by Blair Bess
Cannabis cultivation is raking in the green for a growing number of California communities. In the City of Santa Clarita, however, a moratorium that has been in effect since last December has delayed any serious consideration of cannabis-related businesses within the city limits until the end of this year. Officials have made clear, however, that no matter what conclusion they reach, approval of retail dispensaries is highly unlikely.
While California voters got behind legalization of medical marijuana in 1996, and last year supported Proposition 64, which allows for recreational cultivation, manufacturing, use, sale, and distribution of marijuana, regulation of businesses engaged in the cannabis industry is left to the discretion of individual municipal bodies. Revenue generation is typically at the core of their deliberations.
Fiscally, Santa Clarita is far more stable than many of the communities in the state that have welcomed the cannabis industry. A spokesperson for the city says a conservative approach to the budgeting process has kept the community on an even footing since its founding 30 years ago.
Santa Clarita Mayor Cameron Smyth says the council needs to make a more educated decision about whether controlled growth of cannabis is worth discussion. He does not, however, see retail sales of medical or recreational marijuana as something the city will be permitting, due to it still being considered a Schedule One drug under federal law. Mr. Smyth also points to the issue of public safety, noting that the city would be opening itself up to increased criminal activity and violent crime.
“The industry is very nuanced,” said Mr. Smyth. “Growth of medical marijuana and manufacture of its derivatives is a little bit different than retail sales. We’re waiting on staff to bring us a recommendation, but there’s still a lot of research to be done. It’s worth hearing what other cities are doing.”
Many of the communities that have found themselves deeply in the red or on the brink of insolvency see cannabis-related businesses as a means to climb out of deep troughs of debt and increase city coffers. It’s not as though the opportunity to do so isn’t there.
Kevin Tamura, an executive vice president based at DAUM Commercial Real Estate’s Valencia office, says he gets two or three phone calls a week from cannabis growers looking for industrial space. Most of them are willing to pay as high as double the rental rate landlords are asking.
“There’s high demand,” said Mr. Tamura. “If medical cannabis facilities were legalized and landlords were willing to lease to cultivators or manufacturers, there’s no doubt there’d be interest.”
Southland cities like Adelanto, Desert Hot Springs, and others have not only seen revenue growth since passage of medical cannabis ordinances; they’ve also witnessed the price of vacant real estate increase by as much as fivefold. Not all that property is slated for cannabis-related businesses. Adelanto is in the process of transitioning from a dusty desert drive-thru to a boom town. Increased commercial and residential projects are either underway or in the planning stages.
According to Adelanto Mayor Richard Kerr, there are already 250 houses under some stage of construction in the community of 33,000 residents with more development on the horizon. The city has also approved plans for three hotels, a medical corridor, retail shops, and two-to-three more gas stations.
“The cannabis industry saved the city from bankruptcy,” Kerr said. “We had a $2.6 million deficit as of (November 2014). As of last week, we were $400,000 in the black, and that number is going up.”
For a community that had been teeter-tottering on the edge of extinction, those numbers are impressive. Currently, owners of grow facilities pay a tax of $5 per square foot in addition to a sales tax ranging from zero-to-five percent of revenues. Adelanto will have between 70-75 grow facilities by the end of the year, with 30 percent of those currently in operation and more soon on the way.
Though the mayor says the city isn’t banking on medical cannabis for its general fund, Adelanto’s budget has increased from its current $11 million to $18 million next year as a result of medical cannabis taxation. Kerr says that given the near-disastrous condition he inherited when he took office, he intends to keep the city on a more conservative fiscal footing.
Right now, there is no limit to the number of facilities used for cannabis-related cultivation or the manufacture of cannabis derivatives within the city limits. Adelanto also permits, but has strict limits on, the operation of medical marijuana dispensaries. Kerr notes the city will evaluate whether to approve dispensaries and grow facilities for recreational use once state legislators and regulators put laws governing non-medical cannabis production in place; that’s expected to take place next year.
“I want to make Adelanto the Silicon Valley of medical cannabis production,” Kerr said.
Santa Clarita City Councilman Bob Kellar doesn’t believe the prospect of enriching a city’s treasury is reasonable justification for instituting ordinances for marijuana sales or production. Kellar sees the entire idea as making money from something that hurts people. He cites his 25 years as an officer for the Los Angeles Police Department as validation of this feeling. Kellar says he’s seen too many people who have died as a result of overdoses, and he points to research that suggests marijuana can be a gateway drug for some abusers.
“Using economics as an argument is absurd,” the councilman said. “I think it’s an unfortunate day when we give in to this malarkey about increased tax revenues.”
Kellar did, however, cite an experience that leaves him open to discussion of products or derivatives for medical use as a means of compassionate care. He recounted a conversation he’d recently had with an acquaintance about a three-year-old girl suffering from a terminal illness. He was told that medical marijuana would lessen her pain. Kellar says he’s not a doctor so he can’t make those judgments, but he understands the rationale behind those beliefs.
Many of the municipalities that have been receptive to medical marijuana growers and manufacturers of cannabis derivatives, including oils, tinctures, and edibles, however, share sentiments expressed by Mr. Smyth and Mr. Kellar regarding retail sales: Not in our community.
When the City of Lancaster recently approved the commercial cultivation of medical marijuana, they did so with the caveat that the city would not allow the establishment of dispensaries. Discussions before the Planning Commission and the City Council often touched upon topics as diverse as the law, morality, and commerce. Compassion was also an argument brought forth by proponents of the ordinance.
The commission held five meetings before a recommendation to permit indoor cultivation facilities was presented to the City Council, and voted on in March. Of Lancaster’s five Council members, three were in favor of the ordinance, with one dissenting, and one member absent. City officials note that their ordinance also contains some of the most restrictive provisions in the state when it comes to banning outright recreational cultivation and cannabis sales.
Unlike Adelanto and Desert Hot Springs, the Lancaster ordinance limits growth and production to five enclosed facilities, with very stringent public safety requirements in place; those include 24-hour onsite security, security cameras that are monitored by the Los Angeles County Sheriff’s Department, and secure fencing around the perimeter of the facilities. All cultivation and production is confined to industrial zones within the city, which is similar to other communities where cannabis businesses are permitted.
The cannabis industry has also proven to be a windfall for Desert Hot Springs, where revenues are garnered from taxes ranging from $25 for the first 3,000 square feet of space, with a tax of $10 per square foot above that. The first cultivation facility in Desert Hot Springs opened last October. The city’s ordinance permits cultivation, manufacture of cannabis products, and distribution and transportation facilities. And like Adelanto, Desert Hot Springs permits the retail sale of medical marijuana within the city limits.
As was the case with Adelanto, the city had been plagued by fiscal issues and was on the verge of insolvency when cannabis-related ordinances were put into place in 2014. Desert Hot Springs has learned from its past economic crisis and has no intention on planning future budgets based on projected revenue generated from the cultivation, manufacture, or sales of cannabis products.
“We’ve taken a very conservative approach regarding revenues,” said Doria Wilms, the city’s deputy city clerk and public information officer.
Wilms says the cultivators, manufacturers, and retailers setting up shop in Desert Hot Springs aren’t just commuting to work and taking advantage of legalization. They’re relocating their families and making the city their home. Wilms says that the cannabis industry has gone out of its way to be good neighbors and that the Cannabis Association Network, a local growers trade group, has contributed to a number of community events.
Facility owners and growers also have provided funds for street improvements and infrastructure upgrades as well. Desert Hot Springs has also experienced a real estate boom, with property values tripling since the cannabis ordinances were enacted in 2014.
Though Wilms says the city’s leaders are happy with the results so far, not everyone was initially onboard with the decision to open the door to the cannabis industry. In an interview last year with the Los Angeles Times, Desert Hot Springs Police Chief Dale Mondary said that he was philosophically opposed, from a law enforcement standpoint, but feels that the voters of California registered their approval and laws are in effect. Wilms says Chief Mondary has played an active role in having a say, in terms of cannabis operations, security, and enforcement; and it’s now “all hands on deck.”
Whether officials in Santa Clarita ultimately decide to permit medical marijuana cultivation and the manufacture of cannabis derivatives in the city is still questionable. The opportunity and promise of a financial windfall may have already passed the city by. Cannabis production is currently a growth industry in the state, but skeptics believe that this California Green Rush is unsustainable due to potential over-saturation of the market.
As more cultivation and manufacturing facilities are established and coming online, growers’ expectations of significant financial returns may be disappointing in the long-run, as supply may eventually outweigh demand. Many in the industry expect a market correction to take place at some point in the future, but for would-be cannabis entrepreneurs looking in from the outside, hopes remain high and the grass still looks greener.