That the City Council:
APPROVE THE FIRST READING OF ORDINANCE NO. _____ ENTITLED:  AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA HABRA, COUNTY OF ORANGE, CALIFORNIA, RECONSIDERING AND APPROVING ZONE CHANGE 19-03 MODIFYING LA HABRA MUNICIPAL CODE TITLE 18 (“ZONING”), CHAPTER 18.22 (“COMMERCIAL CANNABIS ACTIVITY”) TO ALLOW FOR COMMERCIAL NON-STOREFRONT RETAILER CANNABIS FACILITIES AND MODIFICATIONS TO EXISTING DEVELOPMENT STANDARDS.

CEQA
The proposed modifications to Chapter 18.22 are exempt from the California Environmental Quality Act pursuant to Business and Professions Code Section 26055(h), which provides that “Without limiting any other statutory exemption or categorical exemption, Division 13 (commencing with Section 21000) of the Public Resources Code does not apply to the adoption of an Ordinance, rule, or regulation by a local jurisdiction that requires discretionary review and approval of permits, licenses, or other authorizations to engage in commercial cannabis activity.  To qualify for this exemption, the discretionary review in any such law, ordinance, rule, or regulation shall include any applicable environmental review pursuant to Division 13 (commencing with Section 21000) of the Public Resources Code.  This subdivision shall become inoperative to July 1, 2021.”

RECENT ACTIONS
On October 2, 2017, the City Council directed staff to explore the opportunities and challenges associated with the operation of cannabis warehouse/distribution facilities, testing laboratories, and medical dispensaries via delivery service (no walk-up sales) in La Habra (Attachment 1).

On April 2, 2018, the City Council approved Ordinance No. 1791 that repealed Section 18.08.140 (Cultivation of Marijuana Prohibited) of Chapter 18.08 (General Regulations) of Title 18 (Zoning) and added Chapter 18.22 (Commercial Cannabis Activity) to Title 18 (Zoning) relating to commercial cannabis activities (Attachment 2).  The Ordinance allows for the establishment of up to four warehouse distribution facilities subject to standards and approval of a Development Agreement and Conditional Use Permit.  On September 17, 2018, the City Council approved an Ordinance allowing for up to four cannabis testing facilities, also subject to standards, a Development Agreement, and Conditional Use Permit (Attachment 3). 
 
On August 5, 2019, the City Council considered the “Status Update Report on Cannabis Dispensaries-Medical Delivery Only Facilities” and directed staff to prepare an Ordinance that would allow for up to two Cannabis Dispensaries-Delivery Only Facilities for Planning Commission consideration (Attachment 4).

On March 2, 2020, the City Council considered Zone Change 19-03 to modify Title 18 (Zoning), Chapter 18.22 (Commercial Cannabis Activity) to allow for commercial non-storefront retailer cannabis facilities and modifications to existing development standards.  Staff reported that the Planning Commission had recommended by a 3-1 vote that the proposed Ordinance be approved by the City Council.  After an extensive discussion by the City Council, the proposed ordinance to allow for non-storefront retail cannabis facilities and modifications to existing development standards failed by a 2-3 vote.  A follow-up motion to modify the ordinance to limit the number of non-storefront retail cannabis facilities to two failed by a 2-3 vote.  Later in the same City Council meeting under “Comments from Councilmembers,” staff was directed to return to the City Council with an ordinance to prohibit cannabis testing facilities and reduce the number of cannabis distribution licenses from four to three (Attachment 5).

Staff returned to the City Council on June 1, 2020, with a draft ordinance to modify Title 18 (Zoning), Chapter 18.22 (Commercial Cannabis Activity) to reduce the number of permitted commercial cannabis distribution facilities, prohibit cannabis testing laboratories, and modifications to the existing development standards.  The Council debated the proposed ordinance.  Motions were made to retain the current ordinance that allows for four warehouse distribution facilities and four testing facilities; to reduce the number of warehouse distribution facilities and prohibit testing facilities; and then finally, a substitute motion to reduce the number of warehouse distribution facilities to three and testing facilities to one.  Each of these motions failed by a 2-3 vote.  The item was continued by a 4-1 vote to the City Council meeting of June 15, 2020, to allow the Police Chief to prepare a report on calls for service, impaired driving, and the amount of time expended combating drug use before and after the opening of the existing cannabis warehouse distribution facility (Attachment 6). 

On June 15, 2020, the City Council once again considered the issue of cannabis warehouse distribution facilities and testing laboratories.  Motions were made to reduce the number of cannabis distribution facilities from four to three and testing laboratories from four to one; to reduce the number of distribution facilities from four to three and prohibit testing laboratories; to increase the number of cannabis distribution facilities from four to five and increase the number of testing laboratories from four to five; and finally to reduce the number of cannabis distribution facilities from four to three and prohibit testing laboratories.  Each of these motions failed by a 2-3 vote.  The City Council approved by a 4-1 a motion to table the matter to a date uncertain (Attachment 7).

On August 3, 2020, the City Council considered placing a measure on the ballot at the November 3, 2020 election to authorize the City Council to adopt an ordinance authorizing up to six percent gross receipts tax on commercial cannabis business activities and that would authorize up to four licenses for cannabis non-storefront retail facilities (delivery only).  After receiving testimony from the public and staff responding to Council questions, it was the consensuses of the City Council to allow the public to opine on the issue of non-storefront cannabis retail use within the community.  The City Council by a 4-1 vote placed on the November 3, 2020, General Municipal Election ballot a measure to authorize the City Council to adopt an ordinance imposing a cannabis business gross receipts tax and seeking voter input on the issue of whether to allow for up to four non-storefront cannabis retail facilities licenses (Attachment 8). 

As of November 9, 2020, Measure W (City of La Habra Cannabis Business Tax/Regulation Ordinance of 2020), has received 67.63% (17,188) votes in favor of the measure while 32.37% (8,227) have voted in opposition to the measure.

The proposed ordinance remains the same as originally considered by the City Council during its regular meeting of March 2, 2020, (Attachment 12-Yellow Highlight) with the exception that this draft ordinance allows for up to four cannabis non-storefront retail facilities per Measure W and code sections modified to recognize the approved Measure W Cannabis Business Tax (Attachment 12-Green Highlight).  A Cannabis Business Tax ordinance establishing the specific percentage of tax per each proposed cannabis business activity will be scheduled for consideration at a future City Council meeting.

As previously indicated to the City Council in March 2020, Cannabis Dispensaries-Delivery Only Facilities require a cannabis license from the State of California and local city approval (Attachment 9).  The two types of cannabis retail licenses issued by the State are non-storefront and storefront.  Cannabis Delivery Only Facilities fall under the non-storefront license, and allows for the delivery of cannabis or cannabis products directly to the consumer.  The State does not allow walk-up sales from the business location of a non-storefront cannabis retailer.

It is important to note that cannabis deliveries to locations inside the City of La Habra are currently occurring from delivery services located outside of the City.  Recent changes to State law authorizes cannabis deliveries in all cities, regardless of whether or not cities have adopted bans on deliveries by local Ordinances. According to “Weed Maps”, a cannabis business location finding app, approximately a dozen vehicles deliver cannabis or cannabis products to addresses in La Habra on a daily basis; however, the delivery businesses sending these products are located outside of La Habra.  Allowing these types of cannabis businesses to locate within La Habra would have a negligible impact on land use since similarly operated cannabis warehouse/distribution facilities already exist in the City of La Habra and have, to date, presented no issues for the Police Department.  In addition, current retail cannabis delivery vehicles from businesses operating outside of La Habra have, to date, presented no issues for the Police Department.

Prohibiting Non-Storefront retail cannabis facility can affect future revenue sources to the City.  The City Council established an Ad Hoc Fiscal Review Committee whose task was the review of City revenue streams, expenditures, and forthcoming economic challenges.  They were asked to develop measures the City could explore to address expected revenue shortcomings.  A list of revenue policy suggestions was created and scored as either Primary or Secondary sources of revenue.  The Fiscal Review committee suggested the City Council “Continue to explore cannabis operations as new revenue sources, including the authorization of a taxed home delivery system, as well as cannabis testing and manufacturing sites.” These cannabis activities were scored as a “Primary” source of potential revenue (see Attachment 10).  As revenue examples, the currenlty operating cannabis distribution facility (Continuum) has generated in its first year of operation $479,903 in revenue to the City.  This revenue is comparable to what a major name-brand department store may generate annually in sales tax, but operating from a far smaller 10,000 square-foot facility.  A second distribution facility (Canna America) is currently making tenant improvements to their building.  A possible third distribution facility (Pinnacle Wellness) is completing the Conditional Use Permit process. 

During site visits to Non-Storefront retail cannabis facilities in the City of Hesperia, staff learned that those operations generated between $2.5 to $3 million in gross annual sales.  Each 1% of gross receipts tax would generate between $25,000 to $30,000 per year for the City.  Allowing for Non-Storefront cannabis retail facilities will result in tax revenues flowing into the City’s general fund versus local tax dollars going to other communities, as is currently the case through existing deliveries into the City from business located outside the City. 

RESEARCH OF CANNABIS DISPENSARIES-MEDICAL DELIVERY ONLY FACILITIES
Within the region, there are two cities (Cudahy and Hesperia) that currently allow businesses to deliver medical cannabis. The City of Cudahy has yet to have a Commercial Cannabis Dispensary-Medical Delivery Only Facility in operation.  In the City of Hesperia, City staff visited two Cannabis Dispensaries-Medical Delivery Only Facilities.  The two facilities visited were:

            Medical Cannabis Educational Center (MCEC)
            Canilivesystem

The two Cannabis Dispensary-Medical Delivery Only facilities that staff visited operated in a very professional manner. The facilities were clean and the cannabis products secured.  Each facility was located in an industrial center.  Since no walkup sales are permitted, the setup and operation is very similar to the Cannabis Warehouse Distribution facility that currently operates in La Habra.  Each operation complied with the zoning requirements for the City of Hesperia (Attachment 11). There are six Cannabis Dispensary-Medical Delivery Only Facilities currently in operation in Hesperia.  These uses are permitted by right pursuant to a local ordinance for industrial zones only.  

Generally, each of the operators that staff visited indicated that they expect to grow their business, whether on-site or through the establishment of additional locations in California.  Security is of importance to the operators, both of which had a security guard present (however, not required to be armed by Hesperia ordinance).  Track and trace systems, which document each specific cannabis product purchased from a licensed cannabis distributor to the sale of that product to a medical patient, appeared to be practiced by both businesses.  In addition, each delivery vehicle was GPS monitored and tracked from the time it departed the facility to each delivery point. Business advertising occurs at community events, through print media, and via the internet with the physical business address never provided.  All sales are conducted via websites, phone apps, or by phone with product delivery occurring within 24 hours of the sale.  The public is not permitted on site and no walk-up sale is ever conducted. 

The Cannabis Task Force met with representatives of the Hesperia City Manager’s Office, Planning, Code Enforcement, and the San Bernardino County Sheriff’s Office.  None of the six facilities currently in operation have required City or law enforcement assistance.  No code enforcement violations have been reported or found at the facilities. 

PUBLIC SAFETY
The City of La Habra's Chief of Police remains opposed to cannabis related uses of any kind.  Also, Federal regulations still do not recognize cannabis as an approved drug.  The City currently has one operating cannabis warehouse delivery facility, Continuum (which opened in 2019), that operates a warehouse/distribution facility.  Since they have opened, there have been no calls for service to the Police Department. In addition, the Police Department has reported no incidents involving cannabis delivery vehicles to homes in La Habra. 

Should the City Council approve the delivery only retail sales of cannabis products, staff strongly recommends that such activities be restricted to Delivery Only Facilities, thereby eliminating walk-up traffic to a storefront. This significantly reduces potential security issues associated with retail storefront operations.  The non-storefront operations will operate in a manner very similar to a warehouse/distribution facility.  On November 3, 2020, the residents of La Habra approved Measure W by a 2/3rd margin that allows up to four cannabis non-storefront retail facilities within the community.

Code Modifications
Based on site visits and a review of other Cannabis Delivery Only Ordinances, modifications to the existing Commercial Cannabis Activity Ordinance are proposed that include the creation of section 18.22.030.D.3 that is specific to cannabis non-storefront retailer facilities.  The proposed regulations address issues involving Delivery Permit Requirements, Delivery Employees, Delivery to Physical Addresses, Delivery Vehicle Requirements, Cannabis and Cannabis Products Carried During Delivery, Delivery Request Receipts, Delivery Routes, Receiving Shipment of Inventory, Inventory Documentation, Inventory Reconciliation, Record of Sales, Records, and Retailer Premises to Retailer Premises Transfers.  These requirements mirror the operational standards established by the State of California.  In addition, the general operational provisions placed on both Distribution and Testing Facilities will be applied to cannabis non-storefront retailer facilities such as limiting operations to the M-1, M-1 PUD, and PCI zones, not allowing operations within 600 feet of any school providing instruction in kindergarten or any grades 1-12, day care centers, youth centers, or parks more than .06 acres in size. 

In addition, the Draft Ordinance contains minor revisions to the City's existing cannabis regulations that recognize the approval of Measure W and that incorporates other minor changes based on staff’s experience processing two warehouse/distribution permits, along with experiences from other communities.  The modifications include the addition of Definitions to clarify aspects of the code, expands testing laboratory standards, enhances initial application information, establishes disqualification of applications standards, language to the development agreement section recognizing the cannabis business license tax, clarification of waitlist procedures, clarification of zoning and land use requirements, strengthen permit conditions, clarifies enforcement responsibilities, enhances the appeals process, and requires compliance with State and City license requirements (Attachment 12).  The proposed amendments have been reviewed by the Cannabis Task Force (City Manager’s office, Public Works, Finance, Community Development and the Police Department) and the City Attorney’s office.  Therefore, it is recommended that the City Council adopt an Ordinance modifying La Habra Municipal Code Title 18 (Zoning), Chapter 18.22 (Commercial Cannabis Activity) to allow for commercial non-storefront retailer cannabis facilities and modifications to existing development standards (Attachment 14).

Application/Screening Process
Chapter 18.22 of the La Habra Municipal Code (Commercial Cannabis Activity) directs the Community Development Director to prepare a commercial cannabis activity application form and related administrative policy submittal sheets.  Given the number of applications expected to be submitted, the existing documents will be modified to create a submittal window and address the requirements for Non-storefront Retailer Cannabis Facilities.  Upon completion of those revisions, staff will return with a report to the City Council at a future meeting that will provide for additional review and input of those documents, along with the process that will be utilized to screen applications.  It is expected that revisions of documents will be completed within 30 to 90 days upon the Ordinance becoming effective.

NPDES
The proposal has been reviewed pursuant to the requirements of the City’s National Pollutant Discharge Elimination System (NPDES) Municipal Permit, the Local Implementation Plan (LIP), and the Model Water Quality Management Plan (WQMP), Section 7.2.  Since the Zone Change does not disturb any soil, it is exempt by the Water Quality Ordinance from the preparation of a WQMP. 
 

On February 10, 2020, the Planning Commission conducted a public hearing on Zone Change 19-03 to modify the La Habra Municipal Code to allow for Non-storefront Retailer Cannabis Facilities.  Three individuals spoke in support of the cannabis ordinance (Rick Casas, Dana Leigh, and Marty Simonoff).  Mr. Casas provided the Commission with revenue figures for his business in Hesperia.  In the first five months of operation they made $1 million in revenue and are now at $3 to $5 million a year and growing.  If La Habra allows for non-storefront retail delivery operation, he is prepared to apply for a license and transfer at least 70% of his business to La Habra.  Ms. Leigh indicated preference should be provided to existing cannabis business operators and that Canna America would apply for a license.  Ms. Leigh noted the State no longer requires cannabis operators to physically own vehicles.  Mr. Simonoff indicated he has attempted to have his community accept Cannabis operations with no success and is glad to see La Habra do so. 

One individual (Christine Cook) spoke in opposition indicating the City is moving in a direction not consistent with the ideals of the community. 

Commissioner Powell asked if the ordinance limited the number of Non-storefront licenses to two which staff confirmed.  Commissioner Powell also questioned whether the ordinance required armed security guards which staff confirmed that it did not.  After receiving public testimony on the item in support and opposition of the draft Ordinance, the Planning Commission approved a Resolution recommending that the City Council adopt an Ordinance modifying La Habra Municipal Code Title 18 (Zoning), Chapter 18.22 (Commercial Cannabis Activity) to allow for Commercial Non-storefront Retailer Cannabis Facilities and modification to existing development standards. (Attachment 13).
 

On April 2, 2018, the City Council established fees for the processing of Commercial Cannabis activities that recover the full cost of processing such applications through the screening, Development Agreement, and Conditional Use Permit process.
 

Action on the Commercial Cannabis Ordinance implements the following General Plan Policies:

LU 4.1 Development Compatibility
LU 6.3 High-Impact Uses
LU 16.1 Diversity of Uses
ED 2.1 Business Attraction