Blog note: this article references a Shasta County Grand Jury report that criticized the City of Shasta Lake for actions with respect to marijuana that the City of Oroville in Butte County is considering.
SHASTA LAKE — Driving down Shasta Dam Boulevard, one of Shasta Lake’s main thoroughfares, it’s hard to miss the small city’s three marijuana dispensaries.
There isn’t much traffic on the road, but inside 530 Cannabis on a Thursday, it’s busy. Dozens of customers go in and out in less than an hour.
Two days before the state deadline of July 1 for all products to be tested and prepackaged, most items were nearly 50 percent off.
“You’ll notice my shelves are a little bare,” said Jamie Ortiz, the store owner. “That’s part of this transition.”
Recreational sales have been legal in Shasta Lake since Jan. 1 and business has been booming, Ortiz said. Interestingly, she’s seen an influx of senior customers seeking medical products as recreational shoppers.
“Even though we weren’t open to the public yet (for recreational sales), there was still a societal shift where it became more socially acceptable,” she said. “I think there were more people who were driven to go out and get a doctor recommendation so they could come to a retailer because of the social acceptability that came with legalization in 2016.”
Following the success of Proposition 64 in 2016, the Shasta Lake City Council passed an ordinance last year to allow for recreational sales, cultivation and manufacturing.
The Oroville City Council has been more or less following this path, voting a few weeks ago to send a cannabis business tax measure similar to Shasta Lake’s to the November ballot. Oroville hired the same consultant as Shasta Lake, the SCI Consulting Group out of Fairfield, to create ordinances to regulate commercial cannabis activity.
A few differences between the two cities are noteworthy. For starters, medical marijuana has been sold legally in Shasta Lake for years, while Oroville has had a ban in place.
A majority of voters in both cities voted for Proposition 64, but there was a slimmer margin in Oroville. In Shasta Lake, 54 percent of voters were in favor, while 46 percent were against. In Oroville, 52 percent voted in favor of the proposition and 48 percent voted against it.
Oroville’s population of 19,100 is nearly double that of Shasta Lake. But both cities are small and towered over by a dam. The 2017 spillway crisis put Oroville in the spotlight and Shasta Dam has been in the news lately, too, as the federal government is pushing to raise the dam as a means to increase water storage.
Last year, Oroville councilors Linda Draper, Jack Berry and Janet Goodson along with Public Safety Director Bill LaGrone and then-acting City Administrator Don Rust visited Shasta Lake where they met with city officials and toured 530 Cannabis.
Upon returning, Berry said the trip was an “eye-opener” and that he would like to see ordinances allowing for marijuana businesses to move forward.
Measure A, which called for placing taxes on cannabis businesses, was approved by 79 percent of Shasta Lake voters in 2017 — meeting the two-thirds minimum vote requirement in a special election.
The city is charging dispensaries a 6 percent gross receipts tax, while distributors and nurseries (of which there are no legal ones currently operating in the city) are charged a 3 percent gross receipts tax. There is no tax set for testing labs or transporters.
When cultivators and manufacturers begin business in the city, they will also be charged by the square foot.
The Oroville City Council, with Mayor Linda Dahlmeier against and Councilor Scott Thomson absent, voted 5-1 to put a measure on the ballot which would place a tax of up to 10 percent on marijuana businesses.
If the measure passes by 50 percent plus one vote, the council could vote to change the tax percentages at any time, so long as they didn’t go above that ceiling of 10 percent.
Money talk
One big motivator for Oroville is its financial state. Last year, the city’s finance director said that Oroville could ultimately go bankrupt because of rising California Public Employees’ Retirement System, or CalPERS, contribution rates.
The city needs new revenue streams and SCI Consulting Group has estimated that tax revenue from cannabis businesses would bring $300,000-$600,000 into the city, annually. Since the council approved a general tax, revenue would go into the city’s general fund.
Shasta Lake City Manager John Duckett said it would have been ideal for the city to pass a general tax measure to have more flexibility with spending, but that would have meant waiting for the 2018 general election year. Special tax revenue goes to a designated purpose. For Shasta Lake, that’s police and code enforcement.
“We looked at, ‘OK, well, what’s our largest expense in the city?’” Duckett said. “By far, law enforcement.”
Due to economic downturn, the city was looking at having to reduce its force by one police officers but was able to maintain funding for 10 police officers because of cannabis tax revenue, he said. Duckett described law enforcement staffing levels as “very good.”
Law enforcement also takes up the bulk of Oroville’s budget. Including police, municipal law enforcement, fire and animal control, law enforcement accounted for about 65 percent of the general fund in the 2017-2018 fiscal year budget.
Last year — prior to legal sales of recreational cannabis — the city of Shasta Lake took in $570,000 in cannabis business tax revenue. There is a 6 percent gross receipts tax on medical marijuana sales.
So far in 2018, the city has earned about $10,000 more than it had at the same point last year, Duckett said.
As more nearby cities including Redding pursue allowing commercial cannabis activity, that increase isn’t expected to be sustainable. Eventually, the plan is to raise the tax rates, though cannabis businesses have advocated for lowering them instead, he said.
Asked if he had any takeaways to share with Oroville residents, Duckett spoke highly of the local retailers.
“So far we’ve been impressed with the individuals in this type of business,” he said. “They’ve been very professional and above board.”
Duckett said that he didn’t think of the city as a trailblazer throughout the process to legalize recreational sales.
“It wasn’t ’til three, four, five months later that people were contacting us saying, ‘How are you guys doing? You guys are on the cutting edge.’ And I’m like ‘what?'” he said. “It never occurred to me. I just thought that in California, it’s legal now.”
A grand jury report that was recently released was critical of the city for being in “a rush” to cash in on recreational cannabis sales. Duckett said he thought the city had actually done a good job but didn’t say much more about the report, which he is currently drafting a response to.
Larry Farr, the mayor of Shasta Lake, declined an interview for this story. Farr said he did not want to give any comment until the city issued a formal response to the grand jury report.
Public safety
Shasta Lake Police Lt. Tom Campbell said that cannabis retailers have not have not been a drain on law enforcement resources.
“We treat them just like any other business,” Campbell said. “Quite frankly, we get more calls at Rite Aid than at the collectives.”
Most often, a call to the drugstore is for petty theft; someone stealing or attempting to steal alcohol, he said.
“I think a lot of it is (the dispensaries) are in a really high visibility area, being on the main street in town, and that, through the ordinance, they’re required to have security cameras, lock up their product at night in a safe,” Campbell said. “I think that helps deter a lot of that stuff.”
He said there was a direct correlation between cannabis business tax revenue and law enforcement staffing levels, which are “actually really good” for the size of the city and the amount of calls for service. Overall, the city’s crime rate has gone down in the past 3-4 years, Campbell said.
“We’re not reactive — we’re proactive out here,” he said. “We’re constantly out doing probation checks, AB 109 checks. I think that helps a lot. We know the players out here, since it’s such a small city.”
While recreational marijuana sales don’t appear to have caused the crime rate to rise, that could change with more activity allowed, Campbell acknowledged. Several cannabis cultivation and manufacturing businesses are set to go into an industrial park in the city.
“Could that in the future cause us some issues? It could,” he said. “I don’t know though. For now, it looks like we have enough staffing.”
Ortiz, the owner of 530 Cannabis, said there had only been one crime incident at her shop, which was corroborated by Lt. Campbell. On July 31, 2015 — Ortiz remembers the date — the power went off in the area and someone threw a brick through a window in the back of the store.
She suspects it was an opportunist testing to see if her alarm system was backed up by batteries, which it was. Nothing else happened, except that law enforcement arrived quickly.
Dispensary tour
Stepping into the 530 Cannabis dispensary, the front room is modern, simple and bright, with big windows. It smells like marijuana, but it’s not overpowering.
Ortiz said she was wanted to create a space where anybody would feel comfortable, with a focus on professionalism, cleanliness and good customer service.
“I was looking for something plain and generic, which is weird, I guess, when you’re trying to build a brand,” she said.
To the left, there is an express window, where customers who have ordered online can pay and pick up their products without going through the store. A framed sign at the entrance offers a reminder that all sales are cash-only.
At the right is a check-in desk, where everyone shows their ID upon entering. For recreational customers, that is all they need to do. People coming in as medical patients exchange some paperwork.
In the next room, which is fairly narrow and intimate, are the products each in their own section: edibles, medicinal cremes and oils and flower for smoking. At each little counter there is a staff member, known as a Budtender.
Derek McDonald, one of the Budtenders, has been coming to the dispensary since 2012 as a patient. McDonald lives in Redding.
“When I started working here, it exploded,” he said. “It went (up) maybe three times, the people we see every day, from medical to recreational.”
For new customers, he brings out a chart that shows a range of products from low to high levels of THC, the psychoactive ingredient. For newcomers, he recommends goods with the lowest amount of THC.
McDonald said that many customers come from out of the area, especially “the south.” Sure, from Southern California?
“Oh no, the South, like Alabama, Oklahoma,” he said. “They’re just amazed and they just have to come in and see what’s going on. They make a point and stop.”
He said that helping people pick out the right medicinal products is fulfilling and recounted a recent encounter with a woman who had multiple sclerosis.
“She came in, her hands were shaking,” McDonald said. “When I put a sample on her, I had to hold her hand to keep her calm. When she gave me the money, the tremors were almost gone and she was in tears. It just made my whole day.”
Looking to expand
Ortiz, a former customer relations specialist for PG&E, opened 530 Cannabis about nine years ago and plans to open several new dispensaries, including ones, she hopes, in Redding and Oroville. She recently participated in a stakeholder meeting in Oroville arranged by SCI Consulting Group to help gather public opinion on cannabis regulation.
Asked why she was interested in setting up shop in Oroville, Ortiz said she gives the same answer when asked about any city she is looking into. Of course there is Sacramento or Oakland, but she wants to go some place where the market isn’t already saturated.
”It’s who is having the conversation,” she explained. “Chico is not having the conversation so I cant be looking at that if there is no pathway for me. Oroville is having the conversation so there is a pathway.”
Ortiz said that sales have been up 70 percent so far this year. She expects that to level off by the end of the year to a 40-50 percent increase in sales compared to 2017.
“I think what we’re seeing is the novelty of it,” she said. “People are curious and this is new.”
Her baseline employees make about three dollars above minimum wage and their salaries will go up along with the state’s annual minimum wage increases, she said. So, employees with baseline pay will make $18 an hour when the state minimum wage is $15 an hour in 2022.
While business is going well, Ortiz is advocating for lowering the gross receipt tax down from 6 percent to 3 percent. A 6 percent tax was sustainable last year, but it isn’t any longer because of the new taxes along the supply chain under new state regulations, she said.
“I’m not sure I’ll be able to convince the city of that,” she said. “They don’t like reducing taxes once they’re getting that revenue so we’ll see.”
She suggested that Oroville start with a tax of around 3 percent on retailers to help them get started. Having seen other leaders of small communities try to bring commercial cannabis to their cities and fail, Ortiz said she wasn’t sure if voters in Oroville would approve a cannabis sales tax measure or not.
Her advice? Listen to the opposition.
“Their perspective matters,” she said. “That’s something that everybody needs to understand. Their concerns are the same as my concerns. I don’t want cannabis in the hands of children. I don’t want people driving under the influence. So we’re not on opposite sides on a lot of concerns. We have to include them in the conversation.”
July 5, 2018
Chico Enterprise-Record
By Risa Johnson
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