TITLE
Recommendation to receive supporting documentation into the record, conclude the public hearing, and adopt resolution amending the Master Fee and Charges Schedule for Adult-Use Cannabis Business application fees, permitting fees, and fines and penalties for violations of Chapter 5.92 of the Long Beach Municipal Code. (Citywide)
DISCUSSION
City Council approval is requested to establish adult-use cannabis business license application and annual permit fees, as well as fines and penalties related to illegal cannabis operations. The proposed fees are necessary to offset City department costs associated with regulating adult-use cannabis businesses in Long Beach.
Proposed fee amounts are based on the costs reasonably borne by the Police, Fire, Health, Financial Management, Economic Development, City Attorney, and City Manager Departments necessary to effectuate Long Beach Municipal Code (LBMC) Chapter 5.92, relating to Adult-use cannabis businesses. Costs to these departments will accrue throughout the application, licensing, and inspection processes. The proposed amendment includes administrative civil penalties for violation of LBMC Chapter 5.92 by illegal cannabis operations. The full list of proposed application and regulatory permit fees to implement the Adult-Use Cannabis Business Ordinance can be found in Attachment A.
Adult-use cannabis cost recovery through fees will allow the City to charge businesses directly for the services that they receive from the City. Without establishing new fees, the General Fund will be required to subsidize adult-use cannabis activities. This may result in forced reductions to other General Fund service areas. Cannabis business license tax revenues have thus far been insufficient to fund citywide cannabis regulatory activities.
The proposed fees are consistent with cannabis business fees established in other cities across California. A summary of cannabis business license application and permitting fees that have been established in other California cities are summarized in the table below:
Additional details on the proposed adult-use cannabis fees are provided below:
Adult-Use Cannabis Business Application Fee
Each adult-use cannabis business application requires significant staff time and resources to evaluate, process, and approve. Upon submittal, applications are checked for completeness. Since it is rare for an application to be deemed complete upon first submittal, Business License staff must follow up with applicants to request supplemental materials missing from the application. Next, Business License staff provide official notification to the applicant and City departments that the application may proceed to the plan check/inspection phase. Business License staff are responsible for tracking applications throughout the plan check/inspection process and troubleshooting issues as they arise. Following project construction, Business License staff schedule final inspections, notify State regulators of license issuance, and coordinate final billing of applicants. The total estimated General Fund cost for providing this service for applicants is $380 per application.
Adult-Use Cannabis Business Annual Regulatory Fee
Oversight of the adult-use cannabis industry involves staff from the City Manager’s Office, City Attorney’s Office, and the Financial Management and Fire Departments. Regulatory activities include policy development, business assistance, licensed enforcement, coordination with State agencies, process improvement, legal research, and other oversight activities. Based on the total number of applications received to date, staff estimates the total General Fund cost for providing oversight and regulatory services for adult-use businesses is $2,840 per business. This fee may be adjusted by the City Council on an annual basis to reflect the total number of licensed cannabis businesses operating in Long Beach.
Police Department Background Investigation Fee
All business owners are required to undergo California Department of Justice (DOJ) and Federal Bureau of Investigations (FBI) background investigations. These investigations are initiated through the Live Scan process, and results are forwarded to the Long Beach Police Department. Police Department staff are responsible for reviewing background check results to ensure that business owners have not been convicted of any offense substantially related to the operation of a commercial cannabis business pursuant to LBMC §5.92.265. Staff estimates the total General Fund cost for providing this service is $150 per business owner.
Adult-Use Cannabis Public Health Permit Fee
Adult-use cannabis businesses are subject to State and local laws and regulations relating to public health. Cannabis public health permit fees will offset the cost to the Department of Health and Human Services to inspect and enforce public health requirements at each adult-use cannabis site. The adult-use cannabis fee structure is similar to the existing fee structure designed for other businesses that require annual health permits and inspections. Staff recommends establishing separate fee amounts for each cannabis business type, including dispensaries, cultivators, manufacturers, and distributors, as follows:
The different fees reflect the amount of staff time required to inspect and regulate each type of adult-use cannabis business due to the size of the premises.
Cannabis Fire Permit Fee
Adult-use cannabis businesses are subject to Fire Department inspections to ensure compliance with Title 18 of the LBMC and the California Fire Code. Facilities are required to comply with all State and local laws related to fire safety, including, but not limited to, the installation of fire alarms, fire barriers, fire suppression systems, compliance of ingress and egress standards, hazardous material and compressed gas storage and use protocols, equipment installation, and other important fire safety issues. To offset the cost of these inspections, staff recommends establishing an annual fire permit fee. The proposed permit fees establish different rates for each adult-use cannabis business type, to reflect the amount of staff time required to inspect and regulate each facility.
Equity Program Fee
As part of the social equity program included in LBMC Chapter 5.92, adult-use cannabis businesses must ensure that at least 40 percent of all business work hours are performed by low-income individuals with a prior cannabis arrest or conviction, prior residency in a low/moderate income census tract in Long Beach, or current residency in Long Beach and receiving unemployment benefits. Staff from the Pacific Gateway Workforce Innovation Network (PGWIN) will be responsible for overseeing the equity hire requirement. PGWIN responsibilities will include public outreach, eligibility verification, business assistance, and program compliance.
In addition, adult-use cannabis businesses must submit a Community Reinvestment and Small Business Incubation Plan to the City describing how they intend to support equity business owners, adjacent neighborhoods, and communities within eligible social equity program census tracts. The process to review and track these plans will be managed by the Office of Cannabis Oversight (OCO) and Office of Equity. To offset the cost to PGWIN, OCO, and Office of Equity to oversee the program, staff recommend establishing a social equity fee of $2,500 per adult-use cannabis business. The social equity fee will be charged only to cannabis businesses that do not qualify for the cannabis social equity program. The fee will be collected initially upon application for an adult-use cannabis business license, and charged annually thereafter.
The cannabis social equity program also offers direct benefits to low-income applicants who qualify for the program. These benefits include one-time fee waivers to help low-income individuals afford the cost of applying for an Adult-Use Cannabis Business License. One-time fee waivers will include the Adult-Use Cannabis Business license application fee, background investigation fee, social equity program fee, and the first year of the annual regulatory fee.
Fines and Penalties
Any person who violates any provision of LBMC Chapter 5.92 is guilty of a misdemeanor punishable by a fine of not more than $1,000, or by imprisonment not exceeding 6 months, or by both such fine and imprisonment. Violations of the LBMC, including those within Chapter 5.92, may be prosecuted as misdemeanors, or as infractions, at the sole discretion of the City Prosecutor. In addition, violations of LBMC Chapter 5.92 may be enforced using the administrative citation procedures set forth in LBMC Chapter 9.65. Pursuant to these procedures, licensed adult-use cannabis businesses may be issued an administrative citation for violation of LBMC Chapter 5.92 for the following amounts:
• $100 for the first violation;
• $200 for the second violation within one year from the date of the first violation;
and,
• $500 for the third violation within one year from the date of the first violation.
In the interest of the City, its residents, lawfully licensed Adult-use cannabis businesses, and to protect the health, safety, and welfare, staff is recommending the City Council set the penalties for illegal cannabis operations as follows: $1,000 per day a violation exists and $25 for every cannabis plant cultivated in violation of Chapter 5.92.
This matter was reviewed by Deputy City Attorney Taylor M. Anderson on July 9, 2018 and by Budget Analysis Officer Julissa José-Murray on June 28, 2018.
TIMING CONSIDERATIONS
City Council action is requested on July 24, 2018, to allow for increased cost recovery upon adoption of an Adult-Use Cannabis Business Ordinance. The attached Resolution must be adopted by the City Council for fee adjustments to be implemented and new revenue to be generated.
FISCAL IMPACT
The total annual revenue from the proposed fees will depend on the number of adult-use cannabis business applications received and licenses issued in the City. Based on the current pace of medical cannabis application submittals, staff project the proposed fees will generate approximately $615,000 in General Fund revenues and approximately $50,000 in Health Fund revenues during the first full year of implementation. This assumes a similar pace of application submittals and approvals for adult-use cannabis as there have been for the medical cannabis industry thus far. Projected tax revenue related to both medical and adult-use cannabis will be included as part of the FY 19 Proposed Budget. There is no local job impact associated with this recommendation.
SUGGESTED ACTION
Approve recommendation.
BODY
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Respectfully Submitted,
PATRICK H. WEST
CITY MANAGER