Oakland city council approves large-scale production of medical marijuana

In a lively, standing room only meeting, the Oakland city council voted Tuesday night to approve on first reading a city-wide plan for the cultivation of medical marijuana in four new large-scale factories.

After three hours of debate, which included 125 speakers during the public comment session, the council voted 5 to 2 in favor of the plan, with North Oakland’s councilmember, Council President Jane Brunner, abstaining. Councilmembers Jean Quan and Nancy Nadel voted against the plan. If the ordinance passes next week, requests for proposals would be submitted to the city this fall, with marijuana production permits being issued next January.

Under the plan, which was co-written by Councilmembers Rebecca Kaplan and Larry Reid, the city would issue cultivation, manufacturing and processing permits for large-scale facilities that grow cannabis for medical purposes. The ordinance, if passed next week, would make Oakland the first city in the country to authorize wholesale pot cultivation, ahead of other California cities currently debating similar measures, including neighbors Berkeley and Richmond.

“I support this. It’s a growing industry,” said councilmember and mayoral candidate Jean Quan, who later voted against the ordinance because specific eligibility criteria for the facilities was not included in a resolution to be voted on by the council. Referring to Proposition 19, which will appear on the November statewide ballot and if passed would legalize the recreational use of marijuana, Quan said, “If you’re going to have a growing use in the state, even if the state proposition doesn’t pass, the volume of medical marijuana and high-quality marijuana that is regulated is going to grow. Oakland has been a pioneer in this area.”

Facilities that apply for and receive the city’s cannabis permits would not be limited in square footage—meaning they could grow as much cannabis as their facility would hold. City staff estimate approximately 6,000 pounds of cannabis were produced in the city last year in approximately 45,000 square feet of cultivation space.

Jeff Wilcox, a local businessman, plans to open a 7.4 acre complex near the Oakland airport that could produce as many as 21,000 pounds of cannabis annually. He argued the large-scale factories would provide jobs and income for the city, but only if the city acted quickly.

“Do you want to be the Silicon Valley of cannabis?” Wilcox asked the council. “The issue is, you’re late. If Oakland wants to do this, you’ve got to do it. Berkeley is starting. Other cities are looking into it. If you don’t start this, other people are going to.”

People who spoke in support of the ordinance spoke to the city’s growing debt as a reason to vote to pass the measure, saying that taxes on the new businesses would raise city revenues. The cultivation, manufacturing and processing permits would cost $5,000 per year. In addition, each facility that received a permit would be charged a regulatory fee of $211,000 and be required to carry at least $2 million in liability insurance. Oakland currently receives 1.8 percent in sales tax from the sale of medical marijuana.

Oakland’s four permitted dispensaries generated $28 million in profits in 2009. The dispensaries paid local growers $18 million for the marijuana they then distributed throughout the state.

“This issue is about jobs and taxes,” said Dan Rush, a statewide director for the United Food and Commercial Workers Union Local #5. “The city has the opportunity to put 80 police officers back to work, to reopen libraries, to put city workers back to work, to do a real good job to put debt to bed. We should do everything to create those jobs.”

But residents who support small- and medium-sized cannabis farming spoke against the plan, saying the ordinance would put them out of business.

“I speak for the small and medium-sized growers who have faithfully provided medical marijuana even in the face of prosecution,” said Steve DeAngelo, the executive director of Harborside Health Center, the largest medical marijuana dispensary in the world. “They’ve done the best they could to grow marijuana in responsible ways. They are decent people with families to support. They need to pay their rent. They’ve been coming to me terrified, asking me to do something to stand up for their interests so that legislation is not passed that will take their livelihoods from them.”

Other small cannabis growers told the council they would be “excited” to participate in the permit process. “This absolutely needs to be regulated,” said Jesse Lyons, a residential farmer. Small cannabis growers, he said, are “excited to come out of the closet.”

Small cannabis farms would be eligible to apply for the permits if they formed collectives with other small farms; nevertheless, they can still remain in business, as long as their grow operation is no bigger than 96 square feet. But medium-sized cannabis farms, which are often for-profit entities, would have a harder time becoming eligible to apply. Another ordinance will be introduced to the Public Safety Committee this fall to address providing permits for medium-sized growers.

Stricter enforcement for cannabis farmers is also included in the ordinance. Much of Oakland’s cannabis is currently grown in private homes or large factories, oftentimes illegally. City officials estimate that a rise in electrical fires in Oakland, from 133 in 2006 to 276 in 2009, is directly related to indoor residential cannabis cultivation. Increased robberies, burglaries and homicides related to cannabis cultivation were also stated in the ordinance as concerns of city safety officials.

People who apply for the facility permits would be subjected to many of the same requirements as the marijuana dispensaries have been: background checks, tests of legal knowledge, a business plan review and a site and planning review. The applicants will be ranked by a point system; the city plans to issue four facility permits during the first year the ordinance is in effect and would reevaluate the program and potentially distribute more permits after the first year.

A major point of contention, both in public comment and during the council debate, concerned taxing the facilities. The city council will deliberate in a special session Thursday night whether to increase the business tax rate for cannabis businesses, which is currently $18 per $1,000, or 1.8 percent. An initiative will likely be put on the November ballot to raise the tax rate, which Oakland voters would have to approve. The new rate to be placed on the ballot will be debated by the council and determined Thursday night, but speakers on Tuesday warned the city council not to consider raising the tax too high.

“If you want to start the Silicon Valley of cannabis, don’t set tax rates so high that you kill the baby before its born,” said James Anthony, of Harborside Health Center. “You’ll need to maintain some level of regional tax parity or Oakland will lose business to surrounding cities.”

The criteria for determining who would receive a permit was also a source of debate in the meeting, with councilmembers Brunner, Quan and Nadel asking council staff to draft a resolution stating specific criteria for eligibility. Other councilmembers declined to do so, saying that getting too specific in a resolution would force the council to open the matter again in a council meeting if they needed to change anything at a later date. Quan and Nadel ended up voting against the plan, largely because of the absence of such criteria, while Brunner abstained from the final vote.

The council will hear the second reading next Tuesday morning, July 27, and officially vote on the plan before they recess for the summer.

California voters passed Proposition 215, the California Compassionate Use Act, in November 1996, which allowed patients and their primary caregivers to cultivate cannabis for their own medical use. In January 2004, state senate bill SB 240 allowed medical cannabis collectives or cooperatives to be established and provided the guidelines for how much cannabis a person can cultivate. The city of Oakland allowed four city-wide dispensaries to begin distributing cannabis to patients in February 2004. Three of those dispensaries are still selling medical marijuana.

In 2005, Oakland voters passed Measure Z by over 60 percent, which allows for the licensing, taxation and regulation of medical marijuana within the city. Oakland voters also passed Measure F in June 2009, which allows the city to tax its medical marijuana dispensaries.

This summer, Oakland became the first city in California to institute a pot tax.

Thursday’s  special session of the Oakland City Council will begin at 5:30 p.m. in the council chambers.

Image: James Anthony, of Harborside Health Center, addressed the council Tuesday night in a standing room only meeting.

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