Study: Sonoma dispensary initiative flawed and inconsistent

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A study conducted this month by cannabis policy consultants estimates that just two dispensaries in the Sonoma area could generate about $250,000 in revenue for the city, a figure sure to give heart to cannabis supporters.

But the specific proposal they studied – the qualified initiative cannabis advocates presented to the City last month in a petition they hoped would go on the November ballot – had no provisions for levying or collecting that revenue, and the study further found it was flawed by ambiguities, inconsistencies and potential conflicts with state law.

The 30-day study of the petition to allow cannabis dispensaries, testing, processing and cultivation inside Sonoma City limits was released on Friday, Aug. 17, and will be reviewed by the City Council in special session on Tuesday evening, Aug. 21.

The study itself was controversial, as petition originator Jon Early and others expected the council to either approve the initiative as city ordinance, or approve it for the Nov. 6 election at the council’s July 23 meeting. But the City Council instead opted for a third option: to authorize a study to evaluate the initiative’s impact should it be approved.

The study was initially budged to cost $25,000 though, according to city staff, it may be as high as $27,000. (Councilmember Amy Harrington had moved to limit the study to $10,000 but that motion lost on a 3-2 vote.)

The two consultants engaged for the study included Hdl Companies, with expertise in municipal finance and taxation, with a specialty cannabis practice to assist public agencies; and Jarvis Fay & Gibson, a local government law firm which advises and represents cities and other public agencies on local government law.

The study focused on 12 types of impacts, grouped into four categories: land use, fiscal, impacts on city services and infrastructure, and impacts on other businesses. But the consultants at several points noted “the initiative is internally inconsistent and contains some ambiguity,” making determination of costs and impact uncertain.

The study described the initiative as being more permissive than current city regulation, most notably in its allowance of cannabis businesses in cultivation, manufacturing, retail and delivery, distribution and testing. The initiative permits such cannabis businesses in the city’s commercial zones, without a use permit or regulatory fees – unlike many of the other uses currently allowed in commercial zones, which require a use permit.

Neither does the initiative cap the number of cannabis businesses, including dispensaries, inside city limits. Many cities in Sonoma County and across the state regulate the total number of dispensaries, and some – Healdsburg, Windsor and Rohnert Park – ban them altogether.

The study also found that given the setbacks between schools or city parks (600 feet), the library (250 feet) and the Plaza (1,000 feet) would result in 33 parcels available for cannabis businesses (more than the 10 that Early has estimated in his comments to the City Council on July 23). Ironically, the initiative’s buffers – especially the 1,000 Plaza setback – “appear to be more restrictive than the buffers defined in state law,” notes the report.

The report evaluates the population of Sonoma and the surrounding area as 25,291, with an assumption that “cannabis consumers make up 14 percent of the population,” yielding a customer base of 3,541. “This figure would likely support no more than two retailers, which may or may not be located within the City itself,” the study concludes.

Similarly the consultants estimated that Sonoma could only support one or two “boutique” manufacturers, “due to the limited availability of allowable and affordable light industrial spaces.”

On the fiscal side of the equation, the report cites the initiative’s lack of taxes, regulatory fees or other licenses, all potential sources of income to the city. “The absence of these regulatory fees in the initiative is notable,” the report reads. “They would not be required to obtain any kind of discretionary permit from the City, and therefore the City will not acquire any fees from cannabis business owners relating to establishment of a cannabis business or continued operation of that business.”

They estimate that the city’s direct expenses of staff time, law enforcement and legal costs for just two cannabis businesses would be over $30,000 annually. However, the study continues, the initiative provides no path toward recovering those costs, aside from the cost of a ministerial zoning clearance, billable at $110/hour for staff time, with a quarter hour minimum.

The consultants estimate that a 4 percent tax on just two cannabis retailers would generate almost $250,000 annually, based on an estimate of over $6 million in gross receipts. Two manufacturers could average $2 million in gross receipts, which taxed at 2 percent could generate $40,000 in revenue yearly.

Despite the initiative’s lack of specific fees or taxes, its supporters pointed out in their arguments to the city council that there’s nothing in the initiative that prevents the city from levying taxes on the cannabis businesses.

HdL pins its evaluations on its work with over 1,400 cannabis businesses in the past three years, and its work with 25 local governments around California on tax measures for the November 2018 ballots.

The Sonoma City Council will receive the report at a special session on Tuesday, Aug. 21, at 6 p.m., at the Council Chambers, 177 First St. W. Once again, they will be asked either to enact the petition, call for a special election, or authorize it on the ballot for the next municipal general election, Nov. 3, 2020.

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