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Ordinance Amendment No. 2019-01 — Commercial Cannabis Ordinance Updates <br />August 20, 2019 <br />Page 2 <br />5. Adopt a resolution amending Resolution No. 2017-074 authorizing amendment of the <br />commercial cannabis operating agreement template to identify social equity goals and <br />requirements and specify requirements for Community Benefit and Sustainable Business <br />Practices Plans and authorize the city manager to execute the cannabis operating <br />agreements. <br />BACKGROUND <br />The City of Santa Ana permits a variety of types of cannabis business activity, which include <br />retail sales of medicinal and adult -use cannabis, and cannabis cultivation, distribution, <br />manufacturing, and testing. These cannabis business activities were permitted through adoption <br />of multiple ordinances beginning with Measure BB (Ordinance NS-2684) in November 2014 <br />ending with Ordinance NS-2944 in May 2018. In November 2018, Santa Ana voters approved <br />Measure Y (Ordinance NS-2962), which established commercial cannabis business license taxes <br />for adult -use cannabis retail sales, cannabis cultivation, distribution, manufacturing, and testing. <br />Medicinal cannabis retail sales taxes were not modified by Measure Y and continue to be subject <br />to taxes pursuant to Measure BB. <br />Multiple changes to State cannabis laws and changes in market demands prompted the City to <br />revisit its ordinances and tax collection to ensure that Santa Ana maintain its competitive position <br />in the region, remain compliant with applicable State laws, and streamline its implementation of <br />cannabis taxation. When added to Santa Ana's local cannabis taxes, the State's assessments <br />on cannabis goods, which include sales tax, excise cannabis tax, and cultivation tax, result in <br />legally -operating and permitted commercial cannabis businesses having to confront a combined <br />state and local tax rate exceeding 50 percent of the retail sale value of their cannabis goods. This <br />50-percent rate discourages businesses from seeking the required permits to operate legally and <br />in tandem with a cumbersome and rapidly -changing regulatory framework can foster a continued <br />illicit cannabis market, which is to the detriment of Santa Ana's permitted operators. <br />DESCRIPTION & BACKGROUND <br />Table 1 (Proposed Amendments to Chapter 21) describes the finance -related ordinance <br />amendments. Additional details are provided in the subsections that follow. <br />Table 1: Proposed Financial Amendments <br />Item <br />Impact <br />Vertical and Horizontal <br />Amendment: <br />Integration (SAMC <br />Sections 21-131.2 and 21- <br />Allow vertical and horizontal integration of business structures for <br />142) <br />businesses engaging in multiple types of commercial cannabis business <br />activity. Includes allowance for vertical and horizontal integration of <br />commercial cannabis business activities involving both medicinal and <br />nonmedicinal cannabis retail businesses. <br />Impacts: <br />. Incentivizes cannabis businesses to expand operations within the City <br />and encourages new businesses to enter the Santa Ana marketplace. <br />9 Allows for the7djeApA43 of intraparty sales and/or transfers of cannabis <br />