Ceres council orders review of cannabis pilot program, looks at taxes and caps

Ceres' council members on April 28 directed city staff to return with a menu of policy options after a staff review found the city's eight‑year cannabis pilot program has produced significant administrative and revenue challenges.

The city attorney outlined the program's origins and the two main revenue approaches the council has used: the original public‑benefit development agreements that required fixed monthly payments and a possible transition to a gross‑receipts business license tax authorized previously by voters. The attorney said the city has collected roughly 60% of amounts owed under the development agreements to date and that a substantial balance remains outstanding, which staff estimated at over $1 million.

"The public‑benefit structure while well‑intended initially has created some challenges," the city attorney said during the presentation, noting state and local tax burdens and persistent illicit market activity that have depressed legal market revenues.

Case Manufacturing's chief operations officer, Andy Harttog, urged the council to align any new tax with regional rates. "Manufacturing facilities in unincorporated Stanislaus County and the city of Modesto are required to pay 4% of their gross revenue," Harttog said. "For the industry to be successful moving forward, we encourage the city of Ceres to align with other jurisdictions."

Council members discussed three policy questions staff presented: (1) whether to transition from the current public‑benefit development‑agreement model to a voter‑approved business tax on gross receipts and at what rates; (2) whether to keep or phase out development agreements and rely solely on conditional‑use permitting; and (3) whether to create a limit or cap on the number of cannabis businesses allowed in the city.

Council consensus was to ask staff to return with comparative tax scenarios (examples from 4% to 8% were discussed), an implementation plan for replacing or modifying development agreements, and language showing how a cap on certain business types (for example, retail storefronts) could be structured. Staff said tax implementation would require ballot measures consistent with the authority voters approved in 2018 and that a tax would be collected through standard business‑license reporting.

The attorney cautioned that switching to a tax could reduce revenue predictability because a tax varies with business performance, but it could streamline administration and better align Ceres with neighboring jurisdictions.

The council did not set a rate or adopt policy changes at the meeting; instead, council members asked staff to prepare options and return with draft ordinance language and revenue forecasts.

What's next: Staff will present a menu of tax‑rate options, comparisons to nearby cities, models for transitioning from development agreements to CUP‑based permitting, and draft language for potential caps and ballot measures.