Desert Hot Springs: Becoming a Hotbed for Cannabis Cultivation

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January 10, 2017

Canndescent occupies one of the established structures in the town’s new cannabis business park. Desert Hot Springs already has 37 development agreements for the mostly undeveloped land.
Photos: Canndescent

Last January, California’s Medical Cannabis Regulation and Safety Act (MCRSA) went into effect. The law created 18 different license types and brought the state’s gray-market medical cannabis industry closer to other regulated markets.

There is one catch: The state won’t start accepting applications until 2018, as it is currently working on the licensing framework. This means California’s medical cannabis producers will continue operating unlicensed until then.

But the law does not prevent municipalities from creating and issuing their own cannabis cultivation permits, which is exactly what the town of Desert Hot Springs has done.

The town, located 12 miles north of Palm Springs, created its own cannabis business permits after MCRSA became law on Sept. 11, 2015, and issued its first conditional use permit in November of that year.

Canndescent is the first, and (at press time) only cultivation site that is operational in Desert Hot Springs.

“We wanted to make sure people in the business understood that we were a community that welcomed them,” says Desert Hot Springs City Manager Charles Maynard on why the city created the permits.

In addition to creating a welcoming environment for cannabis businesses, permits give the city better control over the tax revenue these businesses generate, Maynard says. Desert Hot Springs has needed economic stimulus for the better part of the last 15 years. The town filed for a Chapter 9 municipal bankruptcy in 2001, and issued over $12 million in municipal bonds (or debt) to pay creditors.

The town hopes cannabis can help it change that. Cultivation businesses are taxed both on their sales (a monthly 10-percent fee) and based on the size of their operations — an annual tax of $25 per square foot for the first 3,000 square feet, and then $10 per square foot for the remaining.

“They’ve really built out a fairly efficient [permitting] process,” says Adrian Sedlin, CEO at Canndescent, a medical cannabis cultivation business located in Desert Hot Springs. Canndescent is one of the first companies to get a cultivation permit from the municipality, and is currently the only operational facility in the city.

“I dropped $2.5 million in [an 11,000-square-foot facility] because I know the chief of police ... he’s helping me protect my investment,” says Canndescent CEO Adrian Sedlin.

Sedlin says having a municipal permit allows him to have peace of mind, especially when it comes to potential conflicts with local police forces.

“I dropped $2.5 million in [an 11,000-square-foot facility] because I know the chief of police has an encrypted IP feed to the 64 cameras I have there,” he says. “I’m not worried about him, he’s helping me protect my investment!”

The permitting process goes through several checks and balances to ensure only the most qualified and compliant businesses set up shop in Desert Hot Springs. City employees from the Community Development Department initially review the applications. Applications judged compliant get passed along to the planning commission, which issues a recommendation to the city council. The five members of the council then make a final decision on the application.

“Now keep in mind, while [issuing permits], we’re following all the state guidelines that are currently in place,” Maynard explains. “If you don’t do it the way the state has mandated it, you might as well say to your businesses, ‘We’re not going to provide the type of municipal services that are necessary to ensure your business can stay here.’ ”

Desert Hot Springs charges businesses a yearly tax based on the business’s size in square feet.

Having a thorough application process also helps prevent abuse from growers or the town, the city manager says. Application fees are set at a fixed rate, and elected officials only review the applications that are deemed compliant with the local ordinance by the city employees.

“Plus, their city manager is a police chief of 36 years,” Maynard quips, “so I’m not going to allow anything to happen.”

Having a municipal license not only lets the town’s cultivators do business in Desert Hot Springs, but places them on the fast track to getting a state cultivation license. Per MCRSA, “[in] issuing licenses, the licensing authority shall prioritize any facility or entity that can demonstrate to the authority’s satisfaction that it was in operation and in good standing with the local jurisdiction by January 1, 2016.”

Desert Hot Springs also allocated a large industrial zone (roughly 10 square miles) to cannabis cultivation businesses, hoping to create a centralized hub. Sedlin compares the cannabis business park project to the early years of Las Vegas.

Jason Elsasser

“It’s going to be the first opportunity the industry has to have a highly consolidated footprint where all the elements of the supply chain are within spitting distance of each other,” Sedlin says.

A few buildings already populate the zone and are being used as cultivation facilities (like Canndescent’s). However, most of the industrial property is undeveloped land, which has its pros and cons. On one hand, you can custom-build your facility to the desired specs instead of retro-fitting an existing structure; on the other hand, there is no infrastructure, so cultivators will need to work with utility companies to get connected.

“There’s a few lucky people that are in the cultivation area that have all the utilities they need,” says Jason Elsasser, COO of CV Pharms, a cannabis cultivation business located in the town’s cannabis hub. He is also the president of the Desert Hot Springs Cannabis Alliance Network (DHSCAN), the local cannabis business association.

Charles Maynard

Others, he says, “have a couple of years of work just to develop an infrastructure: water, gas, electric.”

Despite the infrastructure issues, Maynard says the city has 37 development agreements signed for that zone.

And DHSCAN has been working with the city and the utility companies to plan how to develop the cannabis business park. According to Maynard, having the city at the table and on the industry’s side greatly streamlines the process. He says the municipality has been helping move projects along in 18 months, adding that “if the city wasn’t involved, it could take up to eight or nine years for the infrastructure to be put into place.”

Adrian Sedlin

DHSCAN also hired engineers to study the cost of setting up utilities for the undeveloped land. According to Elsasser, having the association pay for the study instead of individual cultivators helps split costs and helps safeguard that Desert Hot Springs becomes the “mecca of cannabis.”

“It might take a couple of years, but [this is] … going to be the best place to grow cannabis in the world because you got a city government that has that as their goal.”