Morgan Hill

City Council Staff Report
Lack of Seconder
Nov 6, 2019 7:00 PM

Introduce Zoning Ordinance Amendment to Conditionally Permit Cannabis Uses in Non-Residential Zones and Provide Direction Regarding Cannabis Licensing Regulations Ordinance


Department:Police DepartmentSponsors:



1.     What type of cannabis businesses, if any, should be allowed in Morgan Hill and what buffer zones are appropriate?

2.     How many of each use should be allowed?

3.     What requirements should be included in the licensing ordinance?



In November 2016, California voters approved Proposition 64 the Adult Use of Marijuana Act (AUMA) - allowing for the recreational possession, sale and use of marijuana. Under the AUMA, local jurisdictions may choose to allow or disallow any commercial uses associated with the marijuana industry. Local jurisdictions must now allow for personal indoor cultivation of up to six marijuana plants per residence. Morgan Hill voters approved Proposition 64 by 58%.


In July 2018, Council approved a ballot measure regarding the taxation of cannabis business in Morgan Hill to be placed on the November 2018 elections, Measure I, which was approved by the Morgan Hill voters.


On February 27, 2019, staff presented a workshop on cannabis where Council expressed interest in exploring the uses of retail sales, manufacturing, distribution and testing labs. Council also expressed that if they were to consider commercial cannabis within Morgan Hill City limits, Council would like for staff to obtain a Planning Commission (PC) recommendation regarding the number of allowable retail licenses and the required buffer zones around sensitive areas such as schools, day care centers and youth centers.


Planning Division staff presented a workshop to the PC on July 23, 2019 and returned with a draft zoning ordinance on August 27, 2019, for the PC to consider.  At the August 27th meeting, the PC voted to conditionally permit the following uses: manufacturing, distribution, testing and four (4) retail licenses within a recommended land use ordinance to implement the changes. The land use ordinance regulations recommended by the PC are included for consideration (Attachment 1).


Should the City Council choose to proceed with allowing cannabis within the City limits, the PC recommends that all cannabis uses require a conditional use permit, identifies zones of certain cannabis uses and utilizes buffer zones for sensitive areas to align with the State requirements of 600 feet from schools, youth centers and daycare facilities.


Staff, in consultation with HdL, has also prepared a draft licensing regulation ordinance that allows for Retail Sales, Delivery, Manufacturing, Testing and Distribution (Attachment 2).


During the initial conversation about cannabis, staff polled other Santa Clara County cities and found that only the City of San Jose allows retail cannabis and Mountain View, Santa Clara and Milpitas were considering its use. Since that time, the City Councils of Mountain View and Milpitas have decided to no longer pursue retail cannabis sales and the City of Santa Clara is considering retail sales. The table below reflects other cities positions on January 17, 2018 and the current positions of those same cities as of September 20, 2019.



Jan 2018 Position

Current Position



Voter enacted moratorium

Not allowed



Not allowed

Not allowed



Not allowed

Not allowed


Los Gatos

Not allowed

Not allowed



Not Allowed

Not allowed


Mt. View

Moratorium but planned regulations by October 2018

Changed from allowing retail sales to ban

Retail sales were initially allowed; however, the Council voted to change course and not allow retail sales.

Palo Alto

Not allowed

Not allowed


San Jose

Regulations for all uses

Regulations for all uses


Santa Clara

Ban in place and studying the issue.

Studying and returning to Council

Returning to Council for direction on retail sales in December 2019.


Not allowed

Not allowed



Next Steps

If the Council decides to proceed with allowing commercial cannabis in the City limits by introducing the zoning ordinance and providing direction regarding cannabis licensing, the staff would then return with a licensing ordinance addressing the Councils input, as well as, a resolution to establish the tax rates based on the voter approved cannabis business tax ordinance. In addition, an ordinance repealing the prohibition of commercial cannabis (Chapter 9.16 of Morgan Hill Municipal Code) would also be brought back.


Alternatively, the Council could continue maintaining Chapter 9.16 of the Morgan Hill Municipal Code prohibiting all activities related to commercial cannabis for the exception of out-of-town deliveries which is pre-empted by state law.


Should the Council prohibit all activities but delivery of commercial cannabis from out of town operators, staff will return with a regulatory ordinance to address regulating delivery services in the City.


Other Relevant Information/Material Included:

·         Cannabis Informational Document describes various cannabis license types, their pros and cons, regulatory issues and applicable regulatory tools. (Attachment 3)

·         Morgan Hill Unified School District adopted a resolution on March 19, 2019, opposing youth access to marijuana through retail storefronts, cultivation, manufacturing, and testing of commercial cannabis. (Attachment 4)

·         Supplements from community member:

o       The impacts of legalization of marijuana in Colorado report serves to provide data and information so that policy makers and citizens can make informed decisions regarding marijuana legalization. (Attachment 5)

o       Stanford University Article: Reducing the Risks of Distortion in Cannabis Research (Attachment 6)

o       Email correspondence (Attachment 9)

·         Previous Cannabis presentation slides for reference. (Attachment 7)

·         November 2018 voter approved Cannabis Business Tax Ordinance - Chapter 5.06 (Attachment 8)



COMMUNITY ENGAGEMENT: Inform, Involve and Collaborate

This staff report and previous workshops serve to inform the community about Councils actions to date on the subject of cannabis, as well as Planning Commissions recommendations and the communitys input.



See Next Steps above.



The Council has engaged on this topic on multiple occasions since the passage of Proposition 64 to include:

·         Workshops

February 1, 2017, September 27, 2017, and February 27, 2019


·         Staff Reports

February 15, 2017, July 19, 2017, February 7, 2018, and July 18, 2018


The Morgan Hill Municipal Code (MHMC) was updated on July 26, 2017 to ensure alignment with the requirements of the Adult Use of Marijuana Act (AUMA). 


The Planning Commission held a workshop on July 23, 2019, and provided a land use and licensing recommendation at its August 27, 2019 meeting.



There are no fiscal impacts in receiving this report and providing direction for any next steps.


If the Council wants to move forward with commercial business, below is a discussion of latest estimated revenues and expenditures.



Retail Sites:

The forecasted tax revenue at the time of the ballot measure was an estimated $340,000 to $750,000 annually based on two of each commercial cannabis use types. It is anticipated that revenue from those uses will be realized within 9-12 months after approval of an ordinance. It is important to note that the actual revenue received by other cities and the State has not reached the initial projections.


Manufacturing and Testing:

Anticipated tax revenue from a manufacturing site and a testing site is $400,000 (assuming 2 sites of each), which will likely take 2-3 years to be realized.



As stated in the tax measure, the tax revenue would fund general municipal expenses

such as police, fire, roads, recreation, and drug abuse prevention. These expenditures would offset the tax revenue generated by commercial cannabis.


The implementation of cannabis related activities would require the establishment of a regulatory program, including additional staffing, based on the scope of the program.  Any costs related to program compliance will be borne by the businesses through a cost-recovery fee schedule.


CEQA (California Environmental Quality Act): 

Neither the adoption of a zoning ordinance, the adoption of a regulatory ordinance, or providing direction that could lead to the adoption of such ordinances, will constitute a CEQA project in and of themselves. These are purely organizational or administrative activities of local governing bodies that will not result in direct or indirect physical changes in the environment.


Meeting History

Nov 6, 2019 7:00 PM Video City Council Regular Meeting
draft Draft

Police Chief David Swing, Community Development Director Jennifer Carman, and David McPherson with HdL provided the presentation.

The meeting recessed at 8:09 pm.

The meeting reconvened at 8:16 pm.

The public comment was opened at 8:33 pm. The following people were called to speak:

Mike Robinson

Nanette Donohue

Ron Kirkish

Alex Aasen

Steve Betando

Glen Webb

Fawn Meyers

Neva Peterson

David Parent

Rae Goldstein

Steve Chappell

Allison Margolin

Ryan Leary

John Warren

Lorraine Bursese

Sean Kali-Rai

Doug Chloupek

Edesa Bitbadal

There being no further requests to speak, the public comment was closed.

Council Member Martinez Beltran made a motion to deny the recommendation made by the Planning Commission and to amend the recommendation to bring forward an ordinance allowing non-storefront retail only.

Motion failed for lack of a second.