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Ordinance Amendment No. 2019-01 — Commercial Cannabis Vertical and Horizontal Integration <br />and Ordinance Updates <br />June 4, 2019 <br />Page 2 <br />use cannabis retail sales, cannabis cultivation, distribution, manufacturing, and testing. Medicinal <br />cannabis retail sales continue to be subject to taxes pursuant to Measure BB. <br />Multiple changes to State cannabis laws and changes in market demands require the City to revisit <br />its ordinances and tax collection to ensure that Santa Ana maintain its competitive position in the <br />region, remain compliant with applicable laws, and streamline its implementation of cannabis <br />taxation. When added to Santa Ana's local cannabis taxes, the State's assessments on cannabis <br />goods, which include sales tax, excise cannabis tax, and cultivation tax, result in legally -operating <br />and permitted commercial cannabis businesses having to confront a combined state and local tax <br />rate exceeding 50 percent of the retail sale value of their cannabis goods. This 50-percent rate <br />discourages businesses from seeking the required permits to operate legally and can foster a <br />continued illicit cannabis market, which is to the detriment of Santa Ana's permitted operators. <br />DESCRIPTION <br />The table below (Proposed Amendments to Chapter 21) describes the ordinance amendments. <br />Additional details are provided in the subsections that follow. <br />Proposed Amendments to Chapters 21 <br />Item <br />Proposed Amendment <br />Impact <br />Vertical and <br />Amends Ordinances NS-2864 and NS- <br />Incentivizes cannabis business to expand <br />Horizontal <br />2962 to allow vertical and horizontal <br />operations within the City and encourages new <br />Integration <br />integration of business structures for <br />businesses to enter the Santa Ana marketplace <br />businesses engaging in multiple types of <br />by providing full vertical/horizontal integration of <br />commercial cannabis business activity. <br />commercial cannabis business activities in Santa <br />Includes allowance for vertical and <br />Ana, including medicinal and nonmedicinal retail <br />horizontal integration of commercial <br />cannabis businesses. Allows for the deduction of <br />cannabis business activities involving both <br />interparty sales and/or transfers of cannabis and <br />medicinal and nonmedicinal cannabis retail <br />cannabis products occurring within a single <br />businesses. <br />integrated cannabis business from the reportable <br />gross receipts of cannabis businesses, thereby <br />reducing the net negative effect of multi -level <br />taxation. Incentivizes existing cannabis <br />businesses to expand operations within the City <br />and encourages new businesses to enter the <br />Santa Ana marketplace by providing full <br />vertical/horizontal integration of commercial <br />cannabis business activities in Santa Ana, Allows <br />for the deduction of intraparty sales and/or <br />transfers of cannabis and cannabis products <br />occurring within a single integrated cannabis <br />business from reportable gross receipts of <br />cannabis businesses thereby reducing the net <br />negative effect of multi -level taxation. <br />Security Deposits <br />Amends Ordinance NS-2962 to allow a <br />Reduces overall security deposit requirement to a <br />single security deposit to cover multiple <br />maximum amount of $10,000. Allowstwoormore <br />types of vertically/horizontally integrated <br />vertically/horizontally integrated cannabis <br />commercial cannabis business activities <br />businesses to be covered by a single deposit. In <br />conducted by the same ownership <br />lieu of higher deposit amounts, implements well <br />regardless of form of business structure. <br />defined proceeds for handling deposits, their <br />application, replenishment, and release as well as <br />75F-2 <br />