County of San Luis Obispo Board of Supervisors Agenda Item Transmittal (1) Department (2) Meeting Date (3)

The current fee revenue from the Cannabis Program in San Luis Obispo County is insufficient to support the SOCCU at its current level, preventing the program from being cost neutral as required by Board of Supervisors’ policy. We Wholly or Partially Disagree with the Finding for the following reasons: ☒ The County of San Luis Obispo Cannabis Program includes permitted (legal) and unpermitted (illegal) cannabis activities. Since the Board of Supervisor’s adoption on September 20, 2016, of the temporary urgency ordinance and subsequently the permanent ordinance on November 27, 2017, County Departments have been working internally and with outside agencies to develop and continually improve the Cannabis Program including the permitted and unpermitted activities, and the resources needed to successfully manage all aspects of the County’s Cannabis Program. There are some components of the legal program as well as the majority components of the illegal program where the County has limited ability to fully recover costs. It is important to note that while the Board’s policy is to fully recover the costs of providing services, this only applies to services which carry a specific benefit to an individual or entity. In other words, the fees only pay for the services being provided (i.e. background checks, inspections, etc.) and does not pertain to basic tax-supported services which benefit the broader community (e.g., law enforcement for illegal grows, etc.). On September 13, 2022, the Board approved a number of fee changes aimed at full cost recovery of the legal cannabis service activities in order to continue the Board of Supervisors past practice of recovering costs from those who benefit from certain services the County provides beyond the basic tax-supported services. In addition, the Board transferred personnel and responsibilities for the Cannabis Monitoring Services, Cannabis Code Enforcement, Cannabis Investigations and Cannabis Nuisance Abatement activities to the Sheriff’s Office and added 5.00 FTE positions to support the Compliance Monitoring Team under the Sheriff’s Office. Subsequently, on June 20, 2023, the Board directed staff to bring back cannabis related items such as recommendations to expand delivery operations to 10:00 PM, an analysis of brick and mortar retail dispensaries, report on processing, permit timing, land use regulations, and an analysis of financial costs and revenues. The Board received a presentation on the County’s Cannabis Program on September 26, 2023 and directed staff to move forward on the following three de minimis actions: 1) refine the start of a permit lifespan to be the start of operation; 2) extend the mobile dispensary hours to staff’s recommendation (8 a.m. to 10 p.m.) or to the State’s regulation (6 a.m. to 10 p.m.) as indicated by Supervisor Ortiz-Legg; and 3) bring back ordinance modifications regarding the recovery of administrative costs as discussed by the Sheriff’s Department and County Counsel. Most recently on February 6, 2024, the Board considered an ordinance amending the Cannabis Fees for Fiscal Year 2024-25, effective July 1, 2024 approving fee increases for consistency with Conty policies and in accordance with “recover costs where reasonable” principles. Additionally, on July 9, 2024 the Board will review proposed ordinance amendments to cannabis cultivation permit expirations, hours of operation for non-storefront retail dispensary, and abatement cost recovery for unpermitted cannabis activities.

The fees necessary to obtain a cannabis license in the County are significantly higher than surrounding jurisdictions, contributing to fewer than anticipated new license applications. We Wholly or Partially Disagree with the Finding for the following reasons: ☒ The challenge lies in accurately comparing these fees due to differences in what each fee encompasses. Typically, the cost includes application fees, annual renewal fees, and possibly additional fees for background checks or other regulatory requirements. Additionally, the expenses differ depending on the type of operation. Further, there are other reasons why other jurisdictions have more cannabis operations such as allowing larger canopy area, and/or having a certified programmatic environmental impact report which the applicant can utilize.

The Board of Supervisors has not conducted a review of staffing levels needed for the Cannabis Compliance Program to determine if the SOCCU is overstaffed relative to the number of active cannabis cultivators and applications for licenses. We Wholly or Partially Disagree with the Finding for the following reasons: ☒ Since the inception of the Legal Cannabis program, County staff has presented the Board with a number of program updates. The Board approved the transfer of the Cannabis Program from the Department of Planning and Building to the Sheriff’s Office on September 13, 2022, and approved the staffing requested by the Sheriff’s Office. Staff has been able to manage the Cannabis program in a direction that keeps the community safe and operators compliant with the law and County cannabis polices. Assisted by MGT Consulting, LLC, assumptions were made to develop fees aimed at full cost recovery at the direction of the Board. The Sheriff’s Office conducted a time study in the Fall of 2023 concluding a full year of operations. With the newfound data, staff was able to recognize all operational needs and obligations to run a successful and safe Cannabis program. This information was reviewed and analyzed by the Administrative Office prior to the February 2, 2024 Fee Hearing. In addition, this information was taken into consideration during the FY 2024-25 Budget development process.

The limited number of new applications in this fiscal year will not generate sufficient revenue to offset the cost of the SOCCU in the County budget, resulting in the program continuing to operate at a deficit. We Wholly or Partially Disagree with the Finding for the following reasons: ☒ The cost of the SOCCU in the County budget includes both legal and illegal Cannabis operations. There are some components of the legal program as well as the majority components of the illegal program where the County has limited ability to fully recover costs. As indicated in Finding 1, fees related to cannabis activities are set to full cost recovery with exception to those specific fees the Board has directed otherwise. Proposed units of service are recommended based on actual units of service sold. The fees only pay for the services being provided (i.e. background checks, inspections, etc.) and does not pertain to basic tax-supported services which benefit the broader community (e.g., law enforcement for illegal grows, etc.). It should be important to note that the FY 2024-25 adopted County Budget also includes revenue from the Cannabis Business Tax, budgeted at $1,000,000 (8% tax rate). On June 24, 2024 the Board adopted a resolution maintaining the current 6% tax rate gross receipts for FY 2024-25 which is projected to collect $750,000.