A. Status of Integrated Program Approach
On January 9, 2018, the Board approved a three-pronged strategy for the County’s cannabis program. Although complementary and part of an integrated program approach, each strategy is operating on its own timeline. The updated schedule for the comprehensive cannabis program is listed below and included in Attachment A.
- June 2018 Tax Measure (Status: 79% voter approval of Measure K; Approve agreement and resolution for joining the California Cannabis Authority, which will assist, in part, with tax collection efforts – July 10, 2018; Board action on resolution creating a citizen’s oversight committee, process for making committee appointments, and expenditure plan general framework –July 24, 2018:);
- Development of the cannabis land use ordinance (CLUO) (Status: Draft of the CLUO presented to the Board - complete; citizen advisory committee, Planning Commission and public outreach meetings on the draft of the CLUO – complete; Board of Supervisors meeting on CLUO public outreach efforts – complete; Draft Environmental Impact Report to be released – November 2018) The schedule for the development of the CLUO and CEQA PEIR schedule is included in Attachment A.
- Early Implementation Development Agreements (Status: Letters of Intent deadline April 6, 2018 - complete; Complete Letters of Intent due May 18, 2018 – complete; Application due date for proposals consistent with the Interim Ordinance – 30 days after pre-application meeting. Application deadline for the remaining consistent projects - July 11, 2018.); Application due date for proposals inconsistent with Interim Ordinance - July 26, 2018)
B. Interim Ordinance Amendment
On June 26, 2018, the Board directed staff to return with an ordinance amending the County’s interim cannabis ordinance in three ways:
- Remove the requirement that commercial cannabis cultivation be for medicinal purposes only. This modification will apply to all licensed cultivators, including those proposing to operate under an early implementation development agreement (“early DA”) and will be incorporated into the Cannabis Land Use Ordinance.
- Allow distributor licenses in conjunction with nursery and processing facilities as part of a pilot program . This modification would apply to those who submitted a proposal under the nursery/processing RFP pilot program and also proposed in their early DA letter of intent to operate as a distributor.
- Outside the nursery/processing facility pilot program, allow distributor licenses for those who have requested them in an early DA letter of intent as part of vertical integration, but solely to support the business activities on that site and not to serve other licensees.
The State offers two types of distributor licenses, both of which will be allowed under this amendment.
- Distributor. A distributor is responsible for transporting cannabis goods, arranging for testing of cannabis goods, and conducting quality assurance review of cannabis goods to ensure they comply with all packaging and labeling requirements.
- Distributor-Transport. A distributor transport license allows a licensee to transport cannabis goods between licensed cultivators, manufacturers, and distributors.
Additionally, staff recommends two small additional modifications. One, the ordinance erroneously limited light wattage in greenhouses, a requirement that should only apply to outdoor grows. Two, the references to the Cannabis Task Force have been changed to the broader term “the County”, which more accurately encompasses the number of departments involved in implementing the cannabis regulations.
An ordinance with the proposed edits tracked is attached as Attachment B and a clean version of the ordinance is attached as Attachment C.
C. California Cannabis Authority
As discussed at the June 26, 2018 Board meeting, staff recommends that the County join the California Cannabis Authority (CCA), which is a joint powers authority (JPA) comprised of California counties and sponsored by the California State Association of Counties (CSAC). The purpose of the organization is to develop and manage a statewide data platform which will assist counties that are regulating commercial cannabis activity by consolidating data from different channels into one resource to help local governments ensure maximum regulatory and tax compliance. In addition, the platform will help to facilitate banking services to the cannabis industry by providing necessary information to financial institutions to help them fulfill necessary compliance requirements. Currently, Humboldt, Mendocino, Monterey, and San Luis Obispo Counties have joined the CCA.
The proposed joint powers agreement is attached as Attachment D and the proposed resolution approving the joint powers agreement is attached as Attachment E.
Data Platform for Regulatory and Tax Compliance
The data platform can be used to ensure that adequate tax payments are being made; assist the Sheriff’s Office and Cannabis Task Force with information updated in “real time” which will help the speed of compliance; provide public health officials with product information, including product origin and product flow; and inform community planning efforts by understanding locations, concentrations and potential past or future land use patterns. In addition, as more jurisdictions use this tool and the data platform is populated with data, CCA members will have a broader picture of cannabis activity throughout the state and access to information outside of their jurisdiction.
Linking Data and Financial Institutions
In addition to the cannabis and finance tracking aspects of the CCA, the CCA is also intended to help solve another industry problem: banking. Because of the existing federally prohibited status of cannabis, most banking institutions (chartered at the federal level) are unable or unwilling to open accounts for operators in the cannabis industry, despite its legality in the State of California.
To work with the cannabis industry, financial institutions must comply with the rigorous monitoring and reporting requirements needed to potentially utilize banking functions. Institutions must make sure cannabis businesses are not violating state laws or engaging in activities that the federal government considers law enforcement priorities. For each cannabis customer, financial institutions must complete special money laundering and suspicious activities reports. These are onerous requirements that demand extensive staff time.
The CCA hopes to ease this burden by providing detailed information on each interested cannabis business to contracting financial institutions, formatted to fit the institution’s regulatory reporting requirements. Providing financial institutions with comprehensive licensing and regulatory data on cannabis business is the single most important step California can take to increase banking in this industry.
Security of Data
The information that licensees would provide to the CCA is the same information and process (API connection) required by the state. In addition, the CCA will operate under a Memorandum of Understanding with state licensing agencies to ensure that all information that is confidential and not subject to the Public Records Act under Proposition 64 remains so. The data platform also adheres to all federal security standards, including the Federal Risk and Authorization Management Program (FRAMP) process to conduct security assessments, authorizations, and continuous monitoring of cloud services.
Appointments
CCA’s Board of Directors will be made up of one representative from each county that joins the organization. In addition, the day-to-day business of CCA will be directed by an Executive Committee consisting of five members from the Board of Directors. As part of the approval of the JPA agreement (Attachment E) and resolution to join the CCA (Attachment F), the Board must appoint a County representative and alternative to serve on the CCA Board of Directors.
Financing Structure
The CCA Board of Directors adopted a financing structure that includes a fee to be paid by each member county and participating entity that is based on total sales within the jurisdiction. The fee is 0.35%, or 35 basis points of total cannabis sales ($3,500 for every $1 million in gross receipts) by licensed cannabis businesses operating within unincorporated Yolo County. Gross receipts should not be confused with tax receipts or permit fees received by the County of Yolo. The CCA would bill the County at the end of each quarter, beginning with the first quarter of fiscal year 18-19.
While the gross receipts from cannabis businesses, which will be used to determine the CCA fee amount, is not known at this time, assuming the quarterly gross receipts were between $1 million and $5 million, the CCA fee would range from $3,500 - $17,500 (based on 35 basis points of total gross receipts). By way of another example, in the last quarter of fiscal year 17-18, Mendocino County generated approximately $7 million in retail and cultivation gross receipts. As a result, its CCA fee was $24,500 for that quarter.
Funds for the CCA fees would be included in the adopted budget and would be funded by the General Fund. However, given the regulatory and tax compliance benefits from participating in the CCA, future fees could be paid from the cannabis fund and the cannabis tax. |