City of Novato CANNABIS WORKSHOP

City of Novato CANNABIS WORKSHOP

ABOUT HDL Serves: 303 cities 48 counties 108 transaction districts Partnered with over 125 local agencies to develop cannabis policies Team consists of former policymakers, law enforcement and cannabis regulators with State, County and local level experience Reviewed and evaluated over 1,400 cannabis business applications for local agencies HdL staff has experience conducting over 11,000 cannabis compliance reviews in Colorado, California and Nevada

AGENDA Introductions Update on Federal and State Laws Philosophy of stakeholders Council City Staff Public Safety Community Cannabis Industry Discuss core values in the implementation process Pyramid chart review Matrix Chart review

AGENDA (cont d) Land Use Ordinance GIS Assessment CEQA Requirements Regulatory Ordinance Tax Measure Ordinance Public Consumption Personal Cultivation Application Process Cost Recovery Fees Initial Cost Cost Recovery Fees Annual Cost Background Checks

STAKEHOLDER/COMMUNITY WORKSHOP MEETINGS CALENDAR July 10: July 20: July 21: Aug 8: Aug 8: Aug 8: City Council Presentation #1 Cannabis Industry Stakeholders Meeting #1 Overview of the Cannabis Industry Workshop #1 Launch of Community Survey Police Chief and Public Safety Agencies Meeting Public Safety and Enforcement Community Workshop #2

CITY COUNCIL/STAKEHOLDER/COMMUNITY WORKSHOP MEETINGS CALENDAR Aug 9: Youth, Community, Neighborhood Stakeholder Meeting #2 Aug 17: Business Community Stakeholder Meeting #3 Aug 17: Community Workshop #3 TBA Aug 28: City Council Presentation #2 Sept 17: Sept 25: Planning Commission Meeting City Council Presentation #3

PROPOSITION 64 ELECTION RESULTS Statewide passed with 56.1% of the vote; 43.9% opposed Marin County 59.1% of voters supported; 40.9% opposed City of Novato 64.8% of voters supported; 35.2% opposed

WHAT S LEGAL?

ATTORNEY GENERAL FEDERAL ENFORCEMENT POLICY 1 2 3 4 5 6 January 4, 2018 AG rescinds 2013 Cole Memo FinCEN Guidelines from 2014 Each state AG will be free to decide how aggressively they wish to enforce federal marijuana laws Rohrabacher- Blumenauer amendment January 19, 2018 Criminal Action vs Civil Action Medicinal vs Adult-Use

CALIFORNIA CANNABIS LAWS 2015 2016 2017 Medical Cannabis Regulation and Safety Act (MCRSA) Proposition 64 Adult Use of Marijuana Act (AUMA) Trailer Bill SB 94: Medical & Adult Use Cannabis Regulation and Safety Act; AB 133 10

SB 94 LOCAL CONTROL AUTHORITY State must notify the local jurisdiction when it receives a commercial cannabis application The law shall not limit local jurisdictions ability to ban or limit certain activities in the City The law does not supersede or limit existing local authority for law enforcement activity, enforcement of local zoning requirements or local ordinances Businesses can now only own one Type 3 Cultivation license until January of 2023

OTHER KEY CHANGES TO STATE REGULATIONS As of January 1, 2018, temporary permits began being issued and have now been extended for the remainder of the year. As of July 1, 2018, all products must be tested that are sold at retail and all other cannabis products must be destroyed Vertical integration will now be permitted except for testing labs Local Regulatory Ordinances will not be subject to CEQA until July 1, 2019 Establishes a Non-Store Front License (Delivery service which operates from a commercial location) Track and Trace is not anticipated to go into effect until January 1, 2019 Health & Safety Code 11362.775 (Medical Marijuana Program) will be repealed as of January 1, 2019

POLICY DECISIONS

CANNABIS POLICY DEVELOMENT Policies designed today will help shape how your industry looks tomorrow. -HdL Companies

Why Should Your City Care? 15

Where is the Cannabis Industry in the Region Delivery locations Dispensary locations 16

CITY OF NOVATO Core Values - Community Priorities 1 2 3 4 Public Safety Environmental Protection Neighborhood and Land Use Protection Access by Youth

SUCCESS PATH TO SUCCESS REGULATE LEGISLATE EDUCATE COLLABORATE

STARTING NOW IS IMPORTANT BECAUSE: 01 1 02 2 03 3 04 4 State licenses have begun to be issued January 2, 2018 Regulations are under development and review Investors and businesses are deciding where to locate It will be legal: either establish /maintain a ban or regulate it

REGULATORY OPTIONS Total ban Allow one/few activities Allow some/most activities Total ban Allow one/few activities Allow some/most activities Total allowance Total allowance

CITY COUNCIL SETS CANNABIS REGULATORY POLICIES ON: Cultivation Microbusiness Manufacturing Testing Labs Delivery/Non Store Front Retailer Retail-Medicinal/Adult-Use Distribution Facilities 21

MEDICINAL ADULT-USE Cultivation YES / NO YES / NO Manufacturing YES / NO YES / NO CATEGORIES OF USE Testing (Quality Control) YES / NO YES / NO Retailer/Non-Store Front Retailer YES / NO YES / NO (Dispensary/Delivery Services) Distribution Facility YES / NO YES / NO Microbusiness YES / NO YES / NO

Addressing Public Concerns Through Regulations

POTENTIAL PUBLIC CONCERNS

PERSONAL USE PUBLIC SAFETY & WELFARE A A A A A A A A Grants person right to cultivate (indoor) up to six (6) plants Can be subject to reasonable local regulations Can prohibit outdoor cultivation The primary use of the property must be for a residence Must comply with building and construction code Use of gas products or generators for cultivation are prohibited Any structure used must be secure and fully enclosed Must have written consent of the property owner

PUBLIC SAFETY RISK ASSESSMENT 1 2 Monitor business practices Conduct background checks Approve security plans Offset resource cost for staffs time Regulate time, place, and manner requirements Reduces police power due to limited search and seizure laws under Prop 64 Makes it difficult to gather intelligence information Encourages black market sales Creates a reliance on public safety resources with no mechanism for cost recovery No control regarding sales to youth

1 2 Bad actors Black market diversion/inversion Illegal cultivation activities Illegal business activities Driving while impaired Increased traffic from Retailers Bad odors Pollutants/Air Quality Overdose Response Calls Access by youth in homes/illegal sales

A REGULATORY SYSTEM CAN: Give the local agency authority and control over licensing Require applicants to comply with robust requirements Enhance accountability for security and product safety Reduce intervention from the Federal Government by complying with the Cole Memo and other state laws

A REGULATORY ORDINANCE CAN INCLUDE: Limited number of business licenses Access control requirements Police access Police background checks Record reporting/retention requirements Investigation and inspection protocols Good neighbor policy mitigation Suspension, fines, and permit revocation

LAND USE BUFFER OPTIONS

PLANNING DEPARTMENT PROCESS Allows you to be business friendly, nimble and expeditious Establishes one process Requires compliance with operational standards Amendments to Zoning Ordinance needed to accommodate cannabis businesses

APPLICATION PROCESS Merit or quality insurance based process selection for applicants that includes: Applicants meeting specified regulatory standards Proposed location is properly zoned Completion of background check Payment of application fees Ongoing payment to City to recover cost

PROCESS FOR SUCCESSFUL REGULATORY FRAMEWORK DEVELOPMENT 01 July Sept Oct - Dec Jan March 2019 Educate the City Council and the community Conduct community survey/stakeholder meeting Draft a regulatory framework Develop a cost recovery plan 33

PROCESS FOR SUCCESSFUL REGULATORY FRAMEWORK DEVELOPMENT July Sept Oct - Dec Jan March 2019 Draft a regulatory and zoning ordinance as applicable before the moratorium expires 02 Conduct study session & public hearings on any regulatory and zoning ordinance revisions Adopt a resolution approving a cost recovery plan and application procedures or continue banning cannabis use 34

PROCESS FOR SUCCESSFUL REGULATORY FRAMEWORK DEVELOPMENT July Sept Oct Dec Jan March 2019 03 Develop a tax policy and an annual regulatory fee Establish a Community Benefit Program until a tax measure can be place on the November 2020 ballot 35

Tax & Fee Revenues

CANNABIS ECONOMIC TRENDS Cannabis industry set to generate $7.6 billion in California by 2020 Hemp products are now a new commodity Local communities are looking to benefit financially from commercial companies Creates jobs in the community directly and indirectly Misconceptions of sales/use tax exemption H&S 11362.71 37

REVENUE GENERATING STRATEGIES 1 2 Standard fee to recover City costs General tax to be considered by voters in November 2020; 50% +1; Tax to general fund

CUMULATIVE CANNABIS TAXES HdL Analysis

DEVELOPMENT AGREEMENTS What is the purpose of Development Agreements (CGC 65864) Lack of certainty in the approval of a development project can result in a waste of resources, escalate the cost of housing and other developments to the consumer The lack of public facilities such as streets, sewage, transportation, drinking water, schools and utility facilities Who has right to the property for DA s (CGC 6586.5) The property owner or other persons having a legal or equitable interest in the property

DEVELOPMENT AGREEMENTS (cont.) What limitations does the City have on the agreement? (Government Code 65865.2) The development agreement may include conditions, terms, restrictions, and requirements for subsequent discretionary actions, provided that such actions shall not prevent development of the land for the uses and to the density or intensity of the development set forth in the agreement. Can development agreements be challenged? (Government Code 65867.5 (a) A development agreement is a legislative act that shall be approved by ordinance and is subject to referendum.

Annual Revenue Estimates*: Very Conservative (2.5%): $675,000 Moderate (4%): $1,080,000 LOCAL TAX REVENUE PROJECTIONS Aggressive (6%): $1,620,000 Assumes 2 cultivation facilities with 10K sq. feet each of canopy space generating $4M in gross receipts annually. Assumes 2 manufacturers with an average of $3M in gross receipts. Assumes 2 retailers with an average of $2.5M in gross receipts. Assumes 2 testing labs with an average of $2M in gross receipts. Assumes 2 distribution facilities with an average of $2M in gross receipts *Emerging market makes it difficult to assess with total accuracy

The Size of The California Cannabis Industry

CANNABIS LICENSES BY TYPE as of 7/3/18 2315 Cultivation 609 Manufacturer 414 Retailers 118 Retailer Non-Storefront 383 Distributors 51 Distributor Transport Only 95 Microbusinesses 31 Testing Labs 45 Cannabis Event Organizers 4,061 Total 44

CALIFORNIA S CANNABIS MARKET A A Aa A a Total Statewide Cannabis Production: 13.5 million pounds (CDFA Estimate) Total Statewide Cannabis Consumption: 2.5 million pounds (CDFA Estimate) Total Statewide Cannabis Consumption: 1.6 million pounds (California Cannabis Opportunity Report) Current Number of Cultivation Licenses Statewide: 2,315* Potential Cannabis Production 5.5 to 6.9 million pounds* *California Department of Food and Agriculture Database July 3, 2018

REGIONAL CANNABIS PRODUCTION

City Council can choose: POLICY STRATEGY OPTIONS OPTION 1 OPTION 2 Continue banning commercial cannabis; or Allow for delivery services and testing labs; Minimal modifications to Muni Code to address Prop 64 changes except for indoor personal use Allow for conditional or discretionary permit; Establish a licensing process for limited commercial cannabis uses 47

THE DECISION IS YOURS

Thank you! NAME EMAIL PHONE David McPherson Cannabis Compliance Director dmcpherson@hdlcompanies.com 909-861-4335 Matt Eaton Cannabis Compliance Manager meaton@hdlcompanies.com 909-861-4335 Tim Cromartie Cannabis Senior Advisor tcromartie@hdlcompanies.com 909-861-4335