A proliferation of cannabis dispensaries throughout Stanislaus County have cut into the market for Ceres dispensaries, prompting the city to change the fee structure contained in developer agreements that allow them to do business.

On Tuesday evening, Sept. 8 the Ceres Planning Commission gave its approval to proposed changes to the city’s agreement that has allowed Pacafi Cooperative, Inc., to operate its Patient Care First dispensary at 1442 Angie Avenue in Ceres since December 2017. The council will consider the amendment at its meeting on Monday, Sept. 28.

The new agreement for Patient Care First sets a longer time – 10 years instead of the three-year duration – and lowers the payment structure “to be more reflective of the current cannabis business market conditions,” said Senior Planner James Michaels.

The three-year agreement which is expiring called for payment of a monthly fee of $40,000 if the firm earns $500,000 or less in gross receipts that month. The fee rose to $50,000 per month for gross receipts 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 proposed structure lowers the base amount of $20,000 per month or five percent of gross receipts, whichever is greater, and sets a cap of $70,000 per month. The gross receipts factor is modeled on a similar framework utilized by the state for tax purposes.

In April the city amended its agreement with Kase Manufacturing. 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 was changed 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.

The council is expected to amend its agreement with cannabis distributor Jaden’s Journey dispensary, which is also a project of Reynolds, selling product at 4030 Farm Supply Drive, Ceres.

In the 2019-20 fiscal year cycle, the city received $2.09 million through its three cannabis developer agreements. That amount is expected to drop to $1.56 million.

City Manager Tom Westbrook explained that Ceres was one of the trail blazers in allowing dispensaries to operate under a developer agreement that was heavy in fees – dubbed the Public Benefit payment – which at the time could be supported because of the exclusivity of the local market. Since that time, however, the county and the city of Turlock began allowing dispensaries which diluted the strength of sales for the Ceres cannabis retailers. State laws also changed which opened the door to legal recreational marijuana use sales in communities that allow it. The city also is recognizing sales tax money from dispensary sales.