The Highs & Lows

of Embracing Cannabis

Cannabis Laws in California Proposition 215: The Compassionate

Use Act – 1996

The Medical Cannabis and Regulatory Safety Act- 2015

Proposition 64: Adult Use of Marijuana Act – 2016

SB 94: Conforms MCRSA and AUMA into a single system of state regulation and tax collection. – 2017

Proposition 64 Vote

National Cannabis Legalization

Dark Green: Medical Cannabis Legal Light Green: Recreational Cannabis Legal

Cannabis Laws: Local

Authority

Proposition 64 includes multiple local control provisions that respect local government powers to: Permit, regulate and tax commercial cannabis activity Ban commercial cannabis activity Ban outdoor home cultivation

However, no local jurisdiction may ban: The personal consumption of cannabis within its jurisdiction The allowance of up to six plants for personal use The transportation of cannabis through the jurisdiction

Local Regulation Not only did California voters approve Proposition 64

by 56.1%, but they also approved a number of city and county local measures

There were 53 city and county measures on the November 2016 ballot, including taxation measures, regulatory measures, amendments to existing ordinances and citizens’ initiatives

Of these measures, 39 were successful

There are a total of nine county measures as of September 2017

Bureau of Cannabis Control is the lead agency in developing regulations for medical and

adult-use cannabis in California. The Bureau is responsible for

licensing retailers, distributors, testing labs and microbusinesses.

CalCannabis Cultivation

Licensing: CDFA

metrc - Marijuana Enforcement

Tracking Reporting Compliance is the seed to sale track and trace system.

Accela - that streamlines licensing

for the medical and recreational cannabis industry.

Board of Equalization (BOE)

California Department of Tax and Fee

Administration

Effective July 1, 2017 the State Board of Equalization has been restructured to better serve taxpayers.

https://www.cdtfa.ca.gov/

To Tax or Not to Tax?

SISTERS OF THE VALLEY

Panel

Members

Mendocino – Shari Schapmire

Monterey – Mary Zeeb

Santa Cruz – Edith Driscoll

San Luis Obispo – Jim Erb

Mendocino County’s Evolution of

Cannabis Revenue & Taxation

2007 - 9.31 Medical Cannabis Cultivation Regulation initiated – Zip Tie Program.

2011 - 9.31 Program shut down by federal intervention.

2012 - Resurrected 9.31 Program with amendments - voluntary only.

2013-2016 - Amendments adopted by BOS.

2016 - Lawsuit filed – County ceased accepting 9.31 applications per settlement agreement.

Cannabis Business Tax Implementation

November 2016 – Local Cannabis Business Tax approved by voters.

January 2017 – Cannabis Business Tax imposed on dispensaries.

April 2017 – Cultivation Ordinance adopted by BOS.

May 2017 – Cultivation Permits accepted (May 4, 2017 through June 30, 2018). Cannabis Business Tax imposed on cultivators.

October 2017 – Cannabis Facilities Business License Ordinance adopted by BOS.

November 2017 – Set to begin accepting business license applications and impose Cannabis Business Tax on cannabis facilities.

Tax on Cultivation – Gross Receipts with

Minimums Required, per Growing Cycle,

Based on Square Footage

Cultivation - 2.5% Gross Receipts – as of July 1, 2020, tax rate may increase in 2.5% increments with BOS approval, not to exceed the maximum tax rate of 10%.

Persons cultivating less than or equal to 2,500 square feet shall pay a tax of no less than $1,250 per growing cycle.

Persons cultivating 2,501 to 5,000 square feet shall pay a tax of no less than $2,500 per growing cycle.

Persons cultivating more than 5,000 square fee shall pay a tax of no less than $5,000 per growing cycle.

Tax on Dispensaries & Other

Commercial Cannabis Businesses

Dispensaries – 5% of Gross Receipts – as of July 1,

2020, tax rate may increase in 2.5% increments,

not to exceed the maximum tax rate of 10%.

Other Commercial Cannabis Businesses - $2,500

per fiscal year – CPI adjustments beginning in July

2020.

Track & Trace Vendor –

SICPA – CalOrigin

County contracted with SICPA prior to State

selection of vendor.

Emerald Triangle Presence.

Fees paid through TTC online or by cash in office.

MEN

DO

CIN

O

Collections Software Vendor –

Thomson Reuters Aumentum

Contracted with Thomson Reuters in 2015 for

Property Tax System, including Business Revenue

Module for TOT, BID, and Business Licenses – on

hold until completion at Riverside County.

After approval of tax measure, Thomson Reuters

agreed to move forward with a newly created

Cannabis Business Revenue Module, providing

no resources were pulled from Riverside County.

September 2017 – GO LIVE!

Monterey County State of California

Compassionate Use Act (Prop 215) in 1996

Medical Marijuana Program (SB420) in 2003

Monterey County

No local regulations

Early Summer of 2015

Growing interest & industry pressure for regulations & permitting

Board of Supervisors calls for 30 day temporary ban on new collective & co-ops

Monterey County

July 2015

BOS adopts an interim ordinance Prohibits new collective & cooperative operations

Creates exemptions

Current cultivators of medical cannabis in greenhouses

Cultivators in compliance with state law

Cultivators who had made substantial process towards cultivation.

BOS creates ah hoc committee to work on permanent regulations Two BOS members, CAO, County Counsel

Resource Management Agency

Sheriff, District Attorney

Tax Collector, Ag Commissioner

Economic Development, Environmental Health

Committee consultant provided rough draft of Ordinance Completely rewrote for Monterey County

Commercial Cannabis

Business Tax General Tax

Unincorporated area only

Tax rates consistent with other local jurisdictions

Tax rates in-line with other jurisdictions around the state

BOS adopts all ordinances and calls for an election November 8, 2016

Monterey County Measure Y passed with 74% voting yes

Tax operative January 1, 2017

Immediate Taxation and Business License Issues Staff

Collection software system CASH & security

Permits

Education & outreach

Self Reporting

Bills, forms, documents

Staff Went to the BOS in December

3 new positions in Tax - $120,353 Management Analyst Accountant Technician

Funding for construction - $73,815 Strengthened access restrictions

Remodel of an equipment room Additional security cameras.

Funding for supplies - $34,323 Security Cameras Security Guards Currency Counter Misc furnishings

Collections Software

System

Excel

HDL Prime

Cash

JetScan iFX® i400 Multi-Pocket Sorter

Taxpayers must make appointments for cash payments

Permits, Education,

Outreach, Self-Reporting

Forms, Bills & Documents

www.co.monterey.ca.us/taxcollector

Santa Cruz County

History of cannabis in Santa Cruz

Ordinance and Ballot Measures

Revenue

Dispensary, Cultivating and Manufacturer

Implementation process

TTC, AC and CLO Role

Edith Driscoll

Auditor-Controller / Treasurer-Tax Collector

Ordinance and Ballot Measures:

A brief history

In 1992 the voters enacted Measure “A”, adding Chapter 7.122 to the Santa Cruz County Code which declared support for making cannabis available for medical use

Ordinance and Ballot Measures:

Citizen Engagement

Ordinance and Ballot Measures:

Citizen Engagement

Ordinance and Ballot Measures:

Citizen Engagement

Nov. 14, 2014 Measure K

Nov. 8, 2016

Measure E

C4

Committee

BOS Agenda 6/23/2015

Santa Cruz County

Ordinances and Ballot Measures

Up to 10%

Gross Receipts

Tax

Currently 7%

Defined Cannabis

Modified Cannabis business

Cannabis

Business Tax

Licensing 13

eligible

dispensaries

Dispensaries: Plus One

Dispensaries: Revenue

http://www.co.santa-cruz.ca.us/

Departments/TaxCollector/CBTandTOTTaxData.aspx

Dispensaries: Revenue

Cultivating / Manufacturing

implementation process

Commissioned an Environmental Impact Report

for two proposed cannabis ordinances, County

Code 7.128 Commercial Cannabis Cultivation,

and County Code 7.132 Commercial Cannabis

Manufacture

Cannabis Environmental Review Status

Cannabis Tax Information

Treasurer –Tax Collector’s Role

Set up

• Open a TTC payment account

• Not Anonymous

Report

• Monthly

• Can be done electronically

Pay

• Monthly

• Can be done electronically or in person via Cash, Check, e-Check or Credit Card

Auditor-Collector’s Role

The ordinance – County Code

Chapter 4.06.220 –

“Audit and Examination of Records

and Equipment”

Santa Cruz County Cannabis Licensing Office Role

Implements the goals, strategies, policies and programmatic framework for the issuing of licenses through the Cannabis Registration and Licensing Program of the County. Build and manage the Cannabis Licensing Programs. Evaluate the licensing of cannabis locations and issue/deny/revoke licenses based on guidelines;; and to do other work as required.

Cannabis Licensing Officer and 4.0 fte

(2 Planners and 2 Code Compliance Officers)

Santa Cruz County

Request to be Notified

If you wish to be notified about upcoming

events or news, please email:

Cannabis.Info@santacruzcounty.us to be

added to our mailing list.

County of San Luis Obispo

Land use ordinance

Tax consequences

Banned cultivation - water basins issues

Planning Commission recommendation:

50 outdoor grow sites

Unlimited indoor. Indoor means permitted structure. Hoop houses do not qualify as indoor.

Public opposition

County of San Luis Obispo

County solicited license interest

Put first 100 on a list, most out of the area

Chorizo Plains, remote part of the County,

land is inexpensive, $5,000 an acre or less

Grow size limited to one acre

108 grows in Chorizo Plains already

Some over an acre

County of San Luis Obispo

BOS has mixed feelings on allowing cannabis activities but overall agree it cannot be stopped

Taxation has only been discussed once, very high level

BOS direction: Recover license enforcement costs, possibly

through a fee based on square foot

$1.2 million budgeted

Approximately $1.05/sq ft for 100 growers

Would not require ballot measure – cost recovery only

Would be annual but based on prior year costs

County of San Luis Obispo

BOS agrees - tax needed to offset

consequences

We have listened to Humboldt County

BOS wants to tax but not burdensome

Smaller family farmers hoping to improve

annual income

Four County Supervisors involved in

agriculture or ranching

County of San Luis Obispo

My task; because no one else is doing it:

Determine a fair tax rate

Determine a tax method

Provide revenue estimates

Get to know people in the industry

We have not been approached by the

state to collect CBT.

Implementation – Gettin’ Down in Weeds

County of San Luis Obispo

Started with ballot measure - Monterey County

Compliance program

Leaning towards a 4% tax on Gross Receipts from Cultivators

Also 4% tax on all other active

Both are scalable to 10% with BOS approval (3/5th vote)

Ballot help - SCI

BOE & CSAC

Cannabis Regulation, Revenue

Collection & Banking Services –

California County JPA Solution

October 2017

Federal Law Conflict

Federal Statutes Conflict with State Law & Limit Banking Access/Services, Impacting Tax Collection &Compliance:

Schedule 1 Drug: Controlled Substances Act

The Money Laundering Control Act

The Bank Secrecy Act

Federal Guidance Key Documents:

The Department of Justice “Cole Memo”

The Department of Treasury’s FinCEN Guidance National Credit Union Association: July 2014

Letter indicates as long as a credit union is following the FinCEN Guidance, there would unlikely be any negative repercussions from the regulator

Impediments to Banking The largest impediment to providing access to

banking services is the demand on banking

institutions to conduct enhanced due diligence

(EDD).

EDD requires commercial banks taking on CRBs

to:

ensure their cannabis customers are not

engaging in money laundering, and

otherwise ensure that cannabis business

customers are complying with state and local

laws regulating and taxing the industry.

Need for Data Data is needed at three separate and distinct levels (1) Local Government, (2) State Government, and (3) Banking Institutions

Financial/Accounting information is necessary for local regulators to ensure that CRBs are in compliance with local ordinances, state law, and are fulfilling their tax obligations.

Financial/Accounting and operational information is necessary in order for banks to comply with enhanced due diligence requirements.

Data Collection Data points vary, and include (but are not limited to):

Type of CRBs (e.g., cultivation, manufacturing, retail)

Location of CRBs (needed for code enforcement)

Sales/Accounting Information (needed for tax calculations)

Employees (needed for employment tax/insurance)

Measures taken to prevent sales to minors/violence (example of FinCen requirements where data collection is needed)

Data Collection Challenge

Having multiple entities responsible for the collection of data - potential to create inconsistencies

Proposition 64 authorization for local regulation, while positive for maintaining local control, has the potential to exacerbate this problem given 58 counties and over 450 cities could regulate in a different manner and collect different types of information.

A single data repository could serve to to overcome

these challenges and lower costs for local government data collection, while also providing better information for local government policy makers.

Data Collection Solution

Advantages of 1 Data Collection Platform for Local Government:

Accessible to multiple local government agencies

Established common metrics to measure impacts

Access to information about CRBs operating in other jurisdictions

Solution: Create a Joint Powers Authority!

County Members only (as subdivisions of the state)

State/City/Banking entity participation

JPA Governance The California Cannabis Authority (CCA) Joint Powers Authority:

“Members” are comprised of counties that adopt an

ordinance to join, as well as “participants” including state agencies, cities, and banking institutions who are directly involved in taxing or regulating the cannabis industry. Cities will be treated as Participants who, by contract, will participate in the JPA but without Board voting authority.

The Board constitutes the governing body of the CCA and comprises each Member County choosing to sit on the Board and designate a Board Member.

The Board will designate an Executive Committee comprised of a President, Vice President, Secretary, Treasurer and three “at large members” that will be responsible for oversight of day-to-day Authority operations. The Executive Committee will be responsible for hiring an Executive Director and General Counsel who will be responsible for running the Authority on a day-to-day basis.

JPA Governance The California Cannabis Authority (CCA) Joint Powers Authority:

The purpose of the CCA will be multifaceted, but will initially focus on data collection and possibly other services intended to ameliorate the cash collection issues facing state and local taxing entities.

Create a system that will collect data to help improve tax collection for state and local agencies. Additionally, the CCA will be authorized to provide regulatory and tax administration support and services on behalf of Member and Participant agencies; coordinate regulatory and tax collection activities; promote efficiency among County regulatory and audit ordinances and practices; and facilitate industry compliance.

Through access to the combined information collected by CCA, Member and Participant agencies, the CCA will be in a position to provide unparalleled insights into cannabis operations in California – which will serve the needs of these Member and Participant agencies in their regulatory, tax, and public safety functions.

JPA Costs/Revenue

Baseline services of access to this financial information will not cost the member counties as CRBs will be required to pay for this service.

In order to offset the cost of of the services of the JPA, a revenue stream into the CCA will be needed to cover the cost of this service.

A requirement of joining the CCA will be to amend or adopt a local ordinance to require CRBs to submit certain financial and other information into the CCA database. This service will require a small fee imposed on the CRBs to the CCA for this service .

Scope of Services To join as a member of the CCA, the Board of Supervisors must pass a resolution

Member counties will have complete access for the data platform. This access will enable the following:

Ensure compliance with tax payments

Review of information for code enforcement

Public safety monitoring

Monitor market trends to determine impact on local economy

Meet banking enhanced due diligence requirements – provide assurance to banks

Get Started…Contact

For more information, please contact:

Cara Martinson, CSAC Senior Legislative Representative & Federal Affairs Manager, at 913-327-7500 or cmartinson@counties.org

Alan Fernandes, Executive Vice President, CSAC Finance Corporation, at 916-955-1791 or alan@csacfc.org

Thank you!

?s