Hopeful Progress

[dropcap class=”kp-dropcap”]O[/dropcap]n Feb. 26, after more than three hours of public comment and debate amongst Chula Vista City Council members, the city of Chula Vista approved the most comprehensive regulatory framework for the cannabis industry in San Diego County.

The city’s ordinance details the requirements for each license type, the application process, zoning restrictions and enforcement actions.

The ordinance allows for 12 retail licenses (three per county district), eight of which can be storefront retailers (two per district). This is an impressive legislative accomplishment, as the city will offer more retail establishments per capita than the city of San Diego. Additionally, the ordinance will allow for four of the retail licenses to go to non-storefront delivery services.

Chula Vista has approved a progressive measure worthy of applause, considering that no other city in San Diego County offers independent delivery service licenses. Storefront retailers must be located in specific Commercial and Industrial Zones. Storefront retailers will also have to be located within the established special zoning buffers from day cares, schools, youth centers, parks and residential zones.

The ordinance also allows for 10 indoor cultivation licenses with up to 20,000 square-feet of canopy. Interestingly, the original ordinance allowed for unlimited cultivation licenses until one of the city council members lobbied his peers for the license cap. Moreover, the ordinance grants unlimited manufacturing, distribution and testing licenses. All non-storefront retailer licenses will be restricted to finding properties located in Industrial Zones.

The application process will be broken down into two phases.

In Phase 1 the applicant must disclose:

• The applicant’s contact information, as well as the name and addresses of all owners, officers and managers;
• The applicant’s business information and entity formation documents;
• License type that the applicant is seeking;
• A description of all commercial cannabis activities all owners, officers and managers that have engaged in in the past five years;
• A business plan (showing all capital improvements, prospected balance sheet) and an operation plan (detailing security, compliance and staff training initiatives);
• Site identification;
• Evidence that the applicant intends to enter into labor peace agreement if applicant has 10 or more employees;
• A non-refundable application fee.

Phase 1 also has several controversial requirements that may shut out many potential applicants. In particular, Phase 1 requires that an owner must:

(1)  Be an owner of a commercial cannabis business for more than 12 consecutive months in a jurisdiction that permits cannabis activity; or

(2)  Holds a 30 percent ownership in an alcohol or pharmaceutical business regulated by a state or federal government; or

(3)  Has 36 months as an owner of a business that has at least 10 or more employees in the city.

These limitations effectively disqualify most of Chula Vista residents or will force them into seeking partnerships that might not otherwise be advantageous. Another noteworthy controversial requirement is that applicants need to show documentation that they have $250,000 of liquid assets, which the cities of San Diego and La Mesa do not require.

“One major factor that may also keep out potential applicants is that the local excise tax is still unknown.”

Phase 2 of the application process will be determined off a merit-based system. Originally Phase 2 was intended to be a lottery system but was changed last minute to a merit-based system at the proposal of a councilmember. This change was made over the objection of the city attorney who stated that a merit-based system would leave the city more vulnerable to lawsuits.

One major factor that may also keep out potential applicants is that the local excise tax is still unknown. City officials will put together a tax ballot measure for November of 2018. However, if the ballot measure fails to pass in November, the ordinance will become null and void.

Despite the real limitations on who can apply for a license, Chula Vista’s ordinance is still a monumental achievement for San Diego County. The city hopes that creating a legal avenue for cannabis business to operate within Chula Vista will help crackdown on illegal operations. The city anticipates it will collect $6 million a year to help alleviate the costs of these enforcement actions and licensing.