That the City Council CONSIDER, APPROVE AND ADOPT THE FIRST READING OF ORDINANCE NO. CC 2025-___ ENTITLED: AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA HABRA, CALIFORNIA, FINDING THAT THIS ORDINANCE IS EXEMPT FROM REVIEW UNDER THE CALIFORNIA ENVIRONMENTAL QUALITY ACT AND TERMINATING 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.

Background

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”), to be codified in various sections of the California Health and Safety Code and California Business and Professions Code. The AUMA allows adults ages 21 and over to use, possess, and cultivate limited amounts of marijuana, and establishes a state licensing and regulatory framework for marijuana businesses serving the recreational market. The AUMA 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 non-medical and recreational marijuana businesses from locating and operating within their jurisdictions.
 

On April 2, 2018, the City Council adopted Ordinance No. 1791 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 provide regulations for commercial cannabis distribution businesses. On October 1, 2018, the City Council adopted Ordinance No. 1794 amending Chapter 18.22 to regulate cannabis testing laboratories; and, on December 21, 2020, the City Council adopted Ordnance No. 1827 amending Chapter 18.22 to regulate non-storefront retail cannabis businesses.  Chapter 18.22 establishes the City's regulations pertaining to these types of cannabis businesses, as well as requirements to apply for and operate these types of businesses (see Attachment 2). Each type of cannabis business is limited to a maximum of four licenses to operate in the City, subject to successfully navigating the application/background review process and receiving City Council approval of a Development Agreement.

To date, the City Council has approved Development Agreements for the operation of three distribution businesses (warehouse operations) and four non-storefront retail businesses (see Attachment 3). However, on November 20, 2023, the City Council terminated Development Agreement 18-03 between the City of La Habra and River Distribution Co., due to the closure of their cannabis distribution facility at 1721 East Lambert Avenue. The Community and Economic Development Department maintains a webpage that provides an overview of the types of cannabis permits that are available and the application process. While staff receives occasional inquiries, the City has not received any applications to operate any cannabis testing laboratories or for the two cannabis distribution licenses that are currently available.

Pinnacle Wellness, LLC

On February 16, 2021, the City Council adopted Ordinance 1829, which approved Development Agreement 20-01 between the City and Pinnacle Wellness Group, LLC, signed by its manager, Jacob Poozihikala, for the operation of a cannabis distribution facility at 536 West Mountain View Avenue, Unit A (see Attachment 4). This development agreement was approved for a four-year term, which expired on February 16, 2025. Although a permit was issued for the tenant improvement plans associated with this facility on April 7, 2022, the improvements never received final inspections, and the business never commenced operations. 

On August 15, 2022, the City Council adopted Ordinance 1845, which approved Development Agreement 22-03 between the City and JP420, LLC, for the operation of a non-storefront retail cannabis facility at 536 West Mountain View Avenue (same address as above), Unit B (see Attachment 5). This development agreement was also signed by Jacob Poozhikala, acting as the manager for JP420, LLC.  Although tenant improvement plans were approved for this facility in 2023, the permit fees, which are required prior to the issuance of the permit and construction of the tenant improvements, were never paid, and the plan check has expired.  This development agreement, which was approved for a five-year term that will expire in 2027, remains in effect and is not the subject of this termination.

Staff recently discovered that the building at 536 West Mountain View Avenue, which housed both Pinnacle Wellness Group, LLC and JP420, LLC's approved facilities, was sold last month to German Ramirez, who is now operating, National Offset Warehouse, a printing equipment and parts supplier, from the site. Due to this development, staff, in consultation with the City Attorney's Office, is currently reviewing Development Agreement 22-03 with JP420, LLC to determine the appropriate next steps. This review will assess options for either working with the licensee to cure the outstanding issues within the development agreement or proceeding with termination of the agreement, given that the business never commenced operations and the property has been sold.

The rules for entering into and terminating development agreements are governed by state law and require an ordinance and public hearings to approve and terminate a development agreement. In consultation with the City Attorney’s Office, and because development agreements must be approved by ordinance, per California Government Codes 65868 and 65867, the City is required to conduct a public hearing and adopt an ordinance to terminate Development Agreement 20-01. 

California Government Code 65868 provides that:

“A development agreement may be amended, or canceled in whole or in part, by mutual consent of the parties to the agreement or their successors in interest. Notice of intention to amend or cancel any portion of the agreement shall be given in the manner provided by Section 65867. An amendment to an agreement shall be subject to the provisions of Section 65867.5.”

California Government Code 65867 provides that:

“A public hearing on an application for a development agreement shall be held by the planning agency and by the legislative body. Notice of intention to consider adoption of a development agreement shall be given as provided in Sections 65090 and 65091 in addition to any other notice required by law for other actions to be considered concurrently with the development agreement.”

Therefore, because this development agreement was approved for a four-year term, which expired on February 16, 2025, staff recommends that the City Council, following a public hearing, introduce an ordinance to terminate Development Agreement 20-01.

Section 16 (Payments by Developer) of Development Agreement 20-1 states that "the Developer (Pinnacle Wellness Group, LLC) agrees that for the Term of this Agreement, Developer shall pay the City 3.75% on all gross receipts attributable to the Site ...beginning on the date the facility begins operations." Since this facility never commenced operations, the City has not received this payment. In addition, Section 17 (Community Benefits) of Development Agreement 20-1 requires a payment to "causes that align with making the residents of La Habra healthier and more active, including but not limited to abatement of overgrown vegetation and improvement of park/city facilities" as well as a service commitment of 24 hours per each four employees to charitable, non-profit or City-sponsored causes located within the City or partnered with the City. The payment required is $10,000 in the first year of operation, $20,000 in the second year of operation, and $30,000 each year thereafter, Again, since the facility never commenced operations, these requirements have also not been fulfilled. Furthermore, there is no fee adopted for the termination of this Development Agreement, and therefore, the associated costs are absorbed by the Community and Economic Development Department's General Fund budget.

The recommended action is consistent with the following goals of the La Habra General Plan:

The recommended action implements the following City Council Goal and Objectives: