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 22-04 BETWEEN THE CITY OF LA HABRA AND SHRYNE LA HABRA, LLC (DBA - BLAZE) FOR A NON-STOREFRONT RETAIL CANNABIS BUSINESS AT 1721 EAST LAMBERT ROAD, SUITE A.

The Applicant, Shryne La Habra, LLC (DBA - Blaze), is requesting approval of a Development Agreement (DA) 22-04 to operate a non-storefront retail cannabis business on a property that currently serves various industrial uses. The property sits near the La Habra/Fullerton border, on the north side of Lambert Road, west of Palm Street, as shown on Attachment 1. A fence along the north property line separates the site from the nearby railroad tracks. 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 Commercial Industrial land use designation.

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 consulting firm with cannabis expertise 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 then 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 Shryne La Habra, LLC (DBA - Blaze) met the minimum criteria and therefore, allowed them to submit their request for approval of CUP 22-13 and DA 22-04.

Operational Characteristics

Blaze will offer home delivery of cannabis products acquired from their own distribution center based in downtown Los Angeles and/or purchased from various licensed distributors. All cannabis products will be stored in a secured storage area. The facility will initially be staffed with up to 45 employees that will be working in varying shifts. During a routine business day, about 10 employees will be on-site during one of these shifts and five employees will be working as delivery drivers.  Staff will include: a general manager, inventory co-manager, quality control manager, support manager, fleet manager, human resources associate, inventory associates, delivery drivers and security guards. 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 unmarked and will be covered by the business' insurance and safety requirements. According to the applicant, the last delivery order will be accepted by no later than 9:50 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.
 
The proposed non-storefront cannabis business will be situated on a property that is completely surrounded by various other industrial uses. Since the proposed business will have similar operating characteristics of other 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 surrounding area. As previously noted, the proposed business will be situated within an established industrial area. The closest residential area, Lake Park La Habra Mobile Home Park, is located over 1,000 feet away. Sonora High School is located approximately 650-feet from the proposed location; however, it is separated from the business by railroad tracks and an industrial park. As part of the Blaze business plan, the business operator will hire security staff that will follow safety and security protocols as needed or required. 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 5,019 square feet of space as shown on Exhibit 3 below. Floor area is reserved for a manager office, security office, employee break room, restroom facilities, HR office, secured inventory room and assembly room. An internal drive area 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. 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.

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 certain 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 application process 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 22-13 to allow a non-storefront retail cannabis business located at 1721 East Lambert Road, Suite A and recommended to the City Council approval of the related Development Agreement 22-04. 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 22-13 and Development Agreement 22-04. Commissioner Bernier voted no because she stated that she did not agree with the percentage of payments outlined in Development Agreement 22-04 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 22-13 is contingent upon approval of Development Agreement 22-04. Development Agreement 22-04 is now being presented to the City Council for final review and approval.

Under Development Agreement 22-04, 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 $8.1 million. Therefore, the applicant will be expected to submit a Community Benefit Payment amounting to approximately $40,500 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 $243,000 annually.