Staff Report
City Council
Item No. 5.B
Meeting Date: October 14, 2026
From: Justin Gardiner, Code Compliance Manager
Title: First Reading of an Ordinance Amending Chapters 3.48 and 5.88 Regarding Cannabis Taxes, Licensing, AB 1775, and Odor Control Compliance
RECOMMENDATION:
Staff recommends that the City Council consider the proposed changes, waive further reading, read by title only, and introduce for first reading Ordinance No. XXX amending Chapter 3.48 (Cannabis Tax) and Chapter 5.88 (Cannabis Businesses) of the Cathedral City Municipal Code.
The ordinance would implement the locally authorized activities under Assembly Bill 1775 (AB 1775), update cannabis tax administration and licensing requirements, incorporate Cannabis Task Force input, and amend Section 5.88.055 to require the additional odor control equipment to be installed and operational within six months of approval of the odor control plan, and no later than March 31, 2027. Following introduction, the ordinance would return for second reading and adoption on October 28, 2026.
BACKGROUND:
AB 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 performances or other ticketed or nonticketed events on the premises.
Cathedral City regulates cannabis businesses and approved onsite consumption lounges through Chapters 5.88 and 9.108 of the Municipal Code. Local operators and patrons have expressed interest in food and beverage options and indoor entertainment, while remaining subject to State cannabis requirements and local oversight.
Staff presented the proposed ordinance revisions to the City Council during a study session on July 22, 2026 and to the Cannabis Task Force on August 20, 2026 and provided input.
DISCUSSION:
The ordinance restates Chapters 3.48 and 5.88 in full. Separate redlines of each chapter, showing every change to the current code, are attached as Attachments 2 and 3. In the redlines, deletions appear in red strikethrough text and additions appear in blue doubleunderlined text.
AB 1775 and Indoor Consumption Lounges
Proposed Section 5.88.070.K would allow a licensed dispensary with an approved indoor consumption area to prepare or sell non-cannabis food and beverages, sell prepackaged non-cannabis food and beverages, host live musical or other performances, and sell tickets for those performances. The dispensary definition would include a State-licensed retailer or a microbusiness authorized to engage in retail sales. The operator or customers could also bring in or receive non-cannabis, non-alcoholic food and beverages from a restaurant or delivery service, subject to applicable requirements.
These activities would be limited to the approved indoor consumption area. The ordinance would not create a blanket exemption from otherwise required permits. A lounge would remain responsible for complying with its existing approvals and obtaining any additional special event, temporary use, State, or other approval required for the proposed activity.
The proposed standards include:
Restricting access to the consumption area to persons 21 years of age or older, posting the required entrance warning, and preventing consumption from being visible from public places or areas without age restrictions.
• Prohibiting alcohol and tobacco sales or consumption and preventing non-cannabis food and beverages from being contaminated by or commingled with cannabis products.
• Maintaining required ventilation, filtration, security, fire and life safety measures, occupancy limits, approved hours, parking, and noise compliance. • Allowing employees to wear protective respiratory masks at their discretion without penalty, requiring employers to pay for the masks, providing written secondhandsmoke guidance at hiring, and addressing exposure in required injury and illness prevention programs.
• Prohibiting loitering and suspending the newly authorized activities during a suspension of the State retail or microbusiness license.
Staff does not recommend using square footage alone as the determining factor for whether a lounge may host ticketed or non-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
Food preparation and service would be subject to the California Retail Food Code, Riverside County Environmental Health requirements, and applicable City approvals. Onsite food preparation could not begin until the required approvals, permits, or authorizations have been obtained. Smoking or vaporizing would be prohibited in food preparation, food storage, and warewashing areas, and non-cannabis food and beverages would have to be stored and displayed separately from cannabis products.
The authorization would not extend to industrial hemp or products containing industrial hemp. An existing approved consumption lounge could continue its previously authorized onsite cannabis consumption, but could not begin the new food, beverage, carry-in or delivery, or live performance activities until it satisfies the applicable requirements of Section
5.88.070.K.
Outdoor Areas and the Meaning of an Event
The ordinance would not authorize outdoor cannabis consumption or extend the new food and performance authorization into parking lots, patios, sidewalks, streets, alleys, common areas, or adjacent property. An enclosed or fenced patio remains an outdoor area for purposes of the proposed indoor limitation.
Cannabis Task Force participants asked what constitutes an “event,” including whether a small activity on an outdoor patio requires a special use permit. Staff does not recommend adding a general event definition to Chapter 3.48 or Chapter 5.88 through this amendment.
Whether a separate permit is required will depend on the proposed activity and the business’s existing approvals.
The separate process for State-licensed temporary cannabis events under Section
5.88.035.D would remain in place. It is distinct from the indoor lounge authorization under AB 1775. Approval of an ordinary outdoor activity would not, by itself, authorize outdoor cannabis consumption.
Finance and Cannabis Tax Compliance Amendments
The Chapter 3.48 amendments would align cannabis tax administration with the licensing provisions of Chapter 5.88. Cannabis businesses would continue to be required to file returns even when no tax is owed, remit the full tax due, maintain records, and cooperate with authorized audits. Tax delinquency and audit findings could be shared with the local licensing authority for licensing and enforcement purposes.
The proposed amendments would also:
• Clarify the gross receipts definition, including compensation retained by a distributor for subdivision, repackaging, or redistribution services. Existing exclusions would remain.
• Remove the automatic annual Consumer Price Index adjustment in Section 3.48.010.
The stated maximum tax amounts and the Council’s authority to set lower rates under Section 3.48.040 would remain.
• Specify interest of one-half percent per month, or fraction thereof, on the unpaid tax and penalty balance until paid, in addition to the existing 25 percent delinquency penalty.
• Make tax compliance a continuing condition of licensure and provide for licensing enforcement when required cannabis taxes are not paid.
• Require full payment of cannabis taxes, penalties, and interest for an ownership change, and require taxes associated with all of a licensee’s City cannabis licenses to be current before renewal of any one license.
• Clarify that a business with a tax payment agreement is not considered current for renewal until the agreement is fully paid. The authority to enter into payment agreements under Section 3.48.140 would remain available for collection purposes.
Tax Due Dates on Weekends and Federal Holidays
Section 3.48.080.A would expressly extend both the return filing deadline and the payment deadline to the next business day when the regular due date falls on a Saturday, Sunday, or federal holiday. A return filed and taxes paid by the extended deadline would be timely, with no penalty or interest attributable solely to the extension. This wording aligns the due date with the delinquency and interest provisions, rather than addressing only the penalty.
This ordinance applies to the deadline change to cannabis taxes and does not amend TOT or other tax chapters.
Licensing Ownership Management and Background Checks
The proposed owner definition would address aggregate ownership interests of 20 percent or more and individuals who manage, direct, or control a cannabis business, including relevant officers, managing members, general partners, and persons controlling a trust. A separate manager definition would cover individuals with day-to-day operational control, whether employed by the business or acting in another capacity. Each owner and manager would be required to provide fingerprints and information needed for a background check.
Applications and renewals would be submitted online. Applicants would acknowledge their cannabis tax obligations and the continuing duty to comply with Chapter 3.48. Existing worker background-check and identification-card requirements would continue.
Good Moral Character and Prior Licensing Actions
The City Attorney’s Office proposed good moral character standards that add specified misdemeanor convictions to the existing felony categories involving fraud, deceit, embezzlement, and specified controlled-substance conduct involving minors.
The separate provision addressing a prior cannabis license revocation, suspension, or denial for cause would allow the City to determine good moral character on a case-by-case basis.
A prior licensing action would be relevant to review without automatically barring every future application. Withdrawal or surrender while a revocation or suspension proceeding is pending would continue to count as a revocation for cause. This discretion does not waive other requirements or guarantee approval of a later application.
City Manager and Designee Authority
The definition of City Manager would continue to include the City Manager’s duly authorized designee. The Cannabis Task Force shared a concern regarding delegation is acknowledged, but no substantive restriction on that existing delegation language is proposed. A designee acts within the authority delegated for the applicable function; the definition does not itself confer the full office or all powers of the City Manager on another employee.
Actual Operations and Other Operational Updates
For a first dispensary renewal, the proposed standards would require evidence of actual operations during the 30 days before expiration. For later renewals, the required period would be the previous 12 consecutive months. Tax returns would be necessary evidence but would not, by themselves, prove sustained operations. The City could request point-ofsale records, posted hours, and staffing schedules; isolated or token sales made primarily to generate a qualifying return would not satisfy the requirement. The existing ability to consider unique or extraordinary circumstances would remain.
Dispensaries would be required to post and comply with their operating hours, maintain stocked and commercially operable retail displays with current pricing, and keep current public information about the business. Additional amendments address licensee responsibility for acts within the scope of its representatives’ work, applicable cultivation wastewater requirements, and access to tax and business records.
The proposed revision would remove the separate requirement that every cultivation and manufacturing business install and maintain onsite meteorological sensors. Odor control plans, equipment maintenance, annual certification, and enforcement requirements would remain applicable. Any separate requirement imposed through an existing permit or condition of approval would require its own review.
Odor Control Equipment Compliance Deadline
Section 5.88.055.H currently requires licenses initially issued on or before January 22, 2025 to obtain approval of an odor control plan as a condition of renewal beginning January 1, 2026. It also requires additional odor control equipment to be installed and operational within six months of the renewal application date and no later than December 31, 2026.
Recently, staff has gotten feedback from some cannabis cultivators that they were having difficulty meeting the new timelines to obtain an odor control permit for a variety of reasons including identifying qualified professionals to review their odor control systems, timeliness to get plans reviewed and corrections made, and equipment delivery timelines. Feedback was provided by business owners who have been timely with their submittal of their permit applications.
Staff proposes to retain the plan approval and annual certification requirements, while changing the equipment installation period to six months from approval of the odor control plan and extending the outside deadline to March 31, 2027. The extension provides existing cannabis businesses additional time to install and activate the required odor control equipment following approval of their plans, while maintaining a fixed compliance deadline.
Starting the period at plan approval ties installation to the approved equipment and specifications.
The revised subsection would read as follows:
H. Licenses initially issued on or before January 22, 2025, shall obtain approval of an odor control plan conforming with the requirements of this chapter and Chapter 9.108 of the Cathedral City Municipal Code as a requirement of local license renewal beginning on January 1, 2026. Any additionally required odor control equipment to meet the requirements of this chapter shall be installed and operational within six months of the approval of an odor control plan and no later than March 31, 2027.
Thereafter, the renewal of any local license shall annually certify the performance of its odor control plan to the requirements of this chapter and Chapter 9.108 of the Cathedral City Municipal Code.
Both limits would apply: The equipment must be operational within six months of plan approval and by March 31, 2027, whichever occurs first. Approval less than six months before March 31, 2027 would not provide a full six months beyond that date. The amendment does not postpone required plan approval, suspend odor nuisance enforcement, or change the pre-operation equipment requirement for businesses established after January 22, 2025.
Section 5.88.125.H would continue to direct eligible existing businesses to Section
5.88.055.H.
Appeals Enforcement and Code Cleanup
Section 5.88.060 would clarify City Council appeals of denied or conditionally approved initial licenses, nonrenewals, and denied changes requested under Section 5.88.050. Worker identification-card denial and nonrenewal appeals would continue through the same process. Proceedings to suspend, modify, or revoke a local license for good cause would follow Chapter 13.150. The separate odor control plan appeal process in Section 5.88.125.E would remain unchanged.
The ordinance would also update Department of Cannabis Control terminology, State regulatory references, the State track-and-trace software definition, and Public Records Act references. It would also correct drafting and cross-reference errors, clarify tax record inspection, authorize civil or equitable abatement actions, and specify that each day a violation continues constitutes a separate offense.
Code Compliance and Enforcement
Code Compliance now has a dedicated Code Compliance Officer assigned to cannabis inspections and enforcement. The officer will support implementation through routine inspections, compliance monitoring, and investigation of complaints and violations. The City would retain authority to address excessive occupancy, unauthorized activities or expansion, outdoor consumption not lawfully authorized, alcohol or tobacco violations, food handling violations, smoke and odor impacts, noise, loitering, inadequate security, and tax noncompliance. Available remedies include notices, citations, conditions of approval, agency referrals, and license suspension or revocation when warranted.
CEQA:
Staff recommends that the City Council find the ordinance exempt from the California Environmental Quality Act (CEQA) on the following grounds. Each ground is independent.
The Chapter 3.48 amendments change how the City administers and collects an existing tax. The licensing amendments change application, renewal, background check, appeal, and enforcement procedures. These are government fiscal and administrative activities that commit the City to no physical project. They are not a "project" under State CEQA Guidelines Section 15378(b)(4) and (b)(5).
The ordinance allows Food, beverage, and performance activities only within consumption areas the City has already approved inside existing buildings. It does not authorize new construction, an expanded licensed premises, or outdoor consumption. Each activity remains subject to existing occupancy, fire, building, noise, security, ventilation, and odor requirements, and onsite food preparation requires County Environmental Health approval.
Any resulting change in use is negligible. The activities fall within the Class 1 exemption for existing facilities under Guidelines Section 15301.
The ordinance changes when existing businesses must finish installing additional odor control equipment. Installation must occur within six months of odor control plan approval, and no later than March 31, 2027. Odor control plans, performance standards, maintenance, annual certification, and nuisance enforcement remain in force throughout. Removing the meteorological sensor requirement eliminates a monitoring device, not a control. Neither change alters existing physical conditions.
For these reasons, the City Council can see with certainty that there is no possibility the ordinance may have a significant effect on the environment. The ordinance is therefore also exempt under Guidelines Section 15061(b)(3).
FISCAL IMPACT:
No fiscal impact associated with these changes/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 Ordinance
2. Chapter 3.48 (Cannabis Tax), redlined
3. Chapter 5.88 (Cannabis Businesses), redlined