The City of Oakland recently finalized cannabis permitting regulations that are unique in California because they focus on “equity,” making entry into the cannabis industry easier for low-income individuals of color who generally have suffered much higher incarceration rates for marijuana crimes.

Unfortunately, along with giving needed assistance to equity cannabis permit applicants, Oakland attempted to protect those same applicants from competition by practicing a different form of discrimination, including delaying permits for non-equity applicants.

Oakland’s cannabis regulations were nearly far worse. In March, the City Council approved an unconstitutional prohibition on cannabis permits for anyone who did not reside in Oakland. Under pressure from Wendel Rosen [letter: Cannabis Permitting Amendments are Unconstitutional] and many others, the Council removed the residency rule, but the permit process remains fraught with likely delays and other questions as the January 2018 deadline for State licenses looms.

Local cannabis operators need both a local permit and State license to conduct business. Oakland announced that, aside from storefront dispensaries, all cannabis applications would be available “some time” in May. There is no date for the dispensaries. Adding to the unknowns is a requirement that 50 percent of all permits must be issued to equity applicants for an indefinite period of time. Given the narrow equity criteria (including (a) low income, (b) residence of specific Oakland neighborhoods, or (c) conviction of a cannabis crime in Oakland) a permitting bottleneck is expected as the equity applications trickle in compared to the general applications.

The “50%” phase ends when the City accumulates $3.4 million in tax revenue from cannabis businesses to fund an Equity Assistance Program, which will include no-interest business startup loans, fee waivers, and technical assistance.

The City explained the need for the 50% phase as follows:  “If the City initiates an unrestricted permitting process before an Equity Assistance Program is in place, well-positioned operators will only move further ahead as historically marginalized operators fall further behind due to lack of capital and real estate.”

There are several fundamental flaws with the City’s rationale:  1) It assumes that Oakland is a closed market and that local equity operators will not be competing against others in cities across the state; 2) It is self-defeating because it constrains revenue available to the Equity Assistance Program by stalling permits for business that would otherwise pay taxes; and 3) It ignores the fact that businesses wanting a local permit so they can get a State license in January 2018 may go elsewhere, further reducing revenue.

There’s more. Oakland has a solution for some general permit applicants:  A general applicant can move up in the permit application line by serving as an “Equity Incubator,” which consists of providing three-years of free real estate or rent to an equity permit holder.

This is where the City tries to undo racial and social discrimination by employing economic discrimination. Clearly the only general applicants who can serve as incubators have more resources than those who don’t. In exchange for those resources, incubator sponsors receive preferential City treatment.

Equally hypocritical is the fact that the City has never taken responsibility for contributing to disproportionate focus of marijuana law enforcement on lower-income communities of color. Remember, the City Council approved legislation in 2004 legalizing dispensaries in commercial and industrial areas of the City. The Oakland Police Department did not arrest cannabis users on their way out of dispensaries. Instead, they targeted street sales.

For a variety of reasons, many cannabis businesses will decide to stick with Oakland. They include the fact that some operators already are locked into leases; Oakland is one of a handful of cities that permits volatile manufacturing; and the City is situated in the middle of transportation corridor, making it a good distribution location.

It’s also important to remember that big parts of Oakland’s Equity Assistance Program will likely serve as models for other areas of the State, where there has been a lot of talk about making the cannabis industry inclusive, but little action. Oakland’s equity applicants will have financial and technical assistance unavailable elsewhere in California. Going forward, hopefully the City can find ways to advance equity while not also hobbling its own cannabis industry.

The California Legislature’s approval of the Medical Marijuana Regulation and Safety Act opened the door for cannabis operators to obtain state medical cannabis business licenses for everything from testing to distributing cannabis, and voter passage of Prop. 64 did the same for recreational pot. But, the most calls I receive are from cannabis entrepreneurs interested in commercial cultivation and manufacturing.

Meanwhile, in order to be licensed by the state, an operator must first acquire a local permit. And, a survey of cities across California shows that surprisingly few allow both commercial cultivation and manufacturing. In the Bay Area, just Richmond, Santa Rosa and Oakland have approved cannabis laws for both cultivation and manufacturing. Oakland’s laws come with a big asterisk, because the City has not started issuing permits. I’ll get back to this issue below.

In this overview, I summarize the three cities’ permitting distinctions, fees and quirks. An important caveat: As cities learn from experience and adjust to market conditions, regulations are expected to change. The rules listed below are not static and additional cities are expected to craft rules in the coming months for cultivation and/or manufacturing. I will review other regions of the state in future entries.

The Bay Area’s Big Two (Plus One)

For now, Richmond and Santa Rosa are it if you’re interested in applying for permits to cultivate and manufacture cannabis. In January 2017 the Oakland City Council will review amendments to cannabis legislation approved in May 2016, and permit applications should be released in the following months. The expectation is that both cultivation and manufacturing will still be allowed. Other Bay Area cities are starting to discuss cultivation and manufacturing, but have a ways to go.

Richmond and Oakland charge a five percent gross receipts tax on cannabis businesses. Santa Rosa applies tax rates to cannabis businesses based on existing industry categories, up to $3,000 annually, but is considering a 10% tax specifically for its cannabis industry. The three cities’ application and permitting fees vary widely. Each city defines cultivation and manufacturing differently and handles permitting through a distinct agency. See the highlights below.

RICHMOND

Summary:  Richmond’s medical cannabis permits are issued through the city’s Police Department and require a conditional use permit approved by the Planning Commission and the City Council. Cultivation is limited to two commercial zoning districts, and non-volatile manufacturing is restricted to industrial/office flex, and light industrial zoning. Volatile manufacturing is prohibited (volatile manufacturing is producing cannabis extracts through the use of solvents, such as butane).

Fees:

• Application Completeness Review: $2,312
• Complete Application Review: $18,178
• Annual Regulation and Inspection: $16,989/Quarter

SANTA ROSA

Summary:  Santa Rosa’s medical cannabis permits are handled through the city’s Planning Department and require a conditional use permit approved by the Planning Commission. Cultivation is permitted in three industrial zones and the city allows non-volatile manufacturing in two industrial zones and a business park zone. Volatile manufacturing is prohibited.

Fees:  The fees listed below are valid through December 2016 and total fee amounts depend of the scope of related environmental review.

• Minor Conditional Use Permit: $2,511
• Major Conditional Use Permit: $10,964
• Commission Public Hearing: $1,889

OAKLAND

Summary:  Permitting for Oakland’s medical cannabis industry will be handled through the City Administrator’s Office and operators will be required to obtain special business permits. The City has not issued permit applications because the City Council is debating economic, social and racial “equity” amendments to laws approved in May. The next Council meeting is scheduled for January 17, 2017. Permit applications are expected to be issued in the following months.

Once applications are issued, an important step in the approval process will be inspections by the Planning and Building Departments, but there will be no Planning Commission review. Based on the laws approved in May, cultivation will be permitted as of right in “light manufacturing industrial” and “research and development” zones or their equivalents. Non-volatile manufacturing will be allowed as of right in “custom manufacturing industrial” zoning or its equivalent, and volatile manufacturing will be allowed as of right in “general manufacturing industrial” or its equivalent.

Fees: 

• Application, Non-Dispensary Facility: $2,474
• Annual Regulatory Fee
• Gross Sales >$150,000: $11,173
• Gross Sales $50,000-$150,000: $5,586
• Gross Sales <$50,000: $2,790