Law and Legislation Committee Meeting – February 21, 2023

The Law and Legislation Committee of the Sacramento City Council met on Tuesday, February 21, 2023, at 1:01 p.m. in the City Hall Council Chamber. The meeting included a consent calendar item, selection of a vice chair, and a detailed update on cannabis policy development and programs. Public comments were heard on both agenda items and matters not on the agenda. The committee received and filed the cannabis update and discussed next steps for addressing industry concerns, including taxation, fees, and regulatory alignment.

Consent Calendar

• Item 1 – Law and Legislation Log: Approved unanimously by a motion from Member Guerra, seconded by Member Jennings, with all members voting in favor.

Public Comments & Testimony

• On Item 3 (Cannabis Update): Eight speakers provided testimony. Key themes included:
  • Trey Ish (Symbiotic Sacramento) urged cutting the city's 4% business operations tax (BOT) and reducing business license fees, stating the industry is hurting and companies are relocating to lower-tax municipalities.
  • Phil Blurton (All About Wellness) highlighted the burden of IRS Section 280E, which prohibits cannabis businesses from taking standard deductions, and reported owing $5 million to the IRS.
  • Joe Devlin argued that cannabis businesses pay 39,000% more in taxes than other businesses, with one-half of one percent of businesses paying 68% of all BOT revenue.
  • Deanna Garcia requested aligning ownership transfer rules with state regulations (removing the twice-per-year limit), expanding the social equity (core) definition to match the state's, converting loans to grants, and hiring more planning staff.
  • Maisha Bahati (Crystal Nuggs) supported tax breaks, praised the core program, and urged approval of on-site consumption lounges.
  • Kimberly Cargyle (A Therapeutic Alternative) criticized ownership transfer restrictions and the narrow core definition (arrests only between 1980–2011), calling for alignment with state rules.
  • Javier Hernandez (Umbrew) echoed concerns about taxation and urged the city to prioritize small equity businesses over large corporations.
  • Mindy (operator, retail/manufacturing/distribution) supported aligning definitions with the state to reduce paperwork and facilitate financing.
• On Matters Not on the Agenda: Theresa Rutherford, President of SEIU Local 1021, advocated for the passage of Senate Bill 525 to establish a $25 minimum wage for healthcare workers, citing high living costs and the need to retain healthcare staff.

Discussion Items

• Item 2 – Selection of Vice Chair for 2023: Chair Valenzuela nominated Councilmember Jennings, who accepted. The motion passed unanimously by acclamation, and Jennings was elected Vice Chair.
• Item 3 – Update on Cannabis Policy Development and Programs:
  • Staff Presentation: Davina Smith, Cannabis Manager, and Assistant City Manager Laney Millstein provided an overview of ongoing work, including:
    • Ownership: Proposing a shift from the one-person-one-dispensary rule to a 5% ownership cap per dispensary to enable investment.
    • Land Use: Planning Division reviewing zoning, caps, and sensitive uses.
    • Shared Facilities: Expanding shared manufacturing; two facilities now open.
    • Taxes: City’s BOT remains at 4% (unchanged since inception); state-level changes include retailer-based excise tax collection and caps.
    • Equity Program: 99 loans issued to 58 core members; over $11 million in grants secured over four years, including a $1.56 million award for 2023 (third highest in the state).
    • Youth Education: $250,000 allocated; partnership with Office of Youth Development’s Future Forwards campaign, planning to serve over 300 youth directly.
    • On-Site Consumption: Three community meetings planned (two general, one business) to gather input before presenting frameworks.
    • Streamlining: Eliminated requirements for reporting driver and manager changes; further fee study anticipated in next 1–2 years.
    • Revenue: BOT revenue down 20% year-over-year as of December 2022; 287 cannabis businesses currently operating; 140 applications pending.
  • Committee Discussion:
    • Vice Mayor Guerra emphasized aligning with state regulations where possible, noted the need for public health expert input, and called for reducing redundant reporting requirements.
    • Vice Chair Jennings expressed concern about industry distress and asked about next steps to address taxation and sustainability.
    • Councilmember Kaplan highlighted the impact of Measure L (which dedicates 40% of BOT to youth programs) and urged careful consideration of budget trade-offs, protection of core program participants, and review of the core definition’s time window.
    • Chair Valenzuela suggested exploring a reduction in the 4% tax rate (possible without a ballot measure, per city attorney opinion) and initiating a fee study based on EPS study findings. She also noted the upcoming equity study and the need to balance revenue loss with business retention.
    • Assistant City Manager Millstein confirmed that aligning with state ownership rules is impossible without changing the one-person-one-dispensary rule, but noted the proposed 5% rule is moving forward.

Key Outcomes

• Consent Calendar: Approved unanimously.
• Vice Chair Selection: Councilmember Jennings elected Vice Chair for 2023 (unanimous).
• Cannabis Update: Received and filed; no formal vote. The committee discussed several potential next steps:
  1. Bring back a taxation item for the committee to consider adjusting the 4% BOT rate.
  2. Conduct a fee study to review licensing fees and the number of positions supported by those fees.
  3. Align ownership transfer rules (e.g., remove the twice-per-year limit) and core definition with state regulations, pending the equity study results.
  4. Schedule a public health expert presentation on cannabis impacts.
  5. Continue work on land use, on-site consumption lounges, and streamlining reporting.
• Next Steps: Staff will return with specific proposals on ownership, taxation, and fee study; equity study findings are expected later in 2023. The committee expressed urgency to address industry challenges and support sustainable business growth.