By Heidi Simmons
As one of the first areas in the country to embrace a cannabis industry that allows the selling, growing and manufacturing of marijuana and its products, valley cities prepare for a future where marijuana is legal, not only for medicinal purposes, but also for adult consumption.
With local dispensaries and a growing number of cultivators, the valley anticipates a thriving canna-commerce that potentially can create jobs, provide badly needed tax revenue and bolster the economy.
The Coachella Valley consists of nine contiguous cities in about 675 square miles. Its population varies during the year. During the summer, resilient residents number around 200,000. As the temperature declines, the population increases quadrupling to almost 800,000 in winter months.
Beyond the additional snowbirds, tourism adds another 3.5 million annually to CV communities.
In January 2018, adult consumption becomes legal. Anyone age 21 or older will be able to purchase marijuana from a state licensed dispensary.
Cities are actively taking a position to either participate or not in the valley’s blossoming industry.
Following is a current cannabis snapshot of all CV cities. The summary includes how each city intends to navigate adult consumption and State legalization, and provides revenue totals for those engaged in cannabis commerce.
The City of Palm Springs ordinance allowing medical cannabis cooperatives and collectives to operate legally was adopted March 2014.
“It is very important to our City Council that the City of Palm Springs be prepared for the state-wide legalization of adult use cannabis as of this coming January 1st,” said Robert Moon, Palm Springs Mayor. “We want to ensure that all cannabis businesses in Palm Springs meet strict operational, quality and safety guidelines in every aspect of the manufacturing, testing, packaging, distribution and safeguarding of cannabis products for both medical use and personal adult use.”
The city currently has six permitted medical cannabis cooperatives and collectives. Palm Springs has no set limit for dispensaries.
Unlicensed cannabis businesses operating in the city have been subject to enforcement. The City has pursued a variety of actions in regard to unlicensed dispensaries through staff and legal counsel.
“Palm Springs has taken a leadership approach in thoroughly and meticulously preparing our City for the impending legal sale of adult use cannabis, just as we were leaders in the area of medical cannabis,” said Moon.
The city’s comprehensive new ordinance was passed in July.
“The City Council recently adopted (i) an update to Chapter 5.45 of the Palm Springs Municipal Code, covering medical cannabis related businesses and activities,” said Edward Kotkin, Palm Springs City Attorney. “Making that chapter consistent with State law adopted since its original approval, and (ii) a new chapter of the Code (5.55) regulating adult-use cannabis businesses.”
The ordinances will be effective this month.
“However, no new permits will be issued under either Chapter 5.45 or Chapter 5.55 unless the cannabis tax ballot measure that the City Council placed before the voters July 26 is approved on November 7, 2017,” said Kotkin. “Further, no adult-use permits will issue prior to January 1, 2018. In the interim, the City anticipates that many cannabis businesses will apply to lawfully do business in Palm Springs. It’s unknown how many proposed dispensaries will be in the applicant pool.”
Through the new ordinance, the city has also set in place stringent specifications for cannabis testing laboratories.
“The safety and security of our residents and guests is always our first priority,” said Moon.
Since the 2014 inception of city allowed cannabis sales, nearly $4.5 million — from all taxed entities — has been generated. Fiscal Year 2016-17 was almost $1.5 million
“Palm Springs’ six collectives/cooperatives are the only cannabis businesses currently generating tax revenue in the city,” said Kotkin.
The city allows for cannabis cultivation.
“The only parties that cultivate in the City are among the permitted cooperatives/collectives,” said Kotkin. “My understanding is that four of the permitted six cooperatives/collectives are engaged in cultivation activity.”
The city’s revenue figures for dispensaries and cultivation function together and are not tallied separately.
At this time, the city does not have financial projections regarding its future cannabis industry.
“There will no doubt be considerable expense to the City in the enforcement and regulation of expanded cannabis manufacturing, testing and distribution,” said Moon. “The tax revenue from the cannabis industry is intended to cover those costs as well as provide important additional tax revenue which will be applied toward the general operations of our city.”
As city attorney, Kotkin, cannot speak to the challenges city staff has when it comes to working with the cannabis businesses.
“I can tell you that State law has been a moving target,” said Kotkin. “The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), signed by the Governor on June 27, 2017, reconciles various inconsistent provisions, and provides more certainty than cities have enjoyed in the past. The State’s regulations for the cannabis industry remain a work-in-progress.”
The City Council will be taking further action regarding legal use for adult consumption in the coming months.
According to Kotkin, Palm Springs anticipates and welcomes significant growth in cannabis industry activity within city-limits.
“The cannabis industry in the City of Palm Springs will hopefully expand and evolve to its full potential, and constitute a significant element of the City’s commercial and economic prosperity,” said Kotkin.
“With the rising costs of employee pensions, public safety, and city infrastructure maintenance, this additional revenue will be very important to contributing to the continued success and growth of Palm Springs,” said Moon.
According to City Manager Charles McClendon, the ordinance allowing limited cannabis businesses was adopted in August of 2014.
“The first of the current suite of ordinances, which now regulate the businesses in Cathedral City, was adopted in January of 2016 and the City began accepting applications on April 1, 2016,” said McClendon.
“Cathedral City is well positioned to address the needs of the emerging cannabis industry,” said Mayor Stan Henry. “Voters in California including Cathedral City have overwhelmingly supported the use, taxation and regulation of medical cannabis and once again, have authorized the same requirements for recreational use of cannabis.”
Eleven Dispensaries are open and operational in the city.
Twenty applications include a dispensary facility component. Five Dispensaries have been approved are in the “Tenant Improvement Stage.” Three Dispensaries are licensed and awaiting Conditional Use Permit approval. One Dispensary is awaiting various conditions.
No additional dispensary applications will be accepted in Cathedral City for the area south of Interstate 10.
In Fiscal Year 2015-16 the tax collected totaled $46,881. For Cathedral City’s FY 2016-17, the City received $300,622 in cannabis taxes from dispensaries.
With only one dispensary and lacking a complete year, Cathedral City does not yet have an annual total. But, for the FY 2017-18, the city assumes it will collect $600,000 in taxes from dispensaries.
There are two cultivations sites currently operating in the city, both run by PS Collective.
Sunniva, a Canadian company with nearly 20 acres for large-scale cultivation within city limits, just had its architectural plans approved last week.
The city’s applications with a cultivation component number 59, which total 470,000 square feet for cultivation, processing and manufacturing.
Of the total applicants, 20 are licensed and have an approved Conditional Use Permit, while 28 are licensed and are awaiting action on their CUP.
Annexed to its north, between Desert Hot Springs and Thousand Palms, Cathedral City has approximately 3,000 acres, of which conservatively 1,500 acres could potentially provide light industrial space serving the cannabis industry.
As of now, Cathedral City has no limit for cultivators.
Through April 2017, operating growers in the city have paid $32,818 in cultivation taxes. The city has no history on cultivation taxes, since none has been open for a full year. However, the FY 2017-18 budget assumes, plus or minus $600,000, for cultivation and manufacturing tax revenue.
The city’s future financial projections for the coming FY2017-18 budget assumes $1.25 million in all marijuana taxes and the FY18-19 assumes $2.5 million.
“The City has established regulations that have evolved over a short amount of time to properly regulate the industry from seed to sale,” said Henry. “We mandate enhanced security, latest fire suppression technology, odor filtration systems, and building structures that are aesthetically pleasing from the curbside to the office cubicles.”
In return, the cannabis industry has responded eagerly improving and redeveloping the city’s industrial areas, bringing them into the 21st century.
“The most significant challenge to date regarding the city’s cannabis business has been the demands on staff time to complete the application, background check and CUP processes, the building and fire inspections required prior to the business opening, and the on-going code enforcement inspections and financial audits,” said McClendon.
As legalization of adult consumption approaches beginning next year, the City Council is considering code amendments in the upcoming weeks to allow adult use sales at businesses licensed by the City.
“The anticipated growth in revenue to the city is partially based on increases resulting from adult use,” said McClendon. “It appears that there continues to be strong demand for locations that are appropriate for cultivation and manufacturing.”
The City Council has acted to allow the businesses in a strongly regulated environment as part of a strategy to diversify the economic and tax base of the community.
“Our hope is that the revenue to the City will continue to grow and further support services to all in the community,” said McClendon. “It is also hoped that the industry can be a source of good paying jobs close to home for people in our city.”
“Best of all, our residents gain by having access to medical cannabis locally, good paying cannabis jobs that offer great employee benefits, and a new stream of tax revenue for city parks, additional public safety personnel, and improvements to our roads and bridges,” said Henry.
DESERT HOT SPRINGS
In November 2014, Desert Hot Springs voters passed two measures approving the selling and cultivation of marijuana.
“The city approved an ordinance which opened up a process by which medical marijuana businesses — dispensaries and cultivators — could get entitlements to operate within the city,” said Scott Taschner, Senior Planner, City of Desert Hot Springs.
Currently, the city has seven dispensaries operating, and another five approved with four more completing the application process.
Desert Hot Springs is no longer accepting applications for dispensaries.
“The city has a healthy budget and after very tough financial times five years ago, we are on the right track,” said Scott Matas, Desert Hot Springs Mayor.
Since enacting the ordinance, total tax revenue from dispensaries is $725,711 and for Fiscal Year 2016-17 cannabis sales generated $518,990.
Looking ahead, the city anticipates a five percent increase estimating the revenue from the dispensaries in FY 2017-18 to generate $544,939.
Regarding cannabis cultivation, Desert Hot Springs has no limit on growing or manufacturing operations. Nearly ten million square feet have been dedicated to the canna-businesses with more undeveloped land available if the city should decide to expand the growing zone.
“We are receiving applications for cultivation facilities every week,” said Taschner. “We now have 60 proposed developments for cultivation, 36 of which have been approved by the City Council and the rest in various stages of the application process.”
The city allows cannabis cultivation only in the light Industrial or “I-L” zone where growers are subject to discretionary review and approval of a Conditional Use Permit (CPU).
Currently, the city has three growers in operation – Canndescent, Clonetics and San Jacinto Facilities — with four more to open in the next months.
Desert Hot Springs’ cultivation revenue since the first growers began last year is $172,019. For the FY 2017-18 the city anticipates revenue upwards to $250,000.
“It’s hard to project the revenues generated by cannabis until the state issues licenses. We are all waiting to see how many businesses will be awarded regulatory permits from the state, in January 2018, so that we can be more confident in the projects of revenue in the future,” said Matas. “But if the numbers of developments in the process of CUPs and Development Agreements (DA) are awarded regulatory permits, I can predict the city council will be able to strengthen public safety, add much needed services and enhance much needed infrastructure.”
The city’s finance department is in the process of updating its projection for the midyear budget review in January.
However, when the issue was before voters, the city estimated the cannabis industry could eventually generate $20 millions in tax revenue annually.
The influx of cannabis businesses has created challenges for city personnel. One of the greatest, according to Taschner is “Keeping up — processing, reviewing — the large influx of applications with a short-handed staff.”
The City of Desert Hot Springs is actively working on addressing modifications once adult consumption becomes legal in the State of California and anticipates the cannabis industry will evolve.
“The percentage of cultivation vs. manufacturing/extraction is changing,” said Taschner. “There appears to be a shift from eighty percent cultivation to twenty percent manufacturing. Our clients say that in the next five years that may switch to more like 50/50 or even more – towards manufacturing.”
Regarding the city’s local cannabis industry, Taschner said: “I want to see our clients and their projects be successful.”
That success is already trickling into the community. Desert Hot Springs requires all cannabis businesses to hire 20 percent of their employees from within the city.
The city has collected over a million dollars in revenue from the cannabis industry in the past fiscal year — two-thirds of that amount is from one-time development fees. With the new businesses producing significant tax revenue over the next fiscal year, Matas believes DHS can project at least a million dollars in annual direct tax revenue.
“Desert Hot Springs has always struggled with industry-based businesses,” said Matas. “The cannabis industry has changed that for the city and as development continues, we are confident that the revenues will be strong and strengthen our future budgets for the benefit of all.”
The City of Coachella adopted ordinances in January 2016 to allow zoning regulations for medical cannabis cultivation and processing.
As of now, there is no plan to allow dispensaries in the city limits.
Currently, there is only one canna-business in Coachella, which is Del-Gro. The company has a temporary medicinal cannabis cultivation facility in operation that processes marijuana to extract its potent oil. Del-Gro’s permanent facility is under construction at the same location. (See CVW Weed Map)
Del-Gro intends to cultivate its own marijuana for processing and extraction. Cannabis oil is used as a key ingredient in many medicinal and edible marijuana products.
The city has designated approximately 320 acres of industrial land for future cannabis cultivation facility development.
“We anticipate about 75 percent of this territory — approximately 240 acres, or 240 individually-licensed facilities — to be in operation over the next several years,” said Luis Lopez, Development Services Director.
The city’s has eight cannabis related projects in development that when completed will be over 5,000,000 square feet.
The Coachella municipal code requires the city council to adopt a resolution setting the maximum number of licenses to be issued citywide.
“At this time, before the city council adopts a city-wide limit, the city is waiting to see what the new state guidelines will offer in terms of setting over-concentration limitations for cannabis cultivation facilities,” said Lopez.
Coachella’s approved projects are expected to generate between $3 million and $6 million annually in excise taxes.
“The cannabis businesses have caused industrial land values to escalate, which may price out other industries who may now have to locate elsewhere. It has also created a need for a major infrastructure expansion of the region’s electrical utility,” said Lopez.
But, Lopez hopes the cannabis industry will create an employment hub for the city’s residents, and generate needed revenues to pay for essential city services.
“The cannabis industry has brought a steady stream of industrial development, investors and businessmen to consider building and opening new cannabis related businesses in the City of Coachella,” said Lopez.
“The cannabis industry will allow our local economy to grow and provide residents with jobs and opportunities for learning new skills,” said Lopez.
According to PJ Gagajena, Administrative Services Manager, the City of Indio does not allow the sale, growing or manufacturing of medical cannabis, nor does it intend to, once legal adult consumption begins.
Further, no cannabis delivery is allowed in the city at this time.
“The City of Indio is committed to maintaining and improving the quality of life for our residents, visitors and businesses,” said Gagajena.
The city of Indian Wells does not allow the sale, growing or manufacturing of medical cannabis.
Nor does the city allow marijuana delivery.
“As it pertains to private cultivation of marijuana, to the extent State law prohibits a local jurisdiction from prohibiting private cultivation of marijuana for personal use, then the City has a permitting process to ensure such cultivation is done so in compliance with health and safety code requirements,” said David Gassaway, Indian Wells, Community Development Director.
The city is processing the morphing state requirements.
“Like with all communities and regions in the state, the creation of this new industry will have wide ranging impacts on the Valley,” said Gassaway. “Determining whether those impacts are positive, negative, or a combination thereof, will take time.”
The City of La Quinta does not currently allow the sale, growing, or manufacturing of medical cannabis.
“Unlike other surrounding areas, La Quinta doesn’t have an industrial area that is typically used for these types of sales and productions,” said Gilert Villalpando, Business Analyst for the City of La Quinta.
Cannabis delivery was approved April 2017. A delivery permit is required and the city has information and forms on its website.
“The City does have an Ad Hoc Committee that reviewed and recommended allowing medical cannabis delivery to patients,” said Villalpando. “The Committee consists of 2 Councilmembers, residents, business operators, and staff. We will have future meetings to review other possible opportunities.”
The city is staying on top of state developments pertaining to legal marijuana.
“The industry has slowly grown after Proposition 215, The Compassionate Use Act of 1996, was approved by the voters. The slow growth continues to bring new jobs to the valley which also brings new residents,” said Villalpando. “The passing of Proposition 64 Adult Use of Marijuana Act adds another opportunity cities can be a part of. La Quinta will continue to work with residents and business operators to develop a plan beneficial for the community.”
The current Palm Desert ordinance prohibits all medical cannabis operations and deliveries in the City.
However, with legal adult consumption on the horizon, the city intends to allow cannabis businesses in the next 18 months.
“In 2016, a ‘Cannabis Committee’ was formed to explore language for a draft ordinance that would permit cannabis-related businesses within the City,” said Eric Ceja, Principal Planner for the City of Palm Desert. “A draft ordinance regulating cannabis businesses was prepared, and on June 23, 2017, the committee recommended moving the ordinance forward through the public hearing process.”
As prepared, the ordinance would allow cannabis businesses in Palm Desert through the Conditional Use Permit process subject to certain requirements, including: that cannabis businesses obtain a State license from the Bureau of Cannabis Control; that businesses are not within 600 feet of a school or daycare; and that cannabis businesses are located at least 1,500 feet away from other cannabis businesses.
“Retail and dispensary uses would be permitted in all retail commercial areas of the city, while manufacturing, cultivation, distribution, and transportation would be allowed only in the City’s Service Industrial zoning districts,” said Ceja.
“Palm Desert is the retail center of the Coachella Valley and as such the draft ordinance would allow retail/dispensary cannabis uses in the City’s retail commercial centers, subject to permit and operational requirements,” said Ceja.
“However, the City has very limited industrial space, most of which is not equipped for large scale cultivation or distribution. The draft ordinance that will be presented to the Planning Commission and City Council addresses the voter approved Adult Use of Marijuana Act and tailors it to Palm Desert’s unique circumstances and character.”
“The ordinance would allow for all types of cannabis businesses permitted by the State while establishing strict operational and separation guidelines to limit impacts to surrounding properties,” said Ceja. “It is anticipated that the ordinance will come before the City Council for its consideration in late August.”
The commercial sale, growing, and/or manufacturing of cannabis products are not permitted in the City of Rancho Mirage.
However, according to Brian Kephart, Senior Code Compliance Officer, State law will allow for residents to grow a limited number of marijuana plants.
Cannabis deliveries are allowed from distributors outside of the City, pursuant to a City issued delivery (business) license.
“There have been no discussions about allowing cannabis businesses even once adult consumption is legal,” said Kephart.
Asked to comment on the cannabis industry as it pertains to the Rancho Mirage community and larger valley, Kephart had no comment relative to marijuana and its businesses.