That the City Council:

APPROVE THE FIRST READING OF ORDINANCE NO. ____ ENTITLED:  AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA HABRA ADOPTING DEVELOPMENT AGREEMENT 20-01 BETWEEN THE CITY OF LA HABRA AND PINNACLE WELLNESS GROUP, LLC, FOR A CANNABIS DISTRIBUTION FACILITY AT 536 WEST MOUNTAIN VIEW AVENUE, AS PER ATTACHMENT "A"

California Environmental Quality Act
This project was reviewed pursuant to the guidelines of the California Environmental Quality Act (CEQA) and determined to be Categorically Exempt pursuant to Section 15301(a), Class 1: Existing Facilities of the California Environmental Quality Act Guidelines. The project consists of a tenant improvement.

The Applicant is requesting approval to operate a cannabis distribution facility within an industrial zone.  The property is located along the south side of Mountain View Avenue, to the west of Walnut Street (see Vicinity Map, Attachment 1).  The General Plan land use designation for the site is Light Industrial.  The property is zoned M-1 (Light Manufacturing), which is consistent with the General Plan.

The subject site is approximately 6,970 square feet in size and improved with a 4,005 square foot light industrial building.  Prior to the current owner purchasing the property in December 2019, the property had been used for light industrial uses.
 
The proposed cannabis distribution business will be located in the western portion of the building (see Project Plans).  The business will occupy 2,825 square feet of space which will be divided into a 400 square foot storage area, a 260 square foot reception area, and a 128 square foot office space.  A vehicle door located at the southwest portion of the building will allow delivery vehicles to enter the "sally port" portion of the building.  More specifically, this will allow delivery vehicles to back into the building while still keeping the secured area closed off, similar to what occurs at sensitive facilities such as police stations, detention facilities, or power plants.

The operation of the business consists of purchasing cannabis products from growers and manufacturers and then warehousing the products until they are purchased by and delivered to retail establishments in the region.  The facility will be staffed with nine individuals. The Applicant has requested to operate the business every day from 8:00 a.m. to 9:00 p.m.

On November 8, 2016, the electorate of the State of California approved Proposition 64 (“Prop 64”) which enacted the Adult Use of Marijuana Act (“AUMA”), codified in California Health and Safety Code at various sections and in California Business and Professions Code at various sections. The AUMA allows adults 21 and over to use, possess, and cultivate limited amounts of marijuana, establishes a state licensing and regulatory scheme for marijuana businesses serving the recreational market.  Additionally, it allows local jurisdictions to prohibit outdoor cultivation of marijuana for personal use, to regulate indoor cultivation of marijuana for personal use, and to prohibit all non-medical and recreational marijuana businesses from locating and operating within their jurisdictions.
 
On March 12, 2018, the Planning Commission recommended that the City Council adopt an Ordinance repealing Section 18.08.140 (Cultivation of Marijuana Prohibited) of Chapter 18.08 (General Regulations) of Title 18 (Zoning) and adding Chapter 18.22 (Commercial Cannabis Activity) to Title 18 (Zoning) relating to commercial cannabis activities and adding Chapter 18.22 regulating commercial cannabis activity.
 
Chapter 18.22 “Commercial Cannabis Activity” provides City regulations pertaining to the permitted types of cannabis businesses as well as requirements to apply for and operate this type of business.  Per Chapter 18.22, cannabis distribution facilities are permitted with a Conditional Use Permit and Development Agreement in the M-1, M-1 (PUD), and PC-I zones, subject to distance requirements from schools, day care centers, youth centers, or public parks.  An extensive list of requirements are contained within this code section that must be met before an application may be filed as well as after the business has been approved for a Conditional Use Permit.  The City Council on April 2, 2018, concurred with the Planning Commission’s recommendation and adopted Chapter 18.22 “Commercial Cannabis Activity”.

On November 3, 2020, Measure W was approved by La Habra voters by a ratio of 67% (yes) to 32% (no).  This approval authorizes the City to impose a gross receipts tax of up to 6% on commercial cannabis businesses until ended by voters and also authorizes up to four cannabis home delivery licenses in addition to the four distribution and four testing licenses already authorized by City Council.  Staff is in the process of developing a set of regulations and a proposed tax structure for the various types of authorized cannabis businesses, which will be presented to the City Council for review and approval in the near future.

The requirements for the application of a cannabis distribution business operation include submitting/providing the following:

• Cannabis Business Permit Application
• Corporate Documents
• Business Plan
• Security Plan
• Floor Plan
• Safety Plan
• Community Benefits and Environmental Plan
• Deposit of $30,000

License submittals are reviewed by the City’s Cannabis Review Committee and must be determined to be complete prior to a business being allowed to submit applications for a Conditional Use Permit and a Development Agreement.  The committee consists of representatives from applicable City departments including Police, Finance, and Community Development.  Due to the sensitivity and confidentiality of many of these business documents, they are not included in the Planning Commission or City Council agenda packages and not available for public review.  However, the application before the City Council has been determined to be complete, therefore is being submitted for consideration at this time.

Development Agreement
California Government Code Sections 65864 through 65869.5 allows cities to enter into contractual agreements with developers.  The proposed project includes a Development Agreement between the business operator and the City (see Development Agreement, Attachment 3).  The purpose of a Development Agreement is twofold:  it ensures that certain improvements are implemented that promote the public health, safety and welfare of the community and it assures the developer of certainty for the development of the property.     
The Development Agreement (DA) for this project documents the deal points and commits the developer or business owner to specific requirements.  The initial period for the DA is for four years; however, it may be extended four times in five years increments.  In this particular case, the DA stipulates that the business shall provide compensation for City services as well as community and charitable services.

The business owner shall be required to provide monetary compensation (referred to as “Payments by Developer”) for City services on a quarterly basis.  The business operator shall pay the City 3.75% on all gross receipts attributable to the business from that quarter.  The Quarterly Payment shall be paid to the City no later than within fifteen (15) 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 Agreement).  However, as previously described in the report, a fixed taxation structure will be established in the near future which, if approved by Council, will replace this negotiated DA fee.

Pertaining to the requirement for charitable service, the business owner is also required to provide an annual contribution to a local charity/non-profit within La Habra as well as provide volunteer service in the form of at least four employees providing 24 volunteer hours on an annual basis.  The annual monetary contribution for Community benefits is as per the following schedule:

                                                                     First Year (2021) - $10,000
                                                                     Second Year (2022) - $20,000
                                                                     Third Year (2023 and thereafter) - $30,000

While Measure W will affect the payment of taxes, based on gross receipts, it did not affect the requirement for volunteer services which will remain in effect for this business as well as the two previously licensed cannabis distribution business in the City.

The agreement has been reviewed by the City Attorney’s Office for compliance with applicable laws. It is recommended that the City Council approve the Development Agreement.

On January 11, 2021, the Planning Commission considered the requests for Conditional Use Permit 20-10 and Development Agreement 20-01 to operate the subject cannabis distribution business.  The Applicant, Jacob Poozikhala, was present to answer questions (see Draft PC Minutes, Attachment 5).

Prior to the meeting, staff received three emails from the joint owners of an industrial property on Walnut Street opposing the project (see Emails, Attachment 6).  Two of the emails were from Ms. Clarke and Ms. Freitag who opposed the operation of a cannabis dispensary at the subject site, which is not being proposed.   The third email from Mr. Freitag, opposed the project due to the potential for crime which is directly related to the potential for large sums of cash being present during the operation of the business.  Staff reached out to the three individuals prior to the meeting to provide clarification of the proposal.  During the public comments portion of the meeting, Mr. Freitag called in and stated his opposition to the project in line with what he stated in his email.

During Commission deliberations, Commissioner Munoz inquired about hours of operation and whether the business could operate outside the hours as stated in the Conditional Use Permit application.   Staff responded that they could not conduct any operations outside those hours; however, an armed guard was required to be present at all times that cannabis was being stored on-site.

Commissioner Powell inquired whether the City had received any calls for service for the two existing cannabis distribution businesses currently operating in La Habra.  Staff responded that to date, both operations have not had any issues.  Staff also stated that the Police Department conducts scheduled and random inspections of both facilities and no negative issues have arisen to date.

Lastly, Commissioner Manley inquired to the amount of vehicles that would be utilized for the operation of the business.  Mr. Poozikhala responded that he would utilize two small vans to conduct his business.   He also added that his warehouse had the ability to store three vehicles inside the building, if necessary.
The Planning Commission approved both items on a 4-0 vote (Commissioner Bernier had an excused absence).  The Conditional Use Permit (CUP) was final at the Planning Commission, however, it should be noted that if the Development Agreement is denied by the City Council, the CUP becomes null and void.

No City Funds will be expended specifically related to the development of the project.  If approved, the City will annually receive set amounts in “Payments by Developer” section of the Development Agreement as per the rate of 3.75% on all gross receipts until such time the City Council enacts a tax rate for this type of cannabis business. 

LU 11.1 (Diversity of Uses)
ED 2.1 (Business Attraction)