Select among three options for allocation of limited cannabis license types and permits pursuant to the Cannabis Land Use Ordinance (CLUO). (No general fund impact) (Echiburu/Anderson)

Select among three options for allocation of limited cannabis license types and permits pursuant to the Cannabis Land Use Ordinance (CLUO).

On December 7, 2021, the Board amended several sections of the Cannabis Land Use Ordinance (CLUO), including Section 8-2.1404 (Applicability), which extended the initial Cannabis Use Permit (CUP) application period and added a requirement that existing licensees seeking non-cultivation license types must apply for a Pre-Application review between January 3 and January 31, 2022 (see Attachment A, CLUO Implementation Timeline). The primary intent of the Pre-Application process is to determine if the demand for the allocated license types exceeds the availability. Based on Pre-Application submissions, the demand may exceed the number of license types allocated in the CLUO for four of the license types: Nursery, Processing, Manufacturing, and Distribution (see table below). 

Section 8-2.1406(G) of the CLUO tasks the Board of Supervisors with selecting a method for allocation of CUPs and/or licenses in instances where demand exceeds or is expected to exceed the available number of permits/licenses. This method will apply to applicants in the Capay Valley, which are limited to only the cultivation license, and also to applicants outside of Capay Valley for Nursey, Processing, Manufacturing, and Distribution licenses.  In the Capay Valley there are currently 13 licensees.  Staff believes at least 7 licensees will apply for the 5 CUPs and cultivation licenses available within the Capay Valley.  In the remainder of the County, based on the Pre-Application process, there are 17 licensees that have indicated they wish to pursue one or more of the four license types for which demand exceeds availability.
 
While the Pre-Application process has identified that demand for the Nursery, Processing, Manufacturing, and Distribution license types may exceed the number allocated in the CLUO, staff believe the actual demand is likely to be lower than indicated in the table after CUP applications are received and processed, recognizing that:

However, it is likely demand will nevertheless exceed the number of allocated license types in some categories after CUP applications are received and processed. Therefore, pursuant to Section 8- 2.1406(G) of the CLUO, staff is requesting that the Board select an appropriate allocation method.   
 
Staff recommends the Board consider the following allocation options:
 
Option 1: No Action at This Time
Option 2: Merit-Based Ranking
Option 3: Lottery
 
Option 1: No Action At This Time
Under this option, the Board would not select an allocation method at this time. Option 2 and Option 3 described below would remain available for later consideration.
 
Benefits of this option include that it would allow for attrition that may occur through the CUP application process.  Concerns with this option include that it would not provide procedural certainty to applicants.  It would also involve a two-step process wherein the second step could not occur until the CUP process was complete.  Under the approved CLUO Implementation Timeline (Attachment A), the target date for the CUP process for existing licensees to be complete is June 30, 2023, and the target date for initial allocation of other license types to approved CUPs is July 5, 2023 to September 29, 2023. 
 
This option would involve the following steps:
 
Staff Analysis of Cannabis Use Permit Applications (CUPs)
CUP applications must be submitted by December 16, 2022.  Complete applications must include required technical studies (such as biological and cultural resources).  Staff may place applications into tiers based generally on whether they can move forward quickly or require additional analysis (such as CEQA).  Applications that have all required information and can be covered by the certified CLUO EIR (meaning they do not need additional CEQA review) may be processed first, which could affect the availability of limited license types.  Whether this “tiering” is necessary will be determined based on the quality of the CUP application submittals.  Staff believe most, but not all, applications from existing licensees will be covered under the CLUO EIR.
 
For all CUP applications, staff will undertake an analysis of compliance with the CLUO. A summary of CUP criteria is provided in Attachment B.  Staff will analyze compliance and "fit" of each proposal for all requested license use types regardless of whether the license type is capped.  In other words, all applications will be screened and analyzed by staff for merit and compliance, including consistency with the CLUO EIR. Once an application has been fully vetted by staff and other reviewing agencies, and the appropriate level of environmental review has been conducted, staff will schedule the application for hearing and make a recommendation to the Planning Commission.

Planning Commission Hearing
Pursuant to the CLUO, the Planning Commission is the final approval authority unless there is an appeal.  All CUP applications will be acted on by the Planning Commission which will ultimately involve approval (with conditions) or denial of the CUP, and license types for which demand does not exceed availability.  If the application consists of a request for one or more license types for which demand exceeds availability, the Planning Commission may, based on the merits, deny that license type outright or authorize the application for that license type to move forward to the allocation process.
 
Conduct Chosen Allocation Process
Once all CUP applications requesting license types for which the demand exceeds the license allocation have been acted on by the Planning Commission, Option 2 or 3 described below would be applied as directed by the Board of Supervisors.  This same process and the chosen option would also apply to the consideration of the Capay Valley applications as a batch.
 
If the Board supports Option 1, the motion should direct staff to utilize Option1 (No Action at this Time), and no further action is necessary at this time.
 
Option 2: Merit-Based Ranking
The CUP process requires evaluation of the merits of each applicant/site against the requirements of the CLUO.  To award the capped license types using a merit-based ranking, the Planning Commission would conduct a second step that evaluates the merits of each applicant/site against one another.  In order to do this sooner than July 5, 2023 as identified in the approved CLUO Implementation Timeline (Attachment A), existing licensees seeking licenses for nurseries, processing, manufacturing, and distribution must have submitted a timely Pre-Application and must submit their CUP applications sooner than the December 16, 2022 deadline identified in the CLUO.  To accomplish this, staff proposes a CUP application deadline of June 30, 2022, for those applicants seeking one or more of the four capped license types.  Applicants within the Capay Valley must also submit by this date, as the CLUO and CLUO EIR require that applications in areas of over-concentration be processed as a “batch” and before all other applications.  
 
Benefits of this option include that it would provide procedural certainty for applicants and allow for attrition that may occur through the CUP process.  It would continue the merit-based approach embedded in the CUP process, the outcome would be appealable to the Board, and the process could be completed sooner than currently planned.  Staff estimate this process could be completed by early 2023.  Concerns related to this option include that applicants may have difficulty meeting the earlier timeframe for CUP application submittal, and it would involve a two-hearing process.  The second hearing would occur once the initial CUP process was complete as described below.
 
This option would involve the following steps:
 
Staff Analysis of Use Permit Application
Same as under Option 1 described above.
 
Planning Commission Hearing
Same as under Option 1 described above.
 
Conduct Merit-Based Allocation Process
Once all CUP applications requesting license types for which the demand exceeds the license allocation have been acted on by the Planning Commission, a separate ranking process will occur wherein staff compares and contrasts the applications to one another screening for best fit and readiness based on the CLUO requirements (Attachment B).  This information, backed by substantial evidence, would be presented to the Planning Commission for final consideration and action.  This process would apply to the Capay Valley applications as well. 
 
If the Board supports Option 2, the motion should direct staff to utilize Option 2 (Merit-Based Ranking) and include recognition that the CUP application deadline for Capay Valley applicants and applicants that have submitted Pre-Applications requesting nursery, processing, manufacturing, and/or distribution will be June 30, 2022.
 
Option 3: Lottery
This option would allocate those capped license types for which demand exceeds availability based entirely on chance.  Applicants would be randomly “drawn” from the pool of permittees that have received CUP approval by the Planning Commission and have been granted authorization to move forward to the allocation process.  Rather than a merit-based ranking and second hearing as described for Option 2, this option would allocate the relevant licenses based on a lottery. 
 
Benefits of this option include it would provide procedural certainty for applicants and allow for attrition that may occur through the CUP process.  Allocation would occur based on chance, which could minimize concerns about subjectivity associated with Option 2.  Because the second step for this option involves a lottery or drawing rather than a second hearing, it could also be conducted much faster than Option 2, literally within days of the Commission’s actions on the CUPs authorized to move forward to the allocation process.  If the deadlines identified in the CLUO Implementation Timeline are followed, this would occur in early July of 2023.  If the application deadline of June 30, 2022 identified in Option 2 is imposed, this option could be conducted in late 2022 or early 2023 but as noted would take only a few days to complete.  Concerns include that this option does not consider the relative merits of the applicants when compared to one another, and also the results of the lottery would not be appealable to the Board. 
 
This option would involve the following steps:
 
Staff Analysis of Use Permit Application
Same as under Option 1 described above.
 
Planning Commission Hearing
Same as under Option 1 described above.
 
Conduct Lottery Allocation Process
Once all CUP applications requesting license types for which the demand exceeds the license allocation have been acted on by the Planning Commission, the lottery would be conducted and applicants would be informed of the results.  No additional hearings would be required.  This process would apply to the Capay Valley applications as well.
 
If the Board supports Option 3, the motion should direct staff to utilize Option 3 (Lottery) and should include direction whether the CUP application deadline should be advanced to June 30, 2022 or remain December 16, 2022.

Staff met with the Cannabis Regulation Ad Hoc Subcommittee regarding cannabis license allocation options. The subcommittee preferred a merit-based approach (Option 2).

Staff also collaborated with the office of the County Counsel.