Sacramento may ask pot growers to give 1 percent to neighborhoods

By Anita Chabria

achabria@sacbee.com

November 13, 2016 04:00 AM

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Continuing a nearly yearlong debate, the Sacramento City Council on Tuesday will once again consider how marijuana could legally be grown in Sacramento, and who would profit.

The fight for what is expected to be millions of dollars in annual public revenue has pitted council members against one another, and left the growth of the local industry in question, even as voters last week legalized recreational marijuana in California.

Councilman Jay Schenirer, who has been the leader in crafting the local cultivation legislation, wants rules that would allow a case-by-case determination of whether pot grows would be allowed in agricultural, industrial and commercial locations throughout the city, with restrictions specific to the site and owner.

State regulations bar marijuana businesses within 600 feet of a school but largely leave other constraints in local hands.

Schenirer would like to see the city’s 4 percent business tax on the industry – which could amount to about $2.2 million annually – used to support kids through the funding of nonprofits and government-run programs. He envisions the tax money going into the general fund but being earmarked for particular purposes on an annual basis.

At odds with Schenirer are Councilmen Allen Warren and Eric Guerra, who say any cultivation plan must bring public revenue directly back to the neighborhoods most likely to house such businesses.

They argue that history and real estate prices make it more likely that pot grows will end up in communities that are poorer and have seen decades of hardship and blight from drugs, such as Del Paso Heights and Colonial Heights – areas that Warren and Guerra represent.

A resolution may be in sight.

Council members will likely will be asked this week to consider an ordinance with a provision that would require those who wish to grow pot commercially to agree to a “neighborhood responsibility plan” as part of the permitting and licensing processes.

That’s city-speak for what some council members envision as an expectation that growers would voluntarily give 1 percent of gross revenue back to the neighborhoods where they operate. (That 1 percent would be on top of the regular 4 percent business tax that applies to all types of establishments in the city.)

If a business didn’t want to give up cash, it could provide something of equivalent value, such as a new park or after-school program.

“We are continuing to balance the needs of the neighborhoods with the needs of the industry,” said Schenirer of the concept, which has little precedent. “We want a healthy industry … but we also want to respect the neighborhoods where the industry will be operating.”

Some potential cannabis investors say they’d be fine with the fee.

Daniel Conway, Mayor Kevin Johnson’s former chief of staff and now managing partner of local weed investment firm Truth Enterprises, said, “the 1 percent makes sense because there is an expectation from the city and the growers that ... there is going to be some kind of pound of flesh.”

Kimberly Cargile, director of pot dispensary A Therapeutic Alternative, said she and other cannabis professionals have been doing outreach to community and business groups to educate them on what it would mean to have the plants growing nearby. Their message is that they want to be good neighbors.

“From the cultivators that I’ve talked to, they want to give back to their communities and they want the neighborhood associations to accept them and so they are willing to give back where they’re needed,” she said.

The problem is that the 1 percent giveback may not be legal.

Singling out specific businesses for extra fiscal burdens or tying taxes to specific causes is legally challenging. It could slip into the realm of a special tax, which would require voter approval.

Schenirer tried that route with Measure Y in June, which would have put a 5 percent tax on medical marijuana growers that would have gone directly to youth services. It needed a two-thirds majority to pass and narrowly failed.

For weeks, city staff members have wrestled with a way to make the extra 1 percent work without success. City Attorney James Sanchez could not be reached for comment by deadline, but Schenirer said he’s confident it can work.

“We understand conceptually what we want, which is some kind of neighborhood responsibility plan,” said Schenirer. “We are still working on the mechanism.”

One of the problems would likely be enforcement, especially if a business opted for a non-cash option that could be harder to monitor.

Obstacles such as that mean the council may put place-holding language in an ordinance Tuesday and revisit the specifics of the 1 percent fee at a later date.

Guerra said he’s amenable to that two-step solution, as long as it’s clear in the ordinance that the neighborhood responsibility plan is mandatory for both the zoning permit and the business permit, effectively tying the conditions to the land and not just the operator and ensuring a conversation about contributions can be had with every facility.

“I’m fine with taking the time to work out the mechanics to have clarity,” Guerra said.

Warren was not so sanguine.

Reached via text in South Africa, where he was traveling, Warren said he needs to know more about a voluntary fee before he agrees and wants a “comprehensive and cautious approach” to cultivation that includes “business and employment opportunities” for affected communities. He returns to the country prior to the vote and will likely be vocal in his opinions.

“There will be outcomes and unintended issues that we’ve not considered,” Warren wrote. “Think of all of those that have gotten criminal records for something that’s now likely to be legal. ... I believe there should be opportunities for all groups to enjoy this new business.”

While cultivation continues to flummox local leaders, some entrepreneurs are growing impatient. Surrounding cities such as West Sacramento have welcomed them, leaving Schenirer and others worried that further delay could knock Sacramento out of a burgeoning and lucrative industry.

Early this year, the city asked those already growing in the area to voluntarily register in exchange for being allowed to continue to grow while the law was worked out. About 150 facilities came forward, according to Sacramento’s revenue manager Brad Wasson.

Cargile said she would like the city to add a provision to give those local entrepreneurs who voluntarily stepped forward priority with licenses, but said that even without that she hopes the city “will move forward.”

Conway agreed.

He said he didn’t think “the window was closed” for Sacramento, but that “the time for the city to act on this is now.”

Wasson estimates the city has about 600 people potentially interested in cultivating pot, and more inquiries about other aspects of the industry, such as manufacturing of edibles and other products.

“The demand to do this is huge,” he said.

Anita Chabria: 916-321-1049, @chabriaa