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VII.2. Discussion on Regulating Adult Use Cannabis; LenzSathe CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Ari Lenz, Assistant City Manager Date: June 20, 2023 Subject: Discussion on Regulating Adult Use Cannabis _____________________________________________________________________ PURPOSE During the legislative session the state passed cannabis legislation that established a framework for adult-use cannabis in the state. Over the next two years, the state will develop and roll-out a more specific regulatory structure, but the timeline for when licenses will be issued and businesses will begin operating is not clear. We have also received questions about City regulations from businesses looking to open facilities in our community. Currently the City does not have any regulations (as this is brand new legislation that is not effective until July 1, 2023). INFORMATION The City Attorney is recommending we adopt a moratorium in July to allow the City Council the opportunity to review yet-to-be-drafted state-level administrative rules and provide us the time to have discussions with Council about what regulations, if any, should look like for the City of Hopkins. Adopting the interim ordinance before in July would allow us to have some local control if the State is ready to start authorizing licenses. Assistant City Attorney, Joe Sathe has drafted a high level summary report (attached) of the cannabis legislation and the City’s role in regulation, he will also be present to answer any questions. FUTURE ACTION The request for tonight is simply to direct staff and the City Attorney to draft a moratorium on the Cannabis Businesses. Cannabis Businesses are businesses that deal in products that are mode from cannabis plants containing more than .3% THC – this does not include hemp products which are products made from cannabis plants containing .3% or less of THC. Enacting a moratorium will give the City Council and staff time to discuss and develop regulations related to the newly authorized cannabis legislation prior to any licenses being issued at the state level. Administration HP145\1\882346.v2 Fifth Street Towers 150 South Fifth Street, Suite 700 Minneapolis, MN 55402 (612) 337-9300 telephone (612) 337-9310 fax http://www.kennedy-graven.com Affirmative Action, Equal Opportunity Employer MEMORANDUM DATE: June 14, 2023 TO: Honorable Mayor and City Council Members FROM: Joseph L. Sathe, Assistant City Attorney RE: Overview of Options to Regulate Adult Use Cannabis ______________________________________________________________________________ The Cannabis Act (the “Act”) was signed into law on May 30, 2023, and establishes a regulatory framework for adult use cannabis in the State of Minnesota. The purpose of this memo is to provide the City of Hopkins with an overview of the products addressed by the Act, the new Office of Cannabis Management (“OCM”), potential long-term regulations, as well as shorter-term options the City may consider to temporarily pause the establishment and operation of certain businesses within the City. I. Product Categories There are four main types of products that contain tetrahydrocannabinol (“THC”), the main psychoactive component in cannabis, that the City can choose to address. The following are very high-level definitions: A) Cannabis Products – Products derived from the cannabis plant (defined in the Act as a plant of the genus Cannabis containing more than .3% THC) and are generally considered to be higher impact. These products were legalized under Act. B) Lower-Potency Hemp Edibles (“LPHEs”) – Products derived from the hemp plant (defined in the Act as a plant of the genus Cannabis containing no more than .3% THC) and include a food ingredient and are intended to be eaten or consumed as a beverage. These products were established under the Act. C) Medical Cannabis Products – Products that contain certain cannabis or hemp derivatives that are provided to eligible individuals to treat or alleviate the symptoms of a qualifying medical condition. Some medical cannabis products have been available for years, but the Act provides for additional regulation. 2 HP145\1\882346.v2 D) Edible cannabinoids and nonintoxicating cannabinoids (“151 Products”) – These products are derived from hemp plants and are authorized under Minnesota Statutes, Section 151.72 and include: 1. 151 Edibles – Products combining a cannabinoid (either THC or cannabidiol (“CBD”)) with a food ingredient and are intended to be eaten or consumed as a beverage (“151 Edibles”). Amendments to Minn. Stat. § 151.72 in 2022 resulted in 151 Edibles being sold widely across the state. 2. Nonintoxicating Cannabinoids – Any substance extracted from hemp that does not product intoxicating effects when consumed by any route of administration, but must be intended for application externally to a part of the body of a human or animal, and contain less than .3% of any THC. These can include both THC and CBD based products. II. Office of Cannabis Management The Act creates the Minnesota Office of Cannabis Management (“OCM”) effective July 1, 2023. The OCM will have several very broad powers and duties that include, in general: establishing rules and regulating the industry, promoting economic growth, issuance and renewal of licenses, inspections, and authorizing research and studies. The regulation of medical cannabis, which is already legal in Minnesota, will also transfer to the OCM effective March 1, 2025. III. License Types, Rulemaking, and Model Ordinance The Act establishes 16 different types of licenses for cannabis businesses, hemp businesses, and medical cannabis businesses, including licenses covering growing, manufacturing, retail sales, wholesale, transportation, delivery, and testing. Each of these licenses will be issued by the OCM. After its establishment, the OCM will draft and put forward administrative rules that may help to clarify portions of the Act. The OCM is authorized to operate under “expedited” rulemaking. The expedited process removes many of the process requirements for rulemaking, including not requiring public hearings, and could technically be accomplished in just over 30 days, after which the OCM could start issuing licenses. However, given the scope of the task at hand, it seems apparent that rulemaking will not be completed for a significant period of time. According to the League of Minnesota Cities’ website, the authors of the Act anticipate that issuing retail licenses will begin sometime in 2024. The OCM is also directed to work with cities to develop model ordinances for reasonable restrictions on the time, place, and manner of the operation of a cannabis business. IV. Potential Long-Term City Regulations The following section provides the current understanding of the types of regulations the City may be able to adopt to regulate cannabis businesses and hemp businesses. However, the administrative rules and model ordinance being drafted by the OCM may clarify or otherwise impact what cities will be able to do. 3 HP145\1\882346.v2 A) Cannabis Businesses Cities generally may not completely prohibit the establishment of cannabis businesses (businesses dealing in cannabis products and medical cannabis products). Cities are specifically authorized to enact time, place, and manner restrictions on cannabis business operations and may limit the number of cannabis retailers. Cities also should be able to adopt zoning regulations that impact cannabis businesses. 1) Time, Place, and Manner Restrictions & Zoning Compliance The Act provides that “[a] local unit of government may adopt reasonable restrictions on the time, place, and manner of the operation of a cannabis business provided that such restrictions do not prohibit the establishment or operation of cannabis businesses. A local unit of government may prohibit the operation of a cannabis business within 1,000 feet of a school, or 500 feet of a day care, residential treatment facility, or an attraction within a public park that is regularly used by minors, including a playground or athletic field.” The Act also requires that the OCM contact the City when a cannabis business applies to operate within the City, and the City is required to certify whether the cannabis business complies with local zoning ordinances, as well as state and fire codes. Meaning that the authors of the bill at least contemplated that cities could establish zoning regulations that would impact cannabis businesses. 2) Limiting Retail Cannabis Businesses The City may limit the number of retail cannabis licenses which may be issued to cannabis businesses within a City to one per 12,500 residents. The City may decline to allow a cannabis retailer to operate if the county already has one cannabis retailer per 12,500 residents. B) Hemp Businesses Unlike cannabis businesses, the Act does not specifically address how cities can regulate hemp businesses, such as LPHE retailers and manufactures. The OCM is responsible for licensing LPHE retailers and manufacturers, but cities can enact other regulations, such as zoning requirements, that apply to LPHE retailers and manufacturers. Given the specific provisions in the Act addressing cannabis businesses, it is conceivable that the OCM will enact administrative rules that address a city’s ability to regulate hemp businesses. C) 151 Products The Act does not establish licensing for 151 Products nor does it address how cities can regulate 151 Products. The City has the same ability to enact licensing, zoning, or other regulations on 151 Products that it has had since 2022. However, Minnesota Statutes, Section 151.72 will automatically be repealed in March 2025. LPHE products will replace 151 Products in the market as they are substantially the same. 4 HP145\1\882346.v2 V. Short-Term City Options (Moratoria) A) Cannabis Business Moratorium The City may temporarily prohibit the establishment or operation of a cannabis business within all or a part of the City through a moratorium (“Cannabis Business Moratorium”). Unlike other moratoria which have a maximum duration of one year, Cannabis Business Moratorium may be effective until January 1, 2025. To enact a Cannabis Business Moratorium, the City must authorize and conduct a study for the purpose of considering adoption or amendment of reasonable restrictions on the time, place, and manner of the operation of a cannabis business. Before adopting the Cannabis Business Moratorium, a city must hold a public hearing. There are no specific provisions regarding notice or other public hearing guidelines. The City should determine now whether it wants to adopt Cannabis Business Moratorium as authorized by the Act, which will provide the City some time to consider what options are available and what policy direction is most desirable. Adopting a Cannabis Business Moratorium will also allow the City to consider the not-yet-established rules and model ordinance the OCM will develop. B) Interim Ordinance – LPHEs and 151 Products The authority to enact a Cannabis Business Moratorium that could last until January 1, 2025 does not also include LPHEs and 151 Products. However, the City has the authority to enact a standard moratorium under Minnesota Statutes, Section 462.355, which can be in effect for up to one year. The City can choose to enact a one-year moratorium regarding the sale of 151 Products and/or LPHEs. The City of Hopkins chose not to establish a moratorium on 151 Products in 2022. Adopting a moratorium on LPHEs would provide the City with additional time to consider whether it wants to enact zoning or other allowed regulations prior to the OCM potentially issuing LPHE licenses to businesses in the City. If a moratorium only addresses LPHEs, it will not impact the ability of businesses to sell 151 Products. VI. Conclusion Given all of the questions and uncertainties surrounding the Act and its potential impacts, it is recommended that the City adopt a Cannabis Business Moratorium. Doing so will allow the City to consider the yet-to-be-drafted administrative rules and yet-to-be-drafted model ordinance and to conduct a study on the potential impacts of Cannabis Businesses on the community. A Cannabis Business Moratorium will also ensure the City stays ahead of the OCM’s still uncertain timeline after which it will start issuing licenses. Adopting a one-year moratorium on LPHE retailers would allow the city to consider zoning and other regulations that it may want to consider after the administrative rules are enacted by the OCM. Having a moratorium in place would allow the city to consider whether it wants to adopt zoning regulations similar to those imposed on Cannabis Businesses.