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The High Cost of Regulating Marijuana in Sacramento, California

A staff report prepared earlier this week shows an estimated cost of nearly $6.5 million in annual permit fees that Sacramento will need to raise in order to regulate the local marijuana industry. Such costs will go, in part, toward paying the additional staff they will need to hire to govern the process. The staff is expected to include over 50 people working in various departments, such as police sergeants and officers, building inspectors, and code enforcement officers.

As of now, about 900 people have contacted the city of Sacramento with the objective of starting a marijuana business under the state's medical marijuana regulations. Such regulations were made legal in 2015, and when coupled with the recent passage of Proposition 64 that pertained to recreational marijuana, it is easy to understand why prospective business owners are now flocking to the city in droves.

However, many of these applicants will not be eligible for marijuana business permits if they aim to set up shop in areas that have not been approved. Recently, the city incorporated legislation that specifies that commercial marijuana businesses have to stick to industrial zones, warehouse districts, and a limited number of commercial areas. Further, they must be discreet in that they must be hidden from the public eye, and they must be established at least 600 feet from any of the local school districts.

The city plans on setting permit fees on these would-be businesses. Additionally, the City Council recently approved a plan that will be asking those in the business of selling commercial marijuana to pay into what is called a "neighborhood responsibility fund." The plan encourages said business owners to pledge one percent of their gross revenue to the neighborhood fund. In doing so, they are then given the benefit of being exempt from paying anything further if the fees the city incorporates in the future turn out to be higher.

The fund works like an insurance plan that protects marijuana cultivators from being asked to shell out even more money in the future. The city hopes the fund will offset the impacts of the marijuana businesses and support programs within their local community. The fund works as a way for the business owners to give back to their neighborhoods and fellow local businesses.

The city of Sacramento is currently home to 30 medical marijuana dispensaries, and those dispensaries pay $4 million per year in taxes to the city. Sacramento expects to provide licenses to over 260 additional marijuana businesses, including 200 commercial marijuana-cultivating businesses, 30 marijuana delivery businesses, 25 manufacturing businesses specializing in marijuana products, four testing labs, and five transportation businesses.

The proposed annual permit fees, which the Budget and Audit Committee is expected to review, range from nearly $8,300 per year for commercial cultivators with a maximum of 5,000 square feet of plants, to nearly $25,000 per year for cultivators who need up to 22,000 square feet. Proposed fees go as high as nearly $21,000 for businesses specializing in marijuana delivery, to up to nearly $42,000 for companies working in commercial transportation.