75A - PH - CANNABIS UPDATE - Laserfiche WebLink

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Ordinance Amendment No. 2019-01 — Commercial Cannabis Ordinance Updates July 16, 2019 Page 5 Security Deposits Concerning security deposits, it was determined that nominal security deposit language setting a minimum security deposit amount of $10,000 or the average of one month's remittable commercial cannabis tax, whichever was greater, would be included in the final text of Measure Y. This was done with an understanding that the City would be open via a subsequent ordinance, as provided under the terms of Measure Y, to reducing and capping the amount of security deposits for commercial cannabis businesses to $10,000 or one month's average remittable commercial cannabis tax, whichever is least. Also, it would permit two or more vertically/horizontally integrated cannabis businesses to be covered by a single deposit, provided that: clear detailed procedural language be added surrounding security deposits, their maintenance, application, replenishment and refunding and that similarly detailed language be added concerning sales, assignments, transfers and terminations of cannabis businesses to ensure the City is secure in its continued receipt of cannabis business license tax revenues. Allocated Gross Square Footage In the case of integrated distribution and/or manufacturing cannabis businesses, the minimum gross square footage tax reported would reflect the allocated square footage actually utilized by the business as verified by the City, rather than the maximum square footage of the premises. The gross square footage tax on cultivation would continue to be based on canopy size as reported to the state and as verified by the City. The gross square footage tax for adult -use retail businesses would continue to be based on the maximum size of the premises. Gross Receipts Tax Rate Reduction for Cannabis Testing Laboratories Local jurisdiction tax rates on commercial cannabis testing laboratories vary across the state. When the City's commercial cannabis testing laboratory ordinance was adopted in March 2018, testing laboratory tax rates ranged from 2 to 10 percent in various jurisdictions statewide. The City currently collects a tax of 5 percent of gross receipts or $1.50 per gross square foot, whichever is the greater of the two calculations. Nearby, the City of Costa Mesa collects 6 percent; Long Beach collects 6 percent, with the option to increase to 8 percent; Bellflower collects 5 percent, (with multiple 2.5 percent annual increases scheduled beginning July 1, 2020 until a 10 percent cap is reached) and Irvine collects no taxes. It is important to note that beginning in 2015 the City of Irvine ceased collecting a business license tax for any type of business in the City. Cannabis testing laboratories play a crucial role in ensuring product safety for medicinal and adult -use consumers. Testing laboratories examine products for pesticides, minerals, potency, and toxicity. These facilities employ highly -skilled and educated individuals and require purchasing and installation of costly equipment. Although the City's current 5 percent tax rate is consistent with other local jurisdictions with the exception of Irvine, the City has a continuing interest in promoting safe medicinal and nonmedicinal cannabis and cannabis products for all users and to ensure the sustained growth of the regulated medicinal and commercial cannabis business hub in Santa Ana. Reducing the cannabis testing laboratory gross receipts rate from 5 75A-5