South Tahoe cannabis regs to come back before council in January | nnbusinessview.com

South Tahoe cannabis regs to come back before council in January

Ryan Hoffman

Tahoe Daily Tribune

Former City of South Lake Tahoe attorney Tom Watson, left, talks with Tahoe Wellness Cooperative executive director Cody Bass (who's now a member of the South Lake Tahoe City Council) after a hearing in 2016.

SOUTH LAKE TAHOE, Calif. — The new year will start much like 2018 did with regards to cannabis policy in the city: a work in progress.

The newly configured City Council considered the latest draft of a revised cannabis ordinance earlier this month. Similar to previous drafts, it would have allowed a limited number of cannabis businesses in the city through individual development agreements.

After discussion, council voted 3-1 to send the ordinance back to staff in order to make a series of minor — in the context of the larger effort — changes. Councilor Cody Bass recused himself due to his role with Tahoe Wellness Cooperative (TWC), the city's only legally operating cannabis business.

As has been the case over the past 12 months, a good chunk of the council's conversation centered on TWC, which is currently licensed through the state as a medical microbusiness — a type of license that allows for multiple uses, such as retail and cultivation.

TWC has been involved in a protracted legal battle with the city since it decided to deny TWC's permit renewal in late 2016. Earlier this year a judge ruled in the city's favor, but TWC appealed the matter.

The court issued a stay, which allows TWC to continue operating while the appeal is considered.

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The draft ordinance considered earlier this month would have allowed TWC to continue operating in its current location under the city's old medical marijuana ordinance for three years while allowing it to expand to "adult use retail."

That caveat consumed much of the discussion.

Specifically, members of council did not want TWC to be free of the public safety license required in the draft ordinance.

It is only fair that TWC comply with the same public safety requirements as other hopeful business operators, Mayor Brooke Laine said.

At the same time, TWC should be able to conduct all of its uses, which include cultivation and others, for "adult use" during the three-year grace period. The ordinance as drafted would have only allowed "adult use" for the retail aspect.

TWC also should be given the ability to contribute to "revenue sharing" — the mechanism the city plans on using to collect revenue from cannabis businesses.

The city cannot levy a tax without voter approval. As a legal workaround, the city is using a development agreement model which allows applicants to voluntarily contribute a percentage of revenue.

These and other aspects would be scored to help determine which applicants ultimately receive a license.

The idea is that in a competitive process applicants will agree to contribute the largest percentage of allowed revenue share in order to score higher and increase their chances of obtaining a license.

TWC would not be subjected to that incentive, as it would not be required to join the competitive application process. It's unclear if TWC would agree to contribute revenue voluntarily without the incentive.

Still, a majority of council agreed to revise the ordinance to:

• Require TWC be subjected to the public safety license project;

• Allow TWC to operate all its current uses for "adult use" during the three-year grace period;

• Allow TWC to contribute revenue sharing;

• And change the revenue sharing range from 0-8 percent to 0-6 percent.

The thought was that 8 percent would be too large a number when factored in with state-mandated taxes. Taxes and expenses such as revenue sharing contribute to the overall cost of cannabis. If the cost becomes too high it makes the black market more attractive, which could potentially undermine legally operating businesses.

Compromise possible?

The lone dissenting vote on council came from Councilor Devin Middlebrook, who echoed remarks made by several members of the public.

The changes, Middlebrook said, were mostly aimed at one business: TWC. And in the process, the city was delaying the process yet again at the expense of other businesses waiting to apply for a license.

There are a lot of people who want legal adult use cannabis in South Lake Tahoe, Middlebrook told the Tribune, and in its effort to try to craft a "perfect ordinance" the city is continuing to delay the process despite extensive studying and input. Further, he continued, there is no clear indication that the changes requested will appease TWC.

Earlier this year TWC successfully spearheaded a referendum effort against a previous cannabis ordinance approved by the previous City Council. The ordinance would have allowed for a limited number of adult use cannabis businesses in the city. It also would have allowed TWC to continue operating as a medical business only, although it could have applied for adult use permits.

Middlebrook, who was elected to council along with Bass and Tamara Wallace in November, said he has no vendetta against TWC. Rather, he wants to move the ball forward. He would not oppose granting more concessions to TWC if it means the industry can move forward without threat of another referendum or effort to thwart the city's new regulations.

Bass told the Tribune that he is not opposed to the ordinance, with the exception of language prohibiting any expansion by TWC.

The other sticking point, Bass said, is the ongoing litigation between TWC and the city. If the two parties can reach a compromise and dismiss the lawsuit, and the city allows Bass the ability to expand TWC, Bass said he would not oppose the ordinance.

Whether there is any appetite for such a settlement remains to be seen. Council met in closed session during the December meeting to discuss the litigation. No action was reported.

At this point, the city is still defending the appeal, City Attorney Heather Stroud told the Tribune. However, TWC has put forward a settlement offer since the last meeting. Stroud said she has not had an opportunity to bring the settlement before council in closed session.

If the city moves forward without settling the lawsuit and approves the ordinance in January, Bass said he will likely take legal action asserting the ordinance is not substantively different than the ordinance that was subjected to the referendum earlier this year.

When an ordinance is successfully subjected to a referendum, it cannot be passed again for 12 months unless substantive changes are made.

"It's a bit of an unknown," Bass said in describing the current situation.