That the City Council consider and approve the first reading of ORDINANCE NO. ____ ENTITLED: AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA HABRA ADOPTING DEVELOPMENT AGREEMENT 22-03 BETWEEN THE CITY OF LA HABRA AND JP420, LLC, FOR A NON-STOREFRONT RETAIL CANNABIS BUSINESS AT 536 WEST MOUNTAIN VIEW AVENUE, SUITE B.

The Applicant, JP420, LLC, is requesting approval of a Development Agreement (DA) 22-03 to operate a non-storefront retail cannabis business on a property that has an existing, permitted cannabis distribution business. The property is located on Mountain View, in an industrial area north of Lambert Road and west of Walnut Street, as shown on Attachment 1. The subject property is located approximately 150-feet east of the City of La Habra's Public Works yard. The General Plan land use designation for the site is Light Industrial. The property is located within the Light Manufacturing (M-1) Zone, which implements the General Plan Light Industrial land use designation, and the Planned Unit Development (PUD) Overlay Zone.

BACKGROUND

Non-storefront retail cannabis businesses are permitted in La Habra, subject to the approval of a CUP and a DA, as a result of the following:

To ensure the enforcement of zoning requirements and all permit regulations, the City established a cannabis review board consisting of the City Manager, Director of Community and Economic Development, Police Chief, Finance Director, and Director of Public Works, or their respective designees, to review the credentials of all the businesses requesting to establish commercial cannabis activities. The Police Chief or designee is also tasked with conducting a background check of any applicant seeking a conditional use permit, including the applicant's agents and those who have an interest in the marijuana business. Once the cannabis review board determines that a prospective applicant has met the minimum criteria, the applicant can formally apply for a CUP and DA.

In keeping with the City's requirements, the City opened an application period of 45-days. The application period began on May 14, 2021, and ended on June 30, 2021. An external consultant with expertise in the cannabis field was hired by the City to assist with the evaluation of all applications and forward to the cannabis review board those applications that met the minimum scoring requirements. The cannabis review board determined which applicants would be allowed to apply for a CUP and DA. In this case, the cannabis review board determined that the business known as JP420, LLC met the minimum criteria and therefore, allowed them to submit their request for approval of CUP 22-11 and DA 22-03.

Operational Characteristics

JP420, LLC will offer home delivery of dried cannabis flower and concentrates, cannabis infused edibles, topicals and CBD products. JP420 will also engage in the sale of accessories and supplies, as permitted by State law. All cannabis products will be stored in a secured storage area. The facility will be staffed with up to seven employees, including a general manager, technology/operational manager, inventory manager, marketing director, receptionist/dispatch, order/dispatch and a delivery driver.  All loading and unloading of vehicles will occur in the secured loading area within the building and all delivery vehicles will be outfitted with secure lock boxes and GPS tracking devices. The applicant will have a security guard service conducting roving patrols to ensure ongoing site security. Additionally, the applicant will install an electronic security system to regularly monitor the entire site and facility. The applicant has requested to operate the business from 8:00 a.m. to 10:00 p.m., seven days a week.   
 
The proposed non-storefront cannabis business will be situated on a property that is completely surrounded by various manufacturing and industrial uses. Since the proposed business will have similar operating characteristics of other manufacturing and industrial uses and the fact that this business will not be open to the public, it is anticipated that there will be minimal disruption to the overall area. As part of the JP420 business plan, the business operator will hire security staff that will follow safety and security protocols as needed. The business operator also intends to take proactive measures to reduce or eliminate nuisances including, but not limited to, noise, odor, lighting, loitering, vehicle and pedestrian traffic, etc. 

The business will occupy approximately 997 square feet of space as shown on Attachment 4. Floor area is reserved for a limited access reception area, management/security room, employee break room, unisex restroom, product packaging area, product storage vault, and hazardous waste storage area. A sally port will be constructed to allow delivery vehicles access into the building while enabling certain areas to maintain restricted access. This floor plan was intentionally designed for safety and security which is similar to other sensitive facilities such as police stations, detention facilities, or power plants. According to the project plans, the applicant would like to replace the non-operable roll-up doors along the north elevation with permanent walls. As these facade changes will be minor, staff expects to be able to handle the review administratively. Staff will ensure that said facade changes are compatible with the existing building and surrounding area. If any signs are proposed to identify the business, such signs must comply with the city’s sign code.

Development Agreement
Pursuant to Section 18.22.060 (LHMC), qualified applicants for a commercial non-storefront cannabis facility permitted by this chapter must enter into a negotiated DA with the City. The purpose of the DA is to provide the applicant with surety that their entitlements will remain as approved in the event that the City requirements change in the future. In exchange for this surety, the applicant agrees to provide community benefits.

A DA is considered a binding contract once executed. California Government Code Section 65864 through 65869.5 established the regulations for development agreements. This includes the requirement that the DA is approved by Ordinance. Ordinances can only be approved the City Council. However, the Government code requires the Planning Commission to review the proposed DA and make a recommendation to the City Council.

The DA requires the business to contribute to the City 0.5% on all gross receipts attributable to the site from that quarter (the "Community Benefit Payment") for the term of the DA. The Community Benefits Payment shall be placed within an account held by the City and distributed to the Community through a grant process as established and administered by the Director of Community Services. The Community Benefit Payments shall be paid to the City no later than within fifteen days after the end of each quarter (March 31, June 30, September 30, and December 31) beginning on the date the facility begins operations. The first quarter payment will be made within 15 days after the end of the quarter following the date the facility begins operations and each quarter thereafter for the term of this DA.  In addition, the business will be subject to the City's Cannabis Business Tax, which is three percent (3%) of all gross receipts and is also collected on a quarterly basis. Proceeds of the Cannabis Business Tax are deposited into the City's General Fund and may be used for any lawful municipal purpose. 

The DA also has provisions requiring City approval of any changes to the business operations. Again, as noted above, an approved DA is required before the CUP becomes valid. The DA and CUP are only valid for this specific operator. Should a new business entity request to take over the operations at this location, they would need to go through the entire application process as described above in this report. The attached draft DA has been reviewed by the City Attorney's Office for compliance with applicable laws and has also been reviewed by the applicant's legal council. The terms and conditions have been agreed to by the applicant.

Planning Commission Action

During its regular meeting on June 27, 2022, the Planning Commission approved Conditional Use Permit 22-11 to allow a non-storefront retail cannabis business located at 536 West Mountain Avenue, Suite B and recommended to the City Council approval of the related Development Agreement 22-03. The approval and recommendation were determined by a 3-1 vote: Vice-Chair Rojas and Commissioners Surich and Manly voted "yes," Commissioner Bernier voted "no" and Chair Munoz was absent. After much deliberation, the majority of the Commission expressed support of Conditional Use Permit 22-11 and Development Agreement 22-03. Commissioner Bernier voted no because she did not agree with the percentage of payments outlined in Development Agreement 22-11 and did not support the proposed commercial cannabis delivery operations. In keeping with the City's Commercial Cannabis Ordinance, the approval of Conditional Use Permit 22-11 is contingent upon approval of Development Agreement 22-03. Development Agreement 22-03 is now being presented to the City Council for final review and approval.

Under Development Agreement 22-03, the business is required to contribute to the City 0.5% on all gross receipts attributable to the site on a quarterly basis. According to the applicant's business plan, the total gross revenue for the first year of operation is estimated to be $900,000. Therefore, the applicant will be expected to submit a community benefit payment amounting to approximately $4,500 annually. In addition, the business will be subject to the City's Cannabis Business Tax, which is three percent (3%) of all gross receipts and is also collected on a quarterly basis. Proceeds of the Cannabis Business Tax are deposited into the City's General Fund and may be used for any lawful municipal purpose. Based on the business' estimated gross revenue, this tax would amount to $27,000 annually.