Going to Pot:

How the Medical Cannabis Act Impacts Municipalities

Roundtable Presenters•State Senator, Pamela Althoff (32nd District)

•Executive Director, Sara Gullickson (DispensaryPermits.com)

•Village President, Paul Mulcahy (Village of Lake in the Hills)

•Municipal Attorney, Brad Stewart (ZRFM Law)

Disclaimer: Nothing in this presentation, including materials or discussion, is intended to be relied on as legal advice. Consult a legal representative before taking any action based on the contents of this presentation.

Reefer Madness, the movie promo

George A. Hirliman Productions (1936)

Availability of Marijuana Over 80% of high school seniors described marijuana being “fairly easy” or “very easy” to obtain65% for tenth graders39% for eighth graders

Source. The Monitoring the Future study, the University of Michigan.

Can a Municipality Regulate Medical Cannabis? Yes and no: “A unit of local government may enact reasonable zoning ordinances or

resolutions, not in conflict with this Act or with [Depts. of Agriculture/Public Health] rules, regulating registered medical cannabis [facilities]. No unit of local government, including a home rule unit. . . may regulate medical cannabis organizations other than as provided in this Act and may not unreasonably prohibit the cultivation, dispensing, and use of medical cannabis authorized by this Act. This Section is a denial and limitation [of home rule authority]. . .”

410 ILCS 130/140

To be valid: a local government regulation: (a) must not conflict with the Act, (b) must not “unreasonably” prohibit legal cannabis business or usage; and (c) zoning regulations must be “reasonable.”

What Can Be Regulated Municipally? Use of Medical Cannabis? No, licensed users must be allowed to use cannabis in accordance with the Act, but the Act automatically allows penalties for possession of cannabis in “all parts of buildings owned in whole or in part, or leased, by the State or a local unit of government.” 410 ILCS 130/30(a)(2)(F).

Location of Cannabis Facilities? Yes, to a degree. • Can a special usage classification be created? Probably, so long as it isn’t a veiled

way to deny most/all applicants. • Can cannabis facilities be restricted from being in an historic shopping area or

town square? Probably, because the aesthetic and economic concern is the purpose of the restriction not to prohibit dispensaries.

• Can additional distance requirements be added from schools, parks, etc.? Maybe because there is no direct conflict, but arguably the Act already addresses distance requirements so additional restrictions could be held in conflict with a “field” the Act already covers.

What Can Be Regulated Municipally? Can application and annual license fees be charged to cannabis facilities?

No, licensing is a state function. However, if the municipality requires registration of all businesses, a nominal fee that roughly equates to the municipality’s overhead expense in processing and maintaining registration records is probably valid.

Can municipalities charge substantially higher registration fees a la liquor licensing fees?

Probably not. State statute explicitly allows liquor licensing fees, whereas the Cannabis Act explicitly limits municipal regulations on cannabis facilities. Perhaps there is some latitude to charge higher fees for additional municipal services provided (e.g. increased police patrols vs. non-cannabis businesses)?

Financial Aspects of Medical Cannabis Can municipalities get tax money from dispensary cannabis sales?

Not directly.

•Retail sales tax on “prescription and non-prescription drugs” is 1% at the state level, of which over 30% goes to the City of Chicago, the RTA, and Metro-East Mass Transit District, the remainder is distributed to local governments (other than Chicago) based on proportional population.

•Municipalities may not tax the “prescription and non-prescription drug” category additionally, whether home rule (65 ILCS 5/8-11-1) or non-home rule (65 ILCS 5/8-11-1.3).Bottom Line: municipalities cannot directly generate tax income from cannabis sales, all municipalities receive general tax income from the fraction of 1% State Retail tax.

Financial Aspects of Medical Cannabis What about taxes on cultivation center sales?

Probably.

•Standard state tax on all cultivation center sales to dispensaries at 7% of sales price, which goes to State Compassionate Use of Medical Cannabis Fund. 410 ILCS 130/200(a).

•Good news, perhaps, the Act provides:“The tax imposed under this Act shall be in addition to all other occupation

or privilege taxes imposed by the State of Illinois or by any municipal corporation or political subdivision thereof.” 410 ILCS 130/200(b).Note: The “‘prescription and nonprescription medicines and drugs’ includes medical cannabis purchased from a registered dispensing organization…” but not a cultivation center.

Cannabis Consumption &State Tax Revenue

# of Licensed Users

Annual oz. consumed Wholesale $/oz.

Annual Wholesale Sales $

State Tax Generated by Cultivation Sale 7%

10,000 65 (2.5x26) $ 125.00 $ 81,250,000.00 $ 5,687,500

20,000 65 (2.5x26) $ 125.00 $ 162,500,000.00 $ 11,375,000

50,000 65 (2.5x26) $ 125.00 $ 406,250,000.00 $ 28,437,500

100,000 65 (2.5x26) $ 125.00 $ 812,500,000.00 $ 56,875,000

200,000 65 (2.5x26) $ 125.00 $ 1,625,000,000.00 $ 113,750,000

# of Licensed Users

Annual oz. consumed Retail $/oz.

Annual Retail Sales $

State Tax Generated by Dispensary Sale 1%

10,000 65 (2.5x26) $ 250.00 $ 162,500,000 $ 1,625,000

20,000 65 (2.5x26) $ 250.00 $ 325,000,000 $ 3,250,000

50,000 65 (2.5x26) $ 250.00 $ 812,500,000 $ 8,125,000

100,000 65 (2.5x26) $ 250.00 $ 1,625,000,000 $ 16,250,000

200,000 65 (2.5x26) $ 250.00 $ 3,250,000,000 $ 32,500,000

Regulations Health Conditions Eligible for Cannabis Prescription include (there are several others):

Also, “any other debilitating medical condition that is added pursuant to statute or by the Department” of Public Health pursuant to a petition to add another medical condition for which cannabis would provide sufficient benefits. IDPH, Title 77, Part 946.10, 946.30.

Cancer HIV/AIDS

ALS Multiple Sclerosis

Muscular Dystrophy

Residual Limb Pain

Crohn’s Disease

Glaucoma

Rheumatoid Arthritis

Tourette’s

Lupus Fibromyalgia

The Future of CannabisWhat is the Fate of the 2017 Pilot Program?

Thank you for attending!

For questions or more information, please contact:

Brad Stewart, Attorney-at-law Zukowski, Rogers, Flood & McArdle (ZRFM Law) 815-459-2050 bstewart@zrfmlaw.com www.zrfmlaw.com