Got Pot! Prop. 64 Impacts on Municipalities

While medicinal marijuana use has been legal in California since 1996, on Tuesday, state voters passed Proposition 64, allowing adults 21 and over to legally purchase and use recreational marijuana. For many of cities and counties in the state, Prop. 64 presents a bevy of pitfalls and benefits that could impact local communities for decades to come.

Over the past 10 years, California’s cities and counties have slowly adopted local ordinances governing the growth, distribution and sale of medicinal marijuana within their jurisdictions. However, at the state level, while regulatory policy is still being developed, only minimal oversight exists for the medical marijuana industry. Prop. 64 adds to this complexity as separate regulations and administrative procedures need to be created for both medical and recreational marijuana. This is a big concern to many local municipalities as changes to state regulations directly impact the ways they manage marijuana ordinances and business licensing.

Prop. 64’s local tax incentives for cities and counties could help offset risks by boosting general fund revenue. Municipalities could get millions each year, depending on the type, size and number of marijuana businesses they allow. This is in addition to revenue that will be acquired through state and local sales taxes already in place. But this may not be enough for some cities that are concerned about increases in crimes and policing costs that opponents of Prop. 64 say will come.

“When thinking about imposing or increasing local taxes on medical and recreational marijuana, consideration must be given to the total amount of taxes imposed on marijuana products,” said Larry Bergkamp, a special technical advisory for MuniServices, California’s leading marijuana taxation and regulatory consultant. “High taxes would likely increase the back-market sales of marijuana, and reduce the amount of taxes cities and counties could collect.”

While the marijuana industry poses significant challenges to California’s cities and counties, it also brings many opportunities for municipalities to define how it operates in their local economy. Prop. 64 requires all companies in the marijuana industry to acquire two business licenses, one from the state and one from the city or county they operate in. Municipalities maintain control of the types of marijuana-related businesses allowed, the number of establishments, and permissive zoning and land use in their jurisdictions. Although Prop. 64 allows for the personal cultivation of up to six live marijuana plants, that is even subject to local ordinances.

Over the past decade, MuniServices has helped more than a dozen cities and counties develop medicinal marijuana ordinances and taxes, and has extensively worked with California’s regulatory agencies to address concerns their clients have. As Prop. 64’s regulatory environment will mirror that of medicinal marijuana, this is experience that is in very short supply and highly sought after.

“Cities and counties need to start reviewing their current marijuana-cannabis codes and ordinances prior to January 1, 2018,” said Bergkamp, the former lead specialist on medicinal marijuana for the California Board of Equalization. “They need to ensure that they address both the medical and recreational marijuana activity expectations of their jurisdiction. Many current codes and ordinances only reference medical marijuana, and they could end up with unintended consequences if it’s not addressed.”

In a recent panel discussion for government administrators and elected officials, Bergkamp and MuniServices’ other cannabis special technical advisor, Jeff Kolin, presented five issues for cities and counties to consider when creating local marijuana ordinance:

  1. Enact and enforce reasonable regulations on personal cultivation.
  2. Prohibit personal outdoor cultivation.
  3. Understand that municipalities will not be able to completely prohibit indoor personal cultivation at private residences.
  4. Be aware of concentrations of business types, and limit the number of business licenses issued.
  5. Impose additional taxes on marijuana-related business activities.

“A lot of what we hear from local leaders is that marijuana policy questions are coming up in the community, at council meetings, and from the marijuana industry. They want to know the process, what they can and can’t do, and what the future looks like,” said Kolin, a former city manager who worked extensively with the state and his city council to pass medicinal marijuana ordinances. “Initially, we tell them to really think about the costs and risks, both good and bad. Taxation and fees always come into play.  The future is not completely unknown, but they have to work with regulators and others who know what they are doing.”

With more than 900 cities, counties, and special districts as clients, MuniServices is the nation’s leading provider of proprietary revenue recovery, audit and administration services encompassing all general sources of municipal tax revenue.  To learn more about MuniServices and its revenue recovery services, visit