Paso Robles Advances Ordinance to Expand Cannabis Business Licenses

Ordinance Expands License Categories and Geographic Scope

The proposed ordinance increases the cap on retail licenses from three to six and removes prior geographic restrictions limiting cultivation sites to industrial zones. According to the council's September 17 session agenda, the changes would permit cannabis retailers in C-1 and C-2 commercial districts. Cultivation facilities could operate in any zone permitting agricultural use, subject to conditional use permits.

The ordinance also introduces a new license category for cannabis microbusinesses—operations combining cultivation, manufacturing, distribution, and retail under a single permit. Paso Robles Municipal Code currently doesn't recognize this license type, which California's Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) has authorized since 2018.

Tax Structure Remains Unchanged; Operators Still Face 280E Burden

The ordinance doesn't modify Paso Robles' existing cannabis business tax, which remains at 6% of gross receipts for all license types. This local levy compounds the federal tax burden under IRC §280E, which disallows ordinary business deductions for entities trafficking in Schedule I substances.

Under a strict reading of §280E, cannabis operators in Paso Robles will continue to pay federal income tax on revenue rather than profit. That's a structural disadvantage. It persists regardless of local licensing expansion. The city's 6% gross-receipts tax applies before any federal calculation, effectively reducing the pool of capital available for compliance and expansion.

Public Comment Period Scheduled; Final Vote Expected October 1

The council scheduled a second reading and public hearing for October 1, 2026, with final adoption contingent on no substantive objections from the California Department of Cannabis Control (DCC). Under Business and Professions Code §26055, local jurisdictions must notify the DCC of ordinance changes affecting commercial cannabis activity at least 60 days before implementation.

City staff confirmed the DCC received preliminary notice on August 5, 2026, satisfying the statutory timeline. The October 1 vote will finalize the ordinance. If approved, it takes effect November 1, 2026.

Conditional Use Permit Requirements Tighten for Cultivation Sites

The ordinance mandates conditional use permits (CUPs) for all cultivation facilities regardless of canopy size, a departure from the prior exemption for operations under 5,000 square feet. CUP applications must now include:

• Odor-mitigation plans certified by a California-licensed mechanical engineer
• Water-use projections consistent with the city's Urban Water Management Plan
• Security plans meeting DCC standards under CCR Title 4, Division 19
• Proof of liability insurance with minimum $2 million general aggregate coverage

These requirements align with state standards but impose higher upfront costs on small cultivators, particularly those transitioning from provisional to annual licenses.

Retail Setback Rules Relaxed in Downtown District

The ordinance reduces the required distance between cannabis retailers and sensitive-use sites from 600 feet to 300 feet within the Downtown Specific Plan area. Sensitive-use sites include K-12 schools, daycare centers, youth centers, and libraries, as defined in Paso Robles Municipal Code §21.22.030.

The relaxed setback applies only to the Downtown Specific Plan boundary, which covers approximately 120 acres along Spring Street and Park Street. Retailers outside this zone remain subject to the 600-foot rule. The change aims to accommodate retail applicants in the city's commercial core, where the prior setback effectively excluded most available storefronts.

No Cap on Microbusiness Licenses; Operators Must Meet Dual Compliance Standards

The ordinance imposes no numerical limit on microbusiness licenses but requires applicants to satisfy both local CUP standards and state vertical-integration rules under CCR §15000 et seq. Microbusinesses must conduct all licensed activities on a single premises not exceeding 10,000 square feet of total licensed space. That includes cultivation, manufacturing, distribution, and retail.

This dual-compliance structure creates a narrow path: operators must secure local land-use approval while meeting DCC's size and activity restrictions. For context on California's evolving local licensing landscape, see the CannIntel topic hub on California local cannabis licensing.

What Comes Next: Operator Interest and Revenue Projections

City staff estimate the expanded licensing framework could generate an additional $180,000 in annual tax revenue by fiscal year 2027-28, assuming full uptake of the three new retail licenses and two microbusiness permits. That projection relies on average gross receipts of $1 million per new retail license and $500,000 per microbusiness, figures derived from DCC's statewide data on similar-sized jurisdictions.

The October 1 hearing will test whether local opposition has softened. Historically, critics focused on odor complaints and youth-access concerns. If the ordinance passes, Paso Robles will join Atascadero and San Luis Obispo in permitting microbusinesses, creating a contiguous licensing corridor along Highway 101 in San Luis Obispo County.