DHS City Council June 24, 2014 - just the marijuana

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July 1, 2014

DHS City Council June 24, 2014 – just the marijuana

This is just the part of the June 24 City Council meeting dealing with medical marijuana dispensaries.

Attorney Quintanilla summarized his report presented to the Council. He broke it down into five issues:

1. A sales tax on medical marijuana, the proceeds of which will go into the General Fund, so only a simple majority is required for approval. To put this on the November 2014 ballot will require another declaration of fiscal emergency.


2. A marijuana cultivation tax whose proceeds also would go into the General Fund, so only a simply majority is required.


3. A sales tax on recreational marijuana, also destined for the General Fund. This is just to have it in place in anticipation of future changes in the law.


4. Sites for marijuana dispensaries and cultivation.


5. Operational standards for dispensaries and cultivations.

Most of his explanation you should already be familiar with as he covered the current state of the law and tax rates in various jurisdictions around the state. I just want to highlight two errors he made because this is the second time he’s made them. First, recreational marijuana is not legal in Oregon. I think almost everybody knows it’s legal only in Colorado and Washington. Second, the medical marijuana tax rate in Palm Springs that we need to be concerned about is 10%, not 15%. Only the illegal dispensaries in Palm Springs (I think there at least two) get taxed at 15%, and our legal dispensaries will be in competition with the legal dispensaries in Palm Springs. That may be important depending on what tax rate the City Council settles on. I think our tax rate should be lower than Palm Springs and lower than we where we think Cathedral City is going to peg theirs. This is to give our local dispensaries the potential of a little price advantage over those cities. We have difficulty getting people to shop in DHS for anything. Setting a too high tax rate is not going to help that.

Mr. Quintanilla, in explaining the concept of a coop or collective, cited the little fruit & vegetable stands one can find along Route 99. Those might, indeed, be coops, but not all coops are folksy little businesses. Two of the most well known coops are Sunkist and Sun-Maid.

Frank Smith came up to comment. He is in the cannabis business in Orange County and said he has up to $1.5 million to invest in a startup in Desert Hot Springs. He said his dispensary is taxed from 8% to 12%, depending on location.

Jeffrey Eugene Ridge spoke next. He said he would like collectives to be restricted to age 21 and older only. He thinks the City Council is heading n the right direction.

Judy Shea said she has been in AA for 30 years. She was in a car accident once due to drinking alcohol and smoking pot. At a school in Pennsylvania there was a school janitor selling pot to the kids. There are more than 30 AA meetings/week in Desert Hot Springs. None of the people who attend those meetings are in favor of selling marijuana. If they out it in a pill and sell it at a drug store, that would be okay, so long as you had a prescription. “Don’t tell me about doctors. Doctors will give you a scrip for almost anything.” She was in another traffic accident that required hospitalization. She used pain medication for six months, but never used marijuana. We have a lot of recovery centers in DHS “and then you want to put in marijuana. Come on folks!” She supports a sales tax increase and parcel tax increase.

Lou Stewart encouraged the Council to “think greedy.” He suggested hiring subcontractors to run dispensaries as an arm of the city government(!). He suggested the subcontractors could get about 30% of the proceeds. [Something like a 70% tax rate.]

Mayor Sanchez said he would prefer locating the dispensaries in industrial parks. He has a hard time thinking of dispensaries on any of the main streets in town. He doesn’t favor having them being within public view. He said that putting them outside the city would prevent minors from loitering around them. He is concerned that the selection process must meet proper due process requirements.

Council Member McKee said he preferred to have no more than three dispensaries and they pay a $50,000 fee up front [like a DIF]. After that, a 5% tax on the gross. On cultivation he also wanted 5% of the gross.

I’m not sure how 5% of the gross on cultivation would work. Often the cultivation is part of the coop. In such a case, there wouldn’t be a cash transaction as the plant goes from cultivation to the storefront. In the survey that Mr. Quintanilla made, the cities that tax cultivation tax it only on the basis of square footage. None use a percentage of the gross.

Mr. McKee also favored a 5% tax of the gross on recreational marijuana. He thinks each dispensary should be required to get a conditional use permit so the city can deal with each specific situation.

He asked the attorney for an explanation of “moral turpitude.” Mr. Quintanilla said it’s a crime of dishonesty, citing fraud and embezzlement as examples. “So, almost any elected official would have a problem with that,” Mr. McKee joked. He said he thought some of the proposed requirements were onerous. He cited the restriction on the hours of the business.

Off the top of my head, I think I have seen restrictions on the hours of business on all or nearly all conditional use permits that I’ve seen approved by the city over the last few years.

Mr. McKee said that requirements dealing with physician referrals and looking at proofs for people belonging to the collective would be in violation of HIPAA. [I think those things might violate the spirit of HIPAA, but I'm fairly sure HIPAA doesn't apply to marijuana dispensaries.]

Mr. McKee said he thought a simple requirement that the dispensary “shall comply with state law” would work better. He asked if there was any other business where we require a monthly inventory. He didn’t understand why the city should limit how much cash on hand can be kept on the premises overnight. We don’t do that with any other business. He doesn’t understand the restriction on sales of alcohol. He pointed out that drug stores are not restricted from doing that. He said that he thought a minor would have to be accompanied by a parent and have two doctors’ recommendations.

I’m sure any attempt by DHS to change how many doctors are required would not fly. This is from Prop 215 with emphasis added: “To ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes where that medical use is deemed appropriate and has been recommended by a physician who has determined that the person’s health would benefit from the use of marijuana in the treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief.” One should also consider that if the city is not going to inspect doctor/patient records, then the requirement for a second physician’s recommendation becomes unenforceable. We would have no way to find out how many recommendations any patient had.

Mr. McKee wondered who would be the City Manager’s designee who would perform the required inspections. “I think the state is in a position that they’re supposed to be checking on most of the things we have in this ordinance.”

Mayor Sanchez asked if the state of California has a commission appointed by the Governor “that meets related to dispensaries and how they operate, because somebody has to have the oversight on this on the state level if you’ve got state law.” He ran into a man in Rancho Mirage who told the Mayor that he was appointed by the Governor. “I should have got his name.” He sits on a commission that has oversight to regulate dispensaries and the biggest concern they have is inventory shrinkage.

It would certainly be helpful to have had the name of that man or the name of that commission, because I’m sure there is no such commission, although the Governor may have set up some advisory committee for his own office. Google it all you want or just start on the home page of the state’s website and try to find it. Now, back in 2012 Assemblyman Ammiano introduced AB 2312 which would have (among other things) established the “Board of Medical Marijuana Enforcement in the Department of Consumer Affairs.” AB 2312 passed the Assembly, but died in the Senate.

Now Assemblyman Ammiano has AB 1894 which has not gotten out of the Assembly yet. AB 1894 would create the “Division of Medical Cannabis Regulation and Enforcement within the Department of Alcoholic Beverage Control.” That bill would set up the state regulatory system that Mayor Sanchez thinks must already be in place.

Mr. McKee asked if his proposed fee would have to be approved by the voters. Mr.Quintanilla said that no vote of the people is required.

Mayor Pro Tem Betts said he doesn’t want dispensaries in industrial parks. He said industrial parks are for industry. They’re not a place to dump things that you don’t like. He doesn’t want a “red light district.” He wants this to go to the Planning Commission and that there should be requirements for good landscaping and an attractive facade. He addressed Judy Shea directly saying he had had acquaintances who had destroyed themselves through substance abuse and whether we have dispensaries or not, the problem will still exist. He does not want the city to be in the position of inspecting medical records. But the city will need to be able to audit and there should be some audit triggers in the ordinance.

The Mayor returned to public comments and Steve Kelly came to the podium. He described the dispensary that’s in Palm Springs in the industrial area at Indian and I-10. He said it was low key and unobtrusive. He said a dispensary doesn’t have to be on Palm Drive.

Council Member Matas said that we need to get on the bandwagon because he expects California will legalize recreational marijuana before too long. He also addressed Judy Shea directly saying any substance, legal or not, can be abused. The laws are still in place that bar people from certain jobs who are intoxicated. He wants no more than three dispensaries and there should be a minimum separation of 5,000 feet.

Now that I’ve learned how to put red circles on a map, I’m going to abuse that skill again. Five-thousand feet of separation sounds like a lot, so I thought I’d try slapping three 5000-foot-radius circles on the map centered on different commercial areas. It seems to work okay, especially if one of the dispensaries locates out at Pierson and 62, which I think would be a good idea, even though I have no business skills on which to base that opinion.

Here we’ve got that one out at Pierson and 62, another on Pierson between West and Palm, and the third down around Two Bunch and Palm.

In this example there’s still the one at Pierson and 62, another one takes over the “Fresh & Easy site” at Hacienda and Palm (please, please, please!), and the third locates on the northwest corner of Dillon and Palm. I’m assuming that northwest corner is zoned commercial and nobody has already claimed it for some other project.

Mr. Matas said he doesn’t want a lot of them close together like he has seen in Santa Monica where the businesses are “eating each other alive.” He thinks there should be a distinction between large and small cultivation operations and large ones should be in an industrial area. He is in favor of a straight up fee. We don’t want too many taxes on the ballot in November. He had thought $10,000/month was an extremely high number, but somebody told him it wasn’t. He would like a $25,000 fee for the application process, refundable if not awarded a permit. He also would want a 15% tax on dispensaries and 20% on cultivation and a future 25% tax on recreational marijuana. If the hours are regulated, he thinks 7 AM to 10 PM would be best. He favors restricting the dispensaries to age 21 and older.

Mr. Matas said he agreed with Lou Stewart that the city should be greedy on this issue.

Council Member Pye thinks the tax should be 10%. She wants the Planning Commission to decide where the dispensaries could locate. She cited the risk of liability if the city operated the dispensaries itself. Attorney Quintanilla said California law does not allow any unit of government to operate a dispensary. Only private non-profits can run them. Ms. Pye wants a commission of four patients and one doctor to review applications. The fee charged to apply should cover the city’s costs to process the application and permit. She thinks the city should regulate the hours for public safety and that inventory should be required monthly. Overnight cash should be limited and alcohol should not be sold along with marijuana.

Mayor Sanchez asked the attorney what the timeline for the Planning Commission would be to get this on the ballot in time. Mr. Quintanilla said only the tax would go on the ballot, and the ordinance regulated dispensaries does not need to be in place for that to occur.

City Manager Magaña said that if the City Council is seeking a recommendation from the Planning Commission, that doesn’t have to be a public hearing, because they would not be making a recommendation on an ordinance yet. In July the Planning Commission is scheduled to meet Thursday, July 17. He said it was delayed from the usual date in order to accommodate the time required for a public hearing on another matter. Rich Malacoff repeated the same explanation, just saying it a little differently. Mr. Magaña said the question is whether the Planning Commission could also meet at its regular time to discuss the marijuana dispensary issues. Mr. Malacoff explained again, and the attorney concurred, that the marijuana matters did not require a public hearing, but could be handled as a simple discussion.

Mayor Pro Tem Betts said he was completely lost as to what staff is talking about. “We’re talking about this issue that’s on the agenda here going to the Planning Commission at their next regular meeting, correct?” Mr. Magaña said that was correct. Mr. Betts asked what the problem with that is. Mr. Magaña said “July 8 would be the regular meeting…” when Mr. Betts interrupted saying “Okay, so put it on their agenda so they can take a position. What’s the problem? I don’t know why we’re talking about special meetings or Architecture Landscape Review and everything else.”

Mr. Magaña explained the special meeting was dealing with another project. Mr. Betts said “Okay, so July 8 is the next regular meeting of the Planning Commission. Is there time to notice this item, agenda item on that?” Mr. Malacoff said it can be on the meeting that is scheduled for July 17. Mr. Betts said “My question is, what’s wrong with putting it on the next regularly scheduled meeting of the Planning Commission which is July 8. What’s this talk of a special meeting? I don’t understand the context of that.”

I’m pretty sure Mr. Betts is the only person who was unable to follow the repeated explanations, but just in case I’m wrong, here it is simply:

1. There is no Planning Commission meeting scheduled for July 8, which would be the regular date, because


2. They’ve scheduled the July Planning Commission meeting for the 17th.

Mr. Magaña explained the meeting date again. Mr. Betts answered “So, hold your meeting on July 8, put this item on the agenda, hold your meeting like you’re supposed to and away we go.” City Clerk Soriano said the only time restriction was the usual lead time required to post an agenda. Mr. Betts repeated “So, you post the agenda for the 8th with the normal 72-hours required. Put it up on the website. This is the only item you’ve got to talk about. They’ll probably be happy to have the meeting on the 8th. I don’t see what the problem is, unless you just don’t want to hold a Planning Commission meeting.”

Mr. Malacoff said it could be handled at the next Planning Commission meeting and get it to the Council in time.

There is only one City Council meeting scheduled in July. The next meeting will be August 5. No matter which date the Planning Commission meets, the recommendations will come to the City Council on August 5. There is no reason to hurry the discussion, since putting a tax on the ballot will not be part of what the Planning Commission would consider.

Mr. Betts asked if he could make a motion directing staff to schedule a Planning Commission meeting for July 8. Mayor Sanchez, however, chided him saying “No, no, let staff handle that. You don’t need to jump in and destroy the whole atmosphere. Sit back and be patient for once.”

Ms. Pye said that the regulations should be in place by November so that if the tax is approved, things can move right ahead. So she said it was not an issue whether the meeting was on the 8th or 17th.

Attorney Quintanilla said there are issues about federally regulated banks and whether they can deal with marijuana businesses. He said he wasn’t sure how far the city could go in barring minors from entering a dispensary. He explained that an application fee should cover the full cost of an application, but he thought Mr. McKee was talking about something like an impact fee.

Mr. McKee said we don’t tell banks or liquor stores how to handle their security. He said he that in addition to an application fee and an impact fee. He said we’re “interested in being a low-cost producer” that will attract people into DHS to get their medical marijuana and then see what the town has to offer.

Mr. Matas said he thought it was important to audit the inventory. He doesn’t want alcohol at medical marijuana dispensaries, but thinks it could be permitted with recreational marijuana in the future.

Mr. Betts said that odor control was important.

Filed under Desert Hot Springs,Marijuana | permalink | July 1, 2014 at 12:06 PM

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DHS City Council June 24, 2014 - just the marijuana