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Is cannabis the key to Turlock’s money troubles?
patient care first dispensary
Buyers of marijuana, such as here entering Patient Care First, are unwittingly helping the City of Ceres budget with some whopping revenue windfalls. - photo by JEFF BENZIGER/The Journal

As the City of Turlock continues to struggle with finding enough money to staff and retain public safety personnel, just 10 miles up the road the City of Ceres is wrestling with where to spend an extra $1.7 million in new cannabis revenues.

The Turlock City Council made it clear in January 2017 that there would be no marijuana dispensaries in town when they voted to prohibit all commercial activities related to cannabis, including cultivation and cannabis deliveries within the city. In January 2018, the Council also adopted a policy to deny approval to any cannabis-related enterprise within Turlock’s sphere of influence in the county.

The City’s recent budgetary woes, however, have seen a resurgence in community and business interests asking the Council to reconsider.

Local attorney Mike Warda, representing clients seeking to grow and sell cannabis in Turlock, presented the idea of the Council revisiting the City’s ban on marijuana operations during a May special meeting.

“Modesto passed a (marijuana) tax in this last November election. It passed by 82 percent. So that 50 percent (approval) number we saw in November 2016 changed once it became legal in the state. People look at it differently. I think that Turlock would look at it differently than 50-50 if they were given the decision of do we want to regulate this or do you want to just leave it the way it is,” said Warda.

According to Warda, if Turlock allowed marijuana grows and dispensaries it would mean $3 million a year in sales tax and another $3 million a year in a special tax that would go directly to the City of Turlock. These numbers could vary wildly, however, depending on if Turlock adopted a set sales tax, or went another direction like Ceres did, and how many operations were granted licenses in the City of Turlock.

Currently Ceres, which has a population of just over 48,000 compared to Turlock’s almost 73,000, has approved two medical marijuana dispensaries and one manufacturing facility, all under developer agreements instead of a special sales tax.

The developer agreement for Kase Manufacturing calls for the business to pay the city fees of $50,000 per month during the first year. The fee increases to $75,000 per month in the second year and $100,000 per month in the third year. The plant became operational last year and made the first payment to the city on Jan. 2.

The first medicinal dispensary was approved in October for Pacafi Cooperative, Inc. to operate its 6,000-square-foot Patient Care First dispensary. Then in November the Ceres council approved a developer agreement with Reynolds to operate Kase's Journey, a medical cannabis dispensary. Both dispensary operators pledged to pay the city a monthly fee of $40,000 if the firms earn $500,000 or less in gross receipts that month. The fee rises to $50,000 per month for gross receipts are between $500,001 and $800,000; $75,000 per month for sales of $800,001 to $1.1 million; and $100,000 monthly for sales more than $1,100,001.

Cannabis revenues for the City of Ceres now represent 8 percent of the General Fund, following behind property tax (12 percent), motor vehicle taxes (18 percent), and sales tax (30 percent).

While the City of Ceres went the developer fees route instead of seeking voter approval for a special cannabis sales tax, it’s unclear if the courts will uphold the decision.

Ceres voters will be asked in November to approve the taxing of marijuana sales if future courts strike down developer agreements between the city and the three marijuana-related businesses.

Ceres City Manager Toby Wells said he wants the city to be prepared should judges in the future rule against the developer agreements that were struck last year.

"We're confident that it does pass the rule of law, however, the courts often have different opinion and that's one the future of our cannabis regulation we're uncomfortable without having a safety net," said Wells. He recommended moving forward with a local cannabis sales tax measure that would only be triggered if developer agreements cannot be enforced as the result of court action.

State taxes include a 15 percent levy on purchases of all cannabis and cannabis products, including medicinal marijuana. State cultivation taxes include $9.25 per ounce of buds, and $2.75 an ounce for dried cannabis leaves.

But when combined with local and sales taxes, consumers can be hit with tax rates approaching 50 percent in some cities.

There are considerations other than a new revenue source when it comes to Turlock changing its policy on cannabis.

Just like in Turlock, the City of Ceres is having trouble recruiting and retaining qualified police officers. Police Chief Brent Smith said the cannabis industry affects every police force in the state. The largely cash-based business is susceptible to gang infiltration and there’s a rise in marijuana-related thefts during the plant’s harvest time.

“As soon as the grow season hits, by the end of summer, I’m telling you, we’re going to have to deal with it.”
Ceres Police Chief Brent Smith

“As soon as the grow season hits, by the end of summer, I’m telling you, we’re going to have to deal with it,” said Smith to the Ceres City Council regarding marijuana related crimes. “It’s just a burden on patrol officers that are already taxed.”

According to Smith, there were three shootings in Ceres last year that were related to marijuana grow situations. There was also a Molotov cocktail thrown at the front door of a dispensary and a large amount of cash stolen from a vehicle parked at a dispensary.

He also expects cannabis-related crimes to increase as illegal grows continue to pop up due to the high tax rate of obtaining legal marijuana.

Following the May special Turlock City Council meeting, Council members Bill DeHart and Gil Esquer were appointed to an ad hoc committee to evaluate the City’s cannabis policies.

DeHart said the committee’s work “has just begun,” and the scope will include revenue as well as evaluating the “medicinal/recreational branded and black-market impacts on our community.”

Esquer said he met with a couple of individuals from a marijuana dispensary business Tuesday morning as part of his fact-finding efforts for the committee.

“I want proof of a viable income source that will be safe, legal and not create more problems than they propose to relieve,” said Esquer.

Mayor Gary Soiseth said that “when it comes to revenue generation in Turlock, all options should be on the table and explored.”

— Jeff Benziger of the Ceres Courier contributed to this report.