It is clear from the 2022 local City and County election results that voters throughout the State of California favor taxation of commercial cannabis if the local jurisdiction decides to permit commercial cannabis. In most jurisdictions, the local City or County cannabis tax measure clearly described that a “yes” vote on the cannabis tax was no guarantee that commercial cannabis would be permitted. However, for the local elected officials, it is a barometer to measure support from the community but retain legislative power on the who, what, when, where and how commercial cannabis may be regulated in their respective communities.
A few cities responded immediately to the approval of commercial cannabis taxation by the voters. In fact, both Lynwood and Woodland have already completed their cannabis business application process. The cities of Healdsburg and McFarland anticipate accepting retail applications within the next few months. In Pacific Grove and South El Monte, voters not only approved a cannabis tax but also authorized a minimum of one retail cannabis business.
While the local cannabis special tax in Sacramento County did not receive the 2/3 votes required for adoption, the voters approved a general cannabis tax in both the counties of Los Angeles and San Diego. Both counties have been considering cannabis regulations for over a year and anticipate a limited opportunity for cannabis business licensing within 12-18 months.
Local commercial cannabis taxation was approved in several cities that currently ban retail cannabis sales. In the cities of Baldwin Park, Claremont, El Segundo, Exeter, Hermosa Beach, Huntington Beach, Laguna Woods, Montclair, and Monterey, the City Council retained the power to determine what cannabis regulation, if any, is appropriate for their jurisdiction.
Commercial cannabis tax measures were also successful in several cities which already permit and regulate commercial cannabis providing no new retail opportunities at this time. Voters approved new cannabis taxes for existing and future cannabis retail uses in the cities of Burlingame, Corona, Cudahy, Encinitas, Santa Monica, South Lake Tahoe, and Tulare.
With cannabis taxation overwhelmingly approved in several jurisdictions, the next step is to determine the who, what, where and how commercial cannabis will be regulated. Each local jurisdiction has autonomy to craft their own legislation regulating cannabis businesses. Several questions need to be addressed by the governing body with varying degrees of public participation as well.
The first question is who will be permitted to apply for a cannabis license. Must the license applicant be a local resident? Must the applicant qualify for preferential treatment under a cannabis license social equity program? Must the applicant have prior experience in a licensed cannabis facility?
The second question to ask is what types of cannabis businesses will be allowed and how will they be regulated. Some jurisdictions may continue to ban cannabis businesses despite approval of the tax, or permit only wholesale businesses such as cannabis manufacturing and distribution. Others may permit retail storefront cannabis businesses, or delivery only from non-storefront cannabis businesses. Frequently, in Southern California, cannabis cultivation will be limited to indoor only. Some jurisdictions permit all cannabis businesses.
The third question is where the cannabis businesses will be permitted. Again, the local jurisdiction has autonomy and can choose to permit them in only certain areas such as the industrial or commercial zones. Buffer zones from homes, schools, parks, churches, or other cannabis businesses may be implemented. The local jurisdiction may choose to regulate cannabis businesses like any other business or create a separate permit and land use entitlement process.
Once you have the initial questions answered, the next question is how the cannabis businesses will be selected. Again, the local jurisdiction has great latitude. If a jurisdiction is choosing to regulate cannabis businesses differently than other businesses, it may choose to allow unlimited cannabis businesses that meet minimum criteria, or it may implement a competitive merit-based process or lottery. A merit-based process is more costly and labor intensive. It typically utilizes an extensive application form requiring financial information, a business plan, a security plan, a safety plan, a neighborhood compatibility plan, and a community benefits plan. In addition, a competitive merit-based process mandates a finite number of successful applicants and is frequently challenged in court by unsuccessful applicants. A lottery system typically has an application process and a finite number of successful applicants, but it doesn’t permit the local jurisdiction to have any control of who is successful. In either system, the window of opportunity to apply is usually very narrow.
According to the California Department of Cannabis Control, over 60% of the state still does not permit cannabis retail opportunities. In an effort to encourage local jurisdictions to adopt regulations for retail storefront and/or delivery, the DCC has launched a 20-million-dollar grant program to assist local jurisdictions in creating retail opportunities to expand consumer access to regulated cannabis.
The DCC’s Local Jurisdiction Retail Access Grant program gives priority consideration to local jurisdictions that propose regulation that includes an equity component in their permitting process. The grant program also gives priority treatment to local jurisdictions in 18 counties where the proportion of licensed cannabis retail outlets is low compared to the share of consumer consumption. In an effort to encourage the treatment of cannabis like other businesses, the DCC is further prioritizing local jurisdictions that propose to license cannabis businesses through a business permitting process already in existence for non-cannabis businesses, and local jurisdictions that propose licensing of only cannabis businesses eligible for a categorical exemption under the California Environmental Quality Act (CEQA).
[Update 6.20.23: The DCC has announced the jurisdictions receiving grant awards in Phase I of the Local Jurisdiction Retail Access Grant.]
Between the new cannabis taxes approved in several local jurisdictions and the incentive of new grant funding from the DCC, there will be significant additional California cannabis retail business opportunities.
Contact us by phone or email to learn more about cannabis business opportunities, California cannabis law including state, county or city cannabis licensing and cannabis regulations, cannabis regulatory compliance, and cannabis litigation.
