Input Regarding Proposed Oakland Cannabis Licensing Program

Attn: Oakland City Council and City Administrators

Re: Input Regarding Proposed Oakland Cannabis Licensing Program

Greetings,

We have developed this report in an effort to provide clarity and insight to some of the concerns raised by members of the City Council and Public Safety Committee regarding the proposed amendments to Oakland’s medical cannabis ordinances detailed in a report presented by the Office of the City Administrators. We are incredibly impressed by the thoughtful and informative report developed by Greg Minor and administrative staff detailing the need to evolve Oakland’s medical cannabis ordinances to align with the new Medical Marijuana Regulation and Safety Act passed by the State legislature last year. The new regulatory program set forth by the State is long overdue, and it is encouraging to see Oakland realizing the opportunities the program affords in their effort to bring medical cannabis businesses into compliance. Thank you for the time, energy, and resources dedicated by the City to create a licensing program that encompasses the entire medical cannabis industry from seed to sale. It is certain to be a great economic opportunity for the City and the community at large.

As was stated in the staff report, many medical cannabis businesses currently exist in Oakland and for the most part they are responsible and professional organizations that desire to be compliant and pay their share of taxes. The City is wise to develop plans to allow these businesses to contribute economically and socially to the business landscape of the community through the licensing and regulatory processes. Currently the City and most of the State have only developed methods of regulating the retail dispensing sector of the industry, leaving the cultivation, manufacturing, and distribution of cannabis operating in a gray area of the law with little oversight. Cannabis does not magically appear on the shelves of a dispensary. There is a vast network of producers who work hard and employ a great deal of people cultivating and processing cannabis into finished products ready for market. Currently most of these businesses are forced to operate in clandestine fashion to avoid detection because their interests are not clearly protected. After nearly 20 years of medical cannabis being legal in the State, the legislature has finally passed laws that provide a framework for the industry to operate. At the core of the program is the need for local municipalities to develop programs that meet the needs of the community through proper zoning, public safety oversight, and operational review. Oakland has long been a leader in developing sound and effective medical cannabis regulations that have served the City well, and have been a positive model for the State and Nation. By embracing the recommendations of City administrative staff and amending cannabis ordinances to meet the requirements of new State laws, Oakland is sure to realize increased revenues and create thousands of good paying jobs in the community. The City is likely to be on the cutting edge of an amazing economic opportunity reminiscing of Silicon Valley in the 1980’s. What is clear is that the cannabis industry will continue to grow by leaps and bounds in coming years, and Oakland must continue to innovate and lead to ensure their position in this emerging new economy.

The following are informational resources we have put together to address some specific concerns that have been put forth by councilpersons and staff:

Job Creation: The cannabis industry is creating a lot of new job opportunities across the nation. Cannabis cultivation and manufacturing are generally labor intensive processes that require a lot of manpower. The requirements for accurate and detailed tracking of cannabis has also created the need for several additional administrative positions to implement record keeping, inventory control, and quality assurance tasks. A lot of people probably assume that cannabis producers put some plants in dirt and come back three months later to harvest it for money; but cultivating cannabis and processing it into finished product is actually a lot of hard work that requires skilled and competent people to do well. Growing and processing cannabis requires attention to detail by skilled workers capable of maintaining a productive work schedule and following a rigid set of standard operating procedures. Cultivating cannabis has become a highly sought after skillset and those with these skills are being paid well for their knowledge and experience. The entire cannabis continuum, from seed to sale, is an intricate web of unique job roles that make up the cannabis workforce. Oakland is wise to embrace this growth industry, and create thousands of good paying jobs in the City.

After hearing some concerns put forth by Oakland officials questioning if allowing for hundreds of new businesses to be licensed under the new State program might create an opportunity cost in the inability for other manufacturing type businesses to locate here, I decided to do some research. According Economic Modeling Specialists Intl. manufacturing establishments are smaller than most people think, and growing smaller as automation becomes a reality and demand for products made in the U.S. continue to shrink. Over the past years the average manufacturing business has declined in size from 41.2 employees on average in 2001 to just 35.3 employees in 2012. Another reality is that manufacturing makes up a small part of the Oakland economic picture, with only 3.8% of businesses being in the manufacturing sector. No manufacturing company in Oakland is one of the top 20 employers either. So while there will be a heavy demand on industrial properties that fit within the proposed designated zones, it is unlikely that other businesses who employ more people in the manufacturing industrial sector who would use these types of facilities would be displaced. Chances are a lot of these facilities are already being used for cannabis cultivation and manufacturing businesses who now fly under the radar, and do not pay business fees or local taxes. This is why it would be smart business for the City to adopt the administrator’s recommendations and bring these businesses into compliance through proper licensing in line with new State laws. Here are some charts showing these trends:


I also took a look at the average size of cannabis cultivation and manufacturing positions in the industry, and found out that on average cannabis businesses employ more workers than the average manufacturing establishment and also pay them better wages. I contacted three of the largest producers of cannabis and finished products in the State of Colorado. What I found is that on average it takes one employee per 250 sq. ft. of garden canopy. So a licensee with a 10,000 sq. ft. garden canopy would require approximately 40 employees. Looking at the data on 20 different Oakland specific manufacturing businesses, the industries located here currently average about 15.8 jobs per firm, and there are just not a lot of major manufacturing businesses in the City anymore. So it is safe to say that cannabis cultivation and manufacturing businesses would likely employ substantially more people than the current types of manufacturing businesses located in the City. Here is a look at the table of businesses we reviewed:

Name of Business # of Employees per Manta.com Median
ABI Industries 20-49 34
Western Colloid 5-9 7
Artisan Manufacturing 6 6
Protex Wax 1-4 2
Digicom 20-49 34
Pacific Panels, Inc. 10-19 15
Horspool and Romine, Inc 10-19 15
McNeill Manufacturing 5-9 7
An-Fo Manufacturing 20-49 34
AdvancedManufacturing 5-9 7
Forem Metal 5-9 7
Window Hardware 2-4 3
Shape Products 10-19 15
Upholstery WorkRoom, Inc 2-4 3
T&P Machineworks 5-9 7
Rowe Machines 2 2
Diamond Tool & Die 20-49 34
Forecasters Tech 1-4 2
NorCal Metal 50-99 75
BCH Manufacturing 5-9 7
    Average = 15.8 emp/business

 

Cannabis cultivation is often done indoors, as controlled environments create more desirable cannabis for the end user. In our discussion with many retailers of cannabis across the State indoor cannabis makes up approximately 50% of the raw cannabis flowers sold, with greenhouse making up 25% and outdoor making up another 25%. Cannabis produced in industrial grow facilities continue to dominate the market, and as noted previously there are already likely hundreds of these operations located within the City that provide good jobs. In addition to cultivation, processing cannabis from raw material into finished products such as concentrates and edibles is also a growing part of the industry; and these firms also employ more people on average than a non-cannabis business of similar type. As regulation continues to be implemented and the requirement for more intense tracking of plants and materials, as well as expanded record-keeping requirements are implemented, the need for staff will increase in all cannabis businesses creating even more jobs in the industry. Also,  cannabis retailers employ far more people per square foot of store space than an average retailer. The bottom line is that concerns that cannabis-based businesses would push out other businesses that provide more jobs are just unfounded by the reality that we see in other States that have had strictly regulated markets, as well as what we know about the current California landscape. If anything, cannabis businesses will employ several more people than traditional manufacturing businesses that would occupy these facilities, and they would be jobs that paid competitive wages with benefits. The new MMRSA laws also require businesses with more than 25 employees to enter into a labor peace agreement with their staff.

Oakland has a great opportunity to continue to lead and innovate in the area of medical cannabis by adopting the updates to medical cannabis ordinances as put forth by the City Administrator’s Office. The current policy of hiring Oakland residents that dispensaries in the City adhere to has worked relatively well. The only issue we have come to understand is a lack of qualified employees in the City. It may be beneficial to start a cannabis jobs training service in the City that could be funded through fees that are paid by cannabis business license holders to help ensure they have a qualified pool of applicants for these positions to meet the 70% resident hiring threshold.

Oakland Residency Requirements: It is not a sound strategy to make selection, or give advantages to, applicants based on their residency in Oakland. I cannot think of another business model where this is considered, or of relevance, for obtaining a business license or conditional use permit. Even a lot of the Oakland Police Department do not live in Oakland, but because a person operates a medical cannabis business they should? It seems like an odd way to select the best operators for these licenses. Where a person sleeps at night does not necessarily make them a good candidate to operate a medical cannabis dispensary, manufacturing, cultivation, or distribution company. This is a highly specialized business that requires a certain level of specialization and experience, including a solid network of other cannabis businesses and operators. If the main objective is to find successful operators that provide good jobs, increased revenues, community benefits, and public safety then where a person resides has very little to do with their ability to be successful.

Also, requiring that a large percentage of employees be hired be from Oakland can also result in the need for businesses to hire people who may be less talented or qualified to meet an arbitrary quota. As mentioned, it would be wise to develop a training program for Oakland residents to increase the pool of qualified applicants and make it easier to hire good local people. I understand the desire for having a large percentage of these positions filled by Oakland residents, but it is also desirable for these businesses to have the best candidates filling roles to provide the highest quality products and services, which in turn increases overall revenues and brings more people into the City… especially when you get into the cultivation and manufacturing aspects of the industry, where it is imperative to have good people who know what they are doing to assure quality and safety in the process. People who are talented and cultivating and extracting cannabis can be hard to come by, and it could be counterproductive for the City to require a certain level of residency, and miss out on some really talented people who could craft cannabis and finished products that are superior. As these businesses grow from local and state businesses into national and international providers in coming years having the most talented people working at these businesses will ensure their success and viability for decades to come. The reputation of what will eventually become household names like Budweiser or Bayer are being developed now, and Oakland should not put barriers in place that could stunt that development because a decision was made to require Oakland residents be hired on at certain levels, and non-Oakland residents with amazing talents went elsewhere. Food for thought.

Proximity Buffer Zones: Oakland is a dense urban area with a lot of great areas for businesses. The State has set a mandatory 600 ft. proximity buffer around schools, which they define as “any public or private school providing instruction in kindergarten or grades 1 to 12, inclusive, but does not include any private school in which education is primarily conducted in private homes.” That is a fair distance that more than ensures safety. Some members of the Public Safety Commission and Council have suggested distances of 1,000 ft. or even expanding the definition of school to include a community college. Both of those ideas are unnecessary and eliminate great areas of potential commerce for the City. Regulatory requirements for medical cannabis businesses, including retail dispensaries, have many assurances built in to them that limit access to the areas of operation and discourage school aged children from coming in or around them. Proper security measures are far more effective than an arbitrary limitation of distance. The difference between 600 ft. and 1,000 ft. is not going to do any more to eliminate the risk of kids being exposed to cannabis. What it will do is severely limit the areas where these businesses can locate, and possibly force businesses into locations that are less than ideal.

Businesses being excessively limited and unable to find suitable facilities will result in them possibly having less options, and result in the City having less good businesses to pay taxes, hire people, and contribute to the community. Oakland would be wise to adhere to the suggested proximities of the City Administrator and the State. In addition to proximity buffers from perceived sensitive uses, having security requirements and ensuring operations are discreet in the administrative guidelines will yield more positive results, while still giving businesses more options to find a great location that meets their needs and increase the bottom line for the City.

Adding community colleges to the definition of schools because there may be high school aged students who attend certain specialty classes there is overkill. The location of say a cultivation facility or delivery service nearby a campus like Laney College will not encourage use or provide any more or less access to this handful of students attending AP courses. The required access restrictions in place are more than adequate to keep cannabis away from young people, and further limiting viable areas in the City to solve problems that do not really exist would be a bad idea. Tobacco and liquor are far more dangerous and accessible than cannabis is, but can you imagine how many restaurants or convenience stores would not be able to exist and add to the City’s economy and services if these same type of restrictions existed? Adding community colleges will not solve any real problems, but could certainly result in less businesses being able to operate, as well as those who do operate from possibly operating in a better location that enables them to do more business and provide more jobs and revenues.

On-Site Consumption: The City would be very wise to allow for dispensaries to have on-site consumption areas. These facilities would serve a number of needs and make Oakland an incredible destination point for patients and providers. Allowing people to consume cannabis in a safe and clean facility gives those patients who may not be able to consume at home for one reason or another a place to consume their medicine. Some patients live in shared living environments, or in public housing, and do not have a good place where they can consume cannabis. Allowing for a comfortable place to consume cannabis will take those people off of the street or out of their vehicle, where they may now be relegated to consuming. This increases public safety and limits complaints for people consuming in public. Allowing for consumption could also allow for patients to sample a medicine before making a purchase to ensure it was effective for their needs. Dispensaries could offer patients the ability to try a product they may not be familiar with before spending substantial money on it, thus increasing satisfaction and encouraging more patients to come to Oakland dispensaries over other cities in the area that also have dispensaries. One of the real benefits to allowing on-site consumption is also the psycho-social therapy it can provide by allowing patients to share different types of cannabis and information on how different strains or methods of ingestion may work for specific conditions or symptoms. This type of experience is invaluable to many who do not have the opportunity to get out often and socialize with other patients. It provides a great place for patients to interact and understand medical cannabis more deeply. That is an incredible service that will increase business for the dispensaries and revenues for the City.

Cash Management: Banking and cash management is one of the most frustrating aspects of the cannabis industry. Currently banks will not serve cannabis related businesses due to the differences in Federal and State laws. They consider it too large of a risk to undertake, and have been adamant about it. They will not even accept an account for businesses who do not actually deal in cannabis, but just have the word cannabis in their company name. Most businesses currently have to bank under non-descript business names that are more difficult for banks to detect. They must creatively explain their business avoiding the terms cannabis or marijuana, as well as collective, cooperative, compassion and other industry buzzwords that have become red flags for banks. Because most of these businesses cannot get merchant accounts either most of the transactions are cash, this creating obvious safety issues. It is great that the City is looking for viable alternatives to this situation. Could it be possible for the City to develop a credit union for cannabis businesses? It is uncertain. There have been efforts made in other states that have had some difficult challenges to overcome. There is a bank in Oregon that is working with cannabis businesses. They have a list of requirements for these businesses, including an annual site inspection and signing of a non-disclosure agreement, so it may be possible to find a local bank willing to implement a similar program here. Currently cannabis businesses handle a great deal of cash and do so with little or no issue every day. With proper management and security, handling cash is safe; and inventory tracking and PoS systems have helped verify transactions and increase transparency. While this is an area of the industry that is in great need of reform, this has been the way cannabis businesses have been forced to operate and there has not been a lot of major issues to report. Intense security protocols have mitigated the risks quite well.

Crime Trends: Medical cannabis businesses have proven to be extremely safe. Former Oakland City Administrator Barbara Killey who oversaw the medical cannabis program in the City from 2004-2009 had the following to say about their benefits: “The areas around the dispensaries may be some of the safest areas of Oakland now because of the level of security, surveillance, etc…since the ordinance passed.” This is certainly true and has been the norm across the State and in other major cities where cannabis businesses are located. What does attract crime and affects public safety is not regulating cannabis businesses. There are hundreds, if not thousands, of cannabis businesses operating in Oakland currently that cultivate or manufacture finished products. These businesses currently are unlicensed or regulated and are forced to operate in a clandestine manner to avoid detection, as their legal status is questionable under the current ordinances. They may avoid some more overt security features that protect other licensed cannabis businesses, including on-site security guards, lighting, and highly visible cameras. They also may not have adequate alarms, as to not alert neighbors or police of a break in. They are also less likely to report a crime if it does happen because they have very little legal protection. By licensing these businesses, the City would decrease the likelihood of crime and encourage these business owners to be more directly involved in community safety groups and programs. Licensing can also require that these businesses maintain adequate levels of security technologies to discourage bad behaviors and further limit crime.

Permitting Existing Facilities: If the City truly wants cannabis cultivators and manufacturing companies to get licensed and become contributing business models, they will need to find a way to permit existing businesses. Most growers and those who make cannabis products depend on their business for their current income. Not many people are going to cut down their garden so that they can get licensed. They will continue to operate in the shadows, and will offer their products on the illicit market rather than within the licensed program if they are forced to cease operations for a long period to accommodate the licensing process. Another major issue is that many businesses have likely made unpermitted upgrades to their facilities to meet the requirements for cultivating and processing cannabis, including building structures and upgraded power sources. The vast majority of the building improvements are likely up to code, but were unpermitted to avoid having City officials inspect their operations and possibly report their activities. The City must find a way to provide an amnesty program for these businesses, in which they can disclose their unpermitted building upgrades and meet the necessary requirements without risking enforcement or hefty fines. It will require for City Council to instruct the building and planning departments to devise a method to bring these facilities into compliance. It is not a difficult process, but one that requires the will to think outside of the box. Finding a successful way to implement this amnesty for a limited time will vastly improve the chances of the City licensing businesses that until now have had to hide in fear of prosecution. It would greatly benefit the City and vastly expand the amount of people willing to participate in the program, which should be the ultimate goal.

Conclusion

We appreciate your time and consideration on this matter. We hope this report is helpful and informative to assist in creating beneficial ordinances that accomplish the objectives of increasing public safety, generating revenues, and developing innovative solutions for the emerging cannabis industry. Should you have any further questions or concerns that we may be able to help with do not hesitate to reach out. We appreciate being a part of the process and the open communication that the City has put forth to take in as much information as possible. I represent dozens of medical cannabis patients and communicate regularly with thousands of cannabis consumers, and I can assure you that many of the suggestions made here are representative of a large part of the local cannabis community. Thank you for the hard work and effort shown by City staff on this very important matter.

Regards…. Mickey Martin

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