The Ceres Planning Commission approved changes to the city’s developer agreement with cannabis industry Kase Manufacturing.
The three-year agreement with Mike Reynolds of Kase is ending soon and needed to be updated, explained City Manager Toby Wells. The new agreement is for a period of 15 years with the fee paid to the city “more reflective of the current cannabis business market conditions,” according to a staff report to the commission.
The City Council will consider the agreement on Monday when it meets online.
Previously Kase was paying the city a monthly fee of $40,000 if the firm earns $500,000 or less in gross receipts that month. The fee rises to $50,000 per month for gross receipts of between $500,001 and $800,000; $75,000 per month for sales of $800,001 to $1.1 million; and $100,000 monthly for sales more than $1,100,001.
The new agreement is now moving to a base amount of $25,000 per month or five percent of gross receipts, whichever is greater. The gross receipts factor is modeled on a similar framework utilized by the state for tax purposes.
“Having looked at the financials that Mr. Reynolds has provided for the last two-and-a-half years of operation that structure will provide for an ongoing sustainability of the program and also for the future growth of the business, which we are excited to see how his business has grown,” said Wells.
The city can expect a little less revenue in the short term but more in the long term, said Wells. He said the new agreement is beneficial because there is no way of knowing what the cannabis market future looks like in 15 years. It also benefits the city because it does not cap revenues at $100,000 per month as business is expected to grow over the next 15 years.
The amendment also reflects the property ownership change as Kase Manufacturing has purchased the property at 4111 Brew Master Drive and is the sole entity responsible under the terms of the agreement.
The sale of adult use cannabis is subject to a cannabis specific state excise tax, the standard sales tax, and any local excise tax such as Ceres’ Measure H. The retail sale of medicinal cannabis is not subject to the cannabis specific state excise tax. The exact amount of additional sales tax revenue the City would receive is unknown because it is not clear what amount of cannabis sales would be for adult use or medicinal sales purposes.
“We always anticipated … that would be coming back with a little different structure that would last longer than our initial three-year term,” said Wells.
Reynolds thanked the city for being proactive in accommodating his industry and allowing him to operate in his hometown.
Reynolds, a former Central Valley High School coach, got involved in medicinal marijuana after the birth of his son Kase, who was diagnosed with chromosome 5q14.3 deletion syndrome, a neurocognitive disorder characterized by epilepsy and intellectual disability, at the age of four months. Kase Kase’s rate of 1,000 seizures per day has decreased to five to 10 because of cannabinoids extracted from marijuana. Describing himself as a church-going conservative, Reynolds said he believes cannabis is the only product that has given his son “quality of life.”
Since Kase was approved in 2017, the city of Ceres has approved three other marijuana related businesses which had resulted in increased revenues to city coffers. They are:
• Cannabis distributor Pacafi Cooperative, Inc. which operates a 6,000-square-foot dispensary at 1442 Angie Avenue.
• Cannabis distributor Kase’s Journey dispensary, which is also a project of Reynolds, selling product at 4030 Farm Supply Drive, Ceres.
• Testing facility Tri Valley Labs, Inc., at 2909 McKittrick Court.
In addition the city approved a Conditional Use Permit (CUP) and development agreement to allow Hiram Cueto for a laboratory operation for the testing of cannabis products at 2909 McKittrick Court.