MONTEREY — The city of Monterey could generate as much as $1.3 million annually with a new cannabis tax measure proposed for the November ballot.
The suggested measure, up for Monterey City Council consideration Tuesday night, asks Monterey residents to decide whether the city should impose license taxes on cannabis businesses within its bounds. If approved by voters, the measure would tax cannabis retail businesses at an initial rate of 4%, cannabis testing laboratories at 1% and all other cannabis-related businesses at 6%, with room for the tax to grow respectively, up to 8%, 2%, and 8%.
Apart from business tax rates, the measure would also allow higher taxes on cannabis-infused beverages containing natural or artificial sweeteners and high potency products — those with more than 17% THC — to “discourage products with public health risks,” a staff report prepared for Tuesday’s City Council meeting reads.
Consideration of the prospective cannabis levies marks the first public update on progress made in Monterey’s Commercial Cannabis Roadmap since last year. Launched in the winter of 2020, the roadmap is a multi-year plan laid out to guide the process of permitting and regulating commercial cannabis operations in the city. Monterey is currently operating in Step 3 of its cannabis retail rollout: “Prepare to Launch,” which involves amendment of the city municipal code to allow for cannabis retail permits, cannabis retailer selection and development of a cannabis revenue strategy.
In December, the City Council gave staff the initial OK to put together a potential cannabis retail tax measure, along with direction to develop a regulatory ordinance that would ultimately allow for a total of three retail cannabis establishments throughout the city.
Though Tuesday’s agenda item offers headway on the revenue side of cannabis retail, Nat Rojanasathira, assistant city manager for Monterey, assured Monday that progress is being made on other third-stage elements of the city’s roadmap.
That includes current efforts to draft specific general plan and zoning amendments — as well as associated environmental review documents — for each of the business districts that would be affected by allowing cannabis retail, Rojanasathira explained. Downtown Monterey (except Alvarado Street), Lighthouse District and Cannery Row Business District (except Cannery Row itself) are the three business areas being considered for cannabis retail, per council direction to staff in December.
Rojanasathira said amending the city code is the first step to regulating cannabis operations within the city. Once finalized, he continued, the suggested planning and zoning changes could go before the Planning Commission and ultimately the City Council later this fall.
As for the actual selection of businesses, Rojanasathira said city staff have not met with any prospective retail operators but are using this summer to develop a request for proposal criteria to eventually send out to interested businesses at the end of this year. The city would then review and select potential retailers as early as the beginning of 2023. Rojanasathira said staff has already received interest from local, regional and statewide cannabis retailers looking to take root in Monterey.
“That’s the current timeline if the Planning Commission and City Council move forward with each of the steps along the roadmap,” Rojanasathira clarified, adding that residents could see cannabis dispensaries open within Monterey as soon as next year if roadmap progress doesn’t face any roadblocks.
For now, as present strides rest on revenue strategy, any proposed measures hoping to make it on the ballot for November’s general election must be given the go-ahead by council resolution and submitted to Monterey County by Aug. 12. The last regular Monterey City Council meeting prior to that deadline is Aug. 2.
If implemented, Hdl Companies estimates that, collectively, the tax measure could generate the city anywhere from $604,000 to $1.3 million a year. The numbers are based on initial tax rates proposed — 4% for retailers, 1% for testing labs and 6% for other industry-related businesses — collecting revenue from three storefront dispensaries and one cannabis testing laboratory. To the city’s immediate monetary benefit, the latter is already open for clients.
Laying the groundwork
Though Monterey’s commercial cannabis marketplace is still a work in progress, the industry is gaining momentum elsewhere with the opening of Coverton Labs, the city’s first cannabis-related business.
Last week — after years of city pushback, appeals to the Planning Commission and a lengthy approval process from the state — Coverton Labs announced its 10,000 square-foot Ryan Ranch-based testing facility is finally up and running. Tenets of the new business include promises of rapid turnaround testing results and personalized guidance for each component of the cannabis supply chain. But, to Coverton Labs, perhaps the most exciting opportunity is a matter of access.
“We chose Monterey County because the Central Valley has some of the largest cannabis growers and cannabis interest in the state,” said Adrian Najara, Coverton Labs director of sales and marketing. “From a business perspective, there’s opportunity here.”
Najara explained that Coverton Labs was an idea born out of local need. With most cannabis testing labs based in Southern California or further up north, Najara said Monterey County growers were often left outsourcing soil and plant samples to labs hours away, delaying much-needed results.
Under the requirements from the California Department of Cannabis Control, all cannabis and cannabis products must go through “batch” testing at a state-licensed lab to determine contaminant levels and chemical profile concentrations before they can be sent to a dispensary for sale. But when that stop in the supply chain hinges on out-of-county partners, the whole process can be bogged down, explained cannabis industry attorney Aaron Johnson.
“It’s nice to have a facility so close by — that’s the benefit,” said Johnson, a Salinas native who now works as a partner for JRG Attorneys at Law. “Whether it’s to the farm of the grower or to the testing lab, you’re not paying for miles traveled. It’s all local, and we want that.”
Coverton Labs is the second of two Monterey County cannabis testing labs to open this year. The first — Salinas-based ProForma Labs — received its stamp of approval from the state Bureau of Cannabis Control in February. As for other testing opportunities in Monterey County, Johnson noted scarcity.
“This is really addressing a need that the industry here faces,” said Johnson.
Apart from filling a local void, Coverton hopes streamlining the testing process will help growers cope as California’s cannabis undergoes a market correction, with wholesale price drops, hefty taxes and a flourishing illegal industry leaving the state’s pot economy floundering.
“Right now, the industry as a whole is experiencing a lot of challenges. … (But) we see this as opportunity everywhere,” Najara explained. “We’re doing our best to provide the best possible price points we can so (growers) can get more money through the bottom line. … When the market will be corrected and who’s left standing remains yet to be seen, but the advantage to opening our door in the middle of this is the importance of knowing what they need right now and doing everything we can to help them get through this.”
To ensure products meet state standards and local needs, Coverton Labs offers a host of services, testing specifically for potency, heavy metals, residual solvents and Hop Latent Viroid, a pathogen that can severely damage cannabis crops, explained Coverton Chief Operations Officer Kris Ryan. The lab boasts a 48- to 72-hour return time on all testing.
For now, Ryan and Najara said Coverton Labs is rolling out operations methodically to ensure quality is maintained while they expand, though the pair imagine a future operation serving hundreds of clients across Monterey County. Ryan added the lab may even stretch its scope beyond cannabis testing to services for the larger agricultural community sometime down the road.
“We have this huge facility that can cater to three or as many as 300,” said Ryan. “We have the ability to scale out on a massive level. Having something close by that people in Monterey and neighbors can depend on to get accurate, reliable data is absolutely pertinent. … We’re excited to bring that to the community.”
Tuesday’s city council meeting can be viewed in person at Monterey’s Council Chamber, 580 Pacific St., or online at https://monterey-org.zoomgov.com/j/1607729333. The meeting’s afternoon session will begin at 4 p.m., followed by an evening session at 7 p.m.
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