1,275,000

Program Totals
Total (as of June 30, 2017) $1,965,750
Addition Program Expenditures Not Yet Billed  
    Personnel $ 659,890  
    Expenses $1,275,000
Total Additional Program Expenditures Not Yet Billed $1,934,890
Total Remaining $    30,860

At this time, staff believes that the fees are sufficient to cover the program expenses. However, given the infancy of the program, more time is necessary to determine whether changes to the fees will be needed in the future. In addition, should the Board choose to continue the program, staff recommends that a litigation reserve be established to cover any required litigation fees.  Staff will continue to monitor the program revenue and expenditures and provide another update to the Board in the future.
 Revenue and Taxation Code Section 34021.5 allows Counties to impose a tax on cannabis cultivation and other related products and processes authorized under the law. A tax measure would provide a source of revenue to fund County costs not directly attributable to the business license fees currently being collected. While fees can recover costs associated with issuing business licenses, inspections, compliance monitoring, and other related activities, they cannot be used to fund other costs not attributable to a licensee, including those related to law enforcement, policy development, health impacts and education, and environmental cleanup.

A few examples of unfunded activities include: youth prevention education, child support enforcement,  impacts on children of readily available substances, impacts on roads due to increased activity, treatment of abuse, public safety impacts due to driving under the influence, petty crimes and seized assets, food safety through labeling and packaging, effects of pesticides and other hazardous materials.
As an example of the potential revenue from a tax on cannabis cultivation, David McPherson, Cannabis Compliance Officer with HdL Companies, in his January 2017 Board presentation conservatively estimated annual revenues of $6,016,000. His more aggressive estimate was $7,242,000. This was based on 100 permits which consist of a mixed blend of outdoor only Tier 1, Tier 2, and Tier 3 CVRWQCB permits.
Should the Board choose to move forward with a tax measure, there are two types of taxes which could be imposed – a general tax and a special tax. Board and voter approval would be required for both. The voter approval required (i.e., simple majority or two-thirds) is dependent upon the type of tax. In addition, the Board could specify whether the tax applies throughout the entire County or only within the unincorporated area of the County.

General Tax
A general tax is one in which the tax proceeds go into the County’s general fund and are available for general government purposes. The Board may levy a tax for general purposes, provided the ordinance proposing the tax is approved by a two-thirds vote of all members of the Board (4/5 vote) and the tax is approved by a majority vote of the voters.
Special Tax
Revenue from a special tax may only be used for a specific purpose, such as a specific program or project. A special tax requires both a two-thirds vote of all members of the Board and approval by a two-thirds vote of voters.
If a tax measure were to be placed on the June 5, 2018 ballot, the following timeline would apply:
  • February 5, 2018 (120 days before the election): Deadline to have the measure resolution filed with the Board of Supervisors and a copy given to the election office.
  • March 9, 2018 (88 days before the election): Deadline for any arguments regarding the measure.
  • March 19, 2018 (78 days before the election): Deadline for any rebuttals regarding the measure.
In order to meet these dates, the Board would need to approve a ballot measure by the January 23, 2018 meeting. In order to be prepared for this decision, presentations on the revenue measure would occur at the November 7, 2017 and December 12, 2017 meetings.
If a tax measure were to be placed on the November 6, 2018 ballot, the following timeline would apply:
  •  July 9, 2018 (120 days before the election): Deadline to have the measure resolution filed with the Board of Supervisors and a copy given to the election office.
  • August 10, 2018 (88 days before the election): Deadline for any arguments regarding the measure.
  • August 20, 2018 (78 days before the election): Deadline for any rebuttals regarding the measure. 
In order to meet these dates, the Board would need to approve a ballot measure by the June 26, 2018 meeting. In order to be prepared for this decision, presentations on the revenue measure would occur at the April 24, 2018 and May 22, 2018 meetings.
Collaborations (including Board advisory groups and external partner agencies)
Cannabis Steering Committee  which includes: County Administrator's Office, Agriculture Department, County Counsel, Community Services Department, District Attorney's Office, Department of Financial Services, and the Sheriff's Office.

Fiscal Information
No Fiscal Impact
Fiscal Impact of this Expenditure
Total cost of recommended action
Amount budgeted for expenditure
Additional expenditure authority needed $0
On-going commitment (annual cost)
Source of Funds for this Expenditure
General Fund $0
Att. A. City of Woodland Comment Letter
Att. B. Presentation

Form Review
Inbox Reviewed By Date
Mindi Nunes (Originator) Mindi Nunes 07/27/2017 03:38 PM
Patrick Blacklock Mindi Nunes 07/27/2017 03:38 PM
Form Started By: Mindi Nunes Started On: 06/02/2017 09:49 AM
Final Approval Date: 07/27/2017
Level double AA conformance,
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