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7.A - Page 19 Cannabis In October 2017, the City Council considered a phased approach in establishing local cannabis regulations. At that meeting, the Council directed staff to develop a four-phase approach to regulating cannabis. The phased approach includes: • Phase one — Zoning Ordinance Adoption banning all commercial cultivation, manufacturing, testing, retail, and distribution, except for deliveries of medicinal and adult use cannabis • Phase two — Register delivery businesses who may be delivering in the City • Phase three — Implement regulations to allow cannabis delivery from non - storefront retail delivery facilities (warehouses) • Phase four — Expand the regulations to allow storefront retail cannabis businesses Depending upon the regulations ultimately adopted, the City could realize additional revenues to the General Fund. The City would not recognize any additional revenue if the only adopted regulations are the bans on medicinal and adult use cannabis businesses. Using conservative estimates, an implemented second phase could bring in about $5,000 in additional business license tax revenue. With the adoption of the third phase, the City could receive total new revenues of approximately $125,000, assuming a 5 percent cannabis tax, and using a very conservative estimate of actual sales from cannabis businesses in the City. If all four phases are adopted, the City could potentially see approximately $287,000 in total new annual revenues. City staff anticipates that significant additional staff time will be involved with implementing, monitoring, and enforcing any new cannabis regulations. Staff is currently working with Matrix Consulting Group on assessing a cannabis regulatory fee to recover staff costs for regulation and enforcement. Revenue from this fee is not included in the estimates above since it would cover staffing expenses associated with regulation. A framework for the phased regulatory approach and the recommended regulatory fee will be presented to the City Council in April 2018. It should be noted that potential revenue from cannabis regulation is not included in the Preliminary Five -Year Forecast. Expenditure Projections Pension Liabilities The Preliminary Five -Year Forecast does not include an increase in City staff, however, benefit costs associated with existing staff and liabilities associated with retirees are still expected to increase significantly over the next five fiscal years. The City's pension liability associated with current employees and retirees is growing due to a CalPERS