Could more retail cannabis stores open in SLO County? Here’s what to know
The San Luis Obispo County Board of Supervisors is on track to loosen regulations on cannabis businesses, including allowing brick-and-mortar retail stores in unincorporated areas for the first time.
On Tuesday, the board voted to direct staff to edit the cannabis ordinance, heeding the call of local cannabis operators who say that hefty fees and strict rules are strangling their businesses.
“This is an opportunity for this county to be at the forefront of an industry that is here to stay and will continue to grow,” local cannabis business owner Jason Spain said at the meeting.
On Tuesday, Oct. 17, the board will vote on expanding hours for cannabis delivery services and changing the cannabis cultivation permitting process.
Additionally, the board will direct staff to develop land use regulations for allowing retail storefront dispensaries in unincorporated areas of the county.
Cannabis business tax doesn’t cover county costs
In 2018, SLO County voters passed Measure B-18, which created a tax on the gross receipts of each cannabis business in unincorporated areas of the county.
The tax was designed to cover the cost of regulating the cannabis industry, from inspecting properties to processing permits.
But the tax doesn’t generate enough revenue to cover the county’s cost of services, according to county administrative analyst Sarah Hayter.
During fiscal year 2022-23, the tax only generated $597,747, while the county’s total cost of service for regulating legal and illegal cannabis operations was about $1.5 million, Hayter.
This meant the county spent $400,942 of General Fund money on the cannabis program.
On June 20, the board voted 3-2 to reduce the cannabis business tax from 8% to 6%, where it will stay until July 2024.
The lower tax is expected to generate $387,000 during fiscal year 2023-24 — meaning the county will have to take about $1 million out of the General Fund.
Supervisor Jimmy Paulding said the county must “identify strategies to close that gap” in funding.
“We need to look at cost recovery and ensure that we’re not just subsidizing through our General Fund an industry that could actually generate substantial revenue,” Paulding said.
Multiple cannabis operators objected to the idea that the county is subsidizing the business, however. Hefty fees coupled with the tax make it difficult for cannabis operators to keep their businesses open, some said at the meeting.
Cannabis operators pay thousands of dollars in fees per year, including annual license renewal of $18,702 for cultivation projects and $15,441 for non-cultivation projects, along with annual inspection fees of $11,570 for cultivation projects and $9,423, the staff report said.
“We are not subsidizing the cannabis market. This money is not going into the pockets of cannabis businesses,” Supervisor Bruce Gibson said. “It costs us more to do the regulation than it should.”
Gibson suggested that the county enroll the cannabis program in Lean Sigma Six, a program designed to make county processes more efficient.
The board voted 3-2 to direct staff to draft a report on using Lean Sigma Six to streamline cannabis regulations, with Supervisors Debbie Arnold and John Peschong dissenting.
Coalition of Labor Agriculture and Business representative Mike Brown didn’t have sympathy for cannabis operators, however, noting that all industries suffer from over-regulation.
“The cannabis industry is going to find out what the home builders and the oil industry and the farmers and the hotel industry and everybody else faced for years,” Brown said.
Board considers storefront retail, expanding delivery
In unincorporated ares of the county, cannabis delivery services can only operate from 8 a.m. to 8 p.m., according to county project manager Elizabeth Moreno.
Meanwhile, cannabis delivery businesses in neighboring counties can operate until 10 p.m., Moreno said, and they deliver in San Luis Obispo County until then.
On Tuesday, the board voted 4-1 to direct staff to draft an ordinance to extend delivery hours to 10 p.m., with Arnold dissenting.
“I just think that it’s spreading our law enforcement too thin late at night,” she said.
Supervisor Dawn Ortiz-Legg, however, noted that businesses based elsewhere are already delivering to unincorporated areas of the county past 8 p.m.
Preventing local cannabis businesses from delivering later prevents the county from collecting tax revenue, she said.
“All we’re doing is hurting ourselves,” Ortiz-Legg said.
The board set out to change other regulations, too.
Currently, storefront retail dispensaries are prohibited in unincorporated areas of the county.
Some members of the public argued that cannabis retail storefronts could harm public health.
“Local (cannabis) shops send kids the message that cannabis is safe to use,” Templeton resident and former Board of Supervisors District 2 candidate Bruce Jones said.
Other folks, however, said the county should allow retail storefronts to create another source of tax revenue.
The county only collects taxes on deliveries made in unincorporated areas, so operators pay the majority of their cannabis business tax to cities and Santa Barbara County, according to Shawn Bean, owner of cannabis delivery business The Source.
“If we were to bring in retail storefronts into the county, the county would get all the cannabis business tax,” Bean said. “I really think this would balance the budget.”
The board voted 3-2 to direct Planning Department staff to “propose new land use standards for brick-and-mortar cannabis dispensaries to address health, safety, and neighborhood compatibility concerns,” the staff report said.
Arnold and Peschong dissented, noting that their constituents aren’t supportive of storefronts.
Finally, the board took steps to change the permitting process for cannabis cultivation.
Currently, permits for cannabis cultivation expire five years after the approval date, according to Moreno. Applicants can request to renew their permit within a year before it expires.
This system doesn’t always allow enough time for cannabis operators to start cultivation before the permit expires, Moreno said.
“We all know that it takes a long time for cannabis projects to make it through the rigorous, timely and expensive county permit process,” cannabis business owner Steven Herring said at the meeting. “It can take months to receive the OK to operate after the time of approval.”
After the county approved Herring’s permit, county staff didn’t finish the conditions of approval process before the start of the cultivation season, he said.
Additionally, the Planning and Building Department took eight months to approve updates to Herring’s processing and distribution facility — which included adding air conditioning, insulation, fencing and security cameras to an existing building.
“This resulted in us missing a big part of our first outdoor season,” Herring said.
County staff recommended that the board change the ordinance so a cultivation permit expires five years after the project becomes operational, rather than five years after the permit is approved.
The board voted 4-1 directing staff to draft the changes, with Arnold dissenting.
This story was originally published September 27, 2023 at 10:44 AM.
