HomeMy WebLinkAboutPS 2018-07-16 Item 2C - Consideration - Washington State Marijuana Tax IncomeCity of Tukwila
Allan Ekberg, Mayor
INFORMATIONAL MEMORANDUM
TO: Public Safety Committee
FROM: Laurel Humphrey, Council Analyst
CC: Mayor Ekberg
DATE: July 10, 2018
SUBJECT: Washington State Marijuana Tax Income
Issue Summary
A June 1, 2018 Seattle Times editorial by United States Attorney Annette L. Hayes
advocated for cities and counties to receive a larger share of legal marijuana sales tax
to be used for law enforcement. At the June 25, 2018 Committee of the Whole,
Councilmember Robertson asked for Council consensus to direct the Mayor to write a
letter to legislators asking for support in this effort.
The City Council referred the topic to the Public Safety Committee and asked that the
City's state lobbyist be asked for advice. Councilmember McLeod also stated that he
would be attending an upcoming Association of Washington Cities conference session
on cannabis and would report back.
In 2017, Washington State collected $319 million in legal marijuana income and license
fees, which is $113 million more than those collected from alcohol. In 2018, the State
has collected over $120 million in marijuana excise tax, which is 37% on retail sales.
The total amount available for distribution to cities and towns is $6 million, $1.8 million
of which is distributed to jurisdictions that generate the tax. The remaining is distributed
on a per capita basis, with counties receiving a larger share, although jurisdictions that
prohibit retail sales are ineligible. The City of Tukwila collected $4,700 in 2017 and
$12,861.76 so far in 2018.
The City's state lobbyist, Jennifer Ziegler, considered this question and recommends
sending a letter to Governor Inslee supporting legislation similar to that enacted in
Colorado last year, attached to this memo. That legislation is summarized as follows:
Summary
The bill creates the gray and black market marijuana enforcement grant program (grant
program) in the division of local government in the department of local affairs (division).
The grant program awards grants to local governments to reimburse the local
governments, in part or in full, for law enforcement and prosecution costs associated
with gray and black marijuana markets. A rural local government has priority in receiving
grants. The general assembly may appropriate money from the marijuana tax cash fund
or the proposition AA refund account to the division for the grant program. The bill
appropriates $5,945,392 from the marijuana tax cash fund to the division to fund the
grant program. The division shall adopt policies and procedures for the administration of
the grant program, including rules related to the application process and the grant
39
INFORMATIONAL MEMO
Page 2
award criteria. The division shall include information regarding the effectiveness of the
grant program in its SMART presentation beginning in November 2019.
ATTACHMENTS
• June 1, 2018 Seattle Times Editorial: "Washington is Breaking Promise to Keep
Illegal Pot in Check," by Annette L. Hayes
• Colorado House Bill 17-1221
• Association of Washington Cities June 2018 Conference Presentation: Cannabis in
WA — Where are we now?
40
FRIDAY, JUNE 1, 2018 1 ( )e$eaUlealmes 1 News A19
OPINION
Washington is breaking promise
to keep illegal pot in check
ByANNE rth L. HAYES
Special to The Times
When Washington voters decid-
ed in 2012 to allow the sale of recre-
ational marijuana; they were dear
about one of the things they want-
ed: to take the criminal element out
of marijuana.
After all, the initiative sponsors
stated in the voter's pamphlet that
leggli7ationwould take marijuana
profits "out of the hands ofviolent
organized crime."
State leaders got the message. In
January 2013, Gov. Jaylnslee an-
nounced, "It's very important for us to
give the federal government confi-
dence that we're doingeverything
possible to achieve the goals of this
initiative, which is to reduce the
criminal association with marijuana"
Unfortunately, the state is not
doing enough to keep its promise to
voters. The net result is urban,
suburban and rural Washington
neighborhoods being blighted by
houses turned into illegal marijua-
na grows, often by organized crimi-
nal groups.
Many of these grows are funded
by money coming from overseas
and take advantage of the state's
ineffective enforcement of marijua-
na laws. Since marijuana sells for
considerably more in states where it
remains illegal, these groups are
shipping their product out of state,
making millions of dollars in illegal
and untaxed profits.
As the chief federal law enforce-
ment officer for Western Washing-
ton, I see the evidence piling up.
Just a couple of weeks ago, federal,
state and local law enforcement
officials executed search warrants
at 17 Iocations in the Puget Sound
region, and seized nearly 4,000
marijuana plants. To fund these
grow operations, almost $600,000
in wire transfers were sent from
China and laundered through a
complex web of bank accounts and
lines of credit.
Last November, in Grays Harbor
Countyand in King County, hun- •
dreds of law enforcement officials
worked together on an investiga-
tion involving 50 locations, more
than 32,000 marijuana plants and
44 individuals—many Chinese
nationals—who grew and trans-
ported illegal marijuana.
In each case, the evidence dem-
onstrates that hundreds of thou-
sands of dollars is coming in from
overseas to purchase homes for
cash. These homes are used to grow
unregulated marijuana creating
serious fire hazards, making neigh-
bors fear reprisal from growers and
leaving behind toxic properties that
blight our communities. As one
local law enforcement officer put it,
the impact in his rural countyhas
been a "loss of a sense of security."
These are not isolated examples.
Sheriffs and police chiefs across
Western Washington have told me
about similar illegal marijuana
grows, while local prosecutors have
described cases stacked up in their
offices because of a lack of resourc-
es to prosecute them effectively.
Whyshould Washingtonians
care? First and foremost, because
they voted to take the criminal
element out of marijuana. Last
year, Washington took in $319
million in marijuana taxes. The
state must set aside an increased
share of those funds specifically to
address the illegal -marijuana mar-,
ketplace. The funds currently set
aside simply are not enough.
Sending additional funds to
affected counties and municipali-
ties would make a significant differ-
ence in the number of prosecutors
and investigators able to address
this problem. In contrast, Oregon
specifically sets aside 15 percent of
its marijuana tax receipts for law
enforcement. Washington does not
even come dose.
Washingtonians also should care
because no matter your view of
marijuana, allowing illegal grows to
flourish and millions of dollars in
illegal funds to flood into our com-
munities is a recipe for more crime.
Organized criminal groups will -do
what it takes to protect millions of
dollars in ill-gotten gains. This
means an increase in corruption,
violence and illegal firearms. In
some neighborhoods, violent at-
tempts to rip off illegal grow houses
are a real problem.
U.S. AttomeyGeneralJeffSes-
sions has made clear that combat-
ing marijuana -related crime is the
job of each U.S. Attorney based on
local circumstances. Those of us in
federal law enforcement in Western
Washington are committed to
doing our part, but we need the
state to step up and take the lead as
it promised it would.
It was the state's decision to set
up a regulated marijuana market-
place, and thus it is the state's re-
sponsibility to enforce its laws,
including against those who set up
illegal and unregulated grows.
Showing that a regulated market-
place can successfullyaddress the
harms associated with marijuana—
whether related to organized crimi-
nal groups, underage use, sub-
stance abuse or otherwise—is
essential to the safety and well-be-
ing of all of us. Now is the time for
Washington to get this important
decision right.
U.S. Attorney Annette L.
Hayes is a career federal
prosecutor who has
served as U.S. Attorney
for the WesternDistrict
of Washington since
2014. During more than
20 years with the U.S.
Attorney's Office, she has been involved in
prosecutinga range of cases, including
cybercrime, intellectual -property, &lid -
exploitation, violent -crime cases and
large-scale international drugtraffiddng
matters.
41
42
HOUSE BILL 17-1221
BY REPRESENTATIVE(S) Willett and Pabon, Carver, Arndt, Becker K.,
Garnett;
also SENATOR(S) Aguilar and Cooke, Baumgardner, Coram, Crowder,
Gardner, Hill, Holbert, Kagan, Kefalas, Kerr, Lambert, Lundberg,
Martinez Humenik, Merrifield, Neville T., Priola, Scott, Smallwood, Tate,
Todd, Williams A., Grantham.
CONCERNING GRAY AND BLACK MARKET MARIJUANA ENFORCEMENT
EFFORTS, AND, IN CONNECTION THEREWITH, MAKING AN
APPROPRIATION.
Be it enacted by the General Assembly of the State of Colorado:
SECTION L Legislative declaration. (1) The general assembly
finds and declares that:
(a) Through citizen -initiated measures, Colorado provided its
citizens protections for the cultivation and use of medical marijuana in
2000 and recreational marijuana in 2012;
(b) One of the reasons behind these citizen -initiated measures was
to erode the black market for marijuana in Colorado;
Capital letters indicate new material added to existing statutes; dashes through words indicate
deletions from existing statutes and such material not part (fact.
43
(c) The constitutional provisions for both medical marijuana and
recreational marijuana provide protections for personal marijuana
cultivation, but are silent on the question of where marijuana plants may be
grown or processed for medical or recreational use;
(d) Although the authority for marijuana cultivation for both
medical and recreational marijuana is generally limited to six plants per
person, there are some provisions that can allow individuals to grow more
plants. Both the medical marijuana and recreational constitutional
provisions allow a citizen to assist another citizen in the cultivation of
marijuana.
(e) The assist provisions have created a situation in which
individuals are cultivating Iarge quantities of marijuana in residential
properties;
(f) These large-scale cultivation sites in residential properties create
a public safety issue and are a public nuisance. A site in a residential
property can overburden the property's electrical system, resulting in
excessive power use and creating a fire ha and that puts first responders at
risk. A site can also cause water damage and mold in the residential
property. A site in a residential property can produce a noxious smell that
limits the ability of others who live in the area to enjoy the quiet of their
homes. Often the site is a rental home, and the renters cause significant
damage to the home by retrofitting the home to be used as a large-scale
cultivation site. When a residential property is used for a large-scale
cultivation site, it often lowers the property value of the property and thus
the property value of the rest of the neighborhood. Finally, a site in a
residential property can serve as a target for criminal activity, creating an
untenable public safety hazard.
(g) Large-scale, multi -national crime organizations have exploited
Colorado laws, rented multiple residential properties for large-scale
cultivation sites, and caused an influx of human trafficking and large
amounts ofweapons as well as the potential for violent crimes in residential
neighborhoods;
(h) These large-scale cultivation sites in residential properties have
been used to divert marijuana out of state and to children; and
PAGE 2 -HOUSE BILL 17-1221
44
(i) In awarding grants under the gray and black market marijuana
enforcement grant program, the department of local affairs shall give
priority to local governments in rural areas that have limited law
enforcement resources.
(2) Therefore, the general assembly determines that it is necessary
to impose reasonable limits on residential marijuana cultivation that do not
encroach on the protections afforded Colorado citizens in the Colorado
constitution.
SECTION 2. In Colorado Revised Statutes, 18-18-406, add (3.5)
as follows:
18-18-406. Offenses relating to marijuana and marijuana
concentrate - definition. (3.5) A PERSON IS NOT IN COMPLIANCE WITH THE
AUTHORITY TO ASSIST ANOTHER INDIVIDUAL GRANTED IN SECTION 14 (2)(b)
OR SECTION 16 (3)(e) OF ARTICLE XVIII OF THE STATE CONSTITUTION AND
IS SUBJECT TO THE OFFENSES AND PENALTIES OF SUBSECTION (3) OF THIS
SECTION IF THE PERSON POSSESSES ANY MARIJUANA PLANT HE OR SHE IS
GROWING ON BEHALF OF ANOTHER INDIVIDUAL, UNLESS HE OR SHE IS THE
PRIMARY CAREGIVER FOR THE INDIVIDUAL AND IS IN COMPLIANCE WITH THE
REQUIREMENTS OF SECTION 25-1.5-106.
SECTION 3. In Colorado Revised Statutes, add 24-32-119 as
follows:
24-32-119. Gray and black market marijuana enforcement
grant program - report - definition. (1) (a) THE GRAY AND BLACK
MARKET MARIJUANA ENFORCEMENT GRANT PROGRAM IS CREATED IN THE
DIVISION. THE DIVISION SHALL AWARD GRANTS TO LOCAL LAW
ENFORCEMENT AGENCIES AND DISTRICT ATTORNEYS TO COVER, IN PART OR
IN FULL, INVESTIGATION AND PROSECUTION COSTS ASSOCIATED WITH
UNLICENSED MARIJUANA CULTIVATION OR DISTRIBUTION OPERATIONS
CONDUCTED IN VIOLATION OF STATE LAW.
(b) THE DIVISION SHALL:
(I) SOLICIT AND REVIEW APPLICATIONS FOR GRANTS FROM LOCAL
LAW ENFORCEMENT AGENCIES AND DISTRICT ATTORNEYS; AND
PAGE 3 -HOUSE BILL 17-1221
45
(II) SELECT LOCAL LAW ENFORCEMENT AGENCIES AND DISTRICT
ATTORNEYS TO RECEIVE GRANTS TO COVER COSTS ASSOCIATED WITH THE
INVESTIGATION AND PROSECUTION OF UNLICENSED MARIJUANA
CULTIVATION OR DISTRIBUTION OPERATIONS CONDUCTED IN VIOLATION OF
STATE LAW.
(c) GRANTS AWARDED BY THE EXECUTIVE DIRECTOR OF THE
DEPARTMENT OF LOCAL AFFAIRS PURSUANT TO THIS SUBSECTION (1) SHALL
BE PRIORITIZED TO:
(1) PROVIDE NECESSARY FINANCIAL ASSISTANCE TO LOCAL LAW
ENFORCEMENT AGENCIES AND DISTRICT ATTORNEYS IN RURAL AREAS TO
ADDRESS UNLICENSED MARIJUANA CULTIVATION OR DISTRIBUTION
OPERATIONS CONDUCTED IN VIOLATION OF STATE LAW;
(II) SUPPORT LOCAL LAW ENFORCEMENT AGENCIES AND DISTRICT
ATTORNEYS IN INVESTIGATING AND PROSECUTING LARGE-SCALE
UNLICENSED MARIJUANA CULTIVATION OR DISTRIBUTION OPERATIONS
CONDUCTED IN VIOLATION OF STATE LAW;
(III) PROVIDE NECESSARY FINANCIAL ASSISTANCE TO LOCAL LAW
ENFORCEMENT AG ENCIES AND DISTRICT ATTORNEYS IN THE INVESTIGATION
AND PROSECUTION OF ORGANIZED CRIME INVOLVED IN UNLICENSED
MARIJUANA CULTIVATION OR DISTRIBUTION OPERATIONS CONDUCTED IN
VIOLATION OF STATE LAW; OR
(IV) PROVIDE NECESSARY FINANCIAL ASSISTANCE TO LOCAL LAW
ENFORCEMENT AGENCIES AND DISTRICT ATTORNEYS IN THE INVESTIGATION
AND PROSECUTION OF UNLICENSED MARIJUANA CULTIVATION OR
DISTRIBUTION OPERATIONS THAT DIVERT MARIJUANA OUTSIDE OF
COLORADO.
(2) THE GENERAL ASSEMBLY MAY ANNUALLY APPROPRIATE MONEY
FROM THE MARIJUANA TAX CASH FUND CREATED IN SECTION 39-28.8-501
OR THE PROPOSITION AA REFUND ACCOUNT CREATED IN SECTION
39-28.8-604 (1) TO THE DIVISION TO MAKE THE GRANTS DESCRIBED IN
SUBSECTION (1) OF THIS SECTION AND FOR TI -IE DIVISION'S REASONABLE
ADMINISTRATIVE EXPENSES RELATED TO THE GRANTS. ANY UNEXPENDED
AND UNENCUMBERED MONEY FROM AN APPROPRIATION MADE PURSUANT TO
THIS SUBSECTION (2) REMAINS AVAILABLE FOR EXPENDITURE BY THE
PAGE 4 -HOUSE BILL 17-1221
46
DIVISION IN THE NEXT FISCAL YEAR WITHOUT FURTHER APPROPRIATION.
(3) THE DIVISION SHALL ADOPT POLICIES AND PROCEDURES THAT
ARE NECESSARY FOR THE ADMINISTRATION OF THE GRANT PROGRAM,
INCLUDING THE APPLICATION PROCESS AND THE GRANT AWARD CRITERIA.
(4) (a) ON OR BEFORE NOVEMBER 1, 2019, AND ON OR BEFORE
NOVEMBER 1 EACH YEAR THEREAFTER, THE DIVISION SHALL INCLUDE AN
UPDATE REGARDING THE EFFECTIVENESS OF THE GRANT PROGRAM IN ITS
REPORT TO THE MEMBERS OF THE APPLICABLE COMMITTEES OF REFERENCE
IN THE SENATE AND HOUSE OF REPRESENTATIVES AS REQUIRED BY THE
"STATE MEASUREMENT FOR ACCOUNTABLE, RESPONSIVE, AND
TRANSPARENT (SMART) GOVERNMENT ACT", PART 2 OF ARTICLE 7 OF
TITLE 2.
(b) NOTWITE-ISTANDINO SECTION 24-1-136(11)(a)(I), THE REPORTS
REQUIRED IN SUBSECTION (4)(a) OF THIS SECTION CONTINUE INDEFINITELY.
(5) As USED IN THIS SECTION, "RURAL AREA" MEANS:
(a) A COUNTY WITH A POPULATION OF LESS THAN TWO HUNDRED
THOUSAND PEOPLE, ACCORDING TO THE MOST RECENTLY AVAILABLE
POPULATION STATISTICS OF THE UNITED STATES BUREAU OF THE CENSUS;
OR
(b) A MUNICIPALITY WITH A POPULATION OF LESS THAN THIRTY
THOUSAND PEOPLE, ACCORDING TO THE MOST RECENTLY AVAILABLE
POPULATION STATISTICS OF THE UNITED STATES BUREAU OF THE CENSUS,
THAT IS LOCATED TEN MILES OR MORE FROM A MUNICIPALITY WITH A
POPULATION OF MORE THAN FIFTY THOUSAND PEOPLE.
SECTION 4. Appropriation. (1) For the 2017-18 state fiscal year,
$5,945,392 is appropriated to the department of local affairs. This
appropriation is from the marijuana tax cash fund created in section
39-28.8-501 (1), C.R.S. To implement this act, the department may use this
appropriation as follows:
(a) $5,919,036 for use by the division of local government for the
gray and black market marijuana enforcement grant program, which
amount is based on an assumption that the division will require an
PAGE 5 -HOUSE BILL 17-1221
47
additional 1.3 FTE;
and
(b) $21,603 for the purchase of information technology services;
(c) S4,753 for the purchase of legal services.
(2) For the 2017-18 state fiscal year, $21,603 is appropriated to the
office of the governor for use by the office of information technology. This
appropriation is from reappropriated funds received from the department
of local affairs under subsection (1)(b) of this section. To implement this
act, the office may use this appropriation to provide information technology
services for the department of local affairs.
(3) For the 2017-18 state fiscal year, $4,753 is appropriated to the
department of law. This appropriation is from reappropriated funds
received from the department of local affairs under subsection (1)(c) ofthis
section. To implement this act, the department of law may use this
appropriation to provide Iegal services for the department of local affairs.
SECTION 5. Effective date - applicability. This act takes effect
July 1, 2017, and section 2 of this act applies to offenses committed on or
after said date.
PAGE 6 -HOUSE BILL 17-1221
48
SECTION 6. Safety clause. The general assembly hereby finds,
determines, and declares that this act is necessary for the immediate
preservation of the public peace, health, and safety.
Crisanta Duran
SPEAKER OF THE HOUSE
OF REPRESENTATIVES
>27624.4.1e /42
Marilyn Edd.
CHIEF CLERK OF THE HOUSE
OF REPRESENTATIVES
APPROVED
Kevin J. Grantham
PRESIDENT OF
THE SENATE
P 0\
Effie Ameen
SECRETARY OF
THE SENATE
19d3K1)
John . Hickenlooper
GO RNOR OF THE STATE OF COL6RADO
PAGE 7 -HOUSE BILL 17-1221
49
50
Cannabis in WA: Where are we now?
CT1ES
Legal cannabis milestones in WA
• 2012 — Initiative 502 passed with 55.7% support
2013 — Cole Memo released on federal enforcement priority
2014— Recreational retail sales begin
2015 — Excise tax changed from taxing each part of the industry to a
single, higher tax on retail sales (legislation)
2016 — Recreational and medical markets merge (legislation)
2017 — Advertising restrictions on signage and billboards (legislation)
2018 — Federal Cole Memo rescinded via Sessions Memo
Ai I
Cannabis across across the US
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What does the state system look like?
• Legal cannabis possession and use for adults 21 years and older
• Liquor and Cannabis Board (LCB) regulates the cannabis industry
Three -tired system of licensing, regulation, and taxation:
producer (grower), processor (prepares for retail), retailer
Retailers cannot be a producer or processor, but a business may be
licensed as both a producer and processor
52
2
What does the state system look like?
Recreational and medical cannabis are regulated under the same
rules, except home grows allowed for medical cooperatives:
Located at the home of a medical coop member
Maximum of four patients as members
Maximum of 60 plants
None of the cannabis grown can be sold to others
• Cities can prohibit medical marijuana cooperatives
C.TrES
Awe
CITIES
What is the city role in the system?
Can prohibit the cannabis industry via
bans/moratoria
Can restrict cannabis business location via zoning
Local governments can reduce buffer from LCB
license minimum of 1,000 ft. to 100 ft.
Can file objections to LCB on potential licenses
LCB must give "substantial weight to objections"
per RCW 69.50.331(10)
Local law enforcement of DUIs and other crimes
•
■ 1 1mi
•
•
•
•
. 4
•• ••
-.-
How have cities
responded?
How do the revenues from taxes get distributed?
The state's cannabis excise tax is 37% on recreational retail
sales (medical is exempt)
$119m so far in FY18
FY 2017: $314.8m (average monthly revenue was $26.2m)
Cities and counties will receive $15m per year for FY18 and
FY19....unless you have a ban/moratoria in place.
54
4
M YL
c l €S
Preemption attempts against local governments
Lawsuits — Most recent: Emerald Enterprises v. Clark County
AGO opinion (2014)
Initiative 502... does not preempt counties, cities, and towns from banning such
businesses
Local ordinances that do not expressly ban...but make such operation impractical are
valid if they properly exercise the local jurisdiction's police power.
Bills in 2018
Preemption on regulating medical co-ops (HB 2471) — Failed
Preemption on all local authority to ban (HB 2336) — Failed
Home delivery coming soon?
LCB released home grow report in late 2017. Recommended:
Tightly regulated by state, shared enforcement with locals & state
State standards with local authority
Continued prohibition
Bills in 2018
Home grow for recreational (HB 2559) — Failed
Home delivery for medical (HB 2574) — Failed
Recent developments in cannabis
Recent article by US Attorney Annette L. Hayes
Greater scrutiny on the illicit market
Conversations continue with Gov's Office, AGO,
and LE partners
WSP proviso
Colorado model
Oregon model
Stay tuned!
A tale of two cities
Pat Johnson
Mayor, City of Buckley
Dave Zabel!
City Manager, City of Pasco
56
6
Questions?
CITES
Logan Bahr
Government Relations Advocate
Shannon McClelland
Government Relations Analyst
Shannonrn . 4 vv,cnet.o g
AWC
360-753-4137
wacities.org