Staff Report
City Council
Item No. 2.B
Meeting Date: July 22, 2026
From: Justin Gardiner, Code Compliance Manager
Title: Consideration of Assembly Bill 1775 (Cannabis Cafes) and Other Updates to the City's Cannabis Ordinances.
RECOMMENDATION:
Staff recommends that City Council receive the report, discuss Assembly Bill 1775, and provide direction to staff regarding preparation of a future ordinance amending Chapter 5.88 and Chapter 3.48 of the Cathedral City Municipal Code to allow licensed cannabis consumption lounges to host indoor ticketed and non-ticketed events, live entertainment, and related lounge activities within the approved licensed premises, subject to all applicable State and local requirements.
Staff further recommends that Council receive related amendments to strengthen cannabis business licensing, tax compliance, enforcement, ownership and management review, appeal procedures, and general code cleanup so the City's cannabis regulations remain consistent with current State law and local operational needs.
BACKGROUND:
Assembly Bill 1775 amended California Business and Professions Code Section 26200 to expand what a local jurisdiction may authorize for licensed cannabis retailers and microbusinesses that already have authority to operate onsite cannabis consumption areas.
AB 1775 does not require a city to allow these activities. Instead, it gives each jurisdiction the ability to allow, restrict, condition, or prohibit the expanded activities through a local ordinance.
Under AB 1775, a local jurisdiction may authorize a licensed cannabis retailer or microbusiness with onsite consumption to allow the preparation or sale of non-cannabis food or beverage products in the area where cannabis consumption is allowed. The law also authorizes local jurisdictions to allow live musical or other performances on the premises and the sale of tickets for those performances.
The State law permissions are limited by mandatory conditions. These include, but are not limited to: Restricting access to cannabis consumption areas to persons 21 years of age or older, posting warning signage at each entrance to the consumption area, prohibiting cannabis consumption from being visible from public places or non-age restricted areas, prohibiting the sale or consumption of alcohol and tobacco on the premises, preventing contamination or commingling of cannabis and non-cannabis food or beverage products, and addressing employee exposure to secondhand cannabis smoke.
Cathedral City currently allows cannabis businesses and onsite consumption lounges through its local cannabis regulatory framework. The Municipal Code allows cannabis lounges, and there are currently five proposed lounges, three of which are operational. As the lounge business model continues to evolve, local operators have expressed interest in hosting events and providing food and beverage options in a manner like other hospitality uses, while remaining subject to cannabis regulations and local enforcement.
Staff has also been reviewing related cannabis code amendments with the Financial Services Department and the City Attorney's Office. Those items are connected to, but broader than, AB 1775. They include amendments to Chapter 3.48 regarding cannabis tax administration and amendments to Chapter 5.88 regarding licensing, renewal, background checks, ownership and management standards, appeals, inspections, Department of Cannabis Control terminology, odor control, and general cleanup.
This item is being presented as a Study Session. No ordinance is being adopted as part of this report. The purpose of the Study Session is to explain AB 1775, identify potential local impacts, present staff's recommended policy direction, and receive City Council direction on whether staff should prepare a future ordinance for formal consideration. After receiving input and direction from the City Council, the City Manager will be scheduling a meeting with the Cannabis Task Force for further review and comment before bringing a final draft ordinance back to the City Council for consideration.
DISCUSSION:
AB 1775 gives local jurisdictions the ability to authorize certain activities at licensed cannabis retailers or microbusinesses with approved onsite consumption areas, but it does not require a city to allow those activities. City Council may allow all, some, or none of the activities and may impose local restrictions, conditions, permitting requirements, or operational standards.
If adopted, AB 1775 would allow Cathedral City to authorize:
Preparation or sale of non-cannabis food and beverage products, subject to the California Retail Food Code and other applicable requirements. Live musical or other performances on the licensed premises in the area where cannabis consumption is allowed.
Sale of tickets for performances or events.
Continued onsite cannabis consumption, provided all State and local requirements are met.
AB 1775 does not remove local zoning authority, business license authority, cannabis permit authority, enforcement authority, or the City's ability to regulate impacts such as odor, smoke, noise, parking, loitering, public visibility, security, and nuisance activity.
Staff Recommendation
Staff supports local adoption of AB 1775 in a controlled manner that fits Cathedral City's existing cannabis regulatory structure. Staff's recommendation is to allow approved cannabis consumption lounges to host events within the approved indoor licensed premises, provided the lounges continue to comply with all State and local requirements.
The proposed approach would treat indoor lounge events as an allowed operational activity of an approved cannabis consumption lounge rather than requiring separate City approval for every routine indoor event. For example, a lounge could host a ticketed art night, comedy show, educational event, small scale live performance, DJ, industry event, or similar indoor event, provided the event remains within the approved lounge area and does not exceed allowed occupancy, create nuisance conditions, or violate cannabis regulations.
Staff does not recommend allowing outdoor cannabis consumption. Staff also does not recommend allowing a lounge to expand its cannabis consumption area into parking lots, sidewalks, streets, patios, alleys, or other outdoor areas as part of this ordinance. Any activity outside the approved licensed premises would require separate City review and approval and would not authorize outdoor cannabis consumption.
Indoor Events, Ticket Sales, and Live Entertainment
Staff supports allowing licensed cannabis consumption lounges to host ticketed and non- ticketed indoor events within the approved lounge area. This would allow lounges to operate more consistently with the hospitality model contemplated by AB 1775, while remaining subject to cannabis specific oversight.
Indoor events would be required to comply with:
Approved occupancy limits
Fire and life safety requirements
Existing business license and cannabis permit conditions Approved hours of operation
Security plan requirements
Odor control and ventilation requirements
Noise regulations
Parking requirements
Loitering prohibitions
Age restriction requirements
Any applicable conditions of approval
Staff does not recommend using square footage alone as the determining factor for whether a lounge may host ticketed events. While square footage is one factor that may be considered, it does not by itself determine whether an event can be conducted safely or appropriately. Two businesses with the same square footage may have very different operating capacities depending on the approved floor plan, occupant load, number and location of exits, seating layout, fire/life safety systems, accessibility, ventilation, security plan, and how the space is actually being used during the event.
Occupancy, fire/life safety, building capacity, security, and operational compliance are appropriate and enforceable tools for determining whether an event may occur safely as these standards are more directly tied to the actual safety and operational impacts of an event.
Food and Beverage Service
AB 1775 allows local jurisdictions to authorize the preparation or sale of non-cannabis food or beverage products in the area where cannabis consumption is allowed, subject to the California Retail Food Code and other applicable requirements. Staff supports allowing non- cannabis food and beverage options at cannabis consumption lounges, provided the activity complies with State law, Riverside County Environmental Health requirements, and any applicable City requirements.
At a minimum, any future ordinance should make clear that:
Food and beverages must be non-cannabis products
Industrial hemp products and hemp products are not included as allowable non- cannabis food or beverage products
Alcohol and tobacco sales or consumption remains prohibited on cannabis premises Cannabis products and food or beverage products may not be contaminated or commingled
Food storage, preparation, service, and ware washing areas must comply with applicable health requirements
Smoking or vaporizing cannabis may not occur in food preparation, food storage, or ware washing areas
Any food preparation must obtain required approval from Riverside County Environmental Health
Prepackaged food, non-alcoholic beverages, and food delivery services may be allowed if otherwise compliant
Outdoor Areas and Outdoor Consumption
Staff does not support outdoor cannabis consumption as part of this ordinance. The recommended policy direction would allow events only within the approved indoor licensed premises of the cannabis consumption lounge. Events shall not expand into outdoor areas unless separate City review and approval is obtained (Special or Temporary Use Permit).
Outdoor areas include, but are not limited to:
Parking lots
Patios
Sidewalks
Streets
Alleys
Outdoor seating areas
Adjacent private property
Common areas within a shopping center
Temporary event areas
Any proposed outdoor component would require separate review under applicable City processes. Approval of an outdoor component would not authorize outdoor cannabis consumption. Cannabis consumption would remain limited to the approved onsite consumption area.
Finance and Cannabis Tax Compliance Amendments
Finance review identified a need to better align Chapter 3.48 cannabis tax obligations with Chapter 5.88 local licensing requirements. The proposed amendments would clarify that cannabis tax compliance is a continuing condition of local licensure and that failure to file required returns, pay taxes, pay penalties or interest, or cooperate with audits may be grounds for licensing enforcement.
The future ordinance includes amendments that:
Clarify that all cannabis businesses must timely file required tax returns and remit taxes owed under Chapter 3.48
Clarify that tax returns are required even when no taxes are owed during the reporting period
Allow tax delinquency status and audit findings to be shared with the local licensing authority for purposes of license approval, renewal, suspension, revocation, transfer, or modification
Require applicants and licensees to acknowledge that Chapter 3.48 compliance is a continuing condition of local licensure
Require licensees seeking renewal, transfer, or modification to demonstrate that cannabis taxes, penalties, and interest have been paid in full, unless otherwise allowed by an approved payment arrangement
Clarify that payment of cannabis tax does not authorize any illegal business activity or any business activity conducted in violation of City ordinances Clarify audit and inspection authority, including access to records reasonably necessary to verify Chapter 3.48 compliance, such as tax returns, point-of-sale records, and related documentation
Clarify how gross receipts and taxable activity are reported so Finance can administer the cannabis tax consistently across dispensary, cultivation, manufacturing, distribution, and other cannabis business operations
These amendments support accurate reporting, consistent enforcement, and protection of General Fund revenue. They also help prevent a business from remaining in good standing for licensing purposes while failing to meet local cannabis tax obligations.
Licensing, Ownership, Management, and Background Check Updates The City Attorney’s Office identified several Chapter 5.88 provisions that should be updated to better align with current State cannabis regulations and improve local enforceability. The proposed amendments would update the definition of owner to better track Department of Cannabis Control regulations and identify individuals who direct, control, or manage cannabis operations even if they do not hold a significant equity interest.
The future ordinance will also add or clarify the role of managers and require owners and onsite day-to-day managers to complete background checks. This closes a practical gap where a person may exercise operational control over a cannabis business without being captured by older ownership language.
The proposed amendments should also strengthen the good character and disqualification standards by addressing:
Disqualifying criminal conduct identified under State cannabis law Fraud, deceit, embezzlement, and similar conduct relevant to operation of a regulated business
Offenses requiring registration under Penal Code Section 290 Prior cannabis license revocation, suspension, or denial for cause in California or another jurisdiction
Application or licensee misrepresentations, material omissions, or failure to disclose required information
Appeals, Enforcement, and Code Cleanup
The existing Municipal Code uses different appeal tracks for various cannabis licensing decisions. Initial license, renewal, and change decisions are appealed to the City Council, while suspension, modification, and revocation proceedings are reviewed through the administrative hearing process. The future ordinance will clarify this structure so applicants, licensees, staff, and decisionmakers understand which appeal process applies to each type of decision.
City Council may also direct staff to evaluate whether the appeal tracks should remain as they are today, whether all appeals should go to the City Council, or whether certain matters should be heard by a neutral hearing officer. Staff recommends that the future ordinance at minimum make the current structure clear and complete.
The ordinance will also include general cleanup and alignment items, including:
Replace references to the former Bureau of Cannabis Control with the Department of Cannabis Control
Update related State regulatory citations
Update Public Records Act references to the reorganized Government Code provisions
Update the seed-to-sale software definition to reflect the State track-and-trace system Correct cross-references, typographical errors, and usage issues in Chapter 5.88 Clarify inspection authority of City staff, including Code Compliance, Fire, Building, Finance, Police, and the City Attorney's Office, to assist the local licensing authority as appropriate
Code Compliance and Enforcement
Code Compliance does not anticipate that routine indoor lounge events will create a significant additional enforcement burden if events remain inside the approved premises and comply with existing regulations. Code Compliance already monitors cannabis businesses for compliance with the Municipal Code, cannabis business license requirements, permit conditions, odor complaints, nuisance activity, and other operational standards.
If AB 1775 is locally adopted, enforcement would continue through existing tools, including:
Inspection
Notice of violation
Administrative citation
Business license review
Cannabis permit review
Conditions of approval
Referral to other departments or agencies when appropriate Suspension or revocation proceedings when warranted
Potential violations may include, but are not limited to:
Outdoor cannabis consumption
Exceeding occupancy
Unapproved expansion of the premises
Alcohol or tobacco on the premises
Cannabis consumption visible from public areas
Food and cannabis product contamination or commingling Unpermitted food preparation
Odor impacts
Noise violations
Loitering
Failure to maintain required security
Failure to comply with employee safety requirements
Failure to file required tax returns or pay cannabis taxes, penalties, or interest The City would retain authority to take enforcement action if a lounge event creates a nuisance, violates the Municipal Code, violates State cannabis law, or operates outside the scope of the business's approvals.
FISCAL IMPACT:
There is no direct fiscal impact for these Municipal Code updates.
FIVE-YEAR STRATEGIC PLAN:
This item is consistent with Goal F of the City Council Goals and Objectives (Embracing, Inclusive Community) by supporting local business retention, responsible economic development, and the continued regulation of an existing permitted industry within Cathedral City.
ATTACHMENTS:
1. Draft Redline Changes to Chapter 3.48, Cannabis Tax
2. Draft Redline Changes to Chapter 5.88, Cannabis Businesses