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The US Midterm elections were a big win for the cannabis cause movement overall as voters in three more states took great strides towards a safer alternative to prescription medicine and alcohol, including Michigan which became the 10th state to allow Adult Use or recreational cannabis, and two more medicinal states, Utah and Missouri who were added to the clear majority nationwide. In our home state, California voters elected an actively pro-cannabis industry governor, Gavin Newsom, which will hopefully accelerate and streamline legalization throughout the state, giving cannabis businesses more opportunities to obtain local permits.
But of great interest to the vast majority of entrepreneurs and investors who contact our firm hoping to pursue cannabis licenses within the California cannabis economy, whose ambition is stalled by ordinances in their community prohibiting or limiting most of the available licensed activities, there were almost 90 initiatives that could bring relief and great opportunities.
Over 90% of these measures asked voters for permission to collect taxes from licensed operators to cover the costs of the licensing as well as add to the General Fund balance, while a few called upon their citizens to offer advisory direction as to legalization. Virtually every tax measure passed, even in a city like Simi Valley where the voters rejected the idea of allowing the cannabis business to be conducted.
Show Us the (TAX) Money!
As state law gives every local jurisdiction, typically a city but in some cases a county for its unincorporated areas, the absolute discretion to prohibit or permit which types, how many and where any cannabis businesses may operate, the local leaders have a vast amount of power. Should they choose to exercise this power and allow some type of cannabis business activities, substantial sums of money are required to implement a local application and approval process, plus costs for the continued oversight and auditing that the leaders and citizens demand.
To cover these expenses, voters were asked to approve sales and square footage taxes, most of which were written to permit a tremendous amount of flexibility in their eventual and ongoing implementation. While some cities are poised to launch quickly with newly approved taxes, this Midterm session was also used to garner approvals even in cities and counties unprepared and even unwilling to permit local cannabis businesses at this time. With this approval in their holster, they are free to approve future ordinances without a fear of funding.
Of the cities that are ready to go with ordinances and permittable property available. Fresno, Chula Vista, San Luis Obispo, Santa Clara, and Banning stand out as opportunities worth investigating. They saw their measures pass and will draw plenty of attention from potential licensees. Thanks to their foresight, these cities should be able implement their programs promptly and will hopefully begin accepting applications very soon.
Many cities offered their residents the chance to approve a cannabis tax mechanism, many of which were similar and often included industry-friendly lower initial tax rates. With a funding mechanism in place, we could expect some local increased opportunities in cities like Pomona, South San Francisco, Maywood, Redwood City, Oakdale, Paso Robles, Union City, and more. For those areas not already accepting applications or issuing permissions, you should expect at least a three to six-month delay while the community politics to play out but be on the lookout for green-zone friendly locations suitable for your cannabis business.
While cities are ideal locations for most cannabis businesses, counties are more likely to hold the key to large scale production located away from residences, schools, and other sensitive uses. Of the 58 counties in California, Nevada, Contra Costa, and El Dorado Counties either approved a tax measure or ordinance allowing businesses to obtain cannabis licenses. Although Contra Costa and Nevada Counties are still months out on having an approved ordinance allowing cannabis licenses, El Dorado County is likely to more quickly establish a permitting program.
One of the most unusual but most transparent measures took place in Hemet, where the voters approved a cannabis tax on illegal cannabis activities and specifically extended the local prohibition on permissions to operate legally until 2020. This is the ultimate “wait and see” stance from a community that will be ready to fund a program when they are confident it will be successful.
Perhaps a sign of what’s to come or what’s really happening in local markets already allowing retail sales, Oakland received voter permission to lower its local taxes. Hopefully the leaders that were just given the power to impose maximum tax rates will be gentle in the beginning and give their new cannabis licensees a chance to get their feet under them first.
The People Have Spoken Locally, But Will the City Council be Listening?
In some jurisdictions, the local residents have had to force the hand of their elected officials to consider allowing commercial cannabis activity, or increasing the size of the opportunity, by gathering enough petition signatures and force their way onto their local ballots.
North San Diego County’s City of Vista had competing Measures BB and Z, which offered the city’s plan for just three delivery operators (BB) versus a citizen and industry option which would allow 11 retail storefront dispensaries (Z). The Storefront Dispensary option carried that day with just under 52% of the vote. We’ll have to wait and see how long it takes the city to implement this direction.
In Jurupa Valley, where the city leadership unsuccessfully fought hard to defeat a citizen measure, we fear a challenging road ahead for applicants to receive a green light, from the city. Although the ballot questions were fairly comprehensive, it is still up to the leadership to develop the application and approval processes, which may be quite slowly rolled out. City councils can still set up practical limitations by business type or quantity of licenses actually approved as well as completely control the timing.
Now What Do You Do? … Get Rights to Property That Can Be Permitted.
While it’s exciting that more cannabis entrepreneurs will have a chance to start a business thanks to these elections, many challenges and limitations still lay in their path to success. Cities and counties still control how many, where, and what types of licensed operators will be allowed in their jurisdiction as well as wield tremendous power in their selection process for these limited opportunities.
If you were not already aware, having rights to a particular property, even as little as an Option to Lease a parcel or building that the local government may permit is still the key to beginning every cannabis venture. We advise a deep dive into the known or predictable “green-zoning” of a particular city, county or region, that moved the needle towards legalized cannabis business activity.
Using our predictive analysis tools and experience, you may be able to get out in front of an opportunity and save the “green tax” rent or value escalations that will most certainly follow more definite planning decisions by the local leaders.
What if your town wasn’t one of the lucky ones to pass a tax or get approval to proceed on Election Tuesday? Check with us to see if any nearby opportunities opened up, as you may be able to use this newfound option to your advantage via a Non-Storefront Retailer (aka Delivery Service) license. Some logistics expertise and purposeful marketing could get you in the cannabis business in 2019.
We’re here to help.
While every cannabis entrepreneur’s path is uniquely their own, we are here and happy to discuss your options with property under your control and do the complex research needed to move your business plan forward.
We are just leaving the starting blocks as an industry with a long way to go, but without any major elections for another two years, you need to take advantage of the laws on the books today and the changes over the next months.