In an effort to strategically address the issue of medical marijuana in San Benito County, former Hollister City Councilman Victor Gomez was hired to facilitate the presentation of a substantial amount of data and background information during a Feb. 16 special supervisors’ board retreat.
Ray Espinosa, county administrative officer, who said he was authorized to pay Gomez $10,000 for four months of consulting, said the marijuana ad hoc committee—comprised of Supervisors Mark Medina and Robert Rivas—wanted to move forward strategically in addressing marijuana in the county.
“He has expertise in this field, having worked with the City of San Jose and other jurisdictions regarding marijuana,” Espinosa said of Gomez. “The ad hoc felt it was appropriate to bring him on, so under my authority we created a contract and he’s here to give the board the lay of the land and where we’re at, and the next steps, as well.”
Gomez thanked the ad hoc for giving him the opportunity to guide it and the board in moving toward the potential adoption of an ordinance for the unincorporated areas of the county. He told the supervisors he would cover MMRSA, (Medical Marijuana Regulations and Safety Act), and what has happened after Nov. 9, when California voters passed Prop. 64, the legalization of adult use of marijuana, on a statewide and local level.
As he began to lay out the county’s regulatory options under Prop. 64, Gomez told the board that he had worked with the City of San Jose for five years on cannabis issues. He reminded them that the city council adopted its rules, regulations and permitting process on Feb. 6. He said Prop. 64 passed with nearly the same percentage of voters in favor of it as with state voters. Under the proposition, individuals are permitted to cultivate up to six plants inside a private residence or structure.
Supervisor Jaime De La Cruz interrupted and asked Barbara Thompson, acting county counsel, that if the county’s regulations stipulated six plants per parcel, while the state’s is six per household, which one would take precedence? Thompson said state law supersedes county law and the county will have to make sure its ordinance is consistent with the state.
Gomez said the county had banned outdoor growth and because of state law it cannot ban indoor growth. Supervisor Jerry Muenzer said, however, that the county does allow six plants, either indoors or outdoors, at a private residence.
“What we banned was the larger, commercial growers,” Muenzer said, clarifying for Gomez.
Gomez went on to say that the state law created two excise taxes: a cultivation tax and a 15 percent tax on retail sales of both medical and recreational cannabis, which will be adjusted for inflation after 2020. De La Cruz asked if it were possible to do a “double dipping on taxation,” by charging a tax at the facility, as well as charging on what “comes out of the facility.”
Gomez said he believed that because of the rural nature of the county, most demand would be for cultivation rather than dispensing. He said, however, there a multiple components that can go into a tax structure, including a gross-receipts tax, a canopy tax of square footages within facilities, or a wholesale gross-receipts tax that would be paid by the wholesaler or distributor to the dispensary. Then the dispensary would either pass the tax on to customers or absorb it.
“You, as a local jurisdiction, do have the authority to add an additional local retail sales tax,” Gomez said. “Sales tax will depend on how much the county wants. State revenue ranges from hundreds of millions of dollars to a billion. The revenue from the two taxes will be deposited into a marijuana tax fund.”
He said $10 million for the first 11 years will be used for research at universities; $3 million will go to the California Highway Patrol to address the impaired driver issue; $10 million each year and increasing by another $10 million until settling at $50 million in the year 2022 will go to grants to fund local health departments.
Monies that are left over will be divided to pay for youth programs; prevention of environmental damages; and programs to help reduce driving under the influence of marijuana.
Gomez said Prop. 64 includes 12 separate licenses with subcategories that can expand that amount to 19 licenses. License Types 1-4 will be adopted over the next 24 months. In 2023, Type 5 cultivators will be allowed to get licenses to allow them to grow on large plots.
“Right now, you’re strictly limited to 22,500 square feet per parcel for cultivation,” he said. “That will not change and the reason it’s included in the proposition is to prevent big box-type retailers or cultivators to come in here and swallow up the small guys who are just starting to begin the process of getting into business. This is a cash business; there is no banking system for this yet. To get into the business you can’t get an SBA (Small Business Administration) loan or a traditional loan at a bank.”
Since he had only been hired the day before the meeting, Gomez said he looked forward to guiding the ad hoc committee in determining what the county wants to adopt, regulations-wise. He said that, ultimately, residents and voters will hold the supervisors accountable on what ordinance is adopted. He recommended that the ad hoc committee be expanded to include representatives from the district attorney’s office, as well as the sheriff’s office, the planning department, and agriculture commissioner’s office.
Gomez also discussed edible marijuana products, telling the board that, statewide, 60 percent of marijuana sales will revolve around edibles. He said the perception that most marijuana is smoked or vaped is wrong. He said more than 50 percent is consumed.
“It’s something to consider because you’re likely to have interested parties wanting to come into the county to make brownies and lollipops,” he said. “Older folks in the community who have cannabis licenses prefer to not smoke it, but have other ways to consume it.”
Testing, he said, is an important step that will have to be outsourced because it cannot be done within the industry. It has to be done by a specialty industry that focuses on pesticides, molds and other issues.
Delivery options are also important considerations, Gomez said, asking if the county would allow facilities to deliver from Hollister to the unincorporated areas.
“If that’s the case and you have a deputy who pulls over an individual coming out of Hollister, you’re going to want to make sure that individual has a background that’s cleared by the sheriff’s department; and that has a badge authorizing delivery into the county,” he said.
Dispensaries are the most controversial component of the discussion, Gomez noted.
“A lot of parents are concerned with it,” he said, mentioning concerns that marijuana would be more accessible to children.
He told the supervisors that when considering zoning issues the county could not duplicate those determined by Hollister because they will be more concerned with cultivation and manufacturing rather than sales. Over the next four to six months, Gomez said, the ad hoc committee should draft an ordinance addressing land-use regulations, setbacks, signage, packaging, records, security and safety. It would then be brought back to the board and for public input, as the ordinance evolves.
The second step would be to write the rules and regulations to govern the conduct and operations of the facilities, and the delivery of medical cannabis products. The third step would be to develop a tax structure.
De La Cruz said that since working on a tax structure involved Prop. 218 (right to vote on tax act), perhaps the board should consider agreements that all participants would sign on to in order to avoid a 218. Gomez said it is important to let the voters be involved in the process and that it was important to convince cultivators already in the county (he estimated there are 40; De La Cruz said it was more like 200) to “come into the fold” to avoid unnecessarily forcing them to shut down.
“You’re going to have to develop a temporary fee structure to allow them to operate through Dec. 31, 2018, or sooner, right after the 2018 election, because you are going to have to go to the voters for this,” Gomez said.
Theoretically, he said, if a 30-acre grow (an actual marijuana grow in the Panoche area) that was operating illegally was allowed to continue operating rather than shut down, and taxed, there could be a windfall of as much as $30 million for the county’s General Fund. Supervisor Mark Medina challenged Gomez to prove how he came up with the $30 million figure. Gomez calculated off-the-cuff that 30 acres at 40,000 square feet, per acre, equals 1.2 million square feet. A $25 fee per square foot equals $30 million.
Gomez said that may be on the high end. Medina said even if the fee was $12 per square foot, it would represent a substantial amount for the county.
Gomez said what the supervisors were attempting to do was regulate the industry to take away the criminal element and bring it into the light. Supervisor Jerry Muenzer asked if jurisdictions that had adopted such regulations were actually collecting the fees. Gomez assured him they were. Muenzer questioned whether some businesses were coming out in the open rather than staying hidden to avoid controls and taxation. Gomez admitted it was impossible to address all illegal operations.
“The cultivators who are out there don’t mind because the industry understands where the state is going,” he said. “It is partially legal, but as of right now, the industry is freaking out over Attorney General Jeff Sessions because he shares more of a moral issue with cannabis. That has the industry extremely concerned.”
The likelihood of Sessions changing anything is low, Gomez said, because President Donald Trump has publicly stated that he personally knows people who have benefited from medical cannabis.
“He said during his campaign, ‘I’m not going to do anything about that issue because it’s a states’-rights issue,’” Gomez said. “Now you have 28 states that have adopted medical cannabis policies. So, even if the attorney general wanted to start enforcing federal law, you’ve got 28 states, and it would take a lengthy campaign to address that issue.”
Shortly after Gomez completed his presentation, San Benito County Sheriff Darrin Thompson addressed the board, telling them that he took an oath, from which he quoted: “I will support and defend the Constitution of the United States and the Constitution of the State of California against all enemies, foreign and domestic.”
The sheriff commented the conflict between the two constitutions in laws regarding marijuana and how difficult it will be for states to navigate.
“Impairment is an enemy,” he said. “It’s an enemy of public safety. Impaired driving, behavior and decisions are all enemies of public safety. I’m committed to protecting this community against those things. Another enemy are criminal enterprises; many of which have been in the marijuana industry for years.”
He said the large marijuana grow that Gomez alluded to was managed and sponsored by criminals. He said the sheriff’s office is currently working on two homicides involving it. He described how the farmers connected with one of the victims decided not to cooperate with law enforcement.
“Instead of taking their injured friend, who had a gunshot wound to the chest, to the nearby hospital, they drove him from a little community outside Morgan Hill for nearly 55 minutes out to Panoche Road,” Thompson said. “He was still alive laying in the back of the pickup. They passed numerous hospitals. The autopsy showed he would have survived with some first aid.”
Criminal enterprises, the sheriff said, have monopolized the marijuana industry for years and continue to be an enemy to public safety.
“I take my oath very seriously, and I hope you do, too,” he told the board. “As we begin to navigate this issue of marijuana, I would hope the negative impacts that our community could receive from potentially more impaired people and more marijuana entrepreneurs that you consider those things when you’re considering potential benefits of any financial windfalls.”
The sheriff said he was willing to work with the ad hoc committee, but up until now, communication with it has been poor.
“I would expect more communications and more involvement of people in the community who are committed to keeping this community safe,” he said.
District Attorney Candice Hooper said she agreed with the sheriff, pointing out that she found it curious that some of the monies would go to public health, which she took as an acknowledgment of the adverse effects of marijuana.
“The other thought I have is with this windfall money,” she said. “Where are you going to put it? Do you put in suitcases under your beds? What are you going to do with the money since you can’t bank it?”
She said county supervisors need to consider not only how it will be collected, but how would they “funnel these funds.” She looked at Gomez as she added, “I don’t know if Victor has an answer for that, or not.”
Gomez agreed with Hooper, stating the banking component is the most difficult part of the equation. He said that while there are ways to deposit the money, he admitted that being a cash business there were not many places to put it other than perhaps in credit unions.
“It’s a tough question to answer, Candice,” he said. “Really, there is no answer to that right now.”
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