Hesperia Extends It Moratorium On Further Marijuana Delivery Licenses

Hesperia city officials, who in September 2017 consented to their city becoming the third of San Bernasrdino County’s 24 municipalities to cash in on the liberalization of California’s marijuana laws, more than two years later are seriously rethinking that action, for a variety of reasons.
Twenty-seven months ago, the city council as it was then composed consented to the creation of a so-called “green zone,” lying primarily between I Avenue and the railroad tracks and just north of Main Street to Bear Valley Road where businesses delivering marijuana to their customers could set up bases of operation, what were essentially warehouses at which no on-site retail sales could take place. In response, the city was met with a swarm of more than fifty applicants to open set up such enterprises.
Last month, on November 19, the city council voted unanimously to place a hold on those businesses that had not yet fully made it through the application and permitting process. That left an even dozen cannabis-product distribution enterprises already up and running within the City of Progress, and leaving 32 would-be marijuana entrepreneurs hanging in limbo.
Another 11 would-be or actual marijuana traffickers between September 2017 and earlier this year applied and either went a considerable way through the application process or completed it and began operating. In one fashion or another, however, those businesses failed to meet all of the city’s requirements to begin operation or failed to meet the city’s specified “milestones” after they began operation, so their applications have been either denied or withdrawn or their operating licenses revoked.
The September 2017 action permitting non-storefront delivery businesses to operate within a narrow zone in the city followed by ten months the State of California’s passage of Proposition 64, the Adult Use of Marijuana Act, which permitted those 21 years of age and older to use marijuana for its intoxicative effect, a reversal of California law that had been in effect basically since 1907. Proposition 64 allowed local jurisdictions to continue too ban the sale of marijuana for recreational purposes. Since the passage of Proposition 215, the Compassionate Use of Marijuana Act, in 1996, the use of marijuana by individuals with a valid prescription for it from a doctor was permitted in California. Like Proposition 64, Proposition 215 carried with it a provision that local jurisdictions could continue to ban the sale of the drug within their boundaries. Hesperia, like virtually every other city in San Bernardino County had continued to prohibit the sale of medical marijuana.
The first two San Bernardino County cities to accommodate medical marijuana users had been Needles in 2012 and Adelanto in 2015.
When Hesperia bowed to the evolving legal and social attitude toward marijuana in 2017, it did so in a relatively limited fashion. It did not embrace the sale of marijuana for its use as an intoxicant, but rather as medicine. Moreover, it did not permit the sales it was condoning to take place on the premises of the cannabis-related businesses, but rather limited those operations to ones that delivered the substance.
Under the city’s ordinance pertaining to marijuana/cannabis use, possession and business passed in September 2017, outdoor cultivation was prohibited, commercial cultivation was prohibited and residents were permitted to grow up to six plants indoors under secure settings for personal use allowed in accordance with state law if the cultivation was registered with, and a fee paid to, the city. The ordinance allowed marijuana to be delivered and sold only for medical purposes, under a doctor’s prescription, from businesses with bases of operations or warehouses located in the zone specified by the city for that purpose. The exchange of the product for money, under the ordinance, must take place indoors, and the loading of marijuana/cannabis for delivery must take place at the rear of the warehouse.  The display of merchandise is prohibited and delivery vehicles cannot bear markings and/or logos.
A business trafficking in marijuana or cannabis had to have both a delivery dispensary permit and a city business license. A mmarijuana delivery warehouse is required to have security cameras, an alarm system, lighting and a ventilation system.
Marijuana sales were subject to state and local taxes, with an exception for marijuana classified as a pharmaceutical not being subject to state sales tax. Operators are subject to a host of business, administrative, licensing and inspection fees.
The council that approved the 2017 ordinance consisted of Mayor Russ Blewett and council members Bill Holland, Larry Bird, Paul Russ and Rebekah Swanson.
In May 2018, Blewett died and was replaced as mayor by Holland. Jeremiah Brosowske was selected to fill the gap on the council and was elected to serve on the council in his own right in the November 2018 election. In that same election, Holland was reelected and Russ was defeated by Cameron Gregg. Bird succeeded Holland in the role of mayor. This year, in September, Brosowske was removed from the council by a vote of his colleagues, with Holland, Bird and Gregg voting to depose him, with Swanson and Brosowske in opposition. He was replaced with Brigit Bennington.
One of the issues driving the removal of Brosowske from the council was his support of a recall effort against Holland that manifested earlier this year. Brosowske’s support of that recall came despite Holland’s vote in July 2018 to appoint Brosowske to the city council.
Though Brosowske had begun his career in elected office as a member in good standing of the Republican Party, which fit within Hesperia’s political milieu, he revealed himself while in office to identify more readily as a libertarian who was willing to embrace the economic opportunities presented by the legalization and local availability and sale of marijuana and cannabis products. This clashed with the prevailing Republican ethos, which hewed toward considering marijuana to be a substance that lends itself to being antithetical to an ordered society. His readiness to allow the commercialization of marijuana in Hesperia attracted to him the support of a large contingent of those marijuana entrepreneurs who saw establishing a marijuana distribution operation as a way of getting their foot in the door so they might parlay that status into cultivation, retail, refinement, product manufacturing, treatment/therapy and research operations when the city further liberalized its stance with regard to marijuana. That support included providing electioneering money to Brosowske and the political causes he embraced. Thus, through Brosowske’s association with the effort to recall Holland, it appeared that the nascent marijuana industry in Hesperia was by extension bankrolling the effort to oust Holland from the council by means of the recall. Brososwske, through his attorney, Chad Morgan, is contesting his removal and is seeking reinstatement to the position he was elected to in 2018. Once reestablished in office, it is Brosowske’s intent to remove, one by one, his colleagues who voted to disenfranchise him. The other members of the city council – Bird, Swanson, Gregg, and now Bennington – have come to perceive the clique of Hesperia’s marijuana entrepreneurs as an existential political threat, given their willingness to pool their resources and back candidates to oppose them to establish a regime that will tolerate not only the operation of marijuana warehouses and distribution businesses, but storefront operations selling the drug for not only medical but recreational use.
Though the council has been loathe to make public expression of that concern, preventing the growth of the marijuana-based business community within the city and empowering it with the ability to make a substantial amount of money, a portion of which can then be devoted to installing elected city leadership more amenable to the expansion of the cannabis industry in Hersperia than the current council was a primary consideration in instituting the suspension of the marijuana business application and permitting process.
In putting the moratorium in place, city officials insisted they were doing so because the city’s costs in processing the applications and vetting the applicants, monitoring and regulating the operations, as well as keeping track of the myriad of issues they create are outrunning any revenue the businesses are producing. They indicated the prospect of having even more such businesses in addition to the 12 currently in place – another 32 for what is anticipated to be at least 44 marijuana distributorships – will overwhelm City Hall even further. While the city as of last month had realized something in the neighborhood of $100,000 in application and permit fees and taxes collected from cannabis-related operations and business applicants since February, that is well below the more than $300,000 and as much as $400,000 that commercial marijuana advocates had confidently predicted the city would net in the first year of the businesses’ operations. According to City Manager Nils Bentsen, seven of the city’s 12 marijuana delivery operations are currently delinquent in paying the taxes they owe to the city.
Moreover, the Sentinel has learned that there are grounds to conclude that at least four of the city’s delivery operations, which essentially operate on an “honor system,” are substantially underreporting their sales proceeds.
Agendized for the December 17 Hesperia City Council meeting was a discussion of the city’s commercial cannabis program. What ensued turned out to be a cacophony of different perceptions and the clashing of perspectives and cultures. Those from the cannabis industry and the advocates for marijuanizing Hesperia even further ranged from those saying the city should simply follow through on processing the applications of, and granting permits to, those applying to set up delivery business to others who said the city should allow a full range of cannabis-related enterprises to flourish. They ran headlong into those who believe the Hesperia’s brave experimentation with the commercialization of what was formerly an illegal substance had reached its end, and that the city should extend its temporary ban on processing further marijuana-based businesses applications into a permanent one.
Sam Kameade, who described himself as “the founder and operator of Flamin’ Leaf, one of the applicants in the system that’s being disadvantaged,” told the council that marijuana is the panacea to its financial woes. “My intention is not to disparage the council,” Kameade said. “However, the city has serious issues to contend with and only with a boost in operating revenues can the city successfully attack these issues. Short of issuing municipal bonds, at the precipice of a global financial collapse, a robust but thoughtfully regulated cannabis delivery industry is not only recession resistant, but it provides the city with much needed revenue from sales within the boundary. The benefits compound exponentially as the Hesperia cannabis tax is ostensibly an export tax on the delivered goods. Imagine if the city could get a bonus every time an auto parts shop delivered a set of brakes from Hesperia to Temecula. Imagine if you got four percent on every auto part that was sold from here to another city. That would be an incredible amount of money. You have that opportunity here. Don’t run away from the money that’s being placed. Patients win because they have safe access. The city wins because they receive a bounty of tax revenue from an out-of-sight, out-of-mind industry, and the community culture is preserved because you don’t have storefronts with garish neon pot leaves and you also end up with a significant reduction of illicit operators supplying contaminated product. Forty-four licenced operators, based off my knowledge of being in the industry almost 15 years, will have almost 14 employees each, meaning two managers, three inventory clerks, two dispatch people, five drivers and two security guards. If we had no black market, just had this sort of Utopian society where everything was registered and regulated and the 44 operators were open 12 hours daily, using only two vehicles making three deliveries per hour averaging $50 per delivery, the sales would be $50 million and some change. The tax revenue to the city would be over $2 million. If you have 44 operators in the city. two vehicles, each, that’s 88 vehicles. Eighty-eight vehicles needing $2,500 a year in maintenance, that’s $220,000 a year spent on service centers around Hesperia, boosting the local economy. Eighty-eight vehicles at $40 a day in gas, gasoline expenses $1,284,800, spent at local gas stations.  That’s a huge amount of money that local businesses could be getting from a licensed industry. Six hundred-and-sixteen employees by $10 per day in general expenses, food, drink, entertainment, is $2,24,400 in additional revenue to the movie theaters, to the restaurants, to whoever, to the convenience stores. Forty-four operators at $11,000 permits minimum, that’s a half of a million dollars. We know that already. 4Forty-four operators with $50,000 minimum in tenant improvements; that’s $2.2 million in local construction money that’s not going to show up now. That’s $2.2 million in jobs. Here’s the number you really need to consider: 3,395 is the number of Hesperia employees who expect the city council to protect their pensions. The pension debt in Hesperia right now is $2,100 per household to balance your pension deficit. The Hesperia pension fund is predicted to be $2.2 million short in the 2025-26 fiscal year. In addition, there’s 137 alcohol permits currently issued in the City of Hesperia. That’s one for every 695 residents. Potentially, 44 deliveries is one for every 2,165.”
Kameade argued the city should license those applicants seeking to legitimize their cannabis distribution business operations to eradicate marijuana bootleggers.
“Illicit operator are running rampant in the city, which is why you guys need to elevate as many people [marijuana business applicants] as possible,” Kameade said.
Several Hesperia residents who had no financial interest in the either already up-and-running or yet-under-consideration cannabis operations said they considered the sheer volume of existing, and the backlog of potential, marijuana businesses to have “oversaturated” the area where they are currently permitted and the city as a whole, representing “overkill.”
Kelly Gregg, the father of Councilman Cameron Gregg and Hesperia School Board Member Cody Gregg, said “We’ve had our song and dance. We’ve been wowed and dazzled with how much money is going to be spent in the city and I’m sitting back there thinking ‘Why do all these delivery people want to do business in the City of Hesperia? Can’t they go to Victorville? Adelanto? Phelan?’ So, I’m curious as to what’s so spectacular about our city, unless we’re so open and available in processing applications so fast that they can come in and do business in the city. I’m definitely pro-business, but I think putting 78 Ford dealerships in the City of Hesperia is really kind of out of our scope. How much different product can you get from a dealership? You can get maybe high octane engines from one or better fuel consumption from another, but really, in reality, how much more do we need? So, to me, I think we are being used as a hub. That product is going to be delivered out of Hesperia. No bones about it. Distributors have said the majority, the bulk of it, is going to be taken out of the city. When they stop to get their lunch, is it going to be in Phelan or is it going to be in San Bernardino and Los Angeles or Beverly Hills? When they fill up their gas tanks, is it going to be in the City of Hesperia? If we mandated they had to supply so much income off of their fuel and their maintenance and their vehicle purchases and all that, then we would be getting a bit ridiculous. Adelanto started their program out there and their cultivations and they only had a few select licenses whenever they first started off, and they charged a huge sum of money, because they wanted that upfront revenue from these cultivators to get the ball rolling. You can see what’s happened in Adelanto. We’ve had multiple break-ins to the cultivation centers out there. Their marijuana czar has been fired. They can’t seem to collect their taxes, and it seems like we’re having an issue with collecting our taxes here. Back to the base roots of this: Again, being pro-business, these people are here to do business. We do not regulate our alcohol people. I fight every time you guys come up here and try to do a bypass on ‘Well the Census Bureau says you can only have six licenses, but we’re going to go ahead and authorize a seventh one,’ and it gets authorized. Really think about the fact that you’ve already unleashed the dog. You’ve already let these applicants start going through. As a businessman myself, I do all my investigation before I go into business and put any money into it. ‘What do I need to do to make sure I’m going to get into business?’  I hear that this one gentleman already has $61,000 out of his pocket and now he doesn’t know whether he is going to be in business. That’s not our problem. That’s not the council’s problem. That’s the business owner’s problem. I want to thank you guys for keeping this to a minimum. I think a good cap for this industry, for this delivery system in the City of Hesperia would be, probably, ten to 20, tops. And thank God, we don’t have the storefront dispensaries where you are seeing marijuana neon signs all over the place. I will say this about the delivery systems: I think they’re right in the aspect that our kids are probably not getting it from the delivery systems, but it’s just like if your parents go to the store and buy alcohol, and they leave it unlocked, and the kids are going to get into your alcohol, and the kids are going to get it, whether it’s from a dispensary, a delivery, a cultivation, black market, whatever. I urge you to get on the side of this group in the form of getting into these tobacco shops and eradicating these guys selling product and their paraphernalia within the City of Hesperia.”
Frances Showaker said that Hesperia had been forward-looking in allowing the 40,000 users of medical marijuana in the High Desert to get access to the drug, and that the city was  “serving sick people. They were serving people with cancer. They were advocating for patients’ rights at that time.”  She said the city’s recent move to prevent more delivery companies from getting up and running amounted to “kind of going backwards.”
Anthony Rhodes told the city council to consider shutting down the operations that have fallen behind on paying their taxes.
James Deaguilera, a no-longer-practicing attorney, former Adelanto city manager, former assistant Loma Linda city manager and planning director and San Bernardino County environmental review staff member, said “The purpose of licensing marijuana businesses in California, delivery licenses included, primarily is to stop the black market. It’s regulating. It’s not permitting. It’s not allowing. It’s regulating. It’s the black market that’s putting marijuana into our schools. The marijuana that’s getting into schools is not the licensed marijuana. The licensing program that is set up by the state is comprehensive. It goes from growing all the way to selling. It has a track and trace, so every little bit of marijuana is accounted for. That’s through the licensing. But the black market, which triples the licensed market in size and threatens to kill the licensed market, that’s unregulated. Very importantly, the licensed marijuana goes through laboratory testing. The black market does not. That marijuana that’s out there on the streets and in our schools, black market marijuana, has all kinds of insecticides, pesticides, things that will hurt people. We’re trying to get a licensing program into effect here in California. I think there’s a misunderstanding here on the city council, that somehow this licensing is some kind of authorization. It’s not. It’s simply regulation. You cannot get a state license without going through the city first.”
Deaguilera said that since the deliveries were to take place outside of the city as well as inside the city, Hesperia should be willing to license an unlimited number of delivery companies. “Comparing the number of delivery licenses to the population of Hesperia makes no sense at all,” he said. “It’s not practical. We are encouraging the black market by not licensing.”
Mayor Larry Bird, who acknowledged having a personal and philosophical opposition to the commercial availability of cannabis, took issue with the gist of Deaguilera’s assertion that licensing marijuana operations would insulate school-age children from exposure to marijuana.
“In schools, the more access you allow, the easier it is to do,” Bird said. “It’s ridiculous to say it [making marijuana available through a licensed regime] is for [protecting] the kids.”
The upshot of the council’s action was that it extended the moratorium on granting more permits and licenses. It did, nonetheless, lessen restrictions in one regard, that being an extension of operating hours, permitting delivery companies to open at 7 a.m. and remain open until 10 p.m., which is consistent with the standard put in place by the California Bureau of Cannabis Control.
-Mark Gutglueck

Leave a Reply