Cannabis –Unfunded Pension Liabilities Solution?

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The passage of the Adult Use Marijuana Act in 2016 has opened the door to what is expected to be a multi-billion-dollar industry in California - increasing economic output and generate jobs as well as generating revenue for services. Local jurisdictions can now choose to allow cannabis sales, cultivation, manufacturing and other activities and can levy excise taxes.  Most cities that initiated ballot measures (with most passing the 2/3 vote) projected millions of dollars in excise taxes annually (after January 1, 2018) that would go toward General Fund budget deficits and liabilities, including unfunded pension liabilities.  This is unfortunately a time when few new sources of expanded revenue sources exist for cities, and this revenue source is piquing the interest of many communities throughout the State.

But cannabis is a relatively new phenomenon in the State and is a sensitive subject that causes concern for residents, businesses and city officials. What will communities look like with dispensaries and other cannabis businesses?  How will public safety be impacted? How can jurisdictions start a conversation about cannabis and determine whether it is an option that should be evaluated?

Many of our current city clients have reached out to us to discuss the implications of cannabis in recent months – on both the pros and cons.  During these conversations, clients have indicated that because of legalization on a State level, even those communities who prohibit cannabis businesses will likely be affected by the legal usage (similar to alcohol usage).  Some clients, like the City of Bellflower, have decided to evaluate the fiscal and economic impacts to conservatively and accurately predict the net revenues potentially generated, new jobs created and economic stimulus to the community. A summary of this analysis can be found at the City's  website.

Attendance at two local cannabis conferences in September made it clear that the cannabis industry has a large number of consultants, attorneys, accountants and advisors on their side.  Cities should similarly have professionals that understand the industry (but are independent and neutral parties) to provide information to make informed decisions regarding cannabis, if that is what they choose.  Just as cities will bring in experts to help negotiate development agreements or conduct real estate analysis for a potential project, cities can make confident, well-informed decisions when armed with their own reliable data.  In addition, a third-party review of developer agreements and/or permits for cannabis businesses is also advisable to ensure that the terms, conditions and agreements are beneficial to the city.  For more information, please contact Hitta Mosesman, Principal, at RSG at hmosesman@webrsg.com or (714)316-2137.

Written by Hitta Mosesman, a Principal at RSG