13-B
TO: Honorable Mayor and Members of the City Council
ATTENTION: Jeffrey L. Stewart, City Manager
FROM: Travis Sais, Assistant to the City Manager
SUBJECT: Consideration and possible action to consider: 1) a Modification Application for two existing Cannabis Business Permits (“CBP”) for dispensary and distribution uses for EEL Holdings, LLC
(dba Catalyst - Bellflower); and 2) a request to convert a previously held manufacturing CBP to a second distribution CBP at 9032-9038 Artesia Boulevard. [Continued from May 22, 2023]
Date: June 12, 2023
EXECUTIVE SUMMARY
This item was continued from the May 22, 2023 City Council Meeting.
On March 30, 2023, EEL Holdings, LLC (dba Catalyst – Bellflower) submitted a Cannabis Business Permit (“CBP”) Modification Application (“Application”) for the City Council’s consideration. The Application, among other things, explains the existing and proposed business interests, proprietors and ownership.
EEL Holdings, LLC (“EEL”) submitted the Application with the following requests:
1) approve a modification to name “Catalyst – Bellflower LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee; 2) approve a modification to name “Catalyst – Distro LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee; and 3) approve a request to convert its previously held manufacturing permit to a distribution permit for the former manufacturing facility – and naming “Distro A LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee.
The City Manager reviewed the Application and determined, based on the information provided in the Application, the first two requests appear to meet the requirements specified in the policies and procedures for modifying existing CBPs. The list of South Cord Holdings, LLC financial interest holders is being reviewed and vetted by the City Attorney’s Office. At the time of this writing, that process was still underway; it will be complete by June 12th. Recommended approval of the third request is contingent upon the City Council’s adoption of Resolution No. 23-18 - which would modify the definitions of a “Modified CBP” and a “Converted CBP” in the Cannabis Regulations (See agenda item 13-A on the June 12, 2023 City Council Meeting Agenda). The Application was available for individual City Council Members to review.
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Staff Report – EEL Holdings, LLC (dba Catalyst – Bellflower) Modification Application June 12, 2023
RECOMMENDATION TO CITY COUNCIL
1) Approve a Modification Application for two existing Cannabis Business Permits (“CBP”) for dispensary and distribution uses for EEL Holdings, LLC (dba Catalyst - Bellflower);
2) If desired, approve a request to convert a previously held manufacturing CBP to a second distribution CBP at 9032-9038 Artesia Boulevard;
3) At the request of the Mayor, discuss the feasibility of prohibiting publicly traded companies from participating in cannabis permittees as an “owner” as defined by the Cannabis Regulations; or
4) Alternatively, discuss and take other action related to this item.
FISCAL IMPACT
CBP modification applications are required to pay a review fee of $3,410.00 to recover processing costs. EEL paid that fee on March 30, 2023. EEL is also current on all taxes remitted to the City.
DISCUSSION
On March 30, 2023, EEL submitted a CBP Modification Application for the City Council’s consideration. The Application, among other things, explains the existing and proposed business interests, proprietors and ownership.
EEL submitted the Application with the following requests:
1) approve a modification to name “Catalyst – Bellflower LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee; 2) approve a modification to name “Catalyst – Distro LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee;
3) approve a request to convert its previously held manufacturing permit to a distribution permit for the former manufacturing facility – and naming “Distro A LLC,” a wholly owned subsidiary of “South Cord Holdings, LLC,” as the CBP Permittee.
a. Or, alternatively, issue a new CBP for distribution at the former manufacturing facility – and naming Distro A LLC, a wholly owned subsidiary of South Cord Holdings, LLC, as the CBP Permittee.
EEL states in its Application that in order to finance its enterprise expansion, it was required to raise funds from shareholders and lenders and to establish South Cord Holdings LLC (“SCH”) as the holding company for the Catalyst assets. -2-
Staff Report – EEL Holdings, LLC (dba Catalyst – Bellflower) Modification Application June 12, 2023
DISCUSSION – Continued
EEL further explains this has allowed for it to: 1) secure additional investment; 2) simplify management and operations; 3) rationalize legal ownership; 4) consolidate assets; and 5) obtain valuation synergies. To that end, it further explains it is proactively working to reorganize its legacy assets – such as the Bellflower distribution and retail/dispensary assets – so that they can become part of the SCH holding structure and further its business objectives.
Currently, Elliot Lewis is listed as the sole owner and manager of EEL Holdings, LLC.
Per the submitted Application, Elliot Lewis will continue to be the sole owner and manager of the new CBP Permitees (Catalyst – Bellflower LLC; Catalyst – Distro LLC; and Distro A LLC). Specifically, Elliot Lewis is listed as the largest shareholder of SCH and is the only shareholder of SCH with an equity interest at or above 25%. In addition, Elliot Lewis is further explained as the designated manager of SCH and is the sole and absolute authority over all of the affairs of SCH, including the management and operation of its cannabis businesses. The submitted Application included an affidavit stating that Elliot Lewis is the sole manager and sole decision-making authorty of South Cord Holdings LLC, and also the sole decision-making authority of Catalyst – Bellflower LLC, Catalyst – Distro LLC, and Distro A LLC.
The City Manager reviewed the Application and determined the first two requests appear to meet the requirements specified in the policies and procedures for modifying existing CBPs. The list of the SCH financial interest holders is being reviewed and vetted by the City Attorney’s Office. At the time of this writing, that process was still underway; it will be complete by June 12th.
On December 15, 2022, the City Council considered CBP renewals for existing permittees. Following the review of EEL’s renewal application, it was granted the renewal of two CBPs, one for its distribution use and the other for its dispensary use. EEL indicated in its renewal application that it ceased its manufacturing operations and sought to expand its distribution operation into the manufacturing space. Ultimately, the distribution expansion was approved with the renewal of EEL’s existing distribution CBP and it did not renew the manufacturing CBP.
EEL states in its Modification Application that it is now requesting to convert its previously held manufacturing CBP to a separate distribution CBP because the existing arrangement (having the two distribution facilities under one CBP) eliminates its ability to treat the two separate facilities as separate operating assets – thereby imposing significant legal and administrative costs on the overall enterprise. It states this current arrangement:
1. Complicates accounting practices;
2. Complicates complex compliance practices;
a. It anticipates running into difficulty with the State when trying to obtain a second distribution license / where the local jurisdiction (City of Bellflower) has only issued one CBP.
3. Increases legal liability exposures;
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Staff Report – EEL Holdings, LLC (dba Catalyst – Bellflower) Modification Application June 12, 2023
DISCUSSION – Continued
4. Reduces business flexibility in future transactions; and
5. Increases insurance premiums.
Nonetheless, in order for a previously held manufacturing CBP to be converted to a distribution CBP, the Cannabis Regulations would need to be amended to allow for this conversion. Hence, EEL’s third request in its Modification Application is contingent upon the City Council’s adoption of Resolution No. 23-18 - which would modify the definitions of a “Modified CBP” and a “Converted CBP” (See agenda item 13-A on the May 22, 2023 City Council Meeting Agenda).
During the May 22, 2023 meeting, the Mayor requested that the City Council discuss the feasibility of prohibiting publicly traded companies from participating as “owners” – as defined by the City’s Cannabis Regulations – in cannabis businesses regulated by the Bellflower Municipal Code. From a legal standpoint, the City Council may define ownership to exclude such companies from participating as “owners” of permittees. The City Council has broad discretion to impose such a requirement.
How this would affect cannabis businesses from a practical standpoint is unknown. A review of the several cannabis business permittees shows that none of the publicly traded corporations that own an interest in those permittees would qualify as an “owner” under the City’s current Cannabis Regulations. Moreover, the only known publicly traded company that is a shareholder in any of the current permittees is a Canadian based company.
ATTACHMENT
EEL Holdings, LLC Modification Request Letter………………………..…………………....5 -4-
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