That the City Council:
A.  Approve and Adopt a Conditional Use Permit RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA OVERRULING THE PLANNING COMMISSION AND APPROVING CONDITIONAL USE PERMIT 22-07 FOR A NON-STOREFRONT RETAIL CANNABIS BUSINESS AT 1000 SOUTH LESLIE STREET, SUITE D, MAKING THE APPROPRIATE FINDINGS, AS PER THE APPROVED PLANS AND SUBJECT TO CONDITIONS; and

B.  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 22-02 BETWEEN THE CITY OF LA HABRA AND ON DECK DELIVERY, LLC, FOR A NON-STOREFRONT RETAIL CANNABIS BUSINESS LOCATED AT 1000 SOUTH LESLIE STREET, SUITE D, AS PER ATTACHMENT "A".

The Applicant, On Deck Delivery, LLC, is requesting approval of a Conditional Use Permit (CUP) and a Development Agreement (DA) to operate a non-storefront retail cannabis business on a property that currently serves various industrial uses and an active cannabis distribution business known as "Canna America." In this case, the applicant proposes to occupy a portion of Building No. 3, which is adjacent to Canna America. It should be noted that the applicant is also the business operator of Canna America. Canna America has been in operation at this location for over a year with no known negative impacts to the subject site or surrounding area.

The property is located along the east side of Leslie Street, north of Imperial Highway as shown on Exhibit 1 and Attachment 1. The General Plan land use designation for the site is Light Industrial. The property is within the Light Manufacturing (M-1) Zone, which implements the General Plan Light Industrial land use designation.
 
EXHIBIT 1
 

Building No. 3, as shown on the above exhibit, is where the proposed non-storefront retail cannabis business will be locating. Building No. 3 is situated within the southeastern portion of the property which has no visibility from Leslie Street and very limited visibility from Imperial Highway. An existing slope provides a physical barrier and buffer to the Kaiser medical office building and the adjacent proposed commercial development, which includes a Taco Bell and plans for a second drive-through restaurant, a Hallmark Store and a La Quinta Inn at a lower elevation to the south.
 
EXHIBIT 2


The business will occupy approximately 2,032 square feet of space within Building No. 3 as shown on Exhibit 3 below. Floor area is reserved for a call center, office space, employee break room area, unisex restroom and secured product 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, similar to other sensitive facilities such as police stations, detention facilities, or power plants. No changes are proposed to the building exterior. If any signs are proposed to identify the business, such signs must comply with the city’s sign code.
 
EXHIBIT 3


On Deck Delivery, LLC will offer home delivery of cannabis products distributed by Canna America or purchased from another licensed distributor. Products will include cannabis, pre-rolls concentrates, edibles, drinks, tinctures and topicals. All cannabis products will be stored in a secured storage area. The facility will be staffed with up to 20 employees working in various shifts. Staff will include an armed guard, dispatchers, drivers, inventory control and handling personnel, and managers. 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 delivery vehicles will be the personal vehicles of delivery staff and will be covered by the business' insurance and safety requirements. According to the applicant, the last delivery order will be accepted before 9:30 p.m. No vehicles will be stored on-site overnight. An armed guard will be required to be on-site at all times when cannabis products are being stored in the facility. The applicant has requested to operate the business from 8:00 a.m. to 10:00 p.m., seven days a week. It is anticipated that some employees will arrive at 7:30 a.m. to perform opening procedures and at the end of the business day, stay until 10:30 p.m. to perform closing procedures.

Since this is a non-storefront cannabis business that will not be open to the public, it is anticipated that there will be minimal disruption to the surrounding area. The proposed business is primarily surrounded by other light industrial uses. The closest residential area is located over 950 feet away on the south side of Imperial Highway. As part of the On Deck Delivery business plan, the business operator will serve as a community liaison and direct contact for City residents, staff and law enforcement. The business operator intends to take proactive measures to reduce or eliminate nuisances including, but not limited to, noise, odor, lighting, loitering, vehicle and pedestrian traffic, etc.
 
BACKGROUND
Non-storefront retail cannabis businesses are permitted in La Habra, subject to the approval of a Conditional Use Permit (CUP) and a Development Agreement (DA), as a result of the following:

• 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") which allows adults 21 and over to use, possess, and cultivate limited amounts of marijuana, and creates a state licensing and regulatory process for marijuana businesses serving the recreational market. It also 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 nonmedical and recreational marijuana businesses from locating and operating within their jurisdictions.
• On April 16, 2018, the City added new regulations to the zoning code that allow for the establishment of certain commercial cannabis activities.
• On November 3, 2020, Measure W was approved by the La Habra voters which, among other things, allowed for the licensing of a maximum of four non-storefront retail cannabis operations.
• On December 21, 2020, the City Council adopted the zoning requirements in Chapter 18.22 of the LHMC (see Attachment 7) that are necessary to regulate cannabis non-storefront retail facilities, in compliance with the Cannabis Laws allowed by the California Bureau of Cannabis Control per a Type 9 Non-Storefront Retailer (Delivery Only) License. Chapter 18.22 permits the use, subject to the approval of a CUP and a DA.  

Pursuant to Section 18.22.080C (LHMC), prior to commencing operation of a commercial cannabis activity, all persons shall obtain a CUP from the City for all parcels of real property (or portion thereof) upon which the commercial cannabis activity will operate. Approval of a CUP enables specific conditions to be added which will help ensure the proposed cannabis business will be compatible with the surrounding area. The subject CUP shall also be in compliance with Section 18.22.060 (LHMC) which requires the applicant to enter into a negotiated Development Agreement (DA) with the City.

The Conditional Use Permit (CUP) process and requirements are located in Section 18.66.070C (LHMC). In order to approve a CUP, the Planning Commission must make the following findings:

1. The granting of such Conditional Use Permit will not be detrimental to the public welfare and will not unreasonably interfere with the use, possession, and or enjoyment of surrounding and adjacent properties and will not impair the character of the zone in which it is to be located.
           
On April 2, 2018, the City Council of La Habra adopted Chapter 18.22 “Commercial Cannabis Activity” (LHMC) with regulations that permit cannabis distribution facilities subject to a CUP within the M-1, M-1 PUD, and PCI zones.  On December 21, 2020, the City Council adopted Ordinance No. 1827 amending Chapter 18.22 (LHMC) allowing cannabis non-storefront retail facilities, to be operated in strict compliance with the Cannabis Laws allowed by the California Bureau of Cannabis Control per a Type 9 Non-Storefront Retailer (Delivery Only) License under certain conditions and provisions. The subject property is already developed with light industrial uses and an existing cannabis distribution business in the adjacent industrial suite. The proposed cannabis business will be pre-dominantly surrounded by other light industrial uses to the north, east, south and west. The properties to the south will be separated from the subject site by a grade difference of approximately 20 feet, thereby providing an adequate buffer from the Kaiser medical office building and planned and existing commercial development to the south.

During the first year, the proposed business will have 12 employees. The applicant expects to hire three sales associates/dispatchers and three inventory/fulfillment specialists, which will utilize six on-site parking spaces. It is also initially expected that delivery drivers will utilize an additional six on-site parking spaces. Conditions of approval have been placed on the use pursuant to the standards set forth in Chapter 18.22 (LHMC). These conditions were created to ensure that the use would not cause any detriment to existing uses within the surrounding area. Conditions include the installation and maintenance of a high-quality security system, implementation of specified security measures, implementation of adequate inventory control, the use of an odor-controlling ventilation system, and the prohibition of consumption of cannabis products on-site. Therefore, the approval of the use will not be detrimental to the public welfare and will not impair the character of the zone where the proposed cannabis business is located.

2. The subject site is physically suitable for the type of land use being proposed.

No physical changes are proposed to the site, with proposed improvements limited only to interior tenant improvements. The proposed use is a delivery service; therefore, the only additional traffic is generated by delivery drivers coming and going throughout the day, which is equivalent to other types of retail businesses that have customers coming to their location at different times throughout the day. Therefore, the site is physically suitable for the type of land use proposed.  

3. The use is conditionally permitted within the subject zone and complies with the intent of all applicable provisions of this title.

Chapter 18.22 of the La Habra Municipal Code allows for cannabis distribution facilities within the M-1 Zone with the approval of a Conditional Use Permit, granted by the Planning Commission. After reviewing CUP 22-07, staff determined that the proposed non-storefront retail cannabis business operations conforms with the development standards and requirements of the M-1 zone.

4. The granting of this Conditional Use Permit will not adversely affect the Comprehensive General Plan.

The projects implement Policies LU 11.1 (Diversity of Uses) and ED 1.1 (Consumer Demand) of the General Plan 2035.

The General Plan establishes land uses designations for properties throughout the city. Zoning is utilized as a tool to implement the General Plan and the General Plan's Land Use Designation for this site is Commercial Industrial, which envisions business park, industrial uses or commercial uses.  The property is zoned Planned Commercial Industrial (PC-I) with a Planned Unit Development (PUD) overlay, which is consistent with the General Plan. These zoning standards were utilized when the current commercials center was developed. Additionally, this zone allows for the proposed use with approval of a Conditional Use Permit. Therefore, the use will be consistent with the General Plan if the Commission approved the CUP.  

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 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 by 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 proposed 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 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 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 again, 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.

On June 27, 2022, the Planning Commission denied Conditional Use Permit 22-07 and recommended denial of the related Development Agreement 22-02, a request for a non-storefront retail cannabis business at 1000 South Leslie Street, Suite D. The denial was the result of a tie vote: Vice-Chair Rojas and Commissioners Surich voted “yes,” Commissioners Bernier and Manley voted “no,” and Chair Munoz was absent. There were no comments made regarding zoning and/or land use from either of the Commissioners that voted no; however, Commissioner Bernier expressed disappointment regarding the percentage of financial contribution outlined in the development agreement and did not agree with the proposed cannabis delivery style. The application requires approval by the majority of the Commission; therefore, as a result of the tie vote, the application was denied. Subsequently, the applicant filed an appeal of the Planning Commission’s decision on July 7, 2022. As a result, Conditional Use Permit 22-07 and Development Agreement 22-02 were scheduled for a de novo public hearing before the City Council on August 1, 2022.

PUBLIC COMMENTS/ISSUES

Members of the public, including residents and local business operators, spoke in opposition to Conditional Use Permit 22-07 and Development Agreement 22-02. Several comments were made regarding concerns that the proposed non-storefront cannabis retail would contribute to the rise of crime and homelessness in the area. People also commented that they were worried about on-site security and cited that there was already night racing and smoking on the streets. Finally, people expressed concern about potential traffic congestion based on the anticipated number of customer transactions at the non-storefront commercial cannabis retail business in one day. The Commission also questioned whether there was a need for a parking study.

Crime
The public voiced their concern about whether the non-storefront retail cannabis business would contribute to the rise in crime and homelessness. The description as a “non-storefront retail cannabis business” was apparently mistakenly interpreted to having the same meaning as a "dispensary or commercial retail" that allows for on-site customer activity. However, this is not the case. A non-storefront retail cannabis business can only dispense products via a delivery service to a home or other location. No retail customers are allowed to be served at the property and normal business activity will take place in an unassuming manner, with delivery vehicles pulling into a sally port when cannabis product is being handled. All delivery vehicles will be unmarked, passenger vehicles and/or non-descript box trucks. Furthermore, the applicant is required to adhere to strict safety and security plans, which includes ongoing monitoring of their property 24 hours a day, seven days a week via security cameras and/or guards, whereby the applicant can ensure that no illicit activity is occurring on the property. While homelessness was cited as a concern, it appears that the homelessness issues in this area do not stem from this particular applicant’s business activity. Should the applicant encounter homelessness on their property, the applicant will be able to quickly address the issue due to the security measures being required for this location. This particular applicant has been operating in good standing as a cannabis distributor (warehouse) know as Canna America for more than a year at that location and has demonstrated they are capable of ensuring their business operates safely. It is anticipated that the non-storefront retail cannabis business, as proposed by On Deck LLC, will not cause a rise in crime and/or homelessness in that area.

Traffic Congestion
Staff reported that a non-storefront retail cannabis business could generate as many as 150 customer transactions per day. Apparently some members of the public understood this to mean that the business would result in adding 150 new vehicle trips to and from the site. Staff clarified that each delivery driver could handle multiple customer transactions, resulting in substantially fewer vehicle trips. On Deck Delivery, LLC estimated that they would have a total of six delivery drivers and confirmed that do not anticipate generating 150 vehicle trips per day. They also relayed that their fulfillment deliveries from other licensed distributors could include eight to ten deliveries per week. Staff believes that the anticipated six delivery vehicles daily plus eight to ten deliveries per week would not be a significant increase to the overall traffic in the area. Many existing industrial businesses within the same area generate the same, if not more vehicle trips; therefore, traffic congestion is not expected to significantly increase as a result of the non-storefront retail cannabis business proposed by On Deck LLC.

Parking
During the Planning Commission meeting, the Commission questioned whether there is a need for a parking study. The applicant has access to ample on-site parking spaces. As previously mentioned, the applicant is expecting six delivery drivers. According to the applicant, the delivery drivers will be traveling throughout the day and therefore, will likely not need to use the parking spaces during the day. Staff reviewed the applicant’s site plan and does not believe the proposed six delivery vehicles necessitates a formal parking study. The applicant’s site can easily accommodate the six vehicles without impact to the public street and surrounding area. Therefore, parking is not expected to be a problem for the non-storefront retail cannabis business proposed by On Deck LLC.

APPEAL ISSUES

The applicant, On Deck Delivery, LLC, submitted an appeal of the Planning Commission's decision based on the following:

Staff believes that the issues identified by the Applicant above are valid and concurs with the applicant's efforts to proceed with their appeal request. The operation of a non-storefront cannabis retail business will occur within an existing industrial building surrounded by other light industrial uses. The operation itself, is consistent with light industrial type businesses, which are typical for the M-1 and PC-I zones. The business operator will be required to obtain a Type 9 Non-storefront Retailer (Delivery Only) Cannabis License from the State and comply with all of their requirements. In addition, the City and State of California have implemented extensive requirements to ensure that the business will be operated in an acceptable manner. Therefore, based on these facts, and in light of the issues identified by the applicant for submitting a formal appeal, it is recommended that the City Council overturn the Planning Commission's decision and approved Conditional Use Permit 22-07 for a non-storefront retail cannabis business and that it recommend that the City Council adopt an ordinance approving Development Agreement 22-02 for the property at 1000 South Leslie Street, Suite D, subject to the findings and conditions in the attached resolutions.

Under Development Agreement 22-02, 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 $2.4 million. Therefore, the applicant will be expected to submit a community benefit payment amounting to approximately $12,000 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 $72,000 annually.

The proposed Development Agreement 22-01 is related to the following General Plan policies:

LU 11.1: Diversity of Uses. Provide for and encourage the development of a broad range of uses in La Habra's commercial centers and corridors that reduce the need to travel to adjoining communities, and capture a greater share of local spending.
ED 1.1: Consumer Demand. Explore opportunities to increase the competitive role of the City's retail sector to serve both the community and larger base of consumers in surrounding communities.

The proposed Development Agreement 22-01 is related to the following City Council Goals and Objectives.

Goal 5 - Development Activity and Business Assistance
Objective B: Identify underutilized commercial properties that have sales tax generating potential and work with property-owners and the brokerage community to develop land to its highest and best use