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Home My WebLink AboutCannabis/CBD Study Session Presentation PowerPoint - 8/19/20 Cannabis/CBD Study Session August 19, 2019 Study Session Presentation Background Review Cannabis Businesses Categories, Pros and Cons, and Fiscal Impact Review Potential Land Use Area with Buffer CBD Businesses Next Steps i City Council Strategic Goal Conduct a City Council study session regarding the pros and cons of the cannabis economy, with the exception of dispensaries and cultivation, along with a cost-benefit analysis. Background J 1996: Proposition 215, Compassionate Use Act Provided doctors protection for medical marijuana recommendations,decriminalized possession and cultivation with doctor's recommendation O 2003: SB 420, Medical Marijuana Program • Created voluntary ID card program • Expanded immunity for patients and primary caregivers O 2015: City Council Approved Zoning Code Regulations Prohibiting Medical Marijuana Businesses O 2015: Medical Cannabis Regulation & Safety Act • Created state regulatory structure for cultivation, manufacturing, distribution and retail of medical marijuana Background O 2016: Proposition 64, Adult Use of Marijuana Act • Decriminalizes possession and use of small amounts of marijuana for recreational purposes on private property O 2017: City Council Approved Zoning Code Regulation Prohibiting Commercial Non-medical Marijuana Businesses and Deliveries O 2017: SB 94, MAUCRSA • Reconciled Medical Cannabis Regulation and Safety Act with Prop. 64 Federal Government O Marijuana is still classified by the Federal Government as a Schedule One substance O States and cities are technically in violation/conflict with Federal law on cannabis. O Currently, since it is Schedule One, no banks are permitted to do business in this industry. The State of California is looking at options. O Cannabis is generally an all cash and self reporting business. R 4 l - .'1 HdL Companies O The City worked with the HdL Companies to conduct a fiscal analysis on the tax rates to project the potential amount of annual revenue that permitting each of these business types might generate for the City O HdL provided revenue projection based on a very conservative, conservative and aggressive approach O HdL's team of professionals has over 46 years of direct experience establishing and implementing cannabis regulatory and taxation and audit programs Distribution O Fundamental component of the cannabis supply chain O Per State Law, only licensed distribution businesses can transport inventory between various cannabis businesses—such as laboratories, manufacturing and retail O Key Issues: O Adequate security and control of inventory while stored on-site and transportation O Collection of State excise tax and state cultivation tax O Responsibility for checking packaging and labeling requirements 5 Distribution Fiscal Impact O Protection of industrial space and no oversaturation O Huntington Beach can be attractive for cannabis distributors O Based on land use and buffers, Huntington Beach could support up to 4 distribution centers O Potential revenue generation: Distribution Permits Up .4 Tax Scenarios Gross Receipts Total Manufacturing O Defined as "all aspects of the extraction and/or infusion processes, including processing, preparing, holding, storing, packaging, or labeling of cannabis products" Two types of licenses: Type b Manufacturing using non-volatile solvents,such as cold water,heat press and CO2;and Type 7 Manufacturing using volatile solvents,such as butane,propane and ethanol O Manufacturing will be a key activity based on current use trends O Large quantities of volatile gases and industrial solvents are stored on site Manufacturing Fiscal Impact O Protection of industrial space and no oversaturation/buffer zones O Industrial land available to support manufacturing O Hazard/safety risks O Huntington Beach could support up to 5 manufacturers with a range of sizes O Potential revenue generation: Manufacturing Permits Up to 5 TaxScenariosGross Receipts . . yE_L Testing Laboratories O Cannabis Testing Laboratories will be required to perform testing on cannabis goods to measure chemicals and items not in keeping with State project standards O Laboratory will generate a certificate of analysis O A quality assurance program will have to be implemented O Laboratories pose the fewest public safety challenges, due to the small quality of cannabis on premises O Will need to provide adequate security and control of inventory while being stored on-site and transported 8/19/2019 Testing Laboratories Fiscal Impact • Limited revenue oppor• Limited need for numerous laboratories. tunities. Potential revenuegeneration: Testing Lab Permits Uo to 1 Tax Scenarios Retail Sales Gross Receipts Total GR 1.0% 1.5% 2.0% Scenario 1 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 Scenario 2 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 Scenario 3 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 • Retail maycreate safety concerns • - to an all-cash business • • product on site • A non-store front retail could generate revenue without having traditional store fronts • Potential r- - - generation: Retailer Permits Up to 2 Tax Scenarios Gross Receipts Total GR 4.0% 5% 6% Scenario 1 $6,000,000 1 $6,000,000 $240,000 $300,000 $360,000 Scenario 2 $5,200,000 2 $10,400,000 $416,000 $520,000 $624,000 Scenario 3 $4,400,000 2 $8,800,000 $352,000 $440,000 $528,000 7 Cultivation/Microbusiness - Not Considered Cultivation sector is oversaturated Cultivation has numerous issues from odor, energy, water and pesticide use Microbusiness also not considered, since it includes cultivation, manufacturer and retailer Overview of Fiscal Impact Max - Totalof 12 Very Conservative $852,000ii Conservative 0.6 000 Aggressive $1,336,000, Mid Permits of 10 ConservativeVery $811,000 Conservative $1,000,000 Aggressive - 000 TotalMin Permits of 7 Very Conservative $530,0001 Conservative $654,0001 A.qqressive $832,0001 8/19/2019 17, s"4" r !t `Tnq , r _� CBD Is it legal/should if be legal to sell CBD oil and related products in Huntington Beach? k'- 9 H BZSO 204.20 B. Definitions. Unless otherwise specifically defined herein,the definitions contained within Adult Use of the Marijuana Act shall apply to this ordinance. 3. Non-medical marijuana products means non-medical marijuana that has undergone a process whereby the plant material has been transformed into a concentrate, including but not limited to, concentrated cannabis, or an edible or topical product containing marijuana or concentrated cannabis and other ingredients. Adult use of Marijuana Act (Prop 64) O Prop 64 contains language that "marijuana"does not include: Industrial Hemp as defined in Section 11018.5 of the H&S Code. The weight of any other ingredient combined with marijuana to prepare topical or oral administrations,food,drink or other product. 1 H&S Code Section 11018.5(a) "Industrial Hemp" means a crop that is limited to types of the plant Cannabis sativa L. having more than three-tenths of 1 percent tetra hydrocannabinoI (THC) contained in the dried flowering tops,whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom. CA Business & Professions Code 26001 (f) "Cannabis" does not mean "industrial hemp" as defined by Section 1 1018.5 of the Health and Safety Code Food & Agricultural Code Section 81006 Outlines laboratory testing requirements for products containing THC: "The laboratory test report shall be issued by a laboratory approved by the department, using a department-approved testing method, and indicate the percentage content of THC on a dry-weight basis, indicate the date and location of samples taken, and state the Global Positioning System coordinates and total acreage of the crop. If the laboratory test report indicates a percentage of content of THC that is equal to or less than three-tenths of 1 percent, the words "PASSED AS CALIFORNIA INDUSTRIAL HEMP" shall appear at or near the top of the laboratory test report. If the laboratory test report indicates a percentage content of THC that is greater than three-tenths of 1 percent, the words "FAILED AS CALIFORNIA INDUSTRIAL HEMP"shall appear at or near the top of the laboratory test report." Next Steps O Direct Staff to look at options for potential cannabis businesses O Development Agreements O Possible Ballot Measure? O Direct Staff to review and amend HBZSO 204.20 to expressly allow the sale of CBD from industrial hemp extract 8/19/2019 Questions 13 SUPPLEMENTAL COMMUNICATION Meeting Date: 7 —� agenda item Cannab *ls/CBD Study • August • 2019 Study Session Presentation Background Review Cannabis Businesses Categories, Pros and Cons, and Fiscal Impact Review Potential Land Use Area with Buffer CBD Businesses Next Steps City Council Strategic Goal Conduct a City Council study session regarding the pros and cons of the cannabis economy, with the exception of dispensaries and cultivation, along with acost-benefit analysis. Background 1996: Proposition 215, Compassionate Use Act Provided doctors protection for medical marijuana recommendations, decriminalized possession and cultivation with doctor's recommendation 2003: SB 420, Medical Marijuana Program Created voluntary ID card program Expanded immunity for patients and primary caregivers 2015: City Council Approved Zoning Code Regulations Prohibiting Medical Marijuana Businesses 2015: Medical Cannabis Regulation & Safety Act Created state regulatory structure for cultivation, manufacturing, distribution and retail of medical marijuana Background 2016: Proposition 64, Adult Use of Marijuana Act Decriminalizes possession and use of small amounts of marijuana for recreational purposes on private property 2017: City Council Approved Zoning Code Regulation Prohibiting Commercial Non-medical Marijuana Businesses and Deliveries 2017: SB 94, MAUCRSA Reconciled Medical Cannabis Regulation and Safety Act with Prop. 64 Federal Government Marijuana is still classified by the Federal Government as a Schedule One substance States and cities are technically in violation/conflict with Federal law on cannabis. Currently, since it is Schedule One, no banks are permitted to do business in this industry. The State of California is looking at options. Cannabis is an all cash and self reporting business. HdL Companies The City worked with the HdL Companies to conduct a fiscal analysis on the tax rates to project the potential amount of annual revenue that permitting each of these business types might generate for the City HdL provided revenue projection based on a very conservative, conservative and aggressive approach HdL's team of professionals has over 46 years of direct experience establishing and implementing cannabis regulatory and taxation and audit programs Distribution Fundamental component of the cannabis supply chain Per State Law, only licensed distribution businesses can transport inventory between various cannabis businesses - such as laboratories, manufacturing and retail Key Issues: Adequate security and control of inventory while stored on-site and transportation Collection of State excise fax and state cultivation tax Responsibility for checking packaging and labeling requirements Distribution Fiscal Impact Protection of industrial space and no oversaturation Huntington Beach can be attractive for cannabis distributors Based on land use and buffers, Huntington Beach could support up to 4 distribution centers Potential revenue generation: Distribution Permits Up to 4 Tax - • • Gross - •ts Total GR Scenario 811 111 .11 111 $90,000 $108,000 $144,000 Scenario 811 111 411 111 $135,000 $162,000 $216,000, Scenario 811 111 4 $7,200,000 $180,000 $216,000 $288,0001 Manufacturing Defined as "all aspects of the extraction and/or infusion processes, including processing, preparing, holding, storing, packaging, or labeling of cannabis products" Two types of licenses Type 6 Manufacturing using non-volatile solvents, such as cold water, heat press and CO2, and Type 7 Manufacturing using volatile solvents, such as butane, propane and ethanol Manufacturing will be a key activity based on current use trends Large quantities of volatile gases and industrial solvents are stored on site Manufacturing Fiscal Impact Protection of industrial space and no oversaturation/buffer zones Industrial land available to support manufacturing Hazard/safety risks Huntington Beach could support up to S manufacturers with a range of sizes Potential revenue generation: GrossManufacturinq Permits Up to 5 Tax Scenarios Receipts Total ' Testing laboratories Cannabis Testing Laboratories will be required to perform testing on cannabis goods to measure chemicals and items not in keeping with State project standards Laboratory will generate a certificate of analysis A quality insurance program will have to be implemented Laboratories pose the fewest public safety challenges, due to the small quality of cannabis on premises Will need to provide adequate security and control of inventory while being stored on-site and transported Cash handling procedures and availability to banking is a concern Testing Laboratories Fiscal Impact Limited revenue opportunities. Limited need for numerous • •• • • Potential revenue generation: Testing Lab Permits Up to 1 Tax Scenarios Gross Receipts Total GR 1.0% 1.5�0 2.0� Scenario 1 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 Scenario 2 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 Scenario 3 $2,000,000 1 $2,000,000 $20,000 $30,000 $40,000 Retail Sales Retail has numerous issues - Combination of all-cash business and significant product on site pose a public safety hazard for employees and customers alike A non-store front retail could generate revenue without having traditional store fronts Potential revenue generation: Retailer Permits • to 2 Tax - • C u Itivatio n/Micro business - Not Considered Cultivation sector is oversaturated Cultivation has numerous issues from odor, energy, water and pesticide use Microbusiness also not considered, since it includes cultivation, manufacturer and retailer Max Permits Total of 12 Very Conservative $852,000 Conservative $1 ,046,000 Aggressive $1 ,336,000 Mid Permits Total of 10 Very Conservative $81 1 ,000 Conservative $1 ,000,000 Aggressive $1 ,264,000 Min Permits Total of 7 Very Conservative $530,000 Conservative $654,000 Aggressive $832,000 �nw 744 J1, k I zJL M77- � �Y� '9 - 74F•^ � � �; � ..� .. �,+ ^� 6— AEI '^� � MOE w tz y ; �. „tea F,i+• s` I 1 q.d,A+R # \\ \ •°•$ F1�L,, �-,1,�� do / CBD Is CBD Oil Legal in Huntington Beach? 204.20 Proh"ed IJame—owrm,mcial Non-ntred w�, n.MMtrrea aM O.INsIa. A Pas pase In order to eapmasly ofmm the public dug my sale or distribute rm-soedisal msaiptsm by Commcrnd Non-Medical Marguw Business—Coll-In CaaprnEre.err Dspcoea-ea...h—cr mas d n prohibited m the City of RmthWoo Beach the City is adding this etgacra pohibuias to the Zoning and SGdidnviaa Ord—. B. Dcd id ems.Unless othe--specifically defined harm,the definitions cm noted within Adult Use of Marijuana Act shall apply to this ordinance. . - a ma uu ax ae.xt t sangria .asap meant any ,on,s c .co-op.residerree.or snail.facility used.in full or in past.ss a place at or in.Inch marijuana(including marijuana for recreational use)is sold.traded...changed,baFi—d Cur Ic located stored dapla ed placed or edtivated igclsal"erg any of the f if used in.nuance' -hit- 2. on of'sanrsncdica]marijuana. Non-oedar.l cru rUaaaa ddh*ery means the co msercial transfer of aw-medical marijuana or mo-medical marijuana products to a person including any technology that enables persons to arrange for or facilitate the commercial transfer of non-medical manjuam or non-medical manjuana products. 3. Ness-sa"i-I maNjsaaa pssdaets mum non-medical marijuana that has undergone a process whereby the plant material has been nanaf ed into a co .curse.including.but not limited to.concentrated cannabis,or an edible or topical product—rusimng marijusca or concmtrated cannabis and other ingredienn. C. Ca esxes,Collrethress Caspendrrs x DiWasarle,A Commercial Non- anpsmra s s. or Dispensary or any other such bsximm,no matter how so named.is not a permitted nee in any tuning district or specific plan in the City.it shall be unl.wfisl for any pas to a Commercial Non-Medical Man Brrsinas Colle unlawful for any person to penmit to be established,conducted.operated.owned or managed as a landlord.owner.employee.contractor.agent or tnluntea.or in any other manner err capacity.any Cmn...—i.l Non-Merheal%larijusu a ermrsess,Colleetne.Coopemtire or Dispensary in the(ity D. Nest-Medical Marijoua Debi erfes.Dcln cry of won-medical marijuana a a permitted use in zomup district or specific plan in the City No pemrit or anygrplicabl<liceus.w-�titlams.w fur use.scar any Iru.m.se liccvn..s}ull be appros cd car is.sr<d fur the cerablislwscm,wawt.awsce car ularenw of umr-mrdiul marijuana deliveries. E. psbtlr Suisaaee.Auy use or condition caused or pemmitted to grist ili vioi of any of the provisions of thus section is hereby declared a public nuisance and essay abated by the City. F. F.atorcrmet. 1. Violation of this Chapter 204 of the Huntington Beach Zoning and Subdivision Ordivawcc is a public nwsancc and may be enforced pursuant to due provisions of the Municipal Code inchdm!t the Zoning and Subdivision Ordinance. Nothing in this section in any way limits any other remedies that may be available to the City.or any penalty that,nay be unposed by the City for violations of tlu s section Such additional remedies include.but are nor limited to,iwjm tivc relief or administrative citations.(4137-10/17.4175-3119) WeNOW • • �• Adult use of Marij* uana Act ( Prop 64) Prop 64 contains language that "marijuana" does not include: Industrial Hemp as defined in Section 1 1018.5 of the H&S Code. The weight of any other ingredient combined with marijuana to prepare topical or oral administrations, food, drink or other product. H &S Code Section 11018,,S(a) "Industrial Hemp" means a crop that is limited to types of the plant Cannabis sativa L. having more than three-tenths of 1 percent tetra hydrocannabinol (THC) contained in the dried flowering tops, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds or resin produced therefrom. CA Business & Professions Code 26001 (f "Cannabis" does not mean "industrial hemp" as defined by Section 1 1018.5 of the Health and Safety Code Food & Agricultural Code Section 81006 Outlines laboratory testing requirements for productions containing THC: "The laboratory test report shall be issued by a laboratory approved by the department, using a department-approved testing method, and indicate the percentage content of THC on a dry-weight basis, indicate the date and location of samples taken, and state the Global Positioning System coordinates and total acreage of the crop. If the laboratory test report indicates a percentage of content of THC that is equal to or less than three-tenths of 1 percent, the words "PASSED AS CALIFORNIA INDUSTRIAL HEMP" shall appear at or near the top of the laboratory test report. If the laboratory test report indicates a percentage content of THC that is greater than three-tenths of 1 percent, the words ''FAILED AS CALIFORNIA INDUSTRIAL HEMP" shall appear at or near the top of the laboratory test report.'' Next Steps Direct Staff to look at options for potential cannabis businesses Development Agreements Ballot Measure Direct Staff to review and amend HBZSO 204.20 to address CBD Questions