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Council caps medical cannabis cultivation facilities; city to explore rec expansion

OCEANSIDE — City Council formally limited the number of medical cannabis cultivation facilities to no more than 12 within city limits during its Aug. 21 meeting and is looking to explore expanding cultivation for recreational purposes.

It was city staff that approached council with a recommendation to adopt a resolution formally limiting the number of cultivation facilities in the city to 12. Prior to the meeting, the city had a cap of five cultivation facilities.

Currently, the city has five licensees and seven waitlisted applications for cultivation facilities. Those 12 cultivation licensees and waitlisted applicants would be located on seven properties, all of which are located in South Morro Hills.

Staff believes the “secondary effects of these businesses,” such as odor or crime, could be “effectively monitored and managed,” and that all 12 should become operational.

The five approved licensees must receive conditional use permits (CUPs) from City Council and a state cultivation license before they can operate.

Additionally, staff also recommended that council give direction to staff to bring back actions necessary to place a Cannabis Business Tax Measure on the November 2020 ballot.

If approved, according to Assistant City Manager Deanna Lorson, the tax would help to offset costs to enforce illegal cannabis activities and fund general services in exchange for allowing these types of businesses.

Such a ballot initiative would require 50% of voters plus one person to pass a cannabis tax in the city.

The city has three tax options for cannabis cultivation, the first being a $10 to $25 per square foot of canopy, with local rates set $10 to $15, that would generate revenue regardless of crop performance.

Another tax option would be a gross receipt tax of 5% to 15%, with current local rates at 6% to 8%. This option would be payable only when a business has revenue.

The third option is taxing cannabis by weight, which is done by the state at $9.25 per ounce of dry weight and leaves at $2.75 per ounce of dry weight. Lorson noted that one city, Dunsmuir, has enacted a local weight tax of up to $3.50 per ounce starting at $3 per ounce for all products.

Lorson said a cannabis tax would generate an estimated $6,771,058 to $7,883,928 in the businesses depending on which option the city chooses. Those numbers are based on application information and what would be the second year of operation for these businesses when they would presumably stabilize.

“There is no guarantee that the businesses will actually build out to the level that they put into their applications, or even that the dollar values of the crops would be worth what they anticipate at this point in time since it would unfurl over the next few years,” Lorson said.

Several speakers, like Oceanside resident and farmer Michael Mellano, spoke in favor of council increasing the cultivation facility cap as well as the tax so long as it was reasonable.

Mellano also urged Council to consider allowing farmers to grow cannabis for recreational purposes.

“The facility will look no different, the product will not be in the city as there’s no dispensaries allowed in the city, it would just go into the statewide supply chain and allow us to be more competitive and more successful, which then would allow us to pay more taxes,” Mellano said.

Some speakers cautioned council to be weary about allowing additional cultivation facilities in the city.

John Byron, a preventive specialist for North Coastal Prevention Coalition, noted that cannabis policy is still new and that no one really knows how it works yet.

“Based on decades of research with tobacco and alcohol policy, we’re pretty confident that increasing production and access and availability will take us in the wrong direction,” Byron said.

Byron suggested waiting for the first five licensees to open shop to see what their impacts on the city will be before allowing any additional cultivation facilities.

Council approved the 12-facility cap 4-1, with only Deputy Mayor Jack Feller opposed.

“We were told by a parade of people for the last couple of years that medical marijuana was all they wanted … and that’s why I gave the approval,” Feller said. “I think what we’re seeing here is what I ultimately thought was going to happen.”

Feller believes the city is going down a “slippery slope” regarding its cannabis industry. Though he didn’t support the measure, he said he would support the “maximum” tax allowed on cannabis in the city.

Councilwoman Esther Sanchez said she would prefer to see no cultivation cap but supported the resolution and added direction to staff to explore expansion of cultivation for recreational purposes.

Sanchez said cannabis cultivation will help small farmers diversify their revenue and ultimately stay in Oceanside.

“The one thing that I wanted to make sure is that we do whatever possible to keep farming in Oceanside,” she said.

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