HomeMy WebLinkAbout65B - BALLOT INITIATIVE MEDICAL MARIJUANA COLLECTIVESREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
JUNE 3, 2014
TITLE:
BALLOT INITIATIVE REGARDING
MEDICAL MARIJUANA COLLECTIVES/
COOPERATIVES
CITY MANAdItR
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended
❑ As Amended
❑ Ordinance on 1" Reading
❑ Ordinance on 2nd Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
Discuss options for an initiative on the November 2014 ballot regarding medical marijuana
collectives /cooperatives, including a potential action to provide direction to staff.
On February 19, 2013 the City Council received the Certificate of Sufficiency indicating the
proponents of the Santa Ana Medical Cannabis Restriction and Limitation Initiative obtained the
necessary valid signatures to have the initiative placed on the ballot at the next general election
in November, 2014. In March, 2013 staff presented a report to the City Council analyzing the
proposed initiative to assist the Council in making a decision to either adopt the initiative as
submitted or to submit it to the voters at the November 2014 general election.
At the March 18, 2013 meeting the City Council moved to receive and file the report, call for the
election, and place the measure on the November 2014 ballot. The City Council also directed
staff to explore placing a competing initiative on the November 2014 ballot to either affirm the
City's ban on storefront medical marijuana collectives /cooperatives or an initiative to further
regulate collectives /cooperatives beyond the proposed regulations provided in the collective -
backed initiative.
BACKGROUND
State and Federal Law
In 1996, California voters approved Proposition 215, entitled "The Compassionate Use Act"
(CUA), which provides seriously ill Californians the right to obtain and use marijuana for medical
purposes" once a physician has deemed the use beneficial to the patient's health. The CUA
regulates several forms through which marijuana can be distributed, such as "a medical
marijuana cooperative, collective, collective, operator, establishment, or provider that is
authorized by law to possess, cultivate, or distribute medical marijuana and that has a storefront
or mobile retail outlet which ordinarily requires a local business license." By its own terms,
nothing in CUA prohibited cites from adopting policies further restricting the location or
establishment of such operations.
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In 2003, the State legislature enacted SB 420 to clarify the CUA's scope and to allow cities to
adopt and enforce rules and regulations consistent with its provisions. SB 420, also known as
the "Medical Marijuana Program Act" (MMPA), provides additional statutory guidance for those
involved with medical marijuana use. The CUA and MMPA allow for the use and operation of
collectives or cooperatives by qualified medical marijuana patients and primary caregivers, and
provides narrow affirmative defenses for criminal prosecutions of persons for drug possession.
Notwithstanding the CUA and MMPA, the Federal Controlled Substance Act makes it unlawful to
manufacture, process, distribute or dispense marijuana. In fact, the United States Supreme
Court, in both 2001 and 2005, held that Federal law continues to apply in California despite the
CUA and that no medical necessity exceptions exist.
After the initial passage of the CUA, some cities and counties across California began to
experience a proliferation of storefront medical marijuana collectives claiming to be legal
collectives or cooperatives. Aside from the fact that the use and distribution of marijuana in any
form is illegal under federal law, the existence of storefront collectives is usually illegal under
California law because it is nearly impossible to comply with the CUA and MMPA while catering
to a large membership. Moreover, storefront collectives also create significant crime, health, and
safety concerns for the surrounding areas. After studying these concerns, some municipalities
chose to adopt comprehensive bans on storefront medical marijuana collectives and collectives,
as Santa Ana did in 2007, based upon their knowledge of how these collectives operated at that
time.
On May 6, 2013, in the case of City of Riverside v. Inland Empire Patients Health and Wellness
Center, the California Supreme Court held that local governments can ban medical marijuana
collectives because California's marijuana laws do not expressly or impliedly limit a local
jurisdiction's land use authority, including the authority to prohibit facilities for the distribution of
medical marijuana. In this opinion, the court ruled that the California Constitution grants cities
and counties broad power to determine the permitted uses of land within their borders, that the
CUA and MMPA do not restrict that power, and that a local ban on medical marijuana collectives
does not conflict with these laws because they do no more than exempt certain activities from
State criminal and nuisance laws.
Given the clarity offered by this decision upholding a municipality's ability to ban medical
marijuana collectives, several municipalities have chosen this course of action or have re- visited
their existing bans. Further, this decision has opened the door for discussion of a municipality's
ability to regulate medical marijuana collectives instead of banning them altogether.
Senate Bill 1262
Senate Bill 1262, introduced on February 21, 2014 is sponsored by the California Police Chiefs
Association and co- sponsored by the League of California Cities. The policy underlying this bill is
the need for reform of California's medical marijuana laws as defined by the CUA (Proposition
215) and MMPA (SB 420).
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The Bill proposes to establish an improved regulatory structure to ensure that the CUA works as
originally envisioned to assist patients with legitimate medical needs, in a manner that works for
law enforcement, city and county governments, local community organizations, and medical
professionals. The five essential principles of the bill are:
1) Protect local control by precluding an operator from obtaining a state license unless the
operator has first secured all necessary local permits from a particular jurisdiction;
2) Uphold local governments' ability to ban collectives and all related facilities;
3) Impose tighter regulations on doctors who issue medical marijuana recommendations,
including new training and record keeping requirements as well as fines, and a strict
regimen for recommendations to minors;
4) Impose uniform quality assurance standards as well as health and safety standards to be
administered by counties with oversight by the Department of Public Health;
5) Require a series of detailed security measures to prevent diversion and recreational use at
all medical cannabis facilities.
Current Citv Regulation and Enforcement
Currently the City of Santa prohibits the establishment of medical marijuana collectives citywide
under Article XIII of Chapter 18 of the Santa Ana Municipal Code. This section was added in
2007 following a two year moratorium on medical marijuana collectives.
Since the City's ban on the establishment of medical marijuana collectives in 2007, the Police
Department, Community Preservation Division and City Attorney's Office have continued to
experience challenges trying to close illegal collectives in the City. As of May 1, 2014, there were
a confirmed 50 existing illegal medical marijuana collectives in the City. This number is up from a
low of 16 in early 2013, but down from the high of 68 in 2012.
The City has successfully closed 177 collectives and fined illegal collectives for more than
$138,000 since enforcement began in 2010. While these and other joint enforcement efforts with
the Drug Enforcement Administration (DEA) have proven effective, the transitory nature of these
businesses typically result in one closing down and one or more appearing in its place.
It is important to note that while the Santa Ana Municipal Code currently prohibits medical
marijuana collectives, it specifically precludes State - licensed: clinics, health care facilities,
residential care facilities for persons with chronic life- threatening illnesses, residential care
facilities for the elderly and residential hospice or home health agencies from these regulations.
These licensed medical establishments are permitted to prescribe medical marijuana to its
patients under the CUA and MMPA while remaining in compliance with the Santa Ana Municipal
Code.
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Analysis of Collective- backed Initiative
In February, 2013, the City Council directed the City Manager to prepare an analysis of the
collective- backed Santa Ana Medical Cannabis Restriction and Limitation Initiative. This initiative,
if approved, would repeal the City's current prohibition of medical marijuana
collectives /cooperatives, and replace it with a ministerial process to authorize
collectives /cooperatives to operate in the City. Staff has a number of concerns regarding the
proposed regulations contained in this initiative, most notable among these are:
1. No regulations regarding the distribution and/or separation between collectives/
cooperatives.
2. No maximum on the number of collectives /cooperatives permitted (minimum of 22
required).
3. Definitions of collectives and cooperatives results in smaller operations (more than 1 but
less than 5) being unregulated.
4. Collectives /cooperatives permitted in all commercial, industrial and professional zones
including properties that may be directly adjacent to residential properties.
5. No separation (buffer) requirements from sensitive uses (parks, churches, child care
facilities, liquor stores, adult entertainment, etc.).
6. Ministerial approval process requires no public noticing or public hearing.
7. Limited /vague guidance regarding the provision of on -site security.
8. Prohibits the Police Department and Code Enforcement from accepting Federal funding or
participating in any task force that accepts Federal funding or revenue sharing, to
investigate, cite, arrest, prosecute or seize property based on offenses which would be
legal under California medical cannabis laws.
9. Proposed licensing /taxation method is substantially less than what other cities that regulate
medical marijuana collectives /cooperatives require and does not consider taxation methods
for registered non - profit collectives /cooperatives.
10. Proposed changes to the Business License Tax Code (Chapter 21) for medical marijuana
collectives /cooperatives results in possibility of unintended consequences regarding the
taxation rates for businesses other than medical marijuana collectives /cooperatives.
A complete analysis of the collective- backed initiative was provided in the Report to City Council
on March 18, 2013.
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Citv Ootions to Proceed
Given that the Santa Ana Medical Cannabis Restriction and Limitation Initiative has qualified for
the November general election the City has three options to proceed.
Option #1 — Take no action (Not Recommended)
The first option available to the City is to not place a competing initiative on the ballot and accept
the regulations and requirements of the qualified collective- backed initiative should it receive
voter approval. This option is not recommended for several reasons. First, given the level of
interest from the medical marijuana industry there is a high likelihood that, should the voter
initiative fail in November; medical marijuana proponents would immediately begin to secure the
necessary signatures to place another voter initiative on a future ballot.
Additionally, not placing a competing initiative on the ballot limits the voters' options. Should the
voters wish to support medical marijuana collectives /cooperatives, the only regulations and
requirements available to them would be those contained in the collective- backed initiative.
Should the voters wish to confirm the City's ban on medical marijuana collectives, such an option
would not be available. Lastly, by taking no action, it may inadvertently signal to the community
that the City accepts the regulations proposed in the collective- backed initiative.
Option # 2 — City sponsored ballot initiative to ban medical madivana collectives/cooperatives
(Not Recommended)
The City Council retains authority under Elections Code Section 9222 to place a competing
measure on the November 2014 ballot affirming the City's ban on medical marijuana
collectives /cooperatives. A City initiative to prohibit medical marijuana collectives would
effectively serve as the "No" alternative to the Santa Ana Medical Cannabis Restriction and
Limitation Act Initiative.
Were a City initiative to ban medical marijuana collectives be approved by the voters it would
serve to solidify the City's current position on storefront medical marijuana
collectives /cooperatives and further support the City's existing enforcement strategies. In
addition to prohibiting storefront medical marijuana collectives, this initiative would include
language clarifying that the ban will also apply to mobile collectives which are addressed in the
current regulations, but not explicitly prohibited, and cultivation, which is currently not addressed
in current regulations.
Similar to the City's current enforcement, the initiative to ban medical marijuana collectives would
not prohibit medical marijuana from being prescribed to patients by licensed physicians through
State - licensed clinics, health care facilities, residential care facilities for the elderly or residential
hospice or home health agencies and would address the issues regarding mobile marijuana
collectives and cultivation.
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Option # 3 — City sponsored ballot initiative to regulate medical marijuana collectives)
cooperatives (Recommended)
Another option available to the City is to place a competing measure on the November 2014
ballot that permits medical marijuana collectives, but with additional regulations not contained in
the Santa Ana Medical Cannabis Restriction and Limitation Initiative. The regulations proposed
in this option were derived from recommendations from the California Police Chiefs Association
White Paper on Marijuana Collectives, a review of other cities' and counties' regulations
regarding medical marijuana collectives, direct Code Enforcement experience regulating illegal
medical marijuana collectives in the City over the last five years and a review of existing
Municipal Code regulations regarding regulated uses. Regulations proposed as part of a City
initiative to permit, but regulate medical marijuana collectives would generally include:
1. Limit to industrially zoned (M1, M2) properties only.
2. Set a maximum number of eight collectives permitted in the City.
3. Establish distance /separation requirements from sensitive uses (schools, parks and
residentially zoned properties).
4. Establish a separation requirement from other medical marijuana collectives to prevent
overconcentration.
5. Specify operational requirements including security guards, signage, ventilation, lighting,
hours of operation, restricting minors, prohibiting on -site consumption, etc.
6. Update the Business License Tax Code (SAMC Chapter 21) to require a 5% gross
receipts cannabis tax, which is commensurate with the other cities surveyed, as well as
initial registration fees and annual regulatory fees to account for the costs associated with
regulating these businesses.
Similar to the City's current enforcement and initiative to ban collectives, this initiative would not
prohibit medical marijuana from being prescribed to patients by licensed physicians through
State - licensed clinics, health care facilities, residential care facilities for the elderly or residential
hospice or home health agencies and would address the issues regarding mobile marijuana
collectives and cultivation.
Risk of regulationlpermitting medical marijuana collectives
In City of Riverside v. Inland Empire Patients Health and Wellness Center, the California
Supreme Court upheld the right of local governments to ban medical marijuana collectives, but
the question of whether local governments can regulate these collectives was not directly before
the court. However, in its holding, the Court opined "localities in California are left free to
accommodate such [medical marijuana collective] conduct if they so choose, free of state
interference." (City of Riverside, supra, 56 Cal. 4th at 762.) Thus, the Court clearly held that a
Medical Marijuana Ballot Initiative
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local government may ban medical marijuana collectives, but was less clear on the parameters, if
any, for which a municipality can regulate them. Further, the decision in City of Riverside case
does not specifically mention local regulation of the cultivation of marijuana. Where and how
marijuana is grown may rightly be of great concern to local municipalities.
Local governments cannot "permit" or "authorize' any activity that violates federal or state law; in
fact, federal and state law pre -empts any such attempt. Accordingly, should a municipality
decide to regulate, and not ban, medical marijuana collectives, at least one appellate court
(whose opinion has since been de- published due to the City of Long Beach amending its
regulations) held in 2011 that a municipality's regulation sanctioning the issuance of "permits" for
medical marijuana collectives was not allowed because the scheme crossed the line by
authorizing an illegal activity. See Pack v. Superior Court (Cal. App. 2d Dist. 2011) 199 Cal. App.
4th 1070 [de- published]). In other words, a court could find that the City is pre - empted by federal
law from regulating medical marijuana collectives because the City cannot "permit" or "authorize"
a medical marijuana business and marijuana related activities, which activities are prohibited by
federal law (i.e. the Federal Controlled Substance Act). To get around this pre - emption issue, the
State of California has merely de- criminalized certain State penalties, but has not, and cannot,
permit or authorize any right in violation of federal law. Thus, the law is not clear on the ability of
a local government to regulate medical marijuana collectives. Not only will any such regulation
need to be crafted in a way so as to avoid any Federal pre - emption issues, it would also require
the City to expend resources to ensure that medical marijuana collectives are not operating in
violation of the City's regulations and to defend any legal challenges to any such City regulation.
Notwithstanding this lack of clarity on whether a municipality can regulate medical marijuana
collectives or, if they can, the scope of such power, some local jurisdictions within California have
passed such regulations. One example is the City of Los Angeles. Originally, Los Angeles
attempted to regulate medical marijuana collectives. However, in 2012 after years of defending
numerous lawsuits over the legality of these regulations, the City of Los Angeles repealed its
regulations in light of the Pack decision (the City of Long Beach's medical marijuana collective
regulations were based on the then - existing regulations from the City of Los Angeles) and
instead banned medical marijuana collectives altogether. In doing so, the City of Los Angeles
cited the several threats of litigation brought by marijuana advocates should the City of Los
Angeles adopt registration provisions for medical marijuana collectives and to the December
2011 opinion of the California Attorney General Kamala Harris that several laws concerning the
regulation of medical marijuana were "unclear," particularly the rules for medical marijuana
collective operation.
Fiscal implications of medical marijuana collectives
There are a number of issues regarding the licensing and taxation of medical marijuana
collectives /cooperatives that would need to be addressed as part of any ballot initiative proposing
to permit, but regulate this type of business. The method proposed as part of the Santa Ana
Medical Cannabis Restriction and Limitation Act is to charge collectives a 5 -to -6% gross receipts
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Cannabis Business License Tax and provide quarterly installment payments of the tax, as well as
any applicable sales tax. Based on the City's experience with current illegal collectives and
relevant research regarding the costs associated with regulating these uses, the tax rate and
regulatory fees proposed in the collective- backed initiative are not sufficient to cover the costs to
regulate these types of uses.
Nothing in Proposition 215 or the MMPA (SB 420) authorizes collectives, cooperatives, or
individuals to profit from the sale or distribution of marijuana. Generally, medical marijuana
collectives /cooperatives are organized as non - profits. Under Article XIII, Section 26 of the
California Constitution, certain non - profit organizations that meet the requirements of Chapter 4
(commencing with Section 23701) of Part 11 of Division 2 of the Revenue and Taxation Code or
Subchapter F (commencing with Section 501) of Chapter 1 of Subtitle A of the Internal Revenue
Code of 1986 are exempt from local taxes measured by gross receipts or income.
Given the taxation issues created by the collective- backed initiative, should the City elect to
propose a competing initiative to regulate medical marijuana collectives /cooperatives, the
following components would be addressed in an amendment to Chapter 21 (Business License
Tax code) of the Santa Ana Municipal Code:
1. Include sufficient definitions to address the multitude of medical marijuana business
operations that may wish to open in the city including registered non - profit organizations,
limited liability corporations and for - profit organizations.
2. Include a definition and taxation rate for cultivation even though the regulatory component
of the proposed ordinance would not allow for cultivation. This will allow the city to impose
a tax obligation on any illegal cultivation sites in addition to the regulatory penalties.
Including this definition in the tax code will also provide greater flexibility should the State
supersede any City regulations regarding cultivation in the future.
3. Include a 5 -to -6% gross receipts tax rate applicable to medical marijuana collectives/
cooperatives which do not meet the requirements for exemption from local taxes
measured by gross receipts or income with provisions to allow the City Council by
ordinance to increase this rate as needed up to a maximum rate of 10% to offset the costs
associated with the secondary and tertiary effects of medical marijuana businesses.
4. Include an alternate tax of up to one hundred dollars ($100) per square foot on all
improvements owned, rented, leased or otherwise occupied or used by medical marijuana
collectives /cooperatives that meet the requirements for exemption from local taxes
measured by gross receipts. The tax shall initially be set at a rate of fifteen dollars ($15)
per square foot with provisions to allow the City Council by ordinance to increase this rate
as needed up to a maximum rate of one hundred dollars ($100) per square foot to offset
the costs associated with the secondary and tertiary effects of medical marijuana
businesses.
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5. Apply the alternate tax of up to one hundred dollars ($100) per square foot on all
improvements owned, rented, leased or otherwise occupied or used by medical marijuana
collectives /cooperatives engaged in the cultivation /growing of marijuana on such
improvements whether for retail sale or whether to supply another marijuana business.
The tax shall initially be set at a rate of fifteen dollars ($15) per square foot with provisions
to allow the City Council by ordinance to increase this rate as needed up to a maximum
rate of one hundred dollars ($100) per square foot to offset the costs associated with the
secondary and tertiary effects of medical marijuana businesses.
6. Provide that the "initial gross receipts tax rate' and both the "initial square foot tax rate"
and "maximum square foot tax rate" be subject to annual CPI adjustment in the same
manner as all other regular business license tax rates and charges under the City's
Business License Tax Code to mediate the costs associated with the secondary and
tertiary effects of medical marijuana businesses.
7. Add provisions requiring a monthly remittance of business tax rather than quarterly.
Medical marijuana collectives /cooperatives typically operate as entirely cash -based
enterprises because banks will not offer accounts out of fear of violating federal
laws. Accordingly, auditing such operations may prove to be extremely difficult. Requiring
a monthly remittance will protect the City from losing out on tax revenue if a
collective /cooperative goes out of business prior to the remittance period. This method will
also allow the city to more closely monitor the revenues generated by these businesses
which may indicate illegal transactions.
Each of the recommendations above are consistent with the definitions, rates and taxing methods
utilized by other cities in California that currently regulate medical marijuana collectives/
cooperatives. Based on the above taxing assumptions as well as the regulatory assumptions
outlined in Option #3, the projected annual revenue from medical marijuana collectives/
cooperatives could be approximately $1,000,000 per year (Exhibit 1).
Summary and Recommendation
Since enacting an ordinance prohibiting medical marijuana collectives /cooperatives in 2007 the
Police Department, Community Preservation Division and City Attorney's Office have faced a
constant challenge in both tracking new collectives /cooperatives and working through the
necessary legal steps to closing them down. Partnerships with Federal agencies and nearby
cities on enforcement have proven successful for short periods of time, but have not been shown
to be a viable long -term solution.
A City- sponsored competing initiative to permit, but regulate and tax medical marijuana
collectives /cooperatives will provide an opportunity for a limited number of medical marijuana
businesses to responsibly operate within specified areas of the city. Further, it will allow the City
to enforce strict operational standards and to collect both a regulatory fee and business tax to
offset the costs associated with enforcement while providing qualified patients with safe access to
medicinal marijuana.
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FISCAL IMPACT
There is no fiscal impact associated with this action. Council will discuss options and may
provide direction to staff.
Kzo -Qivt, cam_
Karen Haluza
Interim Executive Director
Planning and Building Agency
S is CarvaIho
i Attorney
MF:rb
MF:RFCA - Medical Marijuana Initiative Analysis 2014
Carlos Rojas, Chief`of-Police
Santa Ana Police Department
Exhibit 1: Projected Revenues Calculation Methodology
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