Nine Cities Weigh in on the Growing Marijuana Industry
By Heidi Simmons
California legalized the adult consumption of marijuana January 2018. Anyone 21 years and older — with a legal identification — can purchase cannabis from a licensed dispensary.
Fifteen months into legalization, and the Coachella Valley is working hard to become one of the State’s foremost providers of cannabis and its related products from seed to sale.
Cannabis commerce in the CV is still in its infancy as cities do their best to move toward full scale growing, manufacturing, and testing furthering the region’s economic status and clout.
More consumption lounges and spas are opening adding to the already popular tourist destination.
The State’s requirements — which can change from day-to-day — and infrastructure issues have slowed down the pace of cannabis facility construction. But, the cities of the Coachella Valley continue to press forward to bring about tax revenue and economic stability to their communities.
The following is a current cannabis snapshot of the CV cities’ efforts to grow an industry and cope with the changing nature of cannabis culture and commerce.
Cathedral City began allowing limited cannabis businesses in 2014, and in 2016 created a suite of ordinances to regulate the local marijuana industry. City Manager Charles McClendon answered questions about the city’s thriving marijuana businesses.
“The pleasant surprise has been the physical improvements done to the buildings the cannabis industry uses. They have all been dramatically improved,” said McClendon. “We had a higher inventory of vacant industrial buildings, which mostly have all been occupied without the need for a lot of new construction.”
The city has 13 dispensaries in operation. South of the Interstate, 19 dispensaries have been licensed with no other licenses being allowed in that zone. The city has placed no limits on licenses north of the freeway, but none exist at this time.
Revenue generated by dispensaries have paid $1,000,372 in taxes to the city through January 2019.
Cathedral City currently has licensed three cannabis lounges — where cannabis consumption is allowed on the premises – two are in operation.
“Each licensed dispensary could potentially have a license for a consumption lounge,” said McClendon.
Cultivation & Manufacturing:
As of the end of January, the city has 15 cultivators in operation occupying 72,592 square feet with 14 manufacturers in operation. Another + – 670,000 square feet of cultivation space is in the planning or development phase.
Through January, cultivators have paid $846,233 in taxes and manufacturers have paid $770,008.
Cathedral City also allows testing labs. Currently, only one is in operation.
Since the city legalized cannabis sales, manufacturing and cultivation, McClendon estimates the total paid to the city for the current fiscal year through June will be + – $4 million in taxes and + – $250,000 in permits.
According to McClendon, the processing of all the cannabis related applications has been a strain on staff resources.
“The primary effect of the cannabis business has been the diversification of our local economy with an additional source of revenue, jobs and economic activity,” said McClendon. “We envision the cannabis industry to continue to be a key part of our local economy.”
The City of Coachella adopted ordinances in 2016 for medical cannabis cultivation and processing. Economic Development Director Gabriel Martin, answered questions about the growing business of cannabis commerce.
The city has set a maximum of 10 dispensaries and has licensed four. Currently, The Lighthouse, is the only dispensary in operation.
Tax revenue for the current fiscal year is $200,000. Coachella has no cannabis lounges at this point, but will allow a maximum of 10.
Cultivation & Manufacturing:
The city has entitled approximately 235 acres for industrial cannabis development and 3.5 million square feet existing and proposed cannabis cultivation projects.
Two small facilities totaling 25,000 square feet of cultivation and manufacturing are in operation, and have generated $93,000 in tax revenue to the city.
Coachella allows all ancillary cannabis businesses, but the economic and fiscal impact has not been monetized. City fees have totaled $120,000 and the city’s cannabis tax revenue for cultivation is $293,000.
According to Martin, the biggest challenge for the City of Coachella is the lack of infrastructure.
Working with the local utility company, Imperial Irrigation District (IID) to install the needed substations and electrical infrastructure to provide the entitled projects electricity so they can commence construction of the licensed facilities has been difficult.
What has surprised city officials most is the high demand for cannabis related products and the innovative and energy efficient technology that can be implemented for cultivation.
“Cannabis has revitalized and rehabilitated our ‘Auto Wrecking Zone,’” said Martin. “It has allowed for the construction of new buildings and rehabilitation/repurposing of blighted buildings. Cannabis is generating new jobs, increasing tax revenue and allowing for social equity opportunities.”
Coachella has demonstrated that they have a pro-cannabis friendly City Council and City staff who are willing to work with cannabis businesses to navigate through all the State/City Conditional Use Permit (CUP) entitlements, regulatory permit and licensee processes.
“The city has ample land ready for construction development with a Fast-Track Process that can expedite permitting and licensing of all cannabis related businesses,” said Martin.
Coachella has established partnerships with cannabis networks that promote cannabis advocacy and education to cannabis businesses. IID provides Coachella with lower electrical rates than other parts of the State.
“We hope to be the cannabis capital of the state allowing all aspects of the cannabis industry and businesses to flourish and grow to its full potential,” said Martin about the future of cannabis commerce in Coachella.
“The City of Coachella is open for business. We have a young, family oriented community that supports the growth and prosperity of the cannabis industry.”
DESERT HOT SPRINGS
Residents voted in favor of the selling and cultivation of marijuana in 2014. Roberta Crncic, Deputy City Clerk compiled and completed answers about the City of Desert Hot Springs growing cannabis industry.
There are currently nine dispensaries in operation with two more expected to open soon. With all authorized applicants, the city will have a maximum of 19 dispensaries.
Cannabis tax revenue from dispensaries for the city’s current fiscal year is $733,837.
Cannabis lounges have not been approved, but are under consideration to be determined by the City Council.
Cultivation & Manufacturing:
The City of Desert Hot Springs currently has in operation approximately 200,000 square feet of cultivation, manufacturing and ancillary use, with an approximate 15 million square feet under construction and/or development.
Revenue generated for the city’s current fiscal year from cultivation and manufacturing is $806,877.
The city estimates that since April 2015 (including this fiscal year), the cannabis tax collected is $4,167,411. Sales tax alone is estimated to be over $144,745.
The City of Indio has not yet legalized cultivation or the sale of cannabis within City limits.
“Because regulations in the State continue to change, the City Council has asked me to arrange future discussions,” said Mark Scott, Indio City Manager. “We are likely to do that in the next few months.”
According to Scott, Indio has had no problems with the neighboring cities that sell, grow or manufacture cannabis.
“The new industry has not affected us negatively to date,” said Scott. “All the cities in the CV work cooperatively in evaluating activity that may affect one another. We have been in touch with Coachella, Cathedral City, Palm Springs and Desert Hot Springs to share notes and learn from their experiences.”
“We are very interested in knowing as much as we can about the opportunities and challenges,” said Scott. “We are trying to follow the evolving State regulatory market, and we are attentive to the variety of approaches to implantation, and lessons learned. This is clearly an emerging industry and we will continue to evaluate our City’s options.”
The City of Indian Wells does not allow the sale, cultivation or manufacturing of cannabis.
According to Peter Castro, Assistant to the City Manager, the cannabis industry has had no effect on the community and will play no role in the city’s future.
“Commercial cannabis is not allowed in Indian Wells,” said Castro. “It’s prohibited.”
The City of La Quinta currently has a ban on dispensaries, cultivation and production, and only allows licensed and certified delivery services to home-bound medical patients.
“Our community hasn’t been impacted by the cannabis industry,” said Linda Evans, Mayor of La Quinta. “Our residents can access the product in neighboring cities if they so choose.”
According to Evans, La Quinta residents have not expressed a strong interest in having a location within the City limits nor have there been complaints about misuse, odor or disturbances related to cannabis use.
“Our Ad Hoc Cannabis Committee meets regularly to ensure we are aware of changes in the law so we can continue to evaluate our position going forward,” said Evans.
The City of Palm Desert formed a Cannabis Committee in 2016 to explore cannabis related businesses, and in 2017 the city developed a cannabis related ordinance.
City officials collaborated, compiled and completed answers about the cannabis industry in their community.
According to Eric Ceja, Palm Desert Principal Planner, there are five operating dispensaries – West Coast Cannabis Club, Libra by HOTN, Palm Royale Collective, The Leaf on El Paseo, and Royal Highness.
The city has set a limit of six dispensaries.
Janet Moore, Director of Finance, City of Palm Desert, reported the tax revenue generated through dispensaries in the current fiscal year is $152,002.
The city currently has no plans at this time for cannabis lounges.
Cultivation & Manufacturing
Palm Desert has no cannabis cultivation or manufacturing businesses in operation. However, the city has approximately 66,000 square feet approved for the growing and production of cannabis.
“The total income in city fees and taxes since allowing cannabis businesses is $238,795,” reported Moore.
“Everything is new for us, and other communities across the State,” said Lauri Aylaian, Palm Desert, City Manager. “When it comes to cannabis, our biggest challenge has been staying on top of California’s fast changing regulatory landscape.”
For Palm Desert, the cannabis industry is in its infancy with the first businesses only opening within the past six months.
“It’s too early to tell how the cannabis industry has affected our community,” said Aylaian. “We will have a better idea of the cannabis industry’s impact on Palm Desert next year.”
Aylaian has been pleasantly surprised by the high level of sophistication, expertise and business acumen demonstrated by some of the cannabis business owners.
“Palm Desert is unique in the Coachella Valley in that we have an unusually diverse cannabis retail portfolio – from mainstream shops to a beautiful high-end boutique on El Paseo,” said Aylaian. “We invite shoppers to come and discover the range of retail options available here.”
Aylaian believes Palm Desert’s “deliberative and measured” approach to cannabis sets the city apart.
“We have been cautious, starting out with a limited number of cannabis business licenses to help us evaluate impacts,” said Aylaian. “Cannabis will never be a revenue mainstay for the City of Palm Desert, but it does diversify and enhance our economic portfolio.”
The City of Palm Springs was one of the first communities in the state to allow the sale of medicinal marijuana.
In 2014, the city adopted an ordinance to legally operate medicinal cannabis cooperatives and collectives. Veronica Goedhart, Director of Special Projects/Cannabis and Vacation Rental Compliance compiled and completed answers.
The City of Palm Springs has six dispensaries operating and there is no limit on the number of dispensaries allowed.
For the fiscal year through December 2018, cannabis dispensaries generated $755,902 in tax revenue.
Palm Springs allows cannabis lounges with one in operation and another scheduled to open in April. The city has no cap on the number of lounges it will permit.
Cultivation & Manufacturing:
There are currently 53,154 square feet of cannabis cultivation. Data on manufacturing square footage was not available at the time of publication. Square footage for cultivation yet to be developed and/or in the planning process as of January, is 134,050 square feet.
According to Goedhart, revenue generated by cannabis cultivation for the fiscal year 18/19 through December is $120,948.
Goedhart did not provide an estimate of the total income in fees and taxes paid to the city since allowing cannabis sales, manufacturing and cultivation stating:
“The amount of permit fees charged, only provide for the staff and City expense to complete the permitting process – it is not a revenue generating fee. The above numbers reflect the City income generated by cannabis taxes.”
Palm Springs City Manager, David Ready added: “The City permits Cannabis business operations for the purpose of adult recreational use, commercial medical transport and distribution, manufacturing, dispensary, and cultivation as permitted by City Code and the State of California. The collective tax revenue for the current fiscal year through March 31, 2019 is $1.459 million. The City has projected $2 million in cannabis tax revenue for the fiscal year ending June 30, 2019”
According to Goehart, the biggest challenges are the ever-evolving business regulations and compliances.
Since the State of California legalized adult consumption in 2018, it has undergone a multitude of revisions regarding all aspects of the cannabis industry creating challenges for local municipalities and cannabis entrepreneurs.
“The cannabis business is new and emerging,” said Goehart. “Many of the financial predictions regarding the cannabis market fell short. This is still a new and emerging business for the City and it is difficult to predict the future.”
For Goehart, the biggest surprise has been the applicants.
“Applicants present new and exciting business plans, and are able to put their own unique touch on their projects,” said Goehart. “Endless possibilities and ideas!”
“Palm Springs was an early adopter of cannabis regulation,” said Goehart. “Medical cannabis has benefited the Palm Springs community for several years. The legalization of commercial medical and adult recreational cannabis has removed stigma and stereotypes regarding cannabis use. There is greater acceptance. The community will see the benefits of the revenue generated from the businesses in the City.”
Goehart concluded, “The City of Palm Springs is working to build a model program with the community, businesses and local government officials all striving to work together to create nurturing and strong relationships.”
The commercial sale, cultivation and/or manufacturing of cannabis products, and cannabis lounges are prohibited in the City of Rancho Mirage.
Brian Kephart, Senior Compliance Officer & Emergency Services Coordinator answered questions about cannabis commerce in his community.
The only ancillary cannabis business allowed in Rancho Mirage is cannabis delivery service.
“Delivery can only be from State licensed locations based outside of Rancho Mirage,” said Kephart.
A handful of delivery licenses have been issued by the city with less than $500 a year in collected fees.
According to Kephart, the biggest challenge for the city regarding cannabis is an increase in nuisance complaints regarding the odors from neighboring jurisdictions.
“The City of Rancho Mirage provides up to $25 a month reimbursement for transportation expenses to obtain medical cannabis from dispensaries in other cities,” said Kephart. “More information is available at www.RanchoMirageCA.gov, under Applications & Forms.”
Cannabis is growing across the CV, and is on the verge of blossoming into a significant industry. However, the Federal government — current administration — is not in favor of legalizing cannabis and remains steadfast against it.
Time will tell if the promises of the “Green Hope” will be actualized for communities. For now, in California it is the end of prohibition, and the fiscal and social impact of cannabis commerce continues to evolve.