If conflicting state or federal law impact the project the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance with any such federal or state law.” (Dev. Agmt. § 23(o)). If an amendment is necessary to comply with conflicting state or federal law “the City shall cooperate with the operator in securing any City permits, licenses or other authorizations that may be required as a result of any amendment resulting from actions initiated by the City.” (Dev. Agmt. § 23(o)).
Contractually, the City promised to ensure the agreements remains in force: “The parties shall cooperate with each other and undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect and is implemented in accordance with its terms and to the fullest extent permitted by state or federal law.” (Dev. Agmt. § 23(c)).
Several actions taken by the City to terminate the agreement as a result of refusing to pay illegal fees are intended to terminate the agreement in bad faith in violation of the many promises made by the City in the development agreements.
2.3 Approved Plans Were Incorporate in the Agreements and the City Contractually Agreed Redesigning Approved Plans is Considered a Default.
Section 3 titled “Operator’s Site and Floor Plans” incorporate the site and floor plans as an exhibit: “The operator’s site plan and floor plan for the facility are attached hereto as Exhibit D and incorporated into the application.” (Dev. Agmt. § 3(a)). The “cannabis permit application” and its detailed construction plans were also incorporated. (Dev. Agmt. § 1(d)).
The development agreements confirm that “the Project will consist of a vertically integrated” facility providing “cannabis production, processing, and distribution.” (Dev. Agmt.
Recital I). The existing “industrial/warehouse building” comprising 68,000-square-feet will be divided into seven spaces. (Dev. Agmt. Recital I). Construction includes the “renovation or remodeling of existing buildings.” (Dev. Agmt. § 13).
The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that any redesign of approved plans would constitute a default and require fees during this period of delay to be extended, i.e., waived.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 7
2.4 City Agreed to Expedite Permits and Contractually Promised that Delays by the City in Expediting Permits is Considered a Default.
The City agreed that the “Operator shall receive priority processing for any corresponding City permits.” (Dev. Agmt. Recital F). The City “acknowledge[d] that changes to the project or development plans and related approvals may be appropriate and mutually desirable to carry out the intent and purpose of this agreement.” (Dev. Agmt. § 23(n)).
The City agreed if conflicting laws “require changes in plans, maps or permits approved by the City, this agreement shall remain in full force” and the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance” and “the City shall cooperate with operator in securing any City permits.” (Dev. Agmt. § 23(o)).
The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that its failure to expedite construction would require fees during this period of delay to be extended, i.e., waived.
2.5 Construction Procedures Were Incorporated in the Agreements and the City Agreed Any Construction Delays by the City is Considered a Default.
Section 13 titled “Standard Conditions for Construction” incorporate the construction procedure as an exhibit: “During any on-site construction activities related to development of the project site and any buildings thereon, or renovation or remodeling of existing buildings, operator shall comply with all applicable terms and conditions of City’s standard conditions for construction, attached and incorporated as Exhibit F.” (Dev. Agmt. § 13).
The construction included dividing an existing 68,000-square-foot “industrial/warehouse building” into seven spaces. (Dev. Agmt. Recital I). The operator agreed to comply with the “construction requirements contained in the agreement.” (Dev. Agmt. § 1(d)).
The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City agreed to provide “an extension of time” for “any default by the City.” (Dev. Agmt. § 23(i)). In effect, if the City required any construction procedure, other than the one attached to the agreement, it would be in default and any fees due would be extended, i.e., waived, during the period of default.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 8
2.6 Force Majure Delays Require an Extension for Local, State or National Emergencies and an Extension for Any Default by the City.
Section 23(i) titled “Force Majeure” provides “an extension of time” during delays due to “local, state or national emergencies” or delays due “any default by the City” as follows:
“23(i). Force Majeure. If delays are caused by unforeseen events beyond the control of the operator, such delays will entitle operator to an extension of time as provided in this section. Such unforeseen events (‘Force Majeure’) shall mean war, insurrection, acts of God, local, state or national emergencies, strikes and other labor difficulties beyond the party’s control, or any default by the City hereunder, which Force Majeure event substantially interferes with the development, construction or operation of the Project.” On March 19, 2020, Governor Newsom ordered all individuals to stay home at their place of residence, except the individuals working in critical infrastructure sectors identified in the order. The order restricted all non-essential travel and activities outside the home. On March 19, 2020, the County of Los Angeles issued a Mandatory Stay at Home Order. On March 23, 2020, the City of Cudahy adopted Resolution No. 20-06 which declared a Local Emergency due to the public threat caused by the coronavirus and shut down all non-essential businesses.
The City contractually agreed when it closed the operators’ construction for 15 months during coronavirus, this was a force majeure delay due to the “local, state or national emergencies” and all fees during this period were extended, i.e., waived. The City also contractually agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).
The City also agreed that any City caused force majeure delay in redesigning approved plan (Dev. Agmt. §§ 1, 3(a)), or any City caused force majeure delay in failing to expedite permits (Dev. Agmt. Recital F), or any City caused force majeure delay with inspections or construction (Dev. Agmt. § 13) require that fees during this period be extended, i.e., waived.
The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).
On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, documenting the “difficulties in obtaining approval” that City consultants restarted the “approval process from the beginning” that “COVID-19 pandemic created further delays” prohibiting construction work, and that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 9
City Manager Noyola responded in language repeated in many letters that he agreed the delays impacted their business during a portion of the time past due fees have accrued:
“You have provided the City with information and documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic. These difficulties appear to have impacted your business operations for a portion of the time past due fees have accrued.” However, City Manager Noyola did not comply with the City’s contractual promise that the documented force majeure delays entitled the operators to an extension of time, i.e., waiver of fees “for a portion of the time past due fees have accrued.” Instead, the City placed the operators in default, and stopped all construction, for refusing to pay disputed and illegal fees during the force majeure delays. The City’s demand for fees during the pandemic closure of construction is a breach of the City’s contractual promises under section 23(i).
2.7 The City Breached the Development Agreements by Placing the Operators in Default Status and Agreeing to Only Issue Conditional 90-Day Occupancy Permits, Only Renewable if Disputed and Illegal Fees are Current.
City Manager Noyola stated in many letters that the operators “will remain in default status on their development agreement until all past due fees have been paid” and once the fees are paid “the City will only issue a temporary certificate of occupancy for the site valid for 90 days. The temporary certificate of occupancy may be reissued if the Operator remains in compliance” with the fees. The default status by the City Manager prevented any construction work for failing to pay illegal fees and violated the development agreement.
The City contractually promised that the City Council would review the operators’ compliance and modify and terminate the agreement. (Dev. Agmt. § 19(a)). This did not occur in violation of the agreement. The City agreed that the procedure to place the operators in default required the procedure identified in § 14. This procedure was not followed, of course, refusing to pay illegal fees is not a default.
The City also promised that it may “modify this Agreement (except no modification shall increase Owner’s liability nor reduce Owner’s rights).” (Dev. Agmt. § 19). Denying construction for refusing to pay illegal fees is an un-permitted modification and a breach of the agreements. The parties agreed that only “minor amendments that do not affect a substantive provision of this Agreement may be approved by the City Manager on behalf of the City.” (Dev.
Agmt. § 23(a)). The default without construction permission is not minor, it major, and the City Manager placed the operators in default as a pretext to securing illegal fees, this violated the development agreements.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 10
The City believes that a business which has not yet opened for over five years, and is prevented from opening by the City, must pay operating fees to the City. Moreover, once the fees are paid, the City limit operations to a temporary occupancy permit lasting only 90 days.
In effect, it takes over fives to open, but the operations get a limited 90-day window. The operators are private landowners, they have rights, more importantly, their rights are agreed upon in the contract with the City. The attempt by City Manager Noyola to limit occupancy permits to ensure payment of illegal fees, in bad faith, its illegal extortion, and it’s a breach of the development agreements..
The agreements have no discussion about issuance of a “temporary occupancy permit.” On the contrary the agreements confirm that the agreement “vest certain rights in the operator.” (Dev. Agmt. Recital B). “The City agrees the operator’s land use entitlements for the project shall vest” (Dev. Agmt Recital N), “the operator may operate cannabis-related activities” (Dev.
Agmt. § 4(a)), and the “property may be used for commercial cannabis” cultivation, manufacturing, and distribution. (Dev. Agmt. § 1(c)). The City contractually agreed that the agreement “shall remain in full force and effect so long as the subject property is used for a commercial cannabis facility.” (Dev. Agmt. § 2). The City agreed that the “agreement remains in full force and effect and is implemented in accordance with its terms.” (Dev. Agmt. § 23(c).) The operators are not in default for refusing to pay disputed and illegal fees. In failing to set annual review hearings, the City denied the operators a forum to present force majeure delays. The City contractually promised that the operators could not “compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). City staff prevented a hearing before the City Council, and this allowed City staff to push illegal fees without review. There was no waiver by the operators in not addressing the illegal fees sooner. The failure to hold yearly review hearings was on the City, which breached the development agreement, municipal code and state law.
A the very minimum, the fees during the pandemic shut-down is flatly illegal. Assuming arguendo, that the operators are in default (they’re not) for refusing to pay illegal fees, the best that the City can do under the agreements is refuse to issue buildings: “No building permit shall be issued . . . after the operator is determined by the City to be in default . . . until such default thereafter is cured by the operator or is waived by the City.” (Dev. Agmt. § 14(f)).
The operators are in their 68th month in attempting to open. Building permits were issued years ago, and the permits vested. Since the operators are not seeking building permits and denying them the right to proceed with construction for already issued building permits, is a violation of the development agreements. Certainly, the City is aware that building permits are not the same as occupancy permits. The word “temporary occupancy permit” is missing from the agreements and not existent in the municipal code. The issuance of temporary occupancy permits for failure to pay illegal fees is in bad faith and a breach of the development agreements.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 11
2.8 City Correspondence Confirms the Scheme to Extort Illegal Fees, the City Contacted the State and Reported them in Default, the City Would Only Issue Temporary Operating Permits and Placing the Operators in Default.
In the scheme to secure dispute illegal fees, the City contacted the State and reported the operators as being in default with the City. This extortion scheme is explicitly documented in City correspondence. On April 8, 2022, a text message from building inspector Louis Morales to City Manager Noyola, noted operator, cupper development, owes $600,000 and he is aware of a “request from the State” and had an idea that will “get them to the table now.” The City was aware that after five years, one of the operators (Go Cudahy) was close to opening. Hence, the City accepted the scheme to “force them to the table” by contacting the California department of cannabis control and informed them, that cannabis operators, were in default with the City and therein jeopardized renewal of their state cannabis permit. The State permit was a requirement of the development agreement. The City’s bad faith is self-evident.
Inspector Morales and City Manager Noyola used fear of economic loss, and fear under color of law, to secure fees that were not owed, or at the very minimum were honestly dispute, to jeopardize the operators’ state permits, so that they will “get them to the table now” is in bad and supports a civil RICO claim for extortion. It also violates the development agreement by failing to follow the procedure for default under § 14 outlined in the agreement.
The operators learned that the City had reported to the State that they were not in good standing with the City, and therefore they could not renew their state license. The operators were blindsided by the City’s extortion in securing non-operating fees, at large majority of which were caused by City delays. This also was the first time the operators were told that the City would not be forgiving any fees for any reason.
On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, describing the unforeseen delays and the “difficulties in obtaining approval from the City to begin work.” That Willdan, the City’s consultants restarted the “approval process from the beginning.” That the “pandemic created further delays” and the State prohibited them “from continuing work.” The letter stated that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 12
The April18, 2022 letter stated that “the City reported to the State that these licenses were not compliant, resulting in the state denying them provisional state licenses.” He asked the City to communicate to “appropriate state agencies that the licenses are in compliance” so they can “receive a provisional license.” The letter asked for confirmation “that Go Cudahy LLC will receive a Certificate of Occupancy for its portion of the facility” so that it “can begin operations.” This is mandated by the agreement. The operators quickly learned they would only receive a temporary occupancy permit in breach of the agreements. On April 22, 2022, a text from inspector Morales to City Manager Noyola, stated he told the operators the “City’s position for payment for Cuper Development and their provision license issue.” It was later discovered that the plan to get the operators to pay disputed fees included that they would only receive temporary 90-day occupancy permits, and required them to return to the City for permits every 90 days, wherein the City would ensure they are current on their disputed fees. This scheme violates a plethora of the City’s promises under the agreements.
On April 22, 2022, Philip Kfoury, sent a letter to City Manager Noyola, asking him to inform the State that they are “working towards compliance” and that the operators could amortize what is owed over two years, but could not make substantial payments as requested.
The letter noted that it has been five years since they started and are still months from opening:
On May 2, 2022, City Manager Noyola, sent a letter stating that the City would not waive any fees, but the City “is willing to enter into a onetime, forbearance agreement” but the operators “shall remain in default status under its development agreement until all past due fees are paid in full.” The letter noted the operators need a certificate of occupancy to open and “the City will only issue a temporary certificate of occupancy” valid for 90 days, but the temporary permits are renewed if the operators are current with their fees:
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 13
On May 26, 2022, the operators asked once again for the City to inform the State that “Local Compliance is underway” and for further dialogue with the City on the non-operating fees. The letter noted that the “Operators were unable to move forward with the projects because of various delays outside of anyone’s control” in this passage:
On October 18, 2022, City Manager Noyola stated in a letter regarding Go Cudahy that it provided the City with documentation of difficulties with the business caused by the pandemic which impacted the business operations while fees accrued.
Instead of removing fees for City-caused delays, City Manager Noyola continued to demand the fees and used various illegal tactics noted above to extort these disputed fees. In the words of City Manager Noyola, the operators “will remain in default status on its development agreement until all past due fees... have been paid.” The default status prevented construction for failing to pay illegal fees and violated § 14(a), § 19(a), and § 23(i). § 4(a))..
The letter stated that “While in ‘default status,’ the City will only issue a temporary certificate of occupancy (a “TCO”) for the Site valid for 90 days. A TCO may be reissued if the Operator remains in compliance . . .”
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 14
The letter stated that “While in default status, the City will only issue a temporary certificate of occupancy for the site valid for 90 days. A temporary certificate of occupancy may be reissued if the Operator remains in compliance . . .” In effect, a business that has not been able to open for over five years, is given a gift, it can pay illegal fees for not being open, it can pay cost recovery fees which are magically the same amount, $3,954.66, for each month during the past year. As is apparent, the City seeks to secure payment of the fees, not by getting the facilities open, but by providing a temporary occupancy permit for a mere 90 days. The occupancy permit is held over its head to ensure the payment of illegal fees. This is not good faith, and it violates the development agreements.
The development agreements do not provide temporary occupancy permits if the operator defaults. The best that the City can do is deny a building permit. The development agreement provides: “No building permit shall be issued or building permit application accepted for any structure on the property after City determines operators to be in default of the terms and conditions of this Agreement until such default thereafter is cured by operator or is waived by City.” (Dev. Agmt. § 14(f)). The “failure to delay by either party to perform any term or provision of this Agreement beyond” a “cure period shall constitute a default.” (Id.) The City breached the development agreements by not complying with Section 14. Of course, the operators are not in default, and placing them in default was done in bad faith..
2.9 Three months ago, the City Demanded Immediate Payment of $200,000 From the Only Operator to Open Or Face Immediate Revocation.
On Sept. 6, 2023, City Manager Noyola demanded in a text message that Go Cudahy make an “immediate payment of $200,000" for overdue non-operating fees, allowing three days to pay, or the cannabis operator would be placed in default and face immediate revocation.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 15
The astounding demand in seeking “an immediate payment of $200,000" by City Manager Noyola is in a text message that confirms that failure to pay would result in the operator being sent “straight to a revocation hearing.” What is most ironic is that the the$200,000 was due since City Manager Noyola stated one year prior that he agreed that the “documentation of disruptions and difficulties with business development and/or operations caused by the pandemic impacted your business operations for a portion of the time past due fees have accrued.” The $200,000 was force majeure fees. Hence, the text demand violated the development agreement. See Dev. Agmt. § 14(a), § 19(a) and § 23(i).
Since the $200,000 demand by text message was not actually due, it was in bad faith and a clear example of extortion under the color of official right (City Manager) and constitute extortion under fear of economic loss (immediate revocation) and supports civil RICO claims.
The City demands $200,000 in illegal fees but is fully aware that the economic landscape has changed. The City’s economic development strategic plan 2023 stated that “rising industry taxes has led to cannabis-based businesses shutting down to diminishing profit margins...” On Nov. 15, 2023, the City stated in response to a Public Records Request that the cannabis operators have been billed by the City total non-operating fees of $5,404,282. The City has billed the cannabis operators as follows: $579,561 (2018); $1,396,975 (2019); $1,136,548 (2020); $941,915 (2021); $858,243 (2022); $491,037 (2023).
More facts displaying abuse include the October 17, 2023, letter from former federal prosecutor Daffodil Tyminski, who sought a hearing before the City Council. On October 24, 2023, attorney Paloma Perez-McEvoy responded for the City and stated the Mitigation Fee Act does not apply to development agreements. The city’s attorney’s letter stated: “the City Council considered your October 17 Demand and has decided not to negotiate the repayment of fees and to continue with the administrative process.”
More facts displaying the abuse include that one year ago the operators submitted revised floor plans for the building to City Manager Noyola for approval. Those plans have been pending for a year without approval. The City agreed the operator would “receive priority processing for any City permits. (Dev. Agmt Recital F). The City also agreed that “changes to the project . . . may be appropriate and mutually desirable.” (Dev. Agmt. § 23(n)).
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 16
3. THE CITY BREACHED THE AGREEMENTS BY REFUSING TO WAIVE FEES DURING THE PANDEMIC CLOSURE AS PROMISED IN SECTION 23(i).
The agreements provide that “unforeseen events,” including “local, state or national emergencies” which “substantially interfere with” the project, are defined as force majeure and “such delays will entitle the operators to an extension of time” (Dev. Agmt. § 23(i)).
City Manager Noyola agreed in many letters that “documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic” have “impacted your business operations for a portion of the time past due fees have accrued.” The operators were also shut down for 453 days (15 months), from March 19, 2020, when the shelter-in-place orders started (Executive Order N-33-20), through June 15, 2021, when they ended (Executive Order N-07-21). The City seeks $511,140 in fees non-operating fees of $28,560 per month for 15 months, and community benefit fees of $66,667 per year for
1.2 years during the 15 months the operators were shut down.
In many invoices, the City demanded fees during the time that the City was closed due to the pandemic. It was not the intention of the City for the operators to pay fees if they were delayed by the City or closed by the City, see § 23(i)). The City’s demand for fees during the pandemic closure is a breach of the City’s contractual promise under section 23(i).
4. THE CITY BREACHED THE AGREEMENTS BY FAILING TO EXPEDITE APPROVALS AND BY SEEKING FEES FOR DELAYS CAUSED BY THE CITY.
The City caused delays in redesigning the approved plan (Dev. Agmt. §§ 1, 3(a)), the City failed to expedite permits (Dev. Agmt. Recital F), and the City was responsible for delays with inspections and construction (Dev. Agmt. § 13). These delays are a breach of the City’s contractual promise that any “delay” to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed that “any default by the City” which delayed the project “will entitle the operators to an extension of time.” (Dev. Agmt. § 23(i)). The operators were entitled to a waiver of fees for delays by the City and its consultants.
Nonetheless, the City demanded fees notwithstanding its many delays. The warehouse is still not open 68 months after signing the development agreements, and this is impossible without City delays; after all, the operators have decades of construction experience. The reason that after 68 months six facilities are still not open is due to City consultants who redesigned the approved plans, changed the approved construction procedure, and delayed inspections.
These delays explain why the renovation of an existing warehouse is still not open 68 months after securing approval when the operators believed it would be open within one year.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 17
The “mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is that any “delay” by the City to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). Six operators are still not open because the City breached its performance by redesigning approved plans and delayed approval of the construction. Additionally, the City is in default for demanding any fees during these City caused delays.
The only procedure to document these reviews under the agreements was at the annual review hearing where the “operators shall document any request for an extension of the term due to delays beyond the control of operators (see Section 23(j), Force Majeure).” (Dev. Agmt. § 19(a)). By failing to hold any annual review hearings during the past 68 months, the City denied the operators a forum to present City caused delays. “The operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). Moreover, City staff prevented any hearing before the City Council, and this allowed staff to set illegal fees without review.
The fees due during City caused delays 68 months later fell on the City Council, who failed to review City caused delays by not holding annual review hearings. See Dev. Agmt. § 14(a), § 19(a) and § 23(i). The reasonable estimate is as follows. The parties anticipated it would take one year to open. Hence, the one-year falls on the operators. Deducting this one year from the 68 months leaves 58 months. Removing the 15 months during the pandemic further leaves 43 months. The operators suggest 30 months for the city-caused redesign and construction delays. This includes the fact that the City has illegally placed the project in default, halting any construction for over a year, and has even recently failed to return permits submitted over one year ago.
The fees during these 30 months of delays total $1,023,468 (community benefit fees of $66,667 for 2.5 years and non-operating fees of $28,560 per month for 30 months). The City is in default for its demand for fees during construction delays caused by the City.
5. CITY BREACHED THE AGREEMENTS BY DEMANDING NON-OPERATING FEES AS SHOWN BY THE PARTIES INTENT AT THE TIME OF SIGNING.
The City seeks operating fees from businesses that are not operating. The word “nonoperating fees” is not found in the development agreements, or the municipal code. On the other hand, community benefit fees are provided for in CMC § 5.20.020(16), which defines “development agreement” to means an agreement “which provides agreed-upon community benefits to the city.” The cost recovery fees are provided for in CMC § 5.20.070(6), mandating that the “development agreement” shall require the operators to “fully reimburse the city” for all costs, expenses and fees related to the commercial cannabis production. There is no provision in the municipal that a development agreements include operating fees.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 18
The development agreement in Section 7(c) titled “Operating Fees” defines the words premises, commercial cannabis activities, gross receipts, and production space, but does not define the word non-operating fees or the word operating fees. (Dev. Agmt § 7(c)). The definition of production space notes it excludes “non-operational common areas.” The word non-operating fees is not found in the agreements or the municipal code. The development agreement applies “operating fees” to a business that is “operating.” The agreement provides that the “production space” and “gross receipts” fees apply when a operator is open and operating. Accordingly, the word ambiguous and must be discerned from “the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636.)
5.1 Councilman Hernandez’s Recollection of the Intention of the Non-Operating Fees at the Time of Approval Confirms Non-Operating Feed Do Not Apply. “The mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is of high value from vice mayor Christian Hernandez, who spearheaded the cannabis policy and framework for the development agreements. He states from first-hand knowledge that he believed the City’s position of the non-operating fees at time of approval as follows:
Non-operational fees were included in the development agreements to prevent cannabis operators from holding licenses without opening. In 2018, the City was looking for serious cannabis businesses with a genuine desire to operate as soon as possible. The City was interested in new sources of recurring annual revenue for its general fund and community programs. In the cities of Lynwood, Palm Desert, and Coachella, cannabis licenses resold their licenses to operators who had no urgency to open. This was discussed at hearings, and fees for non-operations were incorporated to prevent license holders from flipping their licenses to operators who would not open rights away.
Naturally, non-operating fees were never intended to last in perpetuity, and they were not expected during natural disasters or other delays beyond the operator’s control. Otherwise, the operators would have to pay non-operational fees for delays beyond their control. Cannabis license holders were also expected to be operating within a year. The City expected its staff and consultants to expedite permits and inspections. Opening the cannabis facility was the City’s top priority.
Cannabis operators were paying recovery fees, so the City agreed to expedite their approval process. Since non-operating fees could only provide short-term revenue, they were not the City’s focus. As a result, the City focused on operating fees from the cannabis operators’ gross revenues since they yielded higher recurring revenues for the general fund.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 19
The City implemented the non-operating fees to mitigate the resale of cannabis licenses. Operators were incentivized to open within one year. It created a win-win scenario for the City and the operators. The operators benefitted by generating revenue, and the City benefited from the income they generated through operating fees.
In full disclosure vice mayor Christian Hernandez is a consultant with the operators when he saw the delays being foisted on them. His agreement does not impact his view of his recollection of the City’s position at the time of signing.
5.2 The Operators’ Recollection of the Intention of the Non-Operating Fees at the Time of Contracting Confirms Non-Operating Fees Do Not Apply.
Philip Kfoury, the cannabis operators’ principal, stated his belief of the intention of the parties at the time of contracting regarding the so-called non-operating fees as follows:
During the 2018 approval process, City officials focused on collecting revenue from gross receipts, and we agreed to pay operating fees based on gross revenue.
During the approval process, the City expressed concern about flipping the license to operators and not planning to open quickly. To remove this concern, we agreed to pay operating fees if we (or a future buyer) were allowed to open, but instead squatted on the license. According to my understanding, we would not be charged non-operational fees as long if we made efforts to open.
According to my understanding, the non-operational fees for not opening once we secured the right to open were set as a punishment for not opening. The non-operational fees were based on the total area, which is more than the production area, which is the default fee upon opening. However, we agreed to pay an operating fee based on gross revenues, which was more than the production area for squatting on the license. City officials focused on collecting revenue from gross receipts, not fees from closed businesses trying to open.
Because we expected to open within one year, the focus was on gross revenues, which provided much greater revenue than fees based on project area or production area.
According to our expectations, we would open within a year. In five years, six facilities still need to open. Many of the delays can be attributed to city staff and consultants redoing approved plans, and a portion of the delay is due to the fifteen-month closure during the pandemic. At no time were we able to open and January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 20
instead squatted on our license. During the approval process, it was explained that we would not be liable for non-operational fees if we consistently progressed to open. This was the city’s official position for four years until Alphonso Noyola was hired as city manager. After that, the City changed its position and demanded operating fees from us, even though we were not open because of the countless delays caused by the City, its staff, and its consultants.
Attorney Daffodil Tyminski, a former federal prosecutor, was present at all the hearings during the approval process, and already stated in a letter to the City on July 14, 2023:
“Non-operating fees were designed to be a penalty for squatting on licenses, not a fine for businesses trying to operate but being prevented from doing so by the City. We were consistently told that the City was not currently enforcing payment on those fees if we were progressing towards opening.”
5.3 Non-Operating Fees are Illegal Taxes (No Voter Approval).
The City demands a $1,913,520 ($28,560 x 68 months) non-operating fee for the past 68 months or a yearly operating fee of $285,600 (12 x $28,560 per month) for the time that the business is closed due to City delays. It's not a fee; the non-operating fee is a tax. The City's economic development strategic plan 2023 (Resolution No. 23-41) identified fees on the cannabis operators as a tax in this passage:
“Light industrial processing/warehousing refers to facilities involved in activities such as cultivation, processing, and distribution of cannabis products. These operations may include growing and harvesting plants, manufacturing products like edibles or extracts, and storing inventory. Taxes can be collected through licensing fees, permit fees, and taxes based on the volume or value of products.”
The City is correct, the $1.91 million non-operating fee is a “tax based on the volume.” (Resolution No. 23-41). However, because the “non-operating fee” was not approved by the voters it violates Cal Const Art XIII A §4. “No local government . . . may impose any general tax unless. . . approved by a majority of the voters voting in an election on the issue.” (Gov. Code § 53723.) “No local government may impose any special tax” without a “two-thirds vote of the voters voting in an election on the issue.” (Gov. Code § 53722.) The City was fully aware that a cannabis tax requires approval by the voters by submitting the recent retail cannabis tax to the voters for approval and enacted it in Chapter 5.30 after voter approval. Non-operating fee/tax are illegal taxes because there was no public vote.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 21
CANNABIS RETAILER TAX: Chapter 3.50 the newly enacted Cannabis Retailer Tax approved by the voters imposes “an annual cannabis retailer tax.” (CMC § 3.50.040(1)). The tax is imposed “upon cannabis retailers that engage in business in the city. This cannabis retailer tax is levied based upon business gross receipts.” (CMC § 3.50.010(1)). “The tax rate upon the effective date of this chapter shall be 15 percent of the gross receipts derived from the retail sale of adult-use cannabis or adult-use cannabis products.” (CMC § 3.50.040(3)(a)).
CITY BUSINESS TAX: The municipal code provides a tax on businesses in Chapter 5.08 titled “Business License Tax -- Particular Businesses.” However, it does not include cannabis business in that list. CMC § 5.04.330 lists the “taxes on businesses other than those described in Chapter 5.08" and requires “a license tax based upon gross annual receipts.” If “Gross Annual Receipts” are “$2,000,000 or more” the “Per Annum Fee” is “$2,000 maximum.” The maximum annual fee of $2,000 is far less than the $285,600 yearly fee (12 x $28,560 per month) demanded by the City for the privilege of not being open due to delays by the City.
5.4 Non-Operating Fees/Tax are Illegal Impact Fees (No Findings).
The Mitigation Fee Act (Gov. Code, § 66000 et seq.) limits fees on projects. When a fee is imposed as a condition of approval. Gov. Code § 66001(a) provides procedures to establish fees and requires four findings included that the “reasonable relationship between the fee’s use and the type of development project on which the fee is imposed.” Gov. Code § 66006(e) provides that the “improper allocation of development fees hinders economic growth and is, therefore, a matter of statewide interest and concern. It is, therefore, the intent of the Legislature that this section shall supersede all conflicting local laws and shall apply in charter cities.” Non-operating fees/tax are illegal if they are a fee.
CITY DEVELOPMENT IMPACT FEES: Chapter 15.40, titled "Development impact fees," provides for monetary exactions in connection with project approval. (CMC § 15.40.020(12)).
Chapter 15.40 requires the City to make five statutory findings to impose a legal impact fee, including the "reasonable relationship between the fee and the project." (CMC § 15.40.200).
The City failed to make the necessary findings to charge the operators $1.9 million when their business was closed, mainly because of City delays.
The non-operating fee/tax are illegal if they are a general or special tax because there is no public vote, and if they are a fee, the City failed to make the necessary findings to charge the operators a $1,913,520 ($28,560 x 68 months), or a$285,600 yearly fee (12 x $28,560 per month) during a period when their business is closed, mainly due to City delays. In either case, the non-operating fee/tax violates the agreements, municipal code, and state law.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 22
CITY’S DEVELOPMENT IMPACT FEE STUDY: Further support is found in the City’s development impact fee study, dated April 7, 2021. Under CMC § 15.40.020(19) the “development impact fee study by Willdan dated April 7, 2021" is used to determine an impact fee. The total one-time impact fee is $11,480 ($1,945 traffic fee, $7,480 gen. gov. gee, and $2,055 parking fee). The $11,480 impact fee is far less than the $1.91 million demanded for the privilege of being closed. The City is in default for demanding non-operating fee/tax, from the cannabis operators who were progressing to open.
5.5 The City’s Interpretation of the Non-Operating Fees Apply to Operators Progressing to Open but Unable to Open Is a Breach of the Agreement.
The City has interpreted the “non-operating fees” as being due even irrespective of City cause delays or closures. This files in the face of the “mutual intention of the parties as it existed at the time of contracting” that “delays” and “state or national emergencies” or “any default by City” will “entitle operators to an extension of time.” (Dev. Agmt. § 23(h)). And any “delay” to “perform” its promises by the City “shall constitute a default.” (Dev. Agmt. § 14(a)).
The intention to not collect fees if a facility is not operation is supported by the City’s promise it will not sue for damages for unpaid fees if “the property is not developed, for lost profits or revenues which would have accrued to the City as a result of the development of the property.” (Dev. Agmt. § 14(a)). Simply put, there are no lost profits if the property is not developed and not in operation. This certainly applies if the City causes the failure to open.
The City fails to “give effect to the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636). “The whole of a contract is to be taken together, to give effect to every part.” (Civ. Code, § 1641). Instead, the City gives the contract an interpretation that places the operators in breach, after investing $10 million and 68 months into the project.
The City is forcing the breach and fails to recognize that a “contract must receive such an interpretation as will make it lawful.” (Civ. Code, § 1643). The City must “undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect.” (Dev. Agmt. § 23(c)). This requires the City to waive all fees caused by City delays. “The contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.” (Civ. Code, § 1647.) “Particular clauses of a contract are subordinate to its general intent.” (Civ. Code, § 1650.) The City fails to give effect to the fact that the parties entered into a contract for the development and opening of a cannabis cultivation, manufacturing, and distribution facility. (Dev. Agmt. § 1(c)).
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 23
The City’s interpretation that operating fees are due when the facility is not operating, and when the City caused delays or closures, violates the agreements, and must be rejected. “Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected.”(Civ. Code, § 1653.) The City seeks to impose an absurd interpretation of its intent at the time of contracting. The City is in default for demanding non-operating fees, from the cannabis operators who were progressing to open.
6. THE CITY BREACHED THE AGREEMENTS BY PREVENTING THE
YEARLY REVIEW HEARINGS.
6.1 The City Breached the Development Agreements by Failing to Hold Yearly Review Hearings Breached which Prevented the Operators From Presenting Documentation of the City’s Force Majeure Delays.
Section 19 titled “Periodic Reviews” requires yearly review hearing to determine the operators’ compliance with the agreement, and for the operator to document any force majeure delays allowing an extension for delays beyond the control of operators control, as follows:
“19(a). City Council shall review this Agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement . . . planning department will schedule a hearing on the periodic review of the development agreement on or following the anniversary of the effective date, but the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held. The operator shall document any request for an extension of the term due to delays beyond the control of operator (see Section 23(i), “Force Majeure”).”
The fundamental purpose of Section 19 was for the City to review the operators’ compliance, but also for the operators to demonstrate force majeure delays by the City under section 23(i) which provided that “local, state or national emergencies” or “any default by the City” which delayed the project “will entitle the operators to an extension of time.” The agreement provides that “the City Council shall review this agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The municipal code provides for “periodic review of an applicant’s compliance with the terms of the development agreement at least once every 12 months.” (CMC § 20.84.600). State law similarly requires “periodic review at least every 12 months” to “demonstrate good faith compliance.” (Gov. Code § 65865.1).
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 24
However, during the 48 months, the City did not review the agreement in violation of the municipal code and state law. This is important because under Section 19, the “the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). The operators did not waive anything by not having the delays addressed sooner. This fell on the City who breached the agreement, the municipal code and state law for failing to hold yearly review hearings.
The City’s failure to hold yearly review hearings would have allowed the operators to address force majeure delays many years ago. The First Review was required 1,674 days (55 months) from today, the Second Review 1,309 days (43 months) from today, the Third Review 944 days (31 months) from today, the Fourth Review 579 days (19 months) from today, and the Fifth Review 214 days (7 months) from today. Instead the operators have to address delays during the past 68 months. This falls on the City which has contractually agree “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)).
6.2 The City Breached the Development Agreements by Setting Review Hearing Before a Hearing Officer Instead of the City Council.
The development provides that “the City Council shall review this agreement annually.” (Dev. Agmt. § 19(a)). State law requires that development agreements “include provisions requiring periodic review at least every 12 months” before the local agency to “demonstrate good faith compliance.” (Gov. Code § 65865.1).
Notwithstanding this clear demand on the City to hold the hearing yearly, or before the City Council, the City recently sent out notice of hearing letters which give notice that the city manager appointed a “hearing officer for a review hearing” to determine compliance with “Section 19 of the agreement” to allow operators to demonstrate their “good faith compliance” with the development agreement. The handpicked hearing officer by the city manager is not the same as the City Council, and the notice of hearings violates the development agreements.
On December 14, 2023, the undersigned (Sebastian Rucci) emailed Senior Planner Madrigal-Gonzalez that this office “wished to present the cannabis operator’s position [at the review hearing], preferably at a hearing before the city council.” Former federal prosecutor, Daffodil Tyminski, sent a letter to the City on July 14, 2023, asking to appear before the City Counsel stating, “only City Council can resolve this dispute.” She later sent another letter on October 17, 2023, and on October 24, 2023, City attorney Paloma McEvoy responded: “Please be advised that the city Council considered [attorney January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 25
Daffodil Tyminski] October 17 demand [to appear before City Council] and has decided not to negotiate the repayment of fees and to continue with” the revocation hearings. Seldom is breach so openly stated in a letter. City attorney McEvoy is reminded that the City “shall cooperate” with the operators and “undertake such reasonable actions as may be appropriate to ensure this Agreement remains in full force and effect.” (Dev. Agmt. § 23(c)).
6.3 The City Breached the Development Agreements by Denying the Operators an Opportunity to Be Heard at the Review Hearing.
The City’s recent review hearing letters require the operators to submit “no later than ten days from the date of this Notice to confirm your appearance,” and if “we do not hear back from you by this date, we will assume you waive your right to present evidence at the hearing.” The conditional right to be heard at the hearing is a breach of the contractual promise that “at the time and place set for the review hearing, operator shall be given an opportunity to be heard.” (Dev. Agmt. § 19(d)). The right to be heard is at the time of the hearing, not before.
It is also noted that on November 14, 2023, Senior Planner Madrigal-Gonzalez received an email from the undersigned (Sebastian Rucci) stating he “wished to present the cannabis operator’s position [at the review hearing], preferably at a hearing before the city council.” One month later, on December 14, 2023, the undersigned emailed Senior Planner Madrigal-Gonzalez, transfer request forms (as she requested), adding our office as an additional point of contact for the seven cannabis operators. The email stated our office “intends to represent the cannabis operators positions before the City going forward.” On December 19, 2023, our office received a reply email stating that Philip Kfoury’s signature must be notarized; however, the transfer forms do not provide for notarized signatures.
On December 29, 2023, we received a letter from Senior Planner Madrigal-Gonzalez stating that the review hearing is scheduled for January 8, 2024; however, “as of today’s date, you have not confirmed your intent to appear or participate in the review hearing. Based on your failure to confirm your appearance at the review hearing, you have waiver your right to present evidence at and otherwise participate at the review hearings.” Seldom is an abuse so openly stated in a letter.
Our office represents the cannabis operators, and this does not require jumping through ad hoc hurdles, created to confuse and obfuscate the process. We notified the City we represent the operators, and we provided the requested form. Rather than putting the operators through unnecessary hurdles for refusing to pay disputed and illegal fees, the City should take a serious review of the many breaches identified in this Notice and move to correct its many breaches.
This is not just good business it is mandated by the development agreements.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 26
The City is using its demand for illegal fees to pressure the operators with revocation to get them to pay illegal fees, which they dispute. By failing to set annual review hearings, the City denied a forum for the operators to document their delays. The operator could not “compel [the yearly review] hearing” and the City agreed that “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)).
City staff prevented any hearing before the City Council, and this allowed staff to set illegal fees without review. The City breached Section 19(d) by denying the operators “an opportunity to be heard” at the defective review hearing. The development agreements do not give the City unbridled power to discern a default. On the contrary, § 14 titled “Defaults” provides that the “party alleging [a] default or breach shall give the other party not less than thirty day notice in writing specifying the nature of the alleged default and the manner in which said default may be satisfactorily cured during any such thirty day period.”
7. THE CITY IS GIVEN NOTICE THAT THE DAMAGES FOR BREACH OF THE DEVELOPMENT AGREEMENTS ARE $26.4 MILLION.
“After notice and expiration of the thirty-day period, the other party to this Agreement, at its option, may institute legal proceedings pursuant to this Agreement.” (Dev. Agmt. § 14(a)).
Under the development agreements, the cannabis operators may “pursue any remedy at law or equity available for the breach of any provision” of the agreement including pursuing “damages from bad faith intentional acts, the grossly negligent or malicious acts of City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).
Breach of the development agreement is established by proving (1) the existence of a contract, (2) cannabis operator’s performance or excuse for nonperformance, (3) breach by the City of Cudahy, and (4) damage to the cannabis operators as a result of the City of Cudahy’s breach. The City of Cudahy has demonstrated its intention not to be bound by the agreement.
It actively refused to cooperate and sought to have the cannabis operator’s rights revoked.
7.1 CONTRACT DAMAGES FOR BREACH OF DEVELOPMENT AGREEMENT.
The case of Mammoth Lakes Land Acquisition v. Town of Mammoth Lakes (2010), 191 Cal. App. 4th 435 is attached for your review. In that case a jury awarded $30 million for the City’s breach of a development agreement. In Mammoth Lakes the Town entered into a development agreement to make improvements to its airport and to build a hotel at the airport. (Id. at 440.) The “development agreement is an enforceable contract between the municipality and the developer.” (Id. at 442.)
In Mammoth Lakes, the Town was “claiming a willingness to move forward with the project” but Town officials “actively sought to undermine the developer’s rights under the contract.” (Id. at 466-67.) Cudahy similarly claims it is willing to move forward, but its officials, officers, agents and employees actively undermine the operator’s rights in the project.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 27
In Mammoth Lakes, the developer submitted an application for the hotel project which was placed on the planning commission agenda “with a recommendation from staff to deny the application.” (Id. at 447.) The Town “changed its priorities and no longer wanted the hotel project.” (Id. at 440.) “Town officials professed willingness to work with the developer to resolve the FAA issues. However, in private, the mood was not cooperative.” (Id. at 450.) Cudahy similarly claims it is willingness to move forward but is not cooperative.
In Mammoth Lakes, the hotel “made the development agreement economically feasible” for the developer. (Id. at 445.) The developer “requested assurances that the Town would proceed with the development agreement.” (Id. at 450.) The Town responded that the developer’s “need to resolve the FAA compliance issues as a prerequisite.” (Id.) The developer replied that it “appear to believe that it may freely disregard the express terms of the development agreement and withhold approvals and other cooperation required by that agreement to enable the developer to proceed.” (Id. at 450.) Cudahy similarly was asked to provide a full occupancy permit and responded it would provide a defective temporary 90-day permit. Cudahy similarly conditions opening on paying illegal fees, that violate the agreements.
In Mammoth Lakes, the agreement provided a procedure upon default and if “after delivery of written notice of default” the Town failed to cure the default, the developer could institute legal action against the Town. (Id. at 445.) The “developer served the Town with a notice of default under the development agreement. The notice demanded that the Town terminate its efforts inconsistent with the development agreement.” (Id. at 451.) The “developer demanded that the Town move forward with the hotel project as contemplated in the development agreement.” (Id. at 440.) Cudahy is similarly given notice of its default and demand to cure with provisions similar to those in Mammoth Lakes.
In Mammoth Lakes, the Town refused to cure its default and the developer filed a claim with for damages and “after the Town rejected the claim, the developer sued the Town, alleging a breach of contract.” (Id. at 452.) “Once the developer gave notice of default and the Town failed to cure the default” all that “remained was to determine whether the Town breached the development agreement and, if it did, what was the remedy.” (Id. at 455.) “The development agreement required the Town to act reasonably in moving the project along.” (Id.) In Mammoth Lakes, the “Town violated the development agreement by refusing to move forward with the hotel project” and the “remedy is a breach of contract action based on the Town’s executive decision not to move forward as required by a contract.” (Id. at 441.) “The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties . . . as it existed at the time of contracting.” (Id. at 458.) “To recover on a cause of action for breach of contract, the developer must establish (1) the existence of a contract, (2) developer’s performance or excuse for nonperformance, (3) the Town’s breach, and (4) damage to developer as a result of the Town’s breach.” (Id. at 463.) January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 28
“The developer’s theory of breach, upon which it prevailed at trial, was that the Town expressly repudiated the development agreement by refusing to move forward on the contract without resolving” an issued not in their agreement. (Id. at 464.) The jury was instructed if the “Town clearly and positively indicated, by words or conduct, that it would not or could not meet a requirement in the contract, then the Town breached the contract.” (Id. at 463.) The jury found that “(1) the Town and the developer entered into a contract, (2) the developer met all, or substantially all, its obligations under the contract, (3) the Town failed to perform under the contract or added extra contractual conditions to its performance, (4) the developer did not waive the Town’s failure to perform, and (5) the Town’s failure to perform damaged the developer. The jury set the amount of damages at $30 million.” (Id. at 453.) “The developer’s complaint is not that the Town denied an application to build the hotel project. Instead, the complaint is that the Town refused to move forward on the hotel project.” (Id. at 456.) Having given the Town a notice of default “the developer was legally entitled to go forward with a breach of contract action.” (Id. at 457.) The Town raised “the argument that this was a land use decision instead of a matter of complying with the terms of the development agreement.” (Id. at 466.) This was not a land use issue, “it was an executive decision on the part of the Town to refuse to comply with the terms of the development agreement.” (Id. at 457.)
7.2 LOST PROFITS ARE USED FOR BREACH OF DEVELOPMENT AGREEMENT.
In Mammoth Lakes, the “breach was of the development agreement,” which “supported the $30 million damages award.” (Id. at 441-42.) “While claiming a willingness to move forward with the project, town officials actually refused to move forward and actively sought to undermine the developer’s rights under the contract.” (Id. at 466-67.) “The Town demonstrated its intention not to be bound by the development agreement. It actively refused to cooperate and sought to have the developer’s rights terminated.” (Id. at 468.) “Damages consisting of the loss of anticipated profits need not be established with certainty. It is sufficient that it be shown as a reasonable probability that the profits would have been earned except for the breach of the contract.” (Id. at 470.) The developer presented evidence “that it would have realized a $30 million profit on the hotel project if the Town had not breached the agreement.” (Id. at 470.) We conclude “the developer sustained $30 million in damages as a result of the Town’s breach of the development agreement.” (Id. at 476.) The actions by the City of Cudahy are far more explosive than the facts in Mammoth Lakes. Cudahy sought disputed fees as an issue in withholding development, and has expressly repudiated the development agreement in writing. Cudahy has even moved to expressly revoke the development agreement. Cudahy has even prevented the right to be heard at the hearing.
Cudahy appears to believe that it may freely disregard the express terms of the development agreement and withhold approvals and other cooperation required by the agreement.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 29
Cudahy’s actions directly undermine its contractual promises, and a breach of contract action is clear under the simple reading of Mammoth Lakes. The actions by the City of Cudahy, its employees, and consultants pale in comparison to the facts in Mammoth Lakes. The City is given notice that the lost profits from for its breach of the development agreements are conservatively estimated at $26.4 million.
8. OPERATORS GIVE NOTICE TO CITY OFFICIALS, OFFICERS, EMPLOYEES AND CONSULTANTS OF INDIVIDUAL LIABILITY UNDER CIVIL RICO.
The Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961- 68, makes it unlawful for “any person employed by or associated” with any Civil RICO enterprise to “conduct or participate, directly or indirectly” in the RICO enterprise’s affairs through a pattern of racketeering activity (18 U.S.C. § 1962(c)).
Civil RICO liability requires the existence of an “enterprise” through which the illegal conduct occurs. An “enterprise” is defined broadly under RICO as “any individual, partnership, corporation, association, or other legal entity.” 18 U.S.C. § 1961(4). It is well-settled that a City may constitute a civil RICO enterprise. See U.S. v. Freeman (9th Cir. 1993) 6 F.3d 586, 596-97 (“government entity may constitute an enterprise within the meaning of RICO.”) Civil RICO has been approved in a land use context against city officials. See DeFalco v. Bernas (2d Cir. 2001) 244 F.3d 286 (city officials extorted plaintiff by blocking needed permits; civil RICO verdict upheld). However, the claims in Cudahy are garden variety RICO claims. See Sedima v. Imrex (1985) 473 U.S. 479 (civil RICO for fraud and breach of contract).
The RICO defendants consist of Cudahy officials, officers, employees, and consultants because they conducted Cudahy’s affairs “within the scope, or beyond the scope” of authority (Cedric Kushner v. King (2001) 533 U.S. 158, 166) and “participated in the operation or management” of the enterprise’s affairs. (Reves v. Ernst & Young (1993) 507 U.S. 170, 185.) Civil RICO prohibits conducting the affairs of an enterprise, the City of Cudahy, through a pattern of racketeering activity. (18 U.S.C. § 1961(5)). “Racketeering activity” is defined in 18 U.S.C. § 1961(1)(B) to include a slew of federal crimes, including extortion in violation of federal law (18 U.S.C. § 1951), and federal mail and wire fraud (18 U.S.C. §§ 1341, 1343).
8.1 Extortion Of Disputed Fees under Color of Official Right.
Extortion under federal law is a predicate act under RICO. See 18 U.S.C. § 1961(1)(B).
A person commits federal extortion by “obtaining of property from another, with his consent, January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 30
induced by fear, or under color of official right.” (18 U.S.C.§ 1951(b)(2)). The Supreme Court in a political protest case held that extortion did not have to “benefit the protesters financially” and “RICO contains no economic motive requirement.” (Nat’l Org. for Women. v. Scheidler (1994) 510 U.S. 249, 262). Extortion “in no way depends upon having a direct benefit conferred on the person who obtains the property.” (U.S. v. Green (1956) 350 U.S. 415, 420).
During the 68-month delay, Cudahy officials, officers, and employees demanded the operators pay the disputed fees, and in return, withheld permits, unless the disputed fees were paid. Cudahy officials, officers, employees, and consultants, imposed endless changes in violation of the City’s contractual promises 68 months earlier. The strategic delays forced the operators to undergo a five-year procedural gauntlet of ever-changing revisions and inspection criteria. The changes were fraught with delays and uncertainty.
Four years into the project, Cudahy officials, officers, and employees stepped up their demands regarding fees, when City Manager Noyola was hired, and during his tenure, the City placed the projects in default for not paying the fees. The City contacted the California Department of Cannabis Control and informed them the operators were not compliant with the City because their fees were outstanding. The State informed the operators their permit would not be renewed unless the issue with the City was resolved.
The City offered to remove the default status if the operators paid the disputed fees. After this did not produce payment of disputed fees, the City initiated revocation proceedings and offered to allow the facility to open if they paid all the disputed fees due. The City officials, officers, employees, and consultants, actions constitute extortion under the color of official right and constitute extortion under fear of economic loss, in violation of 18 U.S.C. § 1951.
After spending more than $10 million over five years, only one of seven facilities is open and only because it agreed to pay disputed fees under fear of economic harm. City Manager Noyola’s offer of a 90-day temporary occupancy permit in return for payment of disputed fees, is extortion by obtaining property from another, with his consent, induced by fear. The “term ‘fear’ may be of economic loss.” (Brokerage Concepts v. U.S. Healthcare (3d Cir. 1998) 140 F.3d 494, 503). Because City Manager Noyola sought fees under his official role as City Manager, these acts are also extortion by obtaining fees with consent “under color of official right.” (18 U.S.C. § 1951(b)(2).)
The retaliation by placing the operators in default, by refusing to allow them to continue construction while in default, and by initiating defective revocation hearings, and agreeing to halt these retaliations if the disputed and illegal fees were paid constitute extortion under color of official right and extortion under fear of economic loss in violation of 18 U.S.C. § 1951.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 31
The scheme to exact unlawful fees, identified in the text message by Building Inspector Morales to City Manager Noyola, seeks to secure payment of disputed fees, by informing the State that the operators are in default, and as the text message shows this was set in motion to “get them to the table now.” The threat by City Manager Noyola in his text demanding $200,000 for overdue fees is extortion under threat of economic harm, and extortion under color of official right. These demands are unlawful and extortion in violation of 18 U.S.C. § 1951.
8.2 Mail, Wire, and Telephone Used in Scheme to Defraud.
Civil RICO includes violation of federal mail and wire fraud (18 U.S.C. §§ 1341, 1343) as predicates that constitute racketeering activity. See 18 U.S.C. § 1961(1)(B). The mail fraud statute prohibits the use of the mail to execute any “scheme or artifice to defraud.” 18 U.S.C. § 1341. “Innocent mailings -- ones that contain no false information-- may” supply the mail element even if mailing is routine. (Sedima v. Imrex (1985) 473 U.S. 479, 715).
The Supreme Court approved mail and wire fraud for “presenting inflated bills, cheating [plaintiff] out of a portion of its proceeds by collecting for non-existent expenses.” (Sedima v. Imrex (1985) 473 U.S. 479, 484). Cudahy officials submitted countless invoices seeking illegal fees, these invoices also inflated fees due.
Cudahy officials, officers, employees, and consultants committed many acts of mail and wire fraud, by demanding disputed fees, and offering 90-day conditional approvals if the fees were current. The Court in Pelfresne v. Village of Rosemont (ND Ill. 1998) 22 F. Supp. 2d 756, 763 approved predicate acts of mail fraud based on a letter “stating that the Village was refusing to process his permit application” and a second letter “stating that the Village intended to file eminent domain to acquire his property.”
Cudahy officials, officers, employees, and consultants used retaliation to advance their scheme to exact unlawful fees from the cannabis operators. The scheme was intended to defraud the operators of their money and involved calculated efforts of abusive power to induce the operators to give up their money, or face delay, denial, retaliation, and possible bankruptcy.
During the past 68 months Cudahy officials, officers, employees, and consultants submitted countless documents by mail, and by email, sufficient to support mail and wire fraud.
8.3 Actions by Individual Actors Supports a Pattern of Racketeering Activity.
The heart of a civil RICO complaint is the allegation of a pattern of racketeering activity which requires at least two acts of racketeering activity within ten years. (18 U.S.C. § 1961(5)).
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 32
“To prove a pattern of racketeering activity a plaintiff . . . must show the racketeering predicates are related” and they either extended over “a substantial period of time” or “pose a threat of continued criminal activity.” (H.J. Inc. v. North. Bell Tel. (1989) 492 U.S. 229, 239, 242.) The widespread extortion activity spans 68 months and makes a proper closed-ended RICO violation. Cudahy officials, officers, employees and consultants used extortion to demand unlawful fees and committed many acts of extortion under color of official right, and under threat of economic harm against the cannabis operators. Besides the “multiple extortionate acts against the seven cannabis operators, there are many episodes of extortion against other cannabis operators under similar circumstances. Some of whom have already been forced out of business. The predicate act of extortion is related to the scheme to take unlawful fees, or face delay, denial, retaliation or possible bankruptcy.
Cudahy officials, officers, employees, and consultants predicate acts of mail and wire fraud are related to the scheme to take unlawful exactions, or face delay, denial, or retaliation.
The extortion is widespread and spans five years. The extortion against the seven cannabis operators spans seven separate entities over a 68 month period. Cudahy officials, officers, employees, and consultants have no intention of stopping the racketeering activity which “by its nature project[ed] into the future with a threat of repetition,’ thus satisfying RICO’s pattern requirement.” (H.J. Inc. v. North. Bell Tel. (1989) 492 U.S. 229, at 241.)
8.4 Individual City Actors Have Also Engaged in a Civil RICO Conspiracy.
The RICO conspiracy statute, § 1962(d), makes it “unlawful for any person to conspire to violate” § 1962(c). The conspirators “may divide up the work, yet each is responsible for the acts of each other.” (Salinas v. U.S. (1997) 522 U.S. 52 at 63-64). “If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators.” (Id. at 64).
The RICO conspiracy statute, 18 U.S.C. § 1962(d), makes it “unlawful for any person to conspire to violate” § 1962(c). Therefore, under § 1962(d) it is unlawful to conspire to conduct the affairs of an enterprise through a pattern of racketeering activity. In Salinas v. U.S., 522 U.S. 52 (1997) the Supreme Court held that there “is no requirement of some overt act or specific act” in § 1962(d). Id. at 63. A “conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense.” Id. at 63. The conspirators “may divide up the work, yet each is responsible for the acts of each other.” Id. at 63-64. “If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators.” Id.at 64.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 33
Cudahy officials, officers, employees, and consultants conspired and agreed with each other to engage in the conduct stated, they conspired and agreed to aid each other in the commission of the acts of extortion, or of an attempt to commit extortion, and agreed to conduct or participate in the affairs of the City and agreed to commit acts of extortion, as their regular way of conducting the City’s affairs.
Cudahy officials, officers, employees, and consultants conspired, planned and schemed to use the City as a racketeering enterprise to extort money from the cannabis operators and conspired to conduct the affairs of the City using acts of extortion by demanding illegal fees as a condition of project opening.
Cudahy officials, officers, employees, and consultants combined, conspired and confederated with each other to commit” the racketeering activity, the objectives of the conspiracy is identified herein, and the many meetings between them and the operators provide sufficient evidence of the conspiracy, and that they were part of a fraudulent scheme. There is more than enough to satisfy the civil RICO conspiracy statute, 18 U.S.C. § 1962(d).
8.5 Civil RICO Claims Support Actions for Damages to the Operator’s Business.
Each act identified herein by Cudahy officials, officers, employees, and consultants was the proximate cause of the lost profits and the “lost business” was foreseeable. In (Sedima v.
Imrex (1985) 473 U.S. 479 the Supreme Court held that no special “racketeering injury” must be proved for a civil RICO plaintiff to recover beyond the ordinary harm suffered by the victims of the individual predicate crimes. (Sedima, 473 U.S. at 495).
Cudahy officials, officers, employees, and consultants engaged in a pattern of racketeering activity which injured the cannabis operators business, giving the operators claims under 18 U.S.C. § 1964(c) for damages. Cudahy officials, officers, employees, and consultants engaged in a pattern of racketeering activity that injured the operators in their business or property, giving the operators a claim for damages under 18 U.S.C. § 1964(c). See Pelfresne v. Village of Rosemont (ND Ill. 1998) 22 F. Supp. 2d 756, 765 (“filing of unjustified eminent domain proceedings has produced an immediate and concrete decrease in the value of their property.”)
Cudahy officials, officers, employees, and consultants are given notice that the damages for violating civil RICO are conservatively estimated at $26.4 million, and this sum will trebled to $79.2 million.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 34
9. CITY IS GIVEN NOTICE OF OPTION TO PROCEED UNDER THE DISPUTED FEE PROCEDURE AND POST A BOND OF PURPORTED FEES DUE.
Pursuant to Gov. Code § 66020, the cannabis operators protest imposition of the illegal fees. “Any party may protest the imposition of any fees, dedications, reservations, or other exactions imposed on a development project” by “meeting both of the following requirements:
(1) Tendering any required payment in full or providing satisfactory evidence of arrangements to pay the fee when due . . . (2) Serving written notice on the governing body of the entity, which notice shall contain: (A) A statement that the required payment is tendered or will be tendered when due, or that any conditions which have been imposed are provided for or satisfied, under protest. (B) A statement informing the governing body of the factual elements of the dispute and the legal theory forming the basis for the protest.” (Cal Gov Code § 66020, subd. (a)).
“Any party on whom a fee . . . or other exaction has been imposed, the payment or performance of which is required to obtain governmental approval of a . . . development project, may protest the establishment or imposition of the fee, tax” or “other exaction as provided in Section 66020.” (Cal Gov Code § 66021(a)).
“If the court finds in favor of the plaintiff in any action or proceeding” under this section “the court shall direct the local agency to refund the unlawful portion of the payment, with interest.” (Cal Gov Code § 66020(e)). If the court grants a judgment to a plaintiff “the court shall direct the local agency to refund the unlawful portion of the payment, plus interest. . .” (Cal Gov Code § 66020(f)(1)). The California Supreme Court noted in one case that:
“Subdivision (a)(1) of that section permits the protesting party either to pay the amount in full or ‘provid[e] satisfactory evidence of arrangements to pay the fee when due … .’ Obviously, if the protesting party does the latter, there will be no payment to repay or exaction to return. This does not make section 66020 self-canceling whenever the developer provides the required satisfactory evidence and does not make an actual payment. It just means that a remedy will not include repayment of a payment that was never made.” (Sterling Park, L.P. v. City of Palo Alto (2013), 57 Cal. 4th 1193, 1208.) The operators are prepared to bond the fees under protest. This allows them to proceed with construction. The operators seek documentation of the fee which the City seeks and they will post a bond, if they disagree with the fee, the will present a fee to the Court for approval.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 35
10. CITY IS GIVEN NOTICE TO CURE THE PLETHORA OF DEFAULTS AND OPPORTUNITY TO CURE THE SAME WITHIN 30 DAYS.
The development agreements provide in Section 14, titled “Defaults and Remedies,” that the “party alleging [a] default or breach shall give the other party not less than thirty-day notice in writing specifying the nature of the alleged default and the manner in which said default may be satisfactorily cured during any such thirty day period . . .” (Dev. Agmt. § 14(a)). “Subject to extensions of time by mutual consent in writing, failure to delay by either party to perform any term or provision of this Agreement beyond a reasonable notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). “After notice and expiration of the thirty-day period, the other party to this Agreement, at its option, may institute legal proceedings pursuant to this Agreement.” (Id.)
11. CONCLUSION: CITY’S MUST CORRECT ITS PLETHORA OF BREACHES WITHIN 30 DAYS OR FACE LAWSUITS FOR DAMAGES AND CIVIL RICO.
It should be readily from the above that the operators’ payments to date amount to $3/4 million makes them current. It is time for the City to cure the plethora of defects identified in this Notice. The City can cure these defects by undertaking the following acts:
(1). The City must remove all non-operating fees if the facility is not open. (2). The City must waive all fees during the 15-month pandemic period. (3). The City must waive all fees during any delays caused by the City. (4). The City must waive all fees when the City was in default under the agreements. (5). The City must issue full, not temporary, occupancy permits. (6). The City must withdraw the defective review hearing with the hearing officer. (7). The City must expedite permits and proceed with the expedited opening of the facilities.
The operators will of course pay the operating fee, once they are operating, they will pay the community benefit fee, and cost recovery fee as they agreed. Nothing in this Notice modifies the development agreement, the operators are interpreting it exactly as they signed it.
This Notice seeks to bring the City’s actions into compliance with its contractual promises. The City must cure its default identified above. The City must “ensure this agreement remains in full force and effect.” (Dev. Agmt. § 23(c)). The City must correct the many violations identified in this Notice. The cannabis operators have worked on trying to open for 68 months. They have endured many violations, and enough is enough, and then some.
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 36
I am available anytime to discuss the contents of this Notice, or make a full presentation before the City Council, or meet with City officials or City representatives.
Respectfully submitted,
LAW OFFICE OF SEBASTIAN RUCCI, P.C.
Sebastian Rucci
cc: cannabis operators
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 37
TABLE OF CONTENTS
1. INTRODUCTION OF CITY’S BREACH OF DEVELOPMENT AGREEMENTS . 2
2. RELEVANT FACTS IDENTIFYING THE CITY’S CONTRACTUAL PROMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Agreements Guarantee Many Rights Including that the Project is Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 The City Agreed to Proceed in Good Faith and Implemented the Agreement in Accordance with its Terms and to the Fullest Extent Permitted by Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Approved Plans Were Incorporate in the Agreements and the City Contractually Agreed Redesigning Approved Plans is Considered a Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 City Agreed to Expedite Permits and Contractually Promised that Delays by the City in Expediting Permits is Considered a Default. . . . . . . . . . . . . . . . . . . . . 8
2.5 Construction Procedures Were Incorporated in the Agreements and the City Agreed Any Construction Delays by the City is Considered a Default . . . . . . 8
2.6 Force Majure Delays Require an Extension for Local, State or National Emergencies and an Extension for Any Default by the City . . . . . . . . . . . . . . 9
2.7 The City Breached the Development Agreements by Placing the Operators in Default Status and Agreeing to Only Issue Conditional 90-Day Occupancy Permits, Only Renewable if Disputed and Illegal Fees are Current. . . . . . . . 10
2.8 City Correspondence Confirms the Scheme to Extort Illegal Fees, the City Contacted the State and Reported them in Default, the City Would Only Issue Temporary Operating Permits and Placing the Operators in Default. . . . . . . 12
2.9 Three months ago, the City Demanded Immediate Payment of $200,000 From the Only Operator to Open Or Face Immediate Revocation . . . . . . . . . . . . . . . . 15 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 38
3. THE CITY BREACHED THE AGREEMENTS BY REFUSING TO WAIVE FEES DURING THE PANDEMIC CLOSURE AS PROMISED IN SECTION 23(i). . . . 17
4. CITY BREACHED THE AGREEMENTS BY FAILING TO EXPEDITE APPROVALS AND BY SEEKING FEES FOR DELAYS CAUSED BY THE CITY . . . . . . . . . . 17
5. CITY BREACHED THE AGREEMENTS BY DEMANDING NON-OPERATING FEES AS SHOWN BY THE PARTIES INTENT AT THE TIME OF SIGNING. . 18
5.1 Councilman Hernandez’s Recollection of the Intention of the Non-Operating Fees at the Time of Approval Confirms Non-Operating Feed Do Not Apply . . . . 19
5.2 The Operators Recollection of the Intention of the Non-Operating Fees at the Time of Contracting Confirms Non-Operating Fees Do Not Apply . . . . . . . 20
5.3 Non-Operating Fees are Illegal Taxes (No Voter Approval) . . . . . . . . . . . . . 21
5.4 Non-Operating Fee/Tax are Illegal Impact Fees (No Findings). . . . . . . . . . . 22
5.5 The City’s Interpretation the Non-Operating Fees Apply to Operators Progressing to Open, but Unable to Open Is a Breach of the Agreement . . . . . . . . . . . . . 23
6. THE CITY BREACHED THE AGREEMENTS BY PREVENTING THE YEARLY REVIEW HEARINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 The City Breached the Development Agreements by Failing to Hold Yearly Review Hearings Breached which Prevented the Operators From Presenting Documentation of the City’s Force Majeure Delays . . . . . . . . . . . . . . . . . . . 24
6.2 The City Breached the Development Agreements by Setting Review Hearing Before a Hearing Officer Instead of the City Council . . . . . . . . . . . . . . . . . . 25
6.3 The City Breached the Development Agreements by Denying the Operators an Opportunity to Be Heard at the Review Hearing . . . . . . . . . . . . . . . . . . . . . . 26
7. THE CITY IS GIVEN NOTICE THAT THE DAMAGES FOR BREACH OF THE DEVELOPMENT AGREEMENTS ARE $26.4 MILLION . . . . . . . . . . . . . . . . . . . 27
7.1 Contract Damages for Breach of Development Agreement . . . . . . . . . . . . . . 27 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 39
7.2 Lost Profits Are Used for Breach of Development Agreement . . . . . . . . . . . 29
8. OPERATORS GIVE NOTICE TO CITY OFFICIALS, OFFICERS, EMPLOYEES AND CONSULTANTS OF INDIVIDUAL LIABILITY UNDER CIVIL RICO . . 30
8.1 Extortion Of Disputed Fees under Color of Official Right . . . . . . . . . . . . . . 31
8.2 Mail, Wire, and Telephone Used in Scheme to Defraud . . . . . . . . . . . . . . . . 32
8.3 Actions by Individual Actors Supports a Pattern of Racketeering Activity. . 33
8.4 Individual City Actors Have Also Engaged in a Civil RICO Conspiracy . . . 33
8.5 Civil RICO Claims Support Actions for Damages to the Operator’s Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9. CITY IS GIVEN NOTICE OF OPTION TO PROCEED UNDER THE DISPUTED FEE PROCEDURE AND POST A BOND OF PURPORTED FEES DUE. . . . . . . . . . . 35
10. CITY IS GIVEN NOTICE TO CURE THE PLETHORA OF DEFAULTS AND OPPORTUNITY TO CURE THE SAME WITHIN 30 DAYS . . . . . . . . . . . . . . . . 36
11. CONCLUSION: CITY’S MUST CORRECT ITS PLETHORA OF BREACHES WITHIN 30 DAYS OR FACE LAWSUITS FOR DAMAGES AND CIVIL RICO 36 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 40
LAW OFFICE OF SEBASTIAN RUCCI, P.C.
16400 Pacific Coast Highway, Suite 212
Huntington Beach, CA 92649
Phone: (562) 901-0199
Fax: (562) 249-6910
[email protected]
February 5, 2024
Mayor, Jose R. Gonzalez ([email protected])
Vice Mayor, Elizabeth Alcantar ([email protected]) Councilmember, Daisy Lomeli ([email protected]) Councilmember, Martin U. Fuentes ([email protected]) Councilmember, Dr. Cynthia Gonzalez ([email protected]) City Manager, Alfonso Noyola ([email protected]) Finance Director, Joshua Calhoun, CPA ([email protected]) Senior Planner, Cecilia Madrigal-Gonzalez ([email protected]) City Clerk, Richard Iglesias ([email protected]) Special Council, Glenn Ward Calsada ([email protected]) City Attorney Paloma Perez-McEvoy ([email protected]) City Attorney Stephanie Arechida ([email protected]) Community Development Director, Juan Arauz ([email protected]) Building Official, Raul Diaz ([email protected]) RE: (1) Notice that City of Cudahy Failed to Cure Breach of Development Agreements (Dev.
Agmt. § 14); (2) Notice that the City and Individuals Failed to Respond to Claims of Damages (Gov. Code §§ 905, 945.4); (3) Notice that City of Cudahy Failed to Respond to Notice to Proceed with Bond of Illegal Fees under Protest (Gov. Code § 66020).
Dear Mayor, Vice Mayor, Council Members, City Officials, and City Representatives:
We represent seven cannabis operators with development agreements at 4916 Cecilia Street. On January 5, 2024, we sent a 36-page NOTICE TO CURE ITS BREACH OF DEVELOPMENT AGREEMENTS to fourteen city officials, officers, employees, and consultants. No response has been received from the City to our demand to cure its many breaches, or to our demand for the City to pay damages, or to our demand for the City to proceed under protest by posting a bond for illegal fees. We wanted to cure these defects without litigation. However, we have gone through all efforts to do so, and since our efforts have been rejected, we will pursue litigation in court.
1. The City RECEIVED and REJECTED the 30-Day Notice to Cure the Plethora of Defaults and Breaches of the Development Agreement (Dev. Agmt. § 14).
The 36-page Notice identified many breaches by the City with the development agreements. (Notice at pgs. 6-26). The City was given 30 days to cure pursuant to the City’s contractual agreement in § 14 of the development agreements. (Notice at pgs. 2, 36). The Notice offered “to discuss the contents of this Notice, or make a full presentation before the City Council, or meet with City officials or City representatives.” (Notice at p. 36).
The 30-day cure period has expired, and pursuant to the development agreement, “After notice and expiration of the thirty-day period,” the cannabis operators “may institute legal proceedings pursuant to this Agreement.” (Dev. Agmt. § 14(a)). We have complied with all the efforts to have the City cure the many breaches identified in the Notice. Because the 30-day notice lapsed without a response from the City, we will pursue litigation as permitted by the development agreement.
While waiting for a response to cure the defects during the 30-day notice period, on February 1, 2024, at 5:46 pm, we received an email from City Manager Noyola seeking to illegally revoke the defective and illegal 90-day occupancy permit for Go Cudahy for failure to pay all fees. This defect was expressly identified in the Notice on pages 10 and 11. It is clear to us that the City seeks to continue its harassment. The February 1, 2024 letter is an example of multiple breaches of the development agreement and is a continuation of the Civil RICO violations we identified in the Notice on pages 30-35.
On February 1, 2024, upon receiving the letter from City Manager Noyola, we recognized that the City rejected our efforts for the City to cure its many breaches of the development agreements. Nonetheless, we waited 30 days as we agreed in the Notice and as mandated by the development agreement. At no point did the City or its legal counsel respond to the many detailed breaches listed in the 36-page notice.
Accordingly, we give notice that we view the City’s failure to proceed in good faith to cure its many breaches and the letter dated February 1, 2024, as a clear statement that the City will not cure its breaches and will instead continue to retaliate against cannabis operators for failing to pay illegal fees. We have complied with all the efforts to cure and give notice that we will pursue litigation in court and expect to file the a federal and state complaints this week.
February 5, 2024 Notice Letter to City on Failure to Cure and Upcoming Litigation . . . . . . . . . . . . . . . . . PAGE 2
2. The City RECEIVED and REJECTED the Claim for $26.4 Million Damages for Breach of the Development Agreements (Gov. Code §§ 905, 945.4).
Gov. Code § 905 requires that “claims for money or damages against local public entities” shall be presented to the City as a condition of filing a lawsuit against the City. Gov.
Code § 945.4 provides “no suit for money or damages may be brought against a public entity . . . until a written claim therefor has been presented to the public entity and has been acted upon by the board, or has been deemed to have been rejected by the board.” The 36-page Notice identified specific breaches of the development agreement (Notice at pgs. 6-26) and explained that these breaches would support a claim for lost profits (Notice at pgs. 27-30) and stated: “The City is given notice that the lost profits from for its breach of the development agreements are conservatively estimated at $26.4 million.” (Notice at p. 30). A copy of the appellate decision in Mammoth Lakes Land Acquisition v. Town of Mammoth Lakes (2010), 191 Cal. App. 4th 435 decision was submitted with the Notice to fully explain the damages for lost profits under a development agreement. Our demands were never responded to by the City, or its legal counsel, and we consider this a rejection of our claim.
3. City Officials, Officers, Employees, and Consultants RECEIVED and REJECTED the Civil RICO Claims for Damages of $26.4 Million (Gov. Code §§ 905, 945.4).
The 36-page Notice also identified that the demand for illegal fees supports Civil RICO claims. (Notice at pgs. 30-35). The Notice identified that the actions of city officials, officers, employees, and consultants support claims for extortion under the color of official right and extortion under fear of economic loss. (Notice at pgs. 30-31). The Notice identified that the demand for illegal fees are predicate acts of mail and wire fraud. (Notice at p. 32).
The City officials, officers, employees, and consultants were provided the following Notice: “Cudahy officials, officers, employees, and consultants are notified that the damages for violating civil RICO are conservatively estimated at $26.4 million, and this sum will be trebled to $79.2 million.” (Notice at p. 34). Our demands were never responded to, and we consider a rejection of our claims.
February 5, 2024 Notice Letter to City on Failure to Cure and Upcoming Litigation . . . . . . . . . . . . . . . . . PAGE 3
4. The City RECEIVED and REJECTED that Demand to Post a Bond and Proceed Under Protest on the Disputed Fees (Gov. Code § § 66020, 66021).
According to Government Code § 66020, the cannabis operators are permitted to “protest the imposition of any fees, dedications, reservations, or other exactions imposed on a development project” by “providing satisfactory evidence of arrangements to pay the fee when due” and by serving written notice on the City that conditions are imposed (agreement to post a bond) in an effort to “protest” the illegal fees. (Gov Code § 66020(a)). Under Government Code § 66021, the cannabis operators “on whom a fee . . . or other exaction has been imposed, the payment or performance of which is required to obtain governmental approval of a . . . development project, may protest the establishment or imposition of the fee, tax” or “other exaction as provided in § 66020.” (Gov Code § 66021(a)).
Notice was provided that the cannabis operators seek to “proceed under protest and seek an arrangement to pay the disputed fees, under protest, by posting a bond, under Gov. Code § 66020.” (Notice at p. 2). The Notice stated: The operators are prepared to bond the fees under protest. This allows them to proceed with construction. The operators seek documentation of the total fees that the City seeks, and the cannabis operators agreed to post a bond for this sum.
If the operators disagreed with the City's sum, they stated they would present a claim to the Court for approval. (Notice at p. 35). Surprisingly, the City did not want to address the fees with a bond and did not respond to our request to proceed under protest. This is an option that the City did not have, and the City's silence violates the cannabis operators’ rights under Gov. Code §§ 66020, 66021.
5. The City Rejected Our 30-Day Notice to Cure, Our Demand for Damages, and Our Demand to Proceed Under Protest By Posting a Bond of the Fees. We Have Complied with all Notices and Will Proceed with Litigation.
The development agreement notified the City and its employees of its contractual promises “shall survive beyond the terms of the present Council members that this Agreement will serve to bind the City and future Councils to the obligations hereby undertaken.” (Dev.
Agmt. Recital M). The development agreement also notified the City employees and officials that “nothing contained [in the development agreement] shall modify or abridge the operator’s rights or remedies (including its rights for damages, if any) resulting from bad faith intentional acts, the grossly negligent or malicious acts of the City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).
February 5, 2024 Notice Letter to City on Failure to Cure and Upcoming Litigation . . . . . . . . . . . . . . . . . PAGE 4
Under Section 14 of the development agreement, the operators gave the City notice of its “default” and “breach” of the agreements, specifying “the nature of the alleged default and the manner in which said default may be satisfactorily cured.” (Dev. Agmt. § 14(a)). The City’s “failure” to cure within 30 days “shall constitute a default.” (Id.) “After notice and expiration” of the 30 days to cure, the cannabis operators “may institute legal proceedings.” (Id.) We made every effort to give the City detailed notice to cure. Having been rebuffed by the City with its silence, we will proceed with litigation. We also provided a detailed demand for damages. (Gov. Code §§ 905, 945.4). We view the City’s silence to our 36-page Notice to cure and the City manager's February 1, 2024 letter as a rejection of our damage claims. We will accordingly proceed with litigation.
This week, we will file a complaint against the City in state court seeking $26.4 million in damages for breach of the development agreements. The state lawsuit will also seek damages for the City’s failure to comply with the cannabis operators’ rights to bond the illegal fees and proceed under protest. The state lawsuit will also seek to invalidate the operating fees as an illegal tax and illegal impact fees (Notice at pgs. 21-23). The state lawsuit will also seek damages for civil rights violations of the cannabis operators’ rights to due process and equal protection. Lastly, we will seek injunctive relief to stop the retaliation identified in the 36-page Notice and repeated in the recent letter on February 1, 2024.
Besides the state lawsuit against the City, we will file a federal lawsuit seeking civil RICO damages of $26.4 million (trebled to $79.2 million) against city manager Alfonso Noyola, vice mayor Elizabeth Alcantar, councilmembers Daisy Lomeli, Martin Fuentes, and Cynthia Gonzalez, finance director Joshua Calhoun, senior planner Cecilia Madrigal-Gonzalez, and building official Raul Diaz.
On February 1, 2024, the City manager informed us he intended to proceed with the retaliation, even after all the violations were identified in great detail. Instead of reaching out to resolve the apparent breaches and damages to the cannabis operators, who have been waiting 68 months to open after spending $10 million, the City, its officials, and employees have decided to continue retaliating. We have complied with all the efforts to cure and provided detailed notice of our demand for damages (Gov. Code §§ 905, 945.4) and to proceed under protest by posting a bond of the Illegal fees (Gov. Code § 66020).
February 5, 2024 Notice Letter to City on Failure to Cure and Upcoming Litigation . . . . . . . . . . . . . . . . . PAGE 5
Our efforts to have the City cure its numerous breaches have been unsuccessful. After 68 months, the city, its officials, and its employees have refused to allow the cannabis operators to open. We will file two lawsuits this week for damages and to force the City to comply with its contractual promises in the development agreements.
Respectfully submitted,
LAW OFFICE OF SEBASTIAN RUCCI, P.C.
Sebastian Rucci
cc: cannabis operators
February 5, 2024 Notice Letter to City on Failure to Cure and Upcoming Litigation . . . . . . . . . . . . . . . . . PAGE 6
Attachment L
Attachment MPage 1935 of 4584
Attachment NPage 1946 of 4584
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STAFF REPORT
Date: June 4, 2024
To: Honorable Mayor/Chair and City Council/Agency Members From: Alfonso Noyola, City Manager
By: Juan Arauz, AICP, Community Development Director
Subject: Introduction and adoption by first reading of Ordinance No. 748 repealing Ordinance No. 682 terminating Development Agreement No. 18-022C, between the City of Cudahy and Herbal Dragon, LLC
RECOMMENDATION
City staff recommends that the City Council take the following action(s):
1. Open public hearing and receive comments and testimony; and
2. Make a determination that Herbal Dragon, LLC (“Operator”) is not in compliance with the terms and conditions of its Development Agreement (“DA”) with the City and find that the Operator is in default of contractual obligations set forth in the DA; and
3. Introduce and adopt by first reading, Ordinance No. 748 (Attachment A) repealing Ordinance No. 682 terminating DA No. 18-022C, between the City of Cudahy and Herbal Dragon, LLC; and
4. Determine these actions are exempt from the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15321 (Enforcement Actions by Regulatory Agencies).
SUMMARY
Pursuant to the terms and conditions of DA No. 18-022C and CCP No. 18-0019, it is the City’s purpose and intent to regulate cannabis activities within the City in a responsible manner to protect the health, safety, and welfare of the residents of Cudahy and to enforce rules and regulations consistent with California’s Cannabis laws. Cannabis operators with development agreements are obligated to comply with all provisions of the Cudahy Municipal Code (“CMC”), obligations of the DA, and conditions of approval under the CCP, and applicable state and local Item Number
13C
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laws and related regulations. This report provides unrefuted evidence offered at an administrative review hearing; a decision by a third-party hearing officer (“Hearing Officer”) on November 14, 2023 finding the Operator in default of the DA and out of compliance with the CCP; the public hearing by the Planning Commission, determining that the Operator has failed to comply with the terms and conditions of its DA, despite being provided with ample notice and several opportunities to achieve compliance, thereby recommending to the City Council that it repeal Ordinance No. 682 and DA No. 18-022C through the adoption of Planning Commission Resolution No. 2024-06. Therefore, City staff recommends the City Council adopt Ordinance No. 748 repealing Ordinance No. 682 terminating DA18-022C.
BACKGROUND
1. On September 11, 2017, the City adopted Ordinance No. 673 (Attachment B) establishing the City’s commercial cannabis production activity regulations codified in Chapter 5.20 of the Cudahy Municipal Code (“CMC”). CMC Section 5.20.040 authorizes medicinal commercial cannabis activities within a designated overlay zone, pursuant to a development agreement adopted in accordance with the Development Agreement Law (Govt. Code Section 65864 et seq.) and Chapter 20.28 of the CMC.
2. On April 30, 2018, the Planning Commission recommended approval of CCP No. 18-0019 for cannabis manufacturing at 4916 Cecilia Street, as illustrated in Figure 1 below, subject to the execution of a development agreement between the City and the Operator for cannabis manufacturing. The Operator is one of seven tenants at the Site which all have separate Development Agreements with the City but share an interest in CCP No. 18-0019 and are subject to the same conditions of approval. As discussed in further detail below, the conditions of approval of CCP No. 18-0019 require the Operator to make timely payments of the fees due under the Development Agreement.
Figure 1 – Aerial of the Site.
3. On May 15, 2018, the City Council adopted Resolution No. 18-17 (Attachment C) approving the issuance of CCP No. 18-0019 with conditions of approval to the Operator, subject to the execution of a development agreement with the City. 4916 Cecilia
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4. On June 5, 2018, the City Council adopted Ordinance No. 682 (Attachment D) approving Development Agreement No. 18-022C by and between the Operator and the City authorizing commercial cannabis manufacturing activities at the Site as illustrated in Figure 2, below. The DA requires the Operator to make timely payments for Community Benefit Fees; Cost Recovery Fees; and Non-Operating Fees.1 Figure 2 – Floor Plan
5. On October 2, 2019, the City provided the Operator with a Notice of Delinquency (Attachment F- pg. 185) due to failure to pay the various fees due under CCP 18-0019 and DA No. 18-022C, prior to placing the Operator in default status due to payment noncompliance with the DA, inclusive of the non-payment of Community Benefit Fees, Cost Recovery Fees, and Non-Operating Fees in the amount of Fourteen thousand eight hundred ninety-six dollars and forty-three cents ($14,896.43). The Operator was given no later than October 17, 2019, to cure the amount, however the delinquency was not timely cured.
6. On May 4, 2021, the City provided the Operator with a Notice of Default (Attachment F pgs. 187-188) due to non-compliance with the payment of fees and associated penalties in the amount of Sixty-eight thousand three hundred fifty-seven dollars and ninety-nine cents ($68,357.99). The Operator was given no later than 30 days to cure the default, however, the default was not timely cured.
7. On October 19, 2021, the City provided the Operator with a Final Demand Letter (Attachment F- pgs. 190-191) due to payment non-compliance informing the Operator that fees and penalties had accumulated to Seventy-five thousand six hundred fifty-six dollars and three cents ($75,656.03). The Operator was given no later than 30 days to 1 As used herein, the term Non-Operating Fees and Operating Fees are used interchangeably.
UNIT E
4916 Cecilia
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cure the default and comply with payment obligations, however the default was not timely cured.
8. On December 7, 2022, the City Manager offered a Cannabis Deferment and Payment Program (Attachment F- pgs. 193-194) to assist cannabis Operators with accumulated Community Benefits, Cost Recovery and Non-Operating Fees by deferring and providing additional time for payment without penalty. Under the program:
a. Unpaid Non-Operating Fees would be deferred (without penalty) until six (6) months after the Operator was issued a Certificate of Occupancy, and then repay already accumulated Non-Operating Fees within twelve (12) months; and b. Operators would continue to be responsible for the timely payment of Community Benefit Fees and Cost Recovery Fees, as they accumulated; and c. Previously incurred Community Benefit Fees and Cost Recovery Fees would be subject to a payment plan and require timely payments.
All cannabis operators that were interested in participating in the program were given no later than January 31, 2023, to execute an agreement to participate in the Deferment and Payment Program. The City received interest from the Operator and due to the good faith negotiations between both parties, the City extended the opportunity for the Operator to participate.
9. On February 1, 2023, the City’s Finance Department presented the Operator with a Letter Agreement agreeing to the Deferment and Payment Program to forbear the outstanding payments due (“Letter Agreement”) (Attachment F- pgs. 196-203). The Operator accepted the proposed terms and executed the Letter Agreement on February 2, 2023, and agreed to commence payments on March 2, 2023. The Operator also acknowledged and agreed “that the past due amounts stated [in the Letter Agreement] are true and correct and are in fact presently due and owing. The parties agree that the Operator is in ‘default status’ on its obligations under its Development Agreement with the City.”
10. Between April and June 2023, the City provided the Operator with three Notices of Delinquency (Attachment F- pgs. 205-22) and provided an opportunity for the Operator to cure outstanding payments due. However, the default on the Letter Agreement was not timely cured and therefore was terminated and no longer in full force and effect as of June 16, 2023. Accordingly, the total of all past due amounts at the time the Letter Agreement was terminated and an amount of One hundred eighty-one thousand two hundred fifty-two dollars and seventy-nine cents ($181,252.79) and was due and owed.
11. On June 23, 2023, the City sent a Final Demand Letter (Attachment E) demanding the Operator to respond to the following demands: 1) Proof of revival of the LLC’s entity status with the State; 2) Forwarding payment for all past due amounts; and 3) Contact the City to revise the CCP’s Schedule of Performance and for further information to become compliant with the DA and CCP. The Operator did not respond in a timely manner and has failed to make any attempt to cure the defaults.
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12. On August 9, 2023, the City issued an Escrow Account Letter (Attachment F- pgs.228-229) requiring all cannabis operators to open an escrow account by September 15, 2023, to ensure payment of Cost Recovery Fees. As of the writing of this report, the Operator has not opened an escrow account nor made any payments into the account.
13. On October 12, 2023, the City issued the Operator a Notice of Review Hearing (Attachment F- pgs. 231-232) with the hearing date, time, and place. The Notice of Review Hearing requested the Operator to contact staff to confirm appearance at the Review Hearing and advised the Operator to respond within ten days of the date of the letter to confirm appearance Review Hearing or otherwise waive the right to present evidence at the hearing. The notice also informed the Operator that it was responsible for the cost of the Review Hearing and requested the Operator to deliver a cashier’s check three days prior to the scheduled hearing or would otherwise constitute further default on the DA.
The City did not receive a timely response from the Operator nor payment for the cost of the Review Hearing.
14. On October 24, 2023, the City issued a letter (Attachment F- pgs. 234-235) updating the Respondent on their payment and fees related to the DA by correcting the amount due to an error in the total amount billed. The City provided a credit in the amount of Fourteen thousand nine hundred fifty dollars and fifty cents ($14,950.50).
15. As of October 24, 2023, Operator owed the City One hundred eighty-six thousand one hundred seventy dollars and ninety-eight cents ($186,170.98). Operator has continued to fail to make payments and as of the writing of this report owes Two hundred sixteen thousand five hundred five dollars and forty-seven cents ($216,505.47). Community Benefit Fees, Cost-Recovery and Non-Operating Fees plus penalties continue to accrue and the total amount due may be higher as of the date of this staff report.
16. On November 2, 2023, the City sent a follow up notice to the Notice of Review to the Operator confirming that it had not received any communication from the Operator confirming attendance at the Review Hearing and that the ability to present before the hearing officer had been waived (Attachment G). The City did not receive a timely response from the Operator.
17. On November 14, 2023, the duly appointed third-party Hearing Officer, Steve Napolitano, conducted a Review Hearing as authorized under the CMC Section 5.20.080(7) and Section 19 of the DA No. 18-022C to hear and consider information and evidence submitted by City staff through an Administrative Record (Attachment F) and the Operator. No representation from the Operator was present at the hearing nor did the Operator submit any information or evidence for consideration.
18. On January 14, 2024, the Hearing Officer issued a written decision and order (Attachment H) finding evidence showing the Operator, despite considerable notice and opportunities to cure outstanding issues, has breached the terms and conditions of the DA and CCP and
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recommends the Planning Commission and City Council repeal Ordinance No. 682 terminating DA No. 18-022C and revoke the related interest in CCP No. 18-0019.
19. Approximately two months after the Review Hearing, on January 6, 2024, an attorney who appears to represent the Operator submitted a letter to the City alleging the City was in default with the terms of DA No. 18-022C (“Notice to Cure Breach”) (Attachment I).
The Notice to Cure Breach alleged the City had breached DA No. 18-022C by (a) failing to waive fees pursuant to the Article 23.i of the DA (Force Majeure); (b) failing to “expedite” approvals and by seeking fees for delays allegedly caused by the City; (c) requiring the Operator to pay Non-Operating Fees as required by the DA; (d) implementing fees that violate The Mitigation Fee Act (Govt Code § 65864-65869.5); and (e) failing to conduct an annual hearing to determine compliance with the DA No. 18-022C. The Notice to Cure Breach also alleged the City was liable under the Civil RICO statute. The Operator demanded that the City (i) waive all accumulated Non-Operating Fees for a period of 15 months; (ii) “waive all fees during any delays caused by the City[;]” (iii) “waive all fees when the City was in default under the agreements[;]” (iv) issue certificate of occupancy to the Operator; (v) halt the hearing process before the third-party Hearing Officer; and (vi) expedite the processing of all permit applications.
20. On January 8, 2024, the City received a request to submit the Notice to Cure Breach into the administrative record for the hearing that took place on November 14, 2023 (Attachment J).
21. On March 18, 2024, pursuant to State law and the CMC, the Planning Commission held a duly noticed public hearing to consider the Hearing Officer’s recommendation to repeal Ordinance No. 682 and terminate DA No. 18-022C. Hours before the hearing, the attorney representing the Operator requested that a comment letter be submitted into the record at the May 18 Planning Commission hearing (Attachment K).2 The Planning Commission considered all public comments received before and during the public hearing, the presentation by City staff, the relevant staff report, administrative record, and all other pertinent documents. No representation from the Operator was present at the hearing. After closing public hearing, the Planning Commission adopted Resolution No. 2024-06 (Attachment L), recommending the City Council repeal Ordinance No. 682 and terminate related DA No. 18-022C.
DISCUSSION/ANALYSIS
During a review of the Operator’s compliance with the Development Agreement, the burden is upon the Operator to demonstrate good faith compliance with the terms of the Development Agreement under Article 19. Pursuant to Government Code Section 65868.1 and Articles 19 and
19.d of the DA, if the City Council determines, based on substantial evidence, that the Operator 2 The City assumes that the request to add the letter to the May 18 Planning Commission hearing was a typo and was intended to be submitted into the record for the March 18, 2024 Planning Commission hearing. The City accepted the letter as a public comment into the record. All Planning Commissioners and City Council members were also addressed in the communication.
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has not complied in good faith with the terms of the conditions of the DA, the City Council may terminate the DA, or alternatively may choose to modify and impose conditions reasonably necessary to protect the interests of the City. Conversely, if the Operator is found to be in compliance with the Development Agreement, the Operator may request the City to issue a Certificate of Compliance pursuant to Article 19.e. Any decision to terminate a development agreement must be reviewed by the Planning Commission prior to review by the City Council.
Gov. Code § 65867 Under Article 19.d, the decision to terminate a development agreement by the City Council is final.
As it relates to the CCP, pursuant to the CMC Sections 5.20.080(6) and 5.20.080(7), any material violations of Chapter 5.20, any other relevant city law or state law, condition of approval, or any other required agreement or covenant, such as a development agreement, by a cannabis permittee, or cannabis permittee’s agent, is grounds for suspending or revoking the relevant cannabis permit. The decision to suspend or revoke a commercial cannabis permit is with the City Manager or his designee. Furthermore, pursuant to CMC Section 5.20.080, any decision regarding the suspension or revocation may be appealed to the City Council.
The City has appointed a third-party hearing officer to conduct a review of the Operator’s compliance with CPP No. 18-0019 and DA No. 18-0022C. The findings and determinations made by the Hearing Officer inform any subsequent action to terminate or modify the Development Agreement and suspension or revocation of the CCP. As stated above, and further described in Attachment H, the Hearing Officer issued a written decision making several findings of fact and conclusions and determined that Herbal Dragon, LLC breached the terms and conditions pursuant to DA No. 18-022C and CCP No. 18-0019, based on a preponderance of the evidence, in the following material aspects:
1. Violation #1: Breach of Payment Obligations. Pursuant to the terms of the DA, the Operator is responsible for timely payment of Community Benefit Fees (Article 5.b); Cost Recovery Fees (Article 8); and Operating Fees (Article 7.c). The Operator is also obligated to make the fees due under the DA pursuant to CCP Condition of Approval No. 45; and timely payment for Non-Operating Fees pursuant to Condition of Approval No. 13 (Attachment F – pgs. 54-69). Conditions of Approval 1(a) and 1(b) require the Operator to pay all City-issued invoices within 30 days of receipt. Pursuant to the terms of the DA, Operators that are more than 30 days past due on operating fees are subject to a penalty equal to twenty-five percent (25%). In addition, a ten percent (10%) penalty shall be added to the first day of each calendar month following the imposition of the initial 25% penalty, if the fee remains unpaid in whole or in part, up to a maximum of the onehundred percent (100%) of the payable fee. The conditions of approval for CCP No. 18- 0019 are incorporated into the DA through Article 18 and require the Owner to comply with all conditions contained therein (Attachment F – p. 77-129). The City offered the Operator relief in the form of the Cannabis Deferment and Payment Program. The City executed a Letter Agreement to grant the Operator relief in the form of deferred payment obligations of the Operating Fees and a payment schedule for past-due Community Benefit Fees and Cost Recovery Fees; and an obligation to remain current on recurring fees under the DA. The Operator did not make any timely payments in the three months
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that followed the execution of the Letter Agreement between March to May 2023.
As of October 24, 2023, the City reported that the Operator is past due in the amount of One hundred eighty-six thousand one hundred seventy dollars and ninety-eight cents ($186,170.98) and past-due payments continue to accumulate, including late payment penalties. As of the writing of this report, the Operator now owes the City $216,505.47.
Table 1. Summary of Past and Current Amounts Due as of May 14, 2024 Fee Type Payment Amount Due
Community Benefit Program $48,381.27
Cost Recovery Fees $75,890.52
Non-Operating Fees $72,256.80
Penalties (Late Payments) $19,976.88
TOTAL $216,505.47
Based on the evidence submitted by the City, the Hearing Officer found that “based on the unrefuted evidence presented by the City...a preponderance of the evidence shows that [Operator] breached multiple conditions of the DA and CCP. Despite multiple attempts and notices by the City to gain compliance, the evidence shows that [Operator] failed to comply with their payment obligations, which constitutes the necessary grounds for termination of the DA and revocation of the CCP under the CMC” (Attachment H).
The Hearing Officer’s determination was ratified by the Planning Commission through the adoption of Resolution No. 2024-06 which recommends that the City Council find that Operator is in default of the terms set forth in DA No. 18-022C and repeal Ordinance No. 682 and terminate the related DA.
2. Violation #2: Failure to comply with state law - Suspended Status with the Secretary of State (SOS) and Franchise Tax Board (FTB). Pursuant to Article 4.a of the DA, the Operator must be a lawful entity capable of operating in accordance with state laws. A Certificate of Status dated October 31, 2023, states: “The above-referenced entity’s powers, rights, and privileges are suspended in California. As of the date of the Review Hearing on November 14, 2023, the Operator’s entity status was “FTB/SOS Suspended.” The Hearing Officer further determined “[a]ccording to the California Franchise Tax Board website, a suspended entity cannot do business in California until they cure the reason for their suspension, which is supported by Rev. and Tax Code Sec. 23303 and case law cited by the City: Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662; City of San Diego v. San Diegan for Open Government (2016) 3 Cal.App.5th 568, 577” (Attachment H).
Despite notice of default and opportunity to cure, the Operator’s status remained “suspended” at the time of the Review Hearing. Non-compliance with state law due to the Operator's legal status as a California limited liability is suspended by the State’s Secretary of State, as such, the Operator is unable to operate in the State of California.
3. Violation #3: Failure to Implement the Project Under Prescribed Time Limits. CCP Condition of Approval No. 51.A set a 90-day time frame in which the Operator must
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complete construction of Phase I of the Project. The 90-day period began following the 15-day appeal period from the date of the CCP approval, or June 20, 2018, meaning the Operator needed to complete Phase I by September 18, 2018. CCP Condition of Approval
51.A.iii sets a 180-day time limitation from the effective date of the CCP to complete all tenant improvements, construction, and obtain a certificate of occupancy from the Building Department, or December 17, 2018. The Operator was given a notice of default and opportunity to cure pursuant to the City’s Final Demand Letter to the Operator (Attachment F - pgs. 224-226), with no response from the Operator. The Operator has failed to provide any evidence that it has obtained a Zoning Clearance, completed construction of Phase I, or completed the tenant improvements, obtained a certificate of occupancy, or otherwise complete Phase II within the prescribed time periods. Nor does the City have any record of any request by the Operator for an extension of time to the City Manager and there is no evidence to demonstrate the Operator has made substantial progress, such as submitting an application for a Zoning Clearance or building permit plan check.
Allegations of Default on Behalf of the City:
As an initial matter, the Notice to Cure Breach offered as evidence to demonstrate compliance with the DA and CCP was untimely submitted, nor does it actually offer evidence of Operator’s compliance with the CCP and DA. The request was made nearly two months after the Review Hearing that took place on November 14, 2023, after providing the Operator with multiple notices, and need not be considered. However, the City shall respond to the allegations made by the Operator’s representative which are largely unsupported by the evidence, the law, or both.
1. Operator is not Excused for Performance Pursuant to Force Majeure. The DA provides a Force Majeure clause at Article 23.i, which applies to unforeseen events that include “war, insurrection, acts of God, local, state or national emergencies, strikes and other labor difficulties beyond the party’s control, or any default by the City hereunder, which Force Majeure event substantially interferes with the development, construction or operation of the Project” (emphasis added).
Operator has failed to make a substantiated showing that the circumstances of Force Majeure were present during the time of default. The City provided the Operator with the first notice that it was in breach of the DA and CCP, approximately five months prior to the Governor’s issuance of Executive Order N-22-20 (Attachment M). The Operator was provided 30 days to cure the default pursuant to Article 14.a of the DA (Attachment F- pgs. 77-129). During this time, Operator did not cure the default, nor take diligent efforts to cure the default. City issued a subsequent notice to Operator on May 4, 2021 (Attachment F- 187-188) – during the unsupported allegation of the City’s closure.
Further, City Hall was not closed for a 15-month period. During the height of the pandemic, City Hall’s physical premises were closed to the public, however, the City continued to conduct business, and process requests, including applications for building permits which could be dropped off at the front of City Hall. Additionally, both commercial
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cannabis activities, inclusive of cannabis manufacturing, and commercial construction were permitted by the authority granted to the State Public Health Officer pursuant to Executive Order N-33-20 (Attachment M). The State permitted cannabis activities and construction to continue through the height of the pandemic and operators were able to continue processing applications, such as building permits, during this time.
The Notice to Cure Breach alleges that the Operator has invested $10 million from the onset of the COVID-19 pandemic to present day but has not provided any evidence to substantiate this point. However, if the Operator was prohibited from engaging in activities that would have allowed them to pursue the operation of a cannabis business, it is unclear how the Operator could have been prohibited from investing $10 million into the Project and been prohibited from moving forward with implementation of the Project at the same time.
Even assuming arguendo that there was an event of Force Majeure, Article 23.i3 does not excuse performance, but only provides the Owner with an extension of time. There is no excusal of performance under Force Majeure nor does Article 23.i grant the City the ability to waive fees. Any allegation that City “agreed” not to charge fees during the COVID-19 pandemic or other delays are unsupported by any evidence in the administrative record.
The Operator acknowledged all fees, inclusive of Cost-Recovery Fees, Community Benefit Fees, and Non-Operating Fees accrued upon signing a Letter Agreement with the City on February 2, 2023, in which the Operator acknowledged and agreed “that the past due amounts stated are true and correct and are in fact presently due and owing. The parties agree that the Operator is in ‘default status’ on its obligations under the Development Agreement with the City…[and would] remain in ‘default status’ on its Development Agreement until all past due fees set forth in [the] Letter Agreement have been paid and Operator is in full compliance with all terms of its Development Agreement.” (Attachment F- pgs.196-203)
2. Operator Has Failed to Demonstrate How the City has Failed to Expedite Approvals. The Notice to Cure Breach asserts the City has delayed in approving certain plans, however the City has no record of the Operators attempt to apply for and obtain a Zoning Clearance or implement the multiple phases of the Project as described in Violation #3, above.
Operator failed to offer any evidence that it complied with the timelines and requirements set forth in the CCP and DA. Further, as stated above, the Operator has been in default since 2019. Despite this, the City provided a pathway to achieve compliance with multiple defaults, including the schedule of performance, which the Operator did not timely attempt to cure any default.
Any allegation by the Operator that the City’s duty to review building plans was limited 3 In full, Article 23.i states “If delays are caused by unforeseen events beyond the control of Owner, such delays will entitle Owner to an extension of time as provided in this section. Such unforeseen events (‘Force Majeure’) shall mean war, insurrection, acts of God, local, state or national emergencies, strikes and other labor difficulties beyond the party’s control, or any default by the City hereunder, which Force Majeure event substantially interferes with the development, construction or operation of the Project.”
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by the annual review process under Article 19 of the Development Agreement is unfounded and expressly contradicted in the DA terms. It’s unclear why the Operator is under the impression that its Project would be constructed and operated without any review of permit applications, etc., other than the reviews contemplated under Section 19 of the Development Agreement and is contrary to law. CMC Section 15.04.010 requires all development projects to comply with the Los Angeles Building Code requirements. Title 15 of the CMC also requires projects to comply with Los Angeles County’s Electrical Code requirements (Chapter 15.08), Plumbing Code requirements (Chapter 15.12), and Mechanical Code (Chapter 15.16). Providing comments to ensure that a project applicant complies with such state and local requirements does not constitute a delay on the City’s part, but enforcement of the Operator’s requirement to comply with state, local and federal regulations. At no time does the Notice allege the City refused to accept or review plans or other submissions by the Operator. If anything, this assertion cuts against Operator’s own argument and would result in further delays for the Operator to implement the Project.
3. There is No Evidence in the Administrative Record to Support a Finding that the City Did Not Intend for the Non-Operating Fees Not to Apply. To support the notion that NonOperating Fees would not apply the Operator’s representative submitted statements by a former councilmember who now acts as a consultant to many of the defaulting operators and other persons affiliated with the Operator.4 Any assertion that Non-Operating Fees were not intended to apply are directly contradicted by language in Article 7.c(1) which states the Operator shall be charged a “monthly operating fee of [.42 x total square foot of the ’Premises‘] until Owner is operating on the Premises and selling product under its City Regulatory Permit and State Regulatory Permit. Once Owner is operational and generating revenue, the monthly operating fee is [.42 x total square foot of ’Production Space‘] or a monthly operating fee based on gross receipts. DA Article 7.c(i) (emphasis added). The Development Agreement further provides that “Operating Fees shall begin to accrue ninety (90) days after the end of the month of the Effective Date of the Agreement.” Id. The language provided in the Development Agreement plainly states a formula that applies for Operating Fees for when the Operator is operating based on square footage or gross receipts or a formula based on square footage when the Operator is not operating or in “non-operation.” To argue that there is no such thing as Non-Operating Fees merely because those exact words is a matter of semantics. Further, there is no language in the DA that discusses or implies the intent for such fees to apply only to operators who “squat” on licenses as represented in a declaration submitted by the consultant.
Failure to pay such fees are out of compliance with Conditions of Approval Nos. 1(a) and (b), requiring payment of all City-issued invoices within thirty days of receipt. 4 The Operator’s representative offered a statement by Daffodil Tyminski that was submitted to the City pursuant to Evidence Code Section 1152 and 1154, which protects the confidentiality of statements made during settlement or negotiation discussions. Based on this submitted statement it appears that the Operator has waived that privilege afforded by those previous statements.
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(Attachment F- 54-69). Non-payment of Non-Operating Fees is also in violation of Conditions of Approval 13, 21, 37, and 45.
4. The Assertion that Non-Operating Fees are Illegal Impact Fees is Not Supported by the Law. Non-Operating Fees are a part of the Development Agreement entered into between the City and the Operator and was enacted via ordinance pursuant to Development Agreement Law (Govt. Code §§ 65864-65869.5). Fees imposed by development agreements are expressly exempt from the Mitigation Fee Act. (Govt. Code § 66000(b) (“’Fee’ means a monetary exaction other than a tax or special assessment…but does not include…fees collected under development agreements adopted pursuant to Article 2.5 (commencing with Section 65864) of Chapter 4…”).) Therefore, the fees agreed to by the Operator through the execution of the DA and subsequent Letter Agreement are not subject to the Mitigation Fee Act.
Even if the Mitigation Fee Act was applicable to the past due fees, to properly contest, the Non-Operating Fees, the Operator would have been required to tender the required payment in full and serve written notice to the City that informs the City that payment has been tendered under protest accompanied by a statement of facts. (Govt. Code § 66020(a).) However, such protests must be filed at the time of the approval of the development or within ninety (90) days of the imposition of fees. The City and Operator entered into the Development Agreement on June 5, 2018. The 90-day statute of limitations to protest such fees ended on September 3, 2023, and Operator has not tendered payment in full as required by Government Code Section 66020(a). Therefore, any opportunity to protest under the Mitigation Fee Act has long since passed (Attachment F- pgs- 77-129).
Further, as stated above, Operator does not contest that it previously acknowledged that all of the fees due, inclusive of Non-Operating Fees, were presently due and owing at the time it signed a Letter Agreement.
5. There is No Requirement to Perform an Annual Review. Operator points to CMC Section
20.84.600 and Government Code Section 65865.1 to assert the City is in breach of the Development Agreement by failing to conduct a periodic review of the Operator’s compliance with the Development Agreement. However, Operator’s assertion is directly contradicted by the express language in the Development Agreement. Article 19.f of the Development Agreement expressly provides that “City’s failure to conduct a periodic review of this Agreement shall not constitute a breach of this Agreement.” Nor does the City have any record of the Operator requesting an annual review to demonstrate compliance with the DA or CCP.
6. The City Has Not Breached the Ability for the City Council to Make a Final Determination on the Operator’s Compliance with the Development Agreement and Whether to Modify or Terminate the DA, or Otherwise Find the Operator in Compliance. The plain language in Article 19.d of the Development Agreement provides that “[a]t the time and place set for the Review Hearing, Owner shall be given an opportunity to be heard. If City Council
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finds, based upon substantial evidence, that Owner has not complied in good faith with the terms or conditions of this Agreement, City Council may terminate this Agreement notwithstanding any other provision of this Agreement to the contrary, or modify this Agreement and impose such conditions as are reasonably necessary to protect the interests of the City.” The City has retained a third-party hearing officer for the purpose of hearing the evidence and making a recommendation to the City Manager, Planning Commission and City Council to “adopt an ordinance repealing Ordinance No. 682 and terminate Development Agreement No. 18-022C and revoke Operator’s interest under CCP18-0019.” (Attachment F- pgs. 2-10). The Operator has been provided an opportunity to be heard at the administrative hearing conducted by a third-party hearing officer, whose findings and determinations were sent to the Planning Commission and now City Council. No one has denied the Operator the opportunity to be “heard” before the City Council, but the Operator ignores the procedural requirements that require the repeal of an ordinance to terminate a development agreement, which includes a process by which the Operator may address the City Planning Commission as well as the City Council.
Further, there is nothing in Article 19.d or the CMC that prohibits the City from appointing a third-party hearing officer from conducting the initial hearing and forwarding findings to City decisionmakers for the purpose of determining whether to take any action to modify or terminate the Development Agreement or Commercial Cannabis Permitso long as the City Council’s determination and actions are supported by substantial evidence. All such findings and recommendations made by the hearing officer shall be forwarded to the appropriate decisionmakers for final disposition. The City has provided Operator with more than 30 days’ notice of the November 14, 2023 hearing, requesting Operator to provide evidence of compliance at least 10 days prior to the hearing (Attachment F- pgs. 231-232). The Operator provided no response. The City sent a follow up communication informing Operator that it did not submit any documentation and has waived its rights at the Review Hearing (Attachment G). Operator instead submitted a Notice to Cure Breach approximately two months afterthe Review Hearing alleging the City is in default of DA18- 022C. Pursuant to Article 14.d of DA18-022C, Operator’s remedies for a default are limited to a termination of the Development Agreement.
CMC Section 5.20.080(6)(a) permits the City Manager to revoke an operator’s interest in a CCP upon a determination “that the cannabis permittee has failed to comply with [Chapter 5.20], any condition of approval, or any agreement or covenant as required pursuant to this chapter.” The City Manager’s decision to revoke the operator’s interest in a CCP may be appealed to a third-party hearing officer or to the City Council. CMC §
5.20.080(7). As determined by the Hearing Officer, there is a preponderance of evidence to support a finding that the Operator is out of compliance with the DA and CCP.
7. Operator’s Assertion for Damages under the Development Agreement are Improper.
Even if the City were in default of the DA, which it is not, the Operator’s remedies are limited under the DA. Pursuant to Articles 14.a and 14.b of the DA, the Operator may only seek monetary damages if there is a showing of “bad faith intentional acts [or] the grossly negligent or malicious acts of City and its officials, officers, agents and employees.”
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Pursuant to Article 14.d of the DA, even if the City were in default, which it is not, the Operator’s remedies would otherwise be limited to a cancellation of the Development Agreement after providing a 60-day notice of default. Operator’s notice did not provide 60-day notice, but 30-day notice.
Based on the evidence provided by the City, which was unrefuted, the Hearing Officer found that the Operator “has breached the terms and conditions of DA 18-022C and [Operator’s] portion of its CCP and recommends to the Planning Commission and/or City Council repeal Ordinance No. 682 and terminate DA [No.] 18-022C...” (Attachment H).
Pursuant to CMC Section 20.84.070, DA 18-022C and CCP No. 18-0019 were processed concurrently and approved collectively under Ordinance No. 682. To repeal Ordinance No. 682, the repeal shall occur in the same manner as the original proceedings and pursuant to CMC Section 20.84.500.
PUBLIC NOTICE AND COMMENTS
This item was noticed in accordance with the City’s public notice requirements, which involved mailed notices to property owners and tenants within 300 feet of the Site and publication in the local paper (Attachment N). As of the writing of this report, City staff have not received any public comments.
ENVIRONMENTAL ANALYSIS
The action(s) have been assessed in accordance with the California Environmental Quality Act (“CEQA”) (Pub. Res. Code § 21000 et seq.), CEQA Guidelines (Cal, Code Regs., tit. 14, § 15000 et seq.) and the environmental regulations of the City. The Project is categorically exempt from the requirements of CEQA pursuant to CEQA Guidelines Section 15321 - Class 21 (Enforcement Actions by Regulatory Agencies). This exemption is applicable to “[a]ctions by regulatory agencies to enforce or revoke a lease, permit, license, certificate, or other entitlement for use issues, adopted, or prescribed by the regulatory agency or enforcement or a law, general rule, standard, or objective, administered or adopted by the regulatory agency.” If the City Council adopts Ordinance No. 748 to repeal Ordinance No. 682 and terminate DA No. 2018-022C, it would be an enforcement action. Therefore, the action(s) are categorically exempt from the provisions of CEQA.
CONCLUSION
As discussed above and based on the preponderance of unrefuted evidence offered at the administrative review hearing; and the Planning Commission’s finding that the Operator has failed to comply with the terms and conditions of the DA, thereby recommending to the City Council that it repeal Ordinance No. 682 and terminate DA No. 18-022C through the adoption of Planning Commission Resolution No. 2024-06. As stated above, the Operator has failed to comply with their obligations under the DA and CCP, despite being provided with ample notice and several opportunities to achieve compliance. Therefore, City staff recommends the City Council adopt Ordinance No. 748 repealing Ordinance No. 682 terminating DA No. 18-022C.
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ATTACHMENT(S)
A. Draft City Council Ordinance No. 748
B. Ordinance No. 673
C. Resolution No. 18-17
D. Ordinance No. 682
E. Final Demand Letter dated June 23, 2023
F. Administrative Record for Herbal Dragon, LLC
G. Review Hearing Waiver dated November 2, 2023
H. Decision and Order for Herbal Dragon, LLC
I. S. Rucci Email dated January 6, 2024
J. S. Rucci Email dated January 8, 2024
K. S. Rucci Planning Commission Comment Letter dated March 18, 2024 L. Planning Commission Resolution No. 2024-06
M. Executive Order No. N-22-20
N. Newspaper Publication
ORDINANCE NO. 748
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY
OF CUDAHY REPEALING ORDINANCE NO. 682 AND
TERMINATING RELATED DEVELOPMENT AGREEMENT
NO. 18-022C BETWEEN HERBAL DRAGON, LLC AND
THE CITY OF CUDAHY.
WHEREAS, the City of Cudahy (the “City”) is a general law city, incorporated under the laws of the State of California; and
WHEREAS, pursuant to its police power, the City may enact and enforce laws within its boundaries that promote the public health, safety, or general welfare of the community, and are not in conflict with general laws; and WHEREAS, to strengthen the public planning process, encourage private participation in comprehensive planning and reduce the economic risk of development, the California State Legislature adopted Section 65864 et seq. of the California Government Code (the “Development Agreement Statute"); and WHEREAS, the Development Agreement Statute authorizes the City to enter into a development agreement with a person having legal or equitable interest in real property for the development of such property in order to establish certain development rights in exchange for public benefits; and
WHEREAS, in accordance with the Development Agreement Statute, the City Council adopted Ordinance No. 690 in 2018 establishing the procedures and requirements for the consideration of development agreement with the City and are contained within Cudahy Municipal Code (“CMC”) Sections 20.84.530 through
20.84.640; and
WHEREAS, on September 11, 2017, the City Council adopted Ordinance No. 673 establishing regulations for commercial cannabis activities in a specified Overlay Zone through an acquisition of a Commercial Cannabis Permit and execution of a development agreement with the City; and
WHEREAS, on April 30, 2018, the City Planning Commission (“Planning Commission”) conducted a properly noticed public hearing to consider an application by Herbal Dragon, LLC (“Operator”) for the approval of a Commercial Cannabis Permit to allow non-store front commercial cannabis manufacturing activities at 4916 Cecilia Street, Unit E (“Site”); and
WHEREAS, at this hearing, the Planning Commission heard and considered verbal and written testimony and evidence, and recommended approval of the Commercial Cannabis Permit subject to Operator’s execution of a development agreement with the City; and
WHEREAS, on May 15, 2018, the City Council conducted a properly noticed Attachment APage 1964 of 4584
Ordinance No. 748
public hearing to consider the issuance of the Commercial Cannabis Permit (“CCP”) No. 18-0019 and Development Agreement (“DA”) No. 18-022C at which the City Council heard and considered both written and oral testimony and evidence and subsequently approved, and adopted Resolution No. 18-17 for CCP No. 18-0019; and WHEREAS, at the same hearing the City Council considered and approved CCP No. 18-0019, it also conducted the first reading of Ordinance No. 682 which authorized the execution of DA No. 18-022C between the Operator and the City; and WHEREAS, on June 5, 2018, the City Council adopted, on second reading, Ordinance No. 682 approving DA No. 18-022C and authorizing the Mayor to execute the DA on behalf of the City; and
WHEREAS, the effective date of the Development Agreement is July 5, 2018 (“Effective Date”); and
WHEREAS, upon the Effective Date of Ordinance No. 682, the Operator was granted the permission to conduct commercial cannabis manufacturing activities provided, among other things, it apply for and receive a Zoning Clearance pursuant to the CMC’s requirements, receive State licensing approval from the Department of Cannabis Control, and comply with the terms outlined in the DA and conditions of approval under the CCP inclusive of the timely payment of Community Benefit Fees, Cost Recovery Fees and Operating/Non-Operating Fees and applicable penalties and interest; and
WHEREAS, the Operator has not complied with the terms and conditions of the DA and CCP despite multiple notices and opportunities to cure, and remains in material breach of thereof; and
WHEREAS, on October 12, 2023, the City provided notice to the Operator that it would be conducting a Review Hearing (“Review Hearing”) under Article 19© of the DA No. 18-022C which informed the Operator of the burden to prove compliance with the DA and CCP; and
WHEREAS, the Operator never provided a timely response to the City’s notice for a Review Hearing; and
WHEREAS, on November 2, 2023, the City sent a follow up notice informing the Operator it had not received any response to the Review Hearing Notice; and WHEREAS, the Operator did not respond to the follow up notice; and WHEREAS, on November 14, 2023, Steve Napolitano, Esq., a duly appointed third-party hearing officer for the City (“Hearing Officer”), conducted a properly noticed Review Hearing;
WHEREAS, the Operator did not participate at the Review Hearing, was not present at the hearing and did not present any evidence for consideration prior to or
Ordinance No. 748
during the hearing, and the Hearing Officer heard and considered information and evidence by City staff, which a true and correct copy of the staff report and supporting evidence is attached hereto as Exhibit “A” and incorporated herein by reference; and WHEREAS, on January 14, 2024, the Hearing Officer issued a written decision and order (the “Decision”), incorporated by reference and attached hereto as Exhibit “B”, making several findings of fact and conclusions of law with respect to the Operators noncompliance with the DA and CCP based on a preponderance of the evidence; and WHEREAS, the Hearing Officer determined that Operator breached its payment obligations due to the Operator’s non-payment of fees and penalties due and owed to the City totaling $208,580.84; and
WHEREAS, the Operator continues to fail to meet its payment obligations and the total amount due to the City as of May 14 , 2024 is $216,505.47; and WHEREAS, the Operator breached its obligation to maintain its legal status with the State of California, as the Operator’s LLC entity status has been suspended by the State of California; and
WHEREAS, the Operator had breached its obligation to implement the Project within the prescribed time periods contained within CCP No. 18-0019 Condition of Approval No. 51 (Time Limits), because there is no evidence that the Operator has made a diligent effort to implement the Project in any fashion inclusive of an application for a Zoning Clearance to permit the commercial cannabis activities; and WHEREAS, the Hearing Officer has recommended that the City Council adopt an ordinance repealing Ordinance No. 682 terminating DA 18-022C and revoking the related interest in CCP 18-0019; and
WHEREAS, pursuant to state law and the CMC, the Planning Commission duly noticed, agendized, and conducted a public hearing on this matter on March 18, 2024; and
WHEREAS, the Planning Commission considered all public comments received before and during the public hearing, the presentation by City staff, the relevant staff report, administrative record, and all other pertinent documents relating to the repeal of Ordinance No. 682; and
WHEREAS, after the close of such public hearing, the Planning Commission adopted Resolution No. 2024-06, attached hereto and incorporated by reference as Exhibit “C,” recommending the City Council repeal Ordinance No. 682 and terminate related DA No. 18-022C; and
WHEREAS, pursuant to state law and the CMC, the City Council duly noticed, agendized, and conducted a public hearing on this matter; and WHEREAS, the City Council considered all public comments received before and
Ordinance No. 748
during the public hearing, the presentation by City staff, the relevant staff report, administrative record, and all other pertinent documents relating to the repeal of Ordinance No. 682; and
WHEREAS, after the close of such public hearing, the City Council introduced and adopted by first reading Ordinance No. 2024-06 repealing Ordinance No. 682 and terminating related DA No. 18-022C.
NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF CUDAHY DOES HEREBY ORDAIN AS FOLLOWS:
SECTION 1. RECITALS
That the above Recitals are true and correct and are incorporated as though fully set forth herein.
SECTION 2. ADOPTION OF HEARING OFFICER’S FINDINGS OF FACT AND
CONCLUSIONS OF LAW
The City Council has reviewed and considered the Decision by the Hearing Officer (Exhibit “A”) issued on January 14, 2024, on this matter. For the reasons stated in the Decision, and as recommended by the Planning Commission (Exhibit “C”), the City Council adopts the Hearing Officer’s findings of fact and conclusions of law as its own and determines that Herbal Dragon, LLC is not in compliance with the terms and conditions of the Development Agreement No. 18-022C and finds that Herbal Dragon, LLC is in default of its contractual obligations set forth in said Development Agreement and has breached its Conditions of Approval for CCP No. 18-0019 by a showing of the preponderance of the evidence.
SECTION 3. TERMINATION OF DEVELOPMENT AGREEMENT
Pursuant to Article 19(d) of the Development Agreement, the City Council may terminate Development Agreement No.18-022C in its entirety. For the reasons stated in the Decision, and as recommended by the Planning Commission, the City Council hereby adopts this Ordinance repealing Ordinance No. 682 and terminating DA No. 18- 022C in its entirety.
SECTION 4. SEVERABILITY
If any section, subsection, sentence, clause, phrase, or portion of this Ordinance is for any reason held to be invalid or unconstitutional by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have adopted this Ordinance, and each section, subsection, subdivision, sentence, clause, phrase, or portion thereof, irrespective of the fact that any one or more sections, subsections, subdivisions, sentences, clauses, phrases, or portions might subsequently be declared invalid or unconstitutional.
Ordinance No. 748
SECTION 5. CALIFORNIA ENVIRONMENTAL QUALITY ACT
The City Council has determined that this Ordinance is categorically exempt from the California Environmental Quality Act (“CEQA”) (Pub. Res. Code § 21000 et seq.) and CEQA Guidelines (Cal. Code Regs., tit. 14, § 21000 et seq.) pursuant to CEQA Guidelines Section 15321 (Class 21) because the repeal of Ordinance No. 682 and termination of DA No. 18-022C is an enforcement action to revoke an entitlement interest.
SECTION 6. PUBLICATION
The City Clerk shall certify the passage and adoption of this Ordinance and shall cause this Ordinance to be published and/or posted as required by law, which shall take full force and effect thirty days from its adoption.
PASSED, APPROVED, AND ADOPTED by the City Council of the City of Cudahy at the regular meeting of this ______ day of _____ 2024. ______________________________
Jose R. Gonzalez
Mayor
ATTEST:
____________________________
Richard Iglesias
City Clerk
Ordinance No. 748
CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) SS:
CITY OF CUDAHY )
I, Richard Iglesias, City Clerk of the City of Cudahy, hereby certify that the foregoing Ordinance No. 748 was introduced for a first reading on the _____ day of ____ 2024 and approved for a second reading and adopted by said Council at its regular meeting held on the ______ day of ______ 2024 by the following vote, to-wit:
AYES:
NOES:
ABSENT:
ABSTAIN:
Richard Iglesias
City Clerk
Ordinance No. 748
EXHIBIT “A”
EVIDENCE SUBMITTED BY THE CITY (“ADMINISTRATIVE RECORD”)
ADMINISTRATIVE RECORD FOR
REVIEW HEARING
Herbal Dragon, LLC
November 14, 2023
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HEARING REVIEW STAFF REPORT
Date: November 14, 2023
To: Hearing Officer, Steve Napolitano
From: Juan Arauz, AICP, Community Development Director
Prepared By: Cecilia Madrigal-Gonzalez, Senior Planner
Concurrence: Joshua Calhoun, Finance Director, Glenn Ward Calsada, Special Council, Raul Diaz, Building Official and Paloma McEvoy, Assistant City Attorney.
Subject: Compliance Review Hearing relating to Commercial Cannabis (“CCP”) 18-0019 and Development Agreement (“DA”) 18-022C between Herbal Dragon, LLC (“Operator”) and the City of Cudahy (“City”).
RECOMMENDATION
Staff recommends that the Hearing Officer take the following action(s):
1. Hear the evidence presented by the City; and
2. Make a determination that the Operator is not in compliance with the terms and conditions of its DA with the City and find that the Operator is in default of contractual obligations set forth in the DA ;
3. Make a determination that the Operator is not in compliance with the conditions of approval set forth in CCP18-0019; and
4. Make a recommendation to the City Manager for the Planning Commission and City Council to adopt an ordinance repealing Ordinance No. 682 terminating Development Agreement No. 18-022C and revoking the Operator’s interest under CCP18-0019.
BACKGROUND/TIMELINE
On September 11, 2017, the City adopted Ordinance No. 673 (Attachment A) establishing the City of Cudahy's commercial cannabis production activity regulations codified in Chapter 5.20 of the Cudahy Municipal Code (“CMC”). CMC Section 5.20.040 authorizes medicinal commercial cannabis activities within a designated overlay zone, pursuant to a development agreement adopted in accordance with the Development Agreement Law (Govt. Code Section 65864 et seq.) and Chapter 20.28 of the CMC.
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On April 30, 2018, the Planning Commission recommended the City Council to approve CCP18- 0019 for cannabis delivery at 4916 Cecilia St Unit E., subject to the approval of a development agreement between the City and the Operator for cannabis manufacturing activities.
On May 15, 2018, the City Council adopted Resolution No. 18-17 (Attachment B) approving the issuance of CCP18-0019 (Attachment C) with conditions of approval to the Operator upon the execution of a development agreement with the City.
On June 5, 2018, the City Council adopted Ordinance No. 682 (Attachment D) approving DA18- 022C (Attachment E) inclusive of exhibits A-F (Attachment F) between the Operator and the City authorizing commercial cannabis manufacturing activities at 4916 Cecelia Street Unit E (“Site”) as illustrated in Figures 1 and 2 below. Recital I of the Development Agreement permits the Operator to utilize approximately 2,530 square feet of the Site for cannabis manufacturing. The Operator is one (1) of seven (7) tenants at the Site which all have separate development agreements with the City but each tenant is subject to the same CCP conditions of approval.
FIGURE 1 – AERIAL OF SITE
FIGURE 2 – APPROVED FLOOR PLAN
Site
4916 Cecelia St.
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On October 2, 2019, the City provided the Operator with a Notice of Delinquency (Attachment G) prior to placing the Operator in default status due to payment non-compliance with the Development Agreement, inclusive of the payment of Community Benefit Fees, Cost Recovery Fees, and Non-Operating Fees in the amount of fourteen thousand eight hundred and ninety-six dollars and forty-three cents ($14,896.43). The Operator was given no later than October 17, 2019, to cure the amount, however, the delinquency was not timely cured.
On May 4, 2021, the City provided the Operator with a Notice of Default (Attachment H) due to non-compliance with a payment of fees and associated penalties in the amount of sixty-eight thousand three hundred fifty-seven dollar and ninety-nine cents ($68,357.99). The Operator was given no later than 30 days to cure the default, however, the default was not timely cured.
On October 19, 2021, the City provided the Operator with a Final Demand Letter (Attachment I) due to payment non-compliance informing the Operator that fees and penalties had accumulated to seventy-five thousand six hundred fifty-six dollars and three cents ($75,656.03).
The Operator was given no later than 30 days to cure the default and comply with their payment obligations, however, the default was not timely cured.
On December 7, 2022, the City Manager offered a Cannabis Deferment and Payment Program (Attachment J) to assist cannabis operators with the accumulated non-operating and other fees by deferring and providing additional time for payment without penalty. Under the program:
(a) Unpaid Non-operating Fees would be deferred (without penalty) until six (6) months after the Operator was issued a Certificate of Occupancy; and then repay accumulated NonOperating Fees within twelve (12) months; and (b) Operators would continue to be responsible for the timely payment of Community Benefit Fees and Cost Recovery Fees as they accumulated; and (c) Previously incurred Community Benefit Fees and Cost Recovery Fees would be subject to a payment plan and require timely payments.
All cannabis operators interested in participating in this program were given no later than January 31, 2023, to execute a payment agreement. The City received interest from the Operator and Unit E
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due to their good-faith negotiations between both parties, the City extended the deferment and payment program.
On February 1, 2023, the City’s Finance Department presented the Operator with a Letter of Agreement agreeing to a payment plan to forbear outstanding payment due on the DA (Attachment K). The Operator accepted the proposed terms on February 2, 2023, and agreed to begin payments on March 2, 2023. The Operator also acknowledged and agreed “that the past due amounts stated are true and correct and are in fact presently due and owing. The parties agree that the Operator is in ‘default status’ on its obligations under its Development Agreement with the City.”
Between April and June 2023, the City notified the Operator with three (3) Notices of Delinquency (Attachment L) and provided an opportunity to cure outstanding payments due. However, the default on the Letter Agreement was not timely cured and therefore was terminated and no longer in full force and effect as of June 16, 2023. Accordingly, the total of all past due amounts at the time the Letter Agreement was terminated and an amount of $181,252.79 and was due and owed.
On June 23, 2023, the City sent a Final Demand Letter (Attachment M) demanding the Operator to respond to the following demands: 1) Proof of the revival (or request for revival) of the LLC’s entity status with the California Secretary of State; 2) Forwarding payment for the total past due amount; and 3) Contact City staff for a meeting to revise the CCP’s Schedule of Performance and for further information to become compliant with the DA and CCP. The Operator did not respond in a timely manner and has failed to make any attempt to cure any defaults. As of the writing of this report, the City has received limited payment of fees due under DA18-021C since the Development Agreement has been in effect.
On August 9, 2023, the City issued an Escrow Account Letter (Attachment N) requiring all cannabis operators to open an escrow account by September 15, 2023, to ensure payment of Cost Recovery Fees. As of the writing of this report, the Operator has not opened an escrow account nor made any payments into the account.
On October 12, 2023, the City issued the Operator a Notice of Review Hearing (Attachment O) with the hearing date, time, and place.
On October 24, 2023, the City issued a letter (Attachment P) updating the Operator on their payment and fees related to the DA by correcting the amount due to an error in the total amount billed. The City provided a credit in the amount of $14,950.50. As of October 24, 2023, Operator owes the City one hundred eighty-six thousand one hundred seventy dollars and ninety-eight cents ($186,170.98). Community Benefit Fees, Cost-Recovery and Non-operating Fees plus penalties continue to accrue and the total amount due may be higher as of the date of the Review Hearing on November 14, 2023.
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DISCUSSION/ANALYSIS
Under Section 19 of the Development Agreement, if the “City finds and determines based on substantial evidence that, Owner or Landlord executing [the] Agreement, or successor in interest thereto, has not complied in good faith with the terms or conditions of the Agreement, City may terminate or modify [the] Agreement (except that no modification shall increase Owner’s liability nor reduce Owner’s rights). “
Pursuant to the CMC Section 5.20.080(6)(a), “[a]ny material violations of this chapter or any other relevant city law by a cannabis permittee, or cannabis permittee’s agent, is ground for suspending or revoking the relevant cannabis permit.” To suspend or revoke a cannabis permit the City Manager must determine “that the cannabis permittee has failed to comply with any conditions of approval, or any agreement or covenant.”
City staff recommends that the Hearing Officer review the material violations and evidence and make the following findings in support of finding the Operator to be in default of DA18-016C and in violation of the conditions of approval for CCP18-0019.
Violation #1. Breach of Payment Obligations. Pursuant to the DA Article. 5.b (Community Benefit Fees), Article. 7.c (Operating Fees) and Article. 8 (Cost Recovery Fees), the Operator must pay the City an annual community benefit fee in the amount of $9,523.86 ($1,904.77 down payment and monthly payments in the amount of $761.91), a cost recovery fee, and an operating [or nonoperating] fee each year since 2018. The Operator is also obliged to make payments for these fees Condition of Approval No. 45; the obligation for Non-Operating Fees is also repeated in Condition of Approval No. 13 for manufacturing activities. The Operator has not made the required timely payments and as of October 24, 2023, is past due in the amount of $186,170.98 as shown in Table 1 below. Past-due payments continue to accumulate, including late payment penalties. The Operator must pay all required DA fees in accordance with DA terms. Failure to pay fees constitutes a breach of the DA and may result in suspension or immediate revocation of the DA. Accordingly, the Operator is in breach of its payment obligation under DA No. 18-022C.
TABLE 1 – SUMMARY OF PAST AND CURRENT AMOUNTS DUE AS OF OCTOBER 24, 2023.
Fee Type Payment Amount Due
Community Benefit Program $43,047.90
Cost Recovery Fee $65,765.80
Non-operating Fee $64,818.60
Penalties (Late Payment) $12,538.68
TOTAL: $186,170.98
Finding 1. The Operator breached the terms of Development Agreement No. 18-022C by failing to make all required payments to the City that are required pursuant to the terms of Development Agreement No. 18-022C.
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Evidence: On June 5, 2018, Herbal Dragon, LLC executed Development Agreement No. 18-022C, which is a legally binding contract between the Operator and the City of Cudahy pursuant to DA Art. 5.b [Community Benefit Fees], Art. 7.c [Operating Fees] Art. 8 [Cost Recovery Fees]. In December 2022, the City offered a deferment and payment plan option to the Operator which was accepted and the first payment was due on March 1, 2023. The Operator did not make a single required payment in March, April and May of 2023. The Operator did not cure the delinquency and as a result, the payment plan was null and voided on June 16, 2023. Proper notice of default was given with the opportunity to cure, but the Operator has failed to fulfill its monetary obligations owed to the City. This failure is a material breach of the DA and grounds for termination of the DA.
First, if Operator asserts that City Officials previously made representations that nonretail cannabis operators would not have to pay Non-Operating Fees – no such authority is granted under the CMC nor the Development Agreement.
Forgiveness of fees due to a government agency, if not for a public purpose, constitutes an unlawful gift of public funds in violation of Article XVI, Section 6 of the California Constitution.
The Operator has requested the City forgive Non-Operating Fees spanning the course of a 18- month period and has failed to provide any evidence that the forgiveness of this debt would somehow fulfill a public purpose.
Second, if the Operator asserts that it was unable to move forward with its project due to closures at City Hall caused by the COVID-19 pandemic, this argument would similarly fail. During the height of the pandemic, City Hall’s physical premises were closed to the public, however, the City continued to conduct business, process requests, including applications for building permits which could be dropped off at the front of City Hall.
Third, if the Operator asserts that the Contested Fees are subject to the Mitigation Fee Act, such assertion is not supported by the law. The Contested Fees are a part of the Development Agreement entered into between the City and the Operator, and was enacted via ordinance pursuant to Development Agreement Law (Gov. Code §§ 65864-65869.5). Fees imposed by development agreements are expressly exempt from the Mitigation Fee Act. Gov. Code § 66000(b) (“Fee means a monetary exaction other than a tax or special assessment…but does not include…fees collected under development agreements adopted pursuant to Article 2.5 (commencing with Section 65864) of Chapter 4…”). Therefore, the Contested Fees are not subject to the Mitigation Fee Act.
Further even if the Mitigation Fee Act was applicable to the Contested Fees, to properly contest the Contested Fees, the Operator would have been required to tender the required payment, in full and serve written notice to the City that informs the City that payment has been tendered under protest accompanied by a statement of facts.
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Gov. Code § 66020(a). However, such protests must be filed at the time of the approval of the development or within ninety (90) days of the imposition of fees. The City and Operator entered into the Development Agreement on June 5, 2018. The 90-day statute of limitations to protest such fees ended on September 3, 2023, nor has Operator tendered payment in full as required by Government Code Section 66020(a). Therefore, any opportunity to protest under the Mitigation Fee Act has long since passed.
Fourth, if the issue is raised by the Operator, the holdings in Nollan v. California Coastal Commission and Dolan v. City of Tigard do not apply to the Contested Fees. Nollan, (1987) 483 U.S. 825; Dolan, (1994) 512 U.S. 374. The U.S. Supreme Court holding in Nollan requires exactions to (1) bear a nexus to the burdens imposed by development; and (2) substantially advance a legitimate state interest. The 5-4 U.S. Supreme Court decision in Dolan refines the second prong of the Nollan test and requires development conditions to have a “rough proportionality” to a proposed development’s impact. Dolan at p. 391.
However, the holdings in these cases are inapplicable to Contested Fees. Here, the Court notably limited the holding to adjudicative decisions, and not legislative decisions. Id., at p. 385; see also Lingle v. Chevron U.S.A., (2005) 544 U.S. 528, 547 (reaffirming that the rough proportionality requirement applies to adjudicative decisions and not legislative decisions), Leroy Land Development v. Tahoe Regional Planning Agency (1991) 939 F.2d 696, 698 (holding that separately negotiated agreements are not subject to an unconstitutional “takings” analysis because the agreements were entered into voluntarily, in good faith and supported by consideration). In consideration for those Contested Fees, Operator received a ten (10) year term with an option to renew for another ten (10) year term to operate a medicinal commercial cannabis facility.
Finding 2: The Operator has failed to comply with Conditions of Approval No. 1(a) and (b) of the CCP, which required the Operator to pay all City-issued invoices within 30 days of receipt thereof.
Evidence: The City approved Development Agreement No. 18-022C subject to Conditions of Approval, which are incorporated as part of Development Agreement No. 18-022C. Condition of Approval 1(b) provides that the Operator is required to pay all City-issued invoices within 30 days of receipt thereof. The City has sent the Operator regular monthly invoices since 2019 (Attachment Q). The current outstanding fees owed by the Operator have been owed to the City for longer than 30 days. Despite demand and after proper notice of default and the opportunity to cure the Operator has failed to cure its monetary obligations owed to the City.
Finding 3: Pursuant to Condition of Approval Nos. 13 and 45, the Operator, LLC’s failure to pay Non-Operating Fees due under the Development Agreement and all fees due under the Development Agreement, respectively, constitute a cross-breach of Development Agreement No. 18-022C and is grounds for revocation of the CCP.
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Evidence. Pursuant to the evidence mentioned above, the Operator’s non-payment is a material breach of the DA and grounds for revocation of the Operator's interest in the CCP for the Site.
Violation #2. Non-Compliance with State Law. The DA sets forth standard operating procedures as mentioned in DA Art. 4.a. [Facility Operations]. At all times, the operator must be a lawful entity capable of operating in accordance with a state-issued cannabis license.
Finding 4: The Operator is unable to lawfully operate a cannabis facility within the City and is therefore in breach of DA Art. 4.a.
Evidence: The City has learned that the Operator’s legal status as a California limited liability company, Herbal Dragon LLC, is suspended. Attachment R shows the Certificate of Status with the Secretary of State of California dated October 31, 2023. The Certificate of Status for Herbal Dragon, LLC states: “The above-referenced entity’s powers, rights and privileges are suspended in California.” See, Rev. & Tax Code Sec. 23301. Despite notice of default and opportunity to cure, the Operator’s entity status remains “FTB” suspended by the California Secretary of State and, as such, the entity is unable to operate in the State of California.
A suspended business entity becomes essentially prohibited from legally operating within the State of California unless and until such suspended status is withdrawn. The consequences of this suspended status include, without limitation, the business entity being unable to sell, transfer or exchange real property in California, as well as risking any contracts entered into by the business entity during the time of suspension being voidable at the option of the other party.
See, e.g., Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662; City of San Diego v. San Diegans for Open Government (2016) 3 Cal.App.5th 568, 577. Additionally, the suspended business entity may lose its ability to prosecute or defend legal actions (i.e., file or defend lawsuits). See City of San Diego, supra, 3 Cal.App.5th at p. 577.
Violation #3. Breach of Conditions of Approval No. 51 (Time Limits) under CCP 18-0019. CCP Condition No. 51.A. states the approval decision for this CCP becomes effective upon the expiration of the 15-day appeal period following the approval decision, or when any appeals of the decision are finally resolved. The CCP effective date for the Development Agreement was June 20, 2018. No appeal was ever filed and thus CCP Condition No. 51.A.i sets a 90-day time limit from the effective date of the CCP for the Permittee to obtain a Zoning Clearance. CCP Condition No. 51A.ii sets a 90-day time limit from the effective date of the CCP for the Permittee to complete construction of Phase I, or until September 18, 2018. CCP Condition No. 51A.iii sets a 180-day time limit from the effective date of the CCP for the Permittee to complete all Tenant Improvements and construction and to obtain a Certificate of Occupancy from the City Building Department, or until December 17, 2018. The City Manager may grant an extension of time if the Permittee has made a diligent effort to implement the Project.
Finding 5: The Operator has not obtained a Zoning Clearance pursuant to Chapter 20.84 of the Administrative Record - Review Hearing - Herbal Dragon LLC Page 9 of 345Page 1979 of 4584 “Serving The People” "Sirviendo A La Comunidad"
CMC Section, nor has the Operator applied for a building permit to complete tenant improvements and has therefore breached its conditions of approval for CCP18-0019 by failing to implement the Project within the time limits set forth in Conditions of Approval No. 51.
Evidence: The Operator has not provided the City with any evidence it has obtained a Zoning Clearance, completed construction of Phase I, completed all Tenants Improvements, or obtained a Certificate of Occupancy for the Site within the time limits set forth in Condition of Approval No. 51. Without an extension, the deadlines expired in 2019. The City has no record of any request by the Operator to the City Manager for an extension of time, nor is there evidence that the Operator has made diligent efforts to comply, such as submitting for a zoning clearance or submitting for a building permit plan check. Despite notice of default and opportunity to cure, The Operator remains in breach of its conditions of approval by failing to implement the Project within the time limits set forth in the Conditions for Approval No. 51.
NOTICE
Pursuant to Section 22 of the Development Agreement the City sent a Review Hearing notice via certified mail, and a courtesy email notice, to all concerned parties on October 12, 2023. The notice advised that the Review Hearing would be held on the hearing date at such location designated in Attachment O. Proof of certified mailing is provided in Attachment S.
ENVIRONMENTAL ANALYSIS
The action(s) have been assessed in accordance with the California Environmental Quality Act (CEQA) (Pub. Res. Code § 21000 et seq.) and the environmental regulations of the City. The Project is expected to be categorically exempt from the requirements to prepare additional environmental documentation per CEQA Guidelines Section 15321. Class 21 (Enforcement Actions by Regulatory Agencies) is applicable to “Actions by regulatory agencies to enforce or revoke a lease, permit, license, certificate, or other entitlement for use issues, adopted, or prescribed by the regulatory agency or enforcement or a law, general rule, standard, or objective, administered or adopted by the regulatory agency.” Therefore, the action(s) are categorically exempt from the provisions of CEQA.
CONCLUSION
It is the City’s purpose and intent to regulate cannabis activities within the City in a responsible manner to protect the health, safety, and welfare of the residents of Cudahy and to enforce rules and regulations consistent with California Cannabis laws. Cannabis Operators with development agreements are obligated to comply with all provisions of the CMC, obligations of the DA and conditions of approval under the CCP. As discussed above and based on the evidence attached to this report, the Operator has failed to comply with their obligations despite being provided with ample notice and opportunities to achieve compliance. Therefore, staff recommends the Hearing Officer after independent review, consideration, analysis of staff’s report and the information presented, oral and written testimony by all parties and their witnesses, and the record as a whole – make a determination the Operator, Herbal Dragon, LLC, has breached the terms and conditions DA No. 18-022C and recommend that the Planning Commission and City Administrative Record - Review Hearing - Herbal Dragon LLC Page 10 of 345Page 1980 of 4584 “Serving The People” "Sirviendo A La Comunidad"
Council repeal Ordinance No. 682 and terminate DA18-022C and revoke their interest under CCP18-0019.
ATTACHMENT(S)
A. Ordinance No. 673
B. City Council Resolution No. 18-17
C. CCP18-0019 Conditions of Approval
D. Ordinance No. 682
E. Development Agreement No. 18-022C
F. Exhibit A-F of Development Agreement No. 18-022C
G. Correspondence Letter – Notice of Delinquency dated October 2, 2019 H. Correspondence Letter – Notice of Default dated May 4, 2021 I. Correspondence Letter – Final Demand Letter dated October 19, 2021 J. Correspondence Letter – Notice of Cannabis Deferment and Payment Program dated December 7, 2022
K. Letter Agreement (Payment Plan) dated February 1, 2023 L. Correspondence Letters – April, May, and June Delinquency notices.
M. Final Demand Letter dated June 23, 2023
N. Correspondence – Notice of Escrow Account dated August 9, 2023 O. Notice of Review Hearing dated October 12, 2023
P. Correspondence – Notice of updated payment of fees dated October 24, 2023 Q. Invoices from 2019 to September 15, 2023
R. Certificate of Status for Herbal Dragon, LLC
S. Proof of certified mailing of Final Demand Letter dated June 23, 2023 Administrative Record - Review Hearing - Herbal Dragon LLC Page 11 of 345Page 1981 of 4584 ATTACHMENT A.
Ordinance No. 673
Administrative Record - Review Hearing - Herbal Dragon LLC Page 12 of 345Page 1982 of 4584 ORDINANCE NO. 673
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
CUDAHY AMENDING TITLE 5 (BUSINESS LICENSES AND
REGULATIONS) AND TITLE 20 (ZONING) OF THE
CUDAHY MUNICIPAL CODE TO PROHIBIT CANNABIS
RETAILERS/DISPENSARIES CITYWIDE AND TO
ESTABLISH REGULATIONS AND A DISCRETIONARY
REVIEW PROCESS FOR THE ALLOWANCE OF
MEDICINAL-ONLY COMMERCIAL CANNABIS ACTIVITIES
(CULTIVATION, DISTRIBUTION, MANUFACTURING,
DELIVERIES, MICROBUSINESS, AND LABORATORY
TESTING) IN A SPECIFIED OVERLAY ZONE THROUGH A
DEVELOPMENT AGREEMENT
WHEREAS, in 1996, the California Legislature approved Proposition 215, also known as the Compassionate Use Act (the "CUA"), which was codified under Health and Safety Code Section 11262.5 et sec. and was intended to enable persons in need of medical marijuana for specified medical purposes, such as cancer, anorexia, AIDS, chronic pain, glaucoma and arthritis, to obtain and use marijuana under limited circumstances and where recommended by a physician. The CUA provides that "nothing in this section shall be construed or supersede legislation prohibiting persons from engaging in conduct that endangers others, or to condone the diversion of marijuana for non-medical purposes.";
WHEREAS, in 2004, the California Legislature enacted the Medical Marijuana Program Act (Health & Saf. Code, § 11362.7 et seq.)(the "MMP"), which clarified the scope of the CUA, created a state-approved voluntary medical marijuana identification card program, and authorized cities to adopt and enforce rules and regulations consistent with the MMP. Assembly Bill 2650 (2010) and Assembly Bill 1300 (2011) amended the MMP to expressly recognize the authority of counties and cities to "[a]dopt local ordinances that regulate the location, operation, or establishment of a medical marijuana cooperative or collective" and to civilly and criminally enforce such ordinances;
WHEREAS, the Federal Controlled Substances Act (21 U.S. C., § 801 et seq.) makes it unlawful under federal law for any person to cultivate, manufacture, distribute or dispense, or possess with intent to manufacture, distribute, or dispense marijuana.
Despite such federal prohibition, on August 29, 2013, the United States Department of Justice issued a memorandum (the "Cole Memo") stating that, notwithstanding the federal classification of marijuana as a schedule 1 controlled substance, jurisdictions that have legalized marijuana in some form are less likely to be subject to federal enforcement under the Controlled Substances Act if they have implemented strong and effective regulatory and enforcement systems to follow eight guiding principles: (1) preventing the distribution of marijuana to minors; (2) preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; (3) preventing the
Administrative Record - Review Hearing - Herbal Dragon LLC Page 13 of 345Page 1983 of 4584 diversion of marijuana from states where it is legal under state law in some form to other states; (4) preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity; (5) preventing violence and the use of firearms in the cultivation and distribution of marijuana; (6) preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; (7) preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and (8) preventing marijuana possession or use on federal property;
WHEREAS, in September 2015, the California State Legislature enacted, and Governor Brown signed into law three bills - Assembly Bill 243, Assembly Bill 266, and Senate Bill 643 - which together comprise the Medical Marijuana Regulation and Safety Act (the "MMRSA"). The MMRSA created a comprehensive dual state licensing system for the cultivation, manufacture, retail, sale, transport, distribution, delivery, and testing of medical cannabis;
WHEREAS, on August 22, 2016, the City Council of the City of Cudahy (the "City Council" of the "City") adopted Interim Urgency Ordinance No. 656U to establish a temporary moratorium on medical "commercial cannabis activities," as defined under the MMRSA, for a period of 45 days and extended such moratorium for an additional period of 22 months and 15 days under Interim Urgency Ordinance No. 661, on September 26, 2016;
WHEREAS, the MMRSA was renamed the Medical Cannabis Regulation and Safety Act (the "MCRSA") under Senate Bill 837 in June 2016, which also made substantive changes to the applicable state laws, which affect the various state agencies involved in regulating cannabis businesses as well as potential licensees; WHEREAS, on November 8, 2016, the Control, Regulate, and Tax Adult Use of Marijuana Act ("AUMA") was approved California voters as Proposition 64 and became effective on November 9, 2016, pursuant to the California Constitution (Cal. Const., art.
II, § 10(a).). Proposition 64 legalized the nonmedical use of cannabis by persons 21 years of age and over, and the personal cultivation of up to six (6) cannabis plants. On November 14, 2016, the City Council adopted Urgency Ordinance No. 663 to prohibit outdoor personal marijuana cultivation and establish regulations and a permitting process for indoor personal marijuana cultivation;
WHEREAS, AUMA also created a state regulatory and licensing system j governing the commercial cultivation, testing, and distribution of nonmedical cannabis, and the manufacturing of nonmedical cannabis products. On January 9, 2017, Interim Urgency Ordinance No. 666 was adopted by the City Council to establish a temporary moratorium on nonmedical "commercial cannabis activities" for a period of 45 days and extended such moratorium for an additional period of 22 months and 15 days under Interim Urgency Ordinance No. 667, on February 27, 2017; Page2
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I
)
WHEREAS, on June 27, 2017, Governor Brown signed the Legislature-approved Senate Bill 94. SB 94 combined elements of the MCRSA and AUMA to establish a streamlined singular regulatory and licensing structure for both medical and nonmedical cannabis activities given that there were discrepancies between the MCRSA and AUMA. The new consolidated provisions under SB 94 is now known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act ("MAUCRSA") to be governed by the California Bureau of Cannabis Control. MAUCRSA refers to medical cannabis as "medicinal cannabis" and nonmedical/recreational cannabis as "adult-use cannabis"; WHEREAS, on June 27, 2017, the as part of an Economic Development Ad Hoc Committee presentation on revenue-generating opportunities, commercial cannabis regulations and strategies were offered to and discussed by the City Council; WHEREAS, the City seeks to establish an overlay zone in the City in which certain medicinal-only commercial cannabis activities can be conducted in accordance with MAUCRSA and the City's police power under Section 7 of Article XI of the California Constitution;
WHEREAS, it is the purpose and intent of the City to regulate medicinal cannabis in a manner that is consistent with the Cole Memo and promotes the health, safety, and general welfare of the residents and businesses within the City, while limiting any negative impacts;
WHEREAS, the City intends to be on the forefront of groundbreaking research, science, innovation, and development of treatment for symptoms and cures in the field of medicinal cannabis, as scientific research, studies, and data have established that medicinal cannabis can help patients with a vast array of medical conditions; WHEREAS, the City desires to reduce the illegal market for cannabis while minimizing the chances of social harm and creating jobs and revenue for the City; and WHEREAS, nothing in this Ordinance shall be construed to allow persons to engage in conduct that violates the law, endangers others, causes a public nuisance, allows the illegal use or diversion of cannabis, or allows any activity relating to cannabis that is otherwise illegal under California state law, as amended.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CUDAHY DOES ORDAIN AS FOLLOWS:
SECTION 1. The above recitals are true and correct and are incorporated herein.
SECTION 2. Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended by the addition of a new Chapter 20.120 (Commercial Cannabis Overlay Zone), which shall read as follows:
Chapter 20.120 - Commercial Cannabis Overlay Zone.
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20.120.010 Definitions
For purposes of this Chapter 20.120, the following definitions shall apply:
"Commercial cannabis activities" mean the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products. ) "Cannabis" means all parts of the Cannabis sativa Linnaeus, Cannabis indica, or j Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. "Cannabis" also means the separated resin, whether crude or purified, obtained from cannabis. "Cannabis" also means marijuana as defined by Section 11018 of the California Health and Safety Code as enacted by Chapter 14017 of the Statutes of 1972. Cannabis does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of the plant which is incapable of germination. For the purpose of this Chapter, cannabis does not mean industrial hemp as that term is defined by Section 81000 of the California Food and Agricultural Code or Section 11018.5 of the California Health and Safety Code.
"Cannabis product" means cannabis that has undergone a process whereby the plant material has been transformed into a concentrate, or other cannabis derivative, including, but not limited to, concentrated cannabis, or an edible or topical product containing cannabis or concentrated cannabis and other ingredients. "Day care center" means any child day care facility other than a family day care home, and includes infant centers, preschools, extended day care facilities, and schoolage child care centers.
"Overlay Zone" means the commercial cannabis overlay zone, whose area and boundaries are attached to City Council Ordinance No. 673 as Exhibit "A" "MAUCRSA" means the Medicinal and Adult-Use Cannabis Regulation and Safety Act, as may hereinafter be amended.
"Youth center" means any public or private facility that is primarily used to host recreational or social activities for minors, including, but not limited to, private youth membership organizations or clubs, social service teenage club facilities, video arcades, or similar amusement park facilities.
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20.120.020 Prohibitions.
Adult-use commercial cannabis activities and medicinal commercial cannabis activities, as both are described in state law, including, but not limited to MAUCRSA, are hereby prohibited unless otherwise allowed in this Chapter.
20.120.030 Overlay zone.
Medicinal commercial cannabis activities, except retail dispensaries that are open to the public for point-of-sale purchases, shall be allowed within the Overlay Zone pursuant to a development agreement adopted in accordance with the Development Agreement Law (Gov. Code, § 65864 et seq.) and Cudahy Municipal Code Chapter
20.28 (Development Agreements). No such activities shall be permitted without a development agreement within or outside of the boundaries of the Overlay Zone.
The City may approve or deny such a development agreement in its sole and absolute discretion.
20.120.040 Particular restrictions for Atlantic Avenue.
Section 20.120.030 notwithstanding, no cannabis-related business shall be located within the Overlay Zone and on Atlantic Avenue with a storefront facing Atlantic Boulevard unless such business employs and effectuates a business model with a primary entertainment purpose.
20.120.050 Indoor Horticulture.
Indoor horticulture, excluding cannabis horticulture shall be permitted by-right within the Overlay Zone.
20.120.060 Prohibition on new schools, day cares, and youth centers in overlay zone.
The establishment of public or private schools providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center is prohibited within the Overlay Zone, or within 600 feet of the boundaries of the Overlay Zone, is hereby prohibited, unless otherwise mandated under state or federal law. An existing public or private school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center located within the Overlay Zone, or within 600 feet of the boundaries of the Overlay Zone shall be considered legal nonconforming, in accordance with Chapter 20.24 (Legal Nonconforming) of Title 20 (Zoning) of the Cudahy Municipal Code.
20.120.070 Temporary permits for local events - rights reserved.
The City reserves the right to issue temporary permits for onsite cannabis sales to, and consumption by, persons 21 years of age or older at a county fair, district agricultural association event, or other similar event authorized under state law, which is located within the Overlay Zone, pursuant to the provisions of Subdivision (e) of Business and Professions Code Section 26200.
SECTION 3. Subsection (3)(p) of Section 20.64.090 (Uses Permitted in Residential Zones by Conditional Use Permit) of Chapter 20.64 (Residential Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
Administrative Record - Review Hearing - Herbal Dragon LLC Page 17 of 345Page 1987 of 4584 (p) Schools, public and private, excluding schools providing instruction in kindergarten or any grades 1 through 12 located within 600 feet of a residential zone located within the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise mandated under state or federal law.
SECTION 4. Subsection (24) of Section 20.68.100 (Uses Permitted in Residential Zones by Conditional Use Permit) of Chapter 20.68 (Commercial and Professional Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
(24) Day care centers, excluding those occupying any portion of the CC zone located within 600 feet of the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise mandated under state or federal law.
SECTION 5. Subsection (49) of Section 20.68.100 (Uses Permitted in Residential Zones by Conditional Use Permit) of Chapter 20.68 (Commercial and Professional Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
(49) Schools, colleges, and universities, accredited, including appurtenant facilities that offer instruction required to be taught by the Education Code of the state of California and in which no pupil is physically restrained, excluding schools which provide instruction in kindergarten or any grades 1 through 12 that occupy any portion the CC zone located within 600 feet of the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise mandated under state or federal law.
SECTION 6. Subsection (50) of Section 20.68.100 (Uses Permitted in Residential Zones by Conditional Use Permit) of Chapter 20.68 (Commercial and Professional Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
(50) Schools, business and professional, including art, barber, beauty, dance, drama, music, and swimming, excluding schools which provide instruction in kindergarten or any grades 1 through 12 that occupy any portion the CC zone located within 600 feet of the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise mandated under state or federal law.
SECTION 7. Subsection (46) of Section 20.68.150 (Uses by conditional use permit in C-M Zone) of Chapter 20.68 (Commercial and Professional Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
(46) Schools, colleges, and universities, accredited, including appurtenant facilities which offer instruction required to be taught by the Education Code of the state and in which no pupil is physically restrained, excluding schools which provide instruction in kindergarten or any grades 1 through 12 that occupy any portion the C-M zone located within 600 feet of the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise
Administrative Record - Review Hearing - Herbal Dragon LLC Page 18 of 345Page 1988 of 4584 mandated under state or federal law.
SECTION 8. Subsection (47) of Section 20.68.150 (Uses by conditional use permit in C-M Zone) of Chapter 20.68 (Commercial and Professional Districts) of Title 20 (Zoning) of the Cudahy Municipal Code is hereby amended to read as follows:
(47) Schools, business and professional, including art, barber, beauty, dance, drama, music, and swimming, excluding schools which provide instruction in kindergarten or any grades 1 through 12 that occupy any portion the C-M zone located within 600 feet of the Commercial Cannabis Overlay Zone illustrated in Exhibit "A" to City Council Ordinance No. 673, unless otherwise mandated under state or federal law.
SECTION 9. Title 5 (Business License and Regulations) of the Cudahy Municipal Code is hereby amended by the addition of a new Chapter 5.20 (Cannabis Permitting and Regulation), which shall read as follows:
Chapter 5.20 - Cannabis Permitting and Regulation.
5.20.010 Section Intent and Purposes.
The intent and purpose of this Chapter is to regulate Commercial Cannabis Activity (as defined below) in accordance with State Law (as defined below) to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to State Law, including, but not limited to, MAUCRSA. The goals of this regulation for Commercial Cannabis Activity include:
(a) To comply with the goals and guidance set forth in the Cole Memo. (b) To minimize the size of the illegal market for Cannabis in the City and the surrounding regions.
(c) To create jobs, revenue, and economic growth for the City and its residents. (d) To enable law enforcement and regulators to have sufficient rights to inspect and audit Cannabis Permittees and take expeditious action against Cannabis Permittees who violate the requirements of this Chapter. (e) To minimize social harms which may arise from Cannabis including youth consumption or intoxicated driving.
(f) To regulate the manner of advertising and location of Cannabis Permittees such that public nuisance is minimized.
5.20.020 Definitions.
For purposes of this Chapter, the following definitions shall apply, unless the context clearly indicates otherwise:
(a) "Applicant" means an Owner seeking a Cannabis Permit pursuant to this Chapter.
(b) "Cannabis" means all parts of the Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every
Administrative Record - Review Hearing - Herbal Dragon LLC Page 19 of 345Page 1989 of 4584 compound, manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. Cannabis also means the separated resin, whether crude or purified, obtained from cannabis. Cannabis also means marijuana as defined by Section 11018 of the California Health and Safety Code as enacted by Chapter 14017 of the Statutes of 1972. Cannabis does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of the plant which is incapable of germination. For the purpose of this Chapter 5.18, Cannabis does not mean industrial hemp as that term is defined by Section 81000 of the California Food and Agricultural Code or Section 11018.5 of the California Health and Safety Code.
(c) "Cannabis Permit" means a permit issued by the City to conduct a Commercial Cannabis Activity, including, but not limited to a Cultivation Permit, Distribution Permit, Manufacturing Permit, Microbusiness Permit, Retail Delivery Permit, or Testing.
(d) "Cannabis Permittee" means a Person who holds a Cannabis Permit. (e) "Cannabis Product" means cannabis that has undergone a process whereby the plant material has been transformed into a concentrate, or other cannabis derivative, including, but not limited to, concentrated cannabis, or an edible or topical product containing cannabis or concentrated cannabis and other ingredients.
(f) "City" shall mean the City of Cudahy.
(g) "City Coden means the City of Cudahy Municipal Code. (h) "City Manager" means the City Manager of the City of Cudahy. (i) "Cole Memo" means the August 29, 2013 United States Department of Justice memorandum offering guidance on federal enforcement priorities regarding Cannabis.
U) "Commercial Cannabis Activity(ies)" means the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of Cannabis and/or Cannabis Products. (k) "Cultivation" means any activity involving the planting, growing, harvesting, drying, curing, grading, or trimming of Cannabis.
(I) "Cultivation Permit" means a Cannabis Permit for the Indoor Cultivation of Cannabis in accordance with the terms and conditions of this Chapter and the Development Agreement for the applicable Cannabis Permit issued to the particular Cultivation Permittee.
(m) "Cultivation Permittee" means an applicant who has applied for and has been issued a Cultivation Permit by the City pursuant to the terms and conditions of this Chapter.
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Administrative Record - Review Hearing - Herbal Dragon LLC Page 20 of 345Page 1990 of 4584 (n) "Day Care Center" means any child day care facility other than a family day care home, and includes infant centers, preschools, extended day care facilities, and schoolage child care centers.
(o) "Development Agreement" means an agreement adopted pursuant to the Development Agreement Law (Gov. Code, § 65864 et seq.) and Cudahy Municipal Code Chapter 20.28 (Development Agreements), which provides agreed upon community benefits to the City.
(p) "Distribution" means the procurement, sale, and transport of cannabis and cannabis products between persons authorized to engage in permitted commercial cannabis activities pursuant to this Chapter. (q) "Distribution Permit" means, with respect to a Distribution Permittee, a Cannabis Permit for Distribution in accordance with the terms and conditions of this Chapter and the Development Agreement for the applicable Cannabis Permit issued to such Distribution Permittee.
(r) "Distribution Permittee" means a Person that has been issued a Distribution Permit by the City pursuant to the terms and conditions of this Chapter. (s) "Fully Enclosed and Secure Structure" means a space within a building or other structure which has a complete roof enclosure supported by connecting walls extending from the ground to the roof, which is reasonably secure against unauthorized entry, provides complete visual screening or is behind fencing or other features providing complete visual screening, and which is accessible only through one or more lockable doors and is inaccessible to minors. (t) "Good Cause" for purposes of refusing or denying a Cannabis Permit, for revoking a Cannabis Permit, or for refusing or denying a Cannabis Permit renewal or reinstatement means: (i) the Applicant has not obtained approval by the City Council of a Development Agreement setting forth the general terms for the operation of commercial cannabis activity or breaches a term or terms of a Development Agreement approved by the City Council pursuant to this Chapter; (ii) The Applicant or Cannabis Permittee has violated the terms, conditions, or provisions of this Chapter, of state law, of any regulations or rules promulgated pursuant to state law or this Chapter, any applicable local rules, regulations, or conditions placed upon its state license or Cannabis Permit; (iii) the licensed Premises have been operated in a manner that adversely affects the public health, safety, or welfare or the safety of the immediate neighborhood in which the Commercial Cannabis Activity is being conducted; (iv) the Applicant or Cannabis Permittee has knowingly made false statements, misrepresentations, or material omissions on an application form, renewal form, or other document submitted to the City; (v) the Applicant or Cannabis Permittee's criminal history does not indicate that the Applicant or Cannabis Permittee is of Good Moral Character or the Applicant or Cannabis Permittee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the Applicant or Cannabis Permittee. However, if the City has issued a Cannabis Permit to the Applicant or Cannabis Permittee, the City shall not consider any
Administrative Record - Review Hearing - Herbal Dragon LLC Page 21 of 345Page 1991 of 4584 criminal history of the Applicant or Cannabis Permittee that was disclosed to or discovered by the City prior to issuance of the Cannabis Permit and is confirmed by the Applicant or Cannabis Permittee. For any criminal history that was not disclosed to or discovered by the City prior to issuance of a Cannabis Permit, or that arose after the issuance of the Cannabis Permit, the City shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the Applicant or Cannabis Permittee, and shall evaluate the suitability of the Applicant or Cannabis Permittee based upon such review. In determining which offenses are substantially related to the qualifications, functions, or duties of the Applicant or Cannabis Permittee, the City shall consider factors set forth in Business and Professions Code Section 26057; (vi) the Applicant or Cannabis Permittee is employing or allowing to volunteer any person whose criminal history indicates that such person is not of Good Moral Character; (vii) the Applicant or Cannabis Permittee fails to allow inspection by City officials of the security recordings, activity logs, business records, or other accessible records pertaining to the activities conducted on the applicable Premises; or (viii) the Applicant or Cannabis Permittee allows for Physician Services to be conducted on the applicable Premises. (u) "Good Moral Character" means having a personal history that demonstrates the propensity to serve the public in a manner that reflects openness, honest, fairness, and respect for the law and rights and well-being of others. In determining Good Moral Character, the following standards shall apply: (i) a judgment of guilt in a criminal prosecution or a judgment in a civil action shall not be used, in and of itself, as proof of an individual's lack of Good Moral Character.
Such judgment, however, may be used as evidence in the determination and when so used, the individual shall be notified and shall be permitted to rebut the evidence by showing that, at the current time, he or she has the ability to, and is likely to serve the public, in a fair, honest, and open matter, that he or she is rehabilitated, and/or that the substance of the former offense is not substantially related to the applicable Commercial Cannabis Activity; and (ii) a prior conviction where the sentence, including any term of probation incarceration, or supervised release is completed for the possession of, possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance, is not considered substantially related, and shall not be the sole ground for denial of a Cannabis Permit, except that any of the convictions set forth in Business and Professions Code Section 26057(b)(4), as may be amended, shall be deemed substantially related to applicable Commercial Cannabis Activity. (v) "Health and Safety Code" means the California Health and Safety Code, as amended from time to time.
(w) "Indoor" means within a Fully Enclosed and Secure Structure. (x) "Manufacture" or "Manufacturing" means to compound, blend, extract, infuse, or otherwise make or prepare a Cannabis Product from such blends, extractions, or infusions.
)
Administrative Record - Review Hearing - Herbal Dragon LLC Page 22 of 345Page 1992 of 4584 (y) uManufacturing Permit" means a Cannabis Permit to Manufacture in accordance with the terms and conditions of this Chapter and the conditions of approval for the applicable Cannabis Permit issued to the particular Manufacturing Permittee.
(z) "Manufacturing Permittee" means a Person that has been issued a Manufacturing Permit by the City pursuant to the terms and conditions of this Chapter.
(aa) "Medicinal Permittee" means a Person who is issued a Cannabis Permit to engage in Commercial Cannabis Activity with respect to medicinal Cannabis in accordance with applicable City law and State Law, including MAUCRSA. (bb) "Microbusiness" means a commercial medicinal cannabis business facility of cultivation of medicinal cannabis on areas less than 10,000 square feet and also acts as a licensed distributor, manufacturer, and Delivery-only retailer, pursuant to State Law, including MAUCRSA. Microbusinesses shall not be open to the public for point-of-sale retail Cannabis sales.
(cc) "Microbusiness Permit" means a Cannabis Permit to establish and conduct a Microbusiness in accordance with the terms and conditions of this Chapter and the conditions of the Development Agreement for the applicable Cannabis Permit issued to the particular Microbusiness Permittee. (dd) "Microbusiness Permittee" means a Person who has been issued a Microbusiness Permit by the City pursuant to the terms and conditions of this Chapter.
(ee) "Outdoors" means any location within the City that is not within a Fully Enclosed and Secure Structure.
(ff) "Owner" means any of the following: (i) a Person with an aggregate ownership interest of 20% or more in the Person applying for a Cannabis Permit, unless the interest is solely a security, lien, or encumbrance; (ii) the chief executive officer of a nonprofit or other entity; a member of the boards of directors of a nonprofit; (iv) an individual who will be participating in the direction, control, or management of the person applying for a Cannabis Permit. (gg) "Permit Zone" means, with respect to a Person holding a Cannabis Permit, the overlay zone described in Cudahy Municipal Code Chapter 20.120 where such Cannabis Permit type is permitted to operate pursuant to a Development Agreement with the City.
(hh) "Person" includes any individual, entity, firm, co-partnership, joint venture, association, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit, and the plural as well as the singular.
(ii) "Physician Services" means the consultation by a State-licensed physician of a patient with the possible recommendation by such physician of medicinal Cannabis for such patient.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 23 of 345Page 1993 of 4584 OD "Premises" means the designated structure or structures and land specified in the application that is owned, leased, or otherwise held under the control of the Cannabis Permittee applicant or Cannabis Permittee where the Commercial Cannabis Activity will be or is conducted. The premises shall be a contiguous area and shall only be occupied by one Cannabis Permittee. (kk) "Retail Delivery" means the commercial transfer or delivery of Cannabis or Cannabis Products to a customer, patient, primary caregiver or Cannabis Permittee.
(II) "Retail Delivery Establishment" means a location where Cannabis or Cannabis Products are, either individually or in any combination, Delivered pursuant to State Law, including MAUCRSA. Retail Delivery Establishments shall not be open to the public for point-of-sale retail sales. (mm) "Retail Delivery Permit" means a Cannabis Permit to Deliver Cannabis and Cannabis Products to customers, patients, and primary caregivers in accordance with the terms and conditions of this Chapter and the conditions of the Development Agreement for the applicable Cannabis Permit issued to the particular Retail Delivery Permittee.
(nn) "Retail Delivery Permittee" means a Person that has been issued a Retail Delivery Permit by the City pursuant to the terms and conditions of this Chapter. (oo) "State" means the State of California.
(pp) "State Law" means all laws of the State of California, including, but not limited to, all rules and regulations adopted by State agencies and State regulatory entities, including subsequent amendments to such laws, rules, and regulations.
(qq) "State Medicinal license" means a State license for medicinal Commercial Cannabis Activities issued pursuant to State Law. (rr) "Testing" means the activities conducted by a Testing Laboratory. (ss) "Testing Laboratory" means an accredited laboratory, facility, or entity in the City that offers or performs tests of medicinal cannabis or medicinal cannabis products in accordance with State Law and City law:
(tt) "Testing Permit" means a Cannabis Permit for Testing the quality and makeup of Cannabis and Cannabis Products pursuant to the terms and conditions of this Chapter and the conditions of the Development Agreement for the applicable Cannabis Permit issued to the particular Testing Permittee. (uu) "Testing Permittee" means a Person who has been issued a Testing Permit by the City pursuant to the terms and conditions of this Chapter. (vv) "Volatile Solvent" means a Class I Flammable liquid as defined by the National Fire Protection Association, including butane and propane. (ww) "Youth Center" means any public or private facility that is primarily used to host recreational or social activities for minors, including, but not limited to,
Administrative Record - Review Hearing - Herbal Dragon LLC Page 24 of 345Page 1994 of 4584 private youth membership organizations or clubs, social service teenage club facilities, video arcades, or similar amusement park facilities.
5.20.030 Commercial Cannabis Activity Prohibited.
All Commercial Cannabis Activity within the City is prohibited except as permitted by this Chapter.
5.20.040 Certain Commercial Cannabis Activity Permitted. Medicinal Commercial Cannabis Activities, except retail dispensaries that are open to the public for point-of-sale purchases, shall be allowed within the area set forth in the overlay zone/Permit Area illustrated in Exhibit "A" to City Council Ordinance No. 673 pursuant to a development agreement adopted in accordance with the Development Agreement Law (Gov. Code,§ 65864 et seq.) and Cudahy Municipal Code Chapter
20.28 (Development Agreements). No such activities shall be permitted without a Development Agreement within or outside of the boundaries of such overlay zone.
The City may approve or deny such a Development Agreement in its sole and absolute discretion. The City Manager is authorized to develop and promulgate policies and procedures consistent with the intent and spirit of this Chapter concerning the applications, application process, including, but not limited to, the information required of Applicants, and application review procedures, which shall inform the administration and protocols to be used and followed by the City in the application and hearing processes.
5.20.050 Business standards.
Commercial Cannabis Activity within the City shall be in conformance with the standards set forth in this Section, in addition to those additional standards that may be imposed through negotiated Development Agreement. The City Manager is hereby authorized to formulate and impose additional Business Requirements applicable to Cannabis Permittees in furtherance of the public health, safety, and/or welfare.
(a) Commercial Cannabis Activity shall only be allowed upon application and issuance of a Cannabis Permit and a Development Agreement by the City in accordance with the criteria and process set forth in this Chapter and City Code. (b) Zoning and Land Use.
(1) Operation Near Schools, Day Cares, and Youth Centers. Following the enactment of this Chapter, no new Premises shall be established, developed, or operated within 600 feet of a Day Care Center, Youth Center, or public or private school providing instruction in kindergarten or any grades 1 through 12 that is in existence at the time the Cannabis Permit is issued. All distances shall be measured in a straight line, without regard to intervening structures, from the nearest point of the building or structure in which the Premises are, or will be, located to the nearest property line of those uses describe in this Subsection. The restrictions set forth in this Subsection shall not apply to Premises which operate within 600 feet of any Day Care Center, Youth Center, or public or private school
Administrative Record - Review Hearing - Herbal Dragon LLC Page 25 of 345Page 1995 of 4584 providing instruction in kindergarten or any grades 1 through 12, if such Premises existed prior to the establishment of the applicable Day Care Center, Youth Center, or school that is located within 600 feet of such Premises.
(2) Co-Location. All Commercial Cannabis Activity shall fully comply with all l mandates set forth in State Law. To the extent not prohibited under State Law, a Cannabis Permittee may be located within the same unit of the same Premises or building, facility or real property parcel as another Cannabis Permittee.
(3) Development Agreement.
a) Prior to commencing operations, all Cannabis Permittees shall enter into a Development Agreement with the City.
b) All Premises shall be operated in accordance with the terms of the applicable Development Agreement for the specified parcel of real property (or sub-portion thereof) upon which the Premises is located. c) Except as specified, Commercial Cannabis Activities shall not exceed the square footage authorized pursuant to the applicable Development Agreement.
d) All Premises shall be located in the Permit Zone pursuant to the applicable Development Agreement.
(c) Commercial Cannabis Activity is allowed only within Fully Enclosed and Secure Structures that are inaccessible to minors.
(d) Signage for any business must be applied for through the City's Planning Division, which shall require review and approval prior to installation. Business identification signage shall be limited to that needed for identification only, and shall not contain any logos or information that identifies, advertises, or lists the services or the products offered. No Cannabis Permittee shall advertise by having a person holding a sign and advertising the business to passersby, whether such person is on the Premises of the Cannabis Permittee or elsewhere including, but not limited to, the public right-of-way. (e) From any public right-of-way, there shall be no visible evidence of the consumption of any Cannabis Products. Commercial Cannabis Activity shall not adversely affect the health or safety of the nearby residents by creating dust, glare, heat, noise, smoke, traffic, vibration, odor or other impacts, and shall not be hazardous due to use or storage of materials, processes, products, or wastes. (f) Hours of operation limits, if any, shall be specified in terms mutually agreed upon in a Development Agreement.
(g) All Cannabis and Cannabis Products shall be kept in a secured manner during all business and nonbusiness hours.
(h) All Commercial Cannabis Activities shall operate within Premises that are compliant with all applicable State Laws and local laws.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 26 of 345Page 1996 of 4584 (i) Cannabis Permittees must pay all applicable taxes pursuant to all federal, State, and local laws, including, but not limited to, fees relating to infrastructure improvements within the Permit Zone.
U) Cannabis Permittees shall provide sufficient odor absorbing ventilation and exhaust systems so that odors outside the applicable Premises are not a nuisance on any adjacent property of public right-of-way. Any violation of this Section shall be remedied within thirty (30) days of the Cannabis Permittee receiving notice of such violation.
(k) Cannabis Permittees shall utilize product and inventory tracking software and accounting software that is consistent with reasonable business practices within the industry and the seed-to-sale tracking software being developed by the State. (I) Except permitted in this Chapter, on-site smoking, ingestion, or consumption of Cannabis or Cannabis Products shall be prohibited on Premises. Except to the extent otherwise permitted pursuant to this Chapter, the entrance of the Premises shall be clearly and legibly posted with a notice indicating that smoking, ingesting, or consuming Cannabis, Cannabis Products or alcohol on such Premises is prohibited.
(m) Signage for all Premises shall be in compliance with the City's sign code and application for all signs must be submitted to the City's Planning Division and comply with its sign permitting protocol.
(n) Alcoholic beverages and tobacco shall not be sold, stored, distributed, or consumed on the Premises. Cannabis Permittees shall not hold or maintain a license from the State Department of Alcohol Beverage Control to sell alcoholic beverages, or operate a business that sells alcoholic beverages or tobacco with respect to the Premises. In addition, alcohol shall not be provided, stored, kept, located, sold, dispensed, or used on the Premises.
(o) Physician Services shall not be provided at any Premises. (p) The Premises shall fully comply with all applicable rules, regulations, and laws including, but not limited to, zoning and building City Codes, the City's business license ordinances, the Revenue and Taxation Code, the Americans with Disabilities Act, and MAUCRSA.
(q) Each Cannabis Permittee shall provide the City Manager, or the City Manager's designee, with the name, phone number, facsimile number, and email address of an on-site representative of such Cannabis Permittee to whom the City and the public can provide notice if there are any operational problems associated with such Cannabis Permittee's Premises. Each Cannabis Permittee shall make reasonable and good faith efforts to encourage residents and the public to call this representative to resolve any operational problems before any calls or complaints are made to the City or law enforcement. (r) All Cannabis Permittees must comply with the following security requirements:
(1) General Security Requirements.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 27 of 345Page 1997 of 4584 a) Security cameras shall be installed and maintained in good working condition and used in a format approved by the City Manager. The cameras shall be in use 24 hours per day, 7 days per week. The areas to be covered by the security cameras include areas as determined by the City Manager, including, but not limited to, the area in which the primary Commercial Cannabis Activity occurs, e.g. the Cultivation area for a for a cultivator.
b) The Premises shall be alarmed with a reliable commercial alarm system that is operated and monitored by a security company or alarm business in a manner satisfactory to the City Manager.
c) Entrance to any storage areas shall be locked at all times and under the control of staff of the Cannabis Permittee.
d) The business entrance(s) and all window areas shall be illuminated during evening hours. The Applicant shall comply with the City's lighting standards regarding fixture type, wattage, illumination levels, shielding, etc., and secure the necessary approvals and permits, as necessary. e) All windows on the Premises shall be appropriately secured with all Cannabis and Cannabis Products securely stored.
f) Each Cannabis Permittee shall implement track and trace protocols, as noted above in this Section, in order to prevent diversion of Cannabis or Cannabis Products.
g) All waste and disposal containers shall be locked at all times and stored ins a secure area and, at all times, under the control of the Cannabis Permittee.
(2) Security Alarm Systems - Minimum Requirements.
a) Each Premises shall have a security alarm system installed by a licensed alarm company on all perimeter entry points and perimeter windows.
b) Each Premises must ensure that its location is continuously monitored. Premises may engage the services of outside vendors to fulfill this requirement, such as a private security firm.
c) Each Premises shall maintain up to date and current records and existing contracts on the Premises that describe the location and operation of each security alarm system, a schematic of security zones, the name of the licensed alarm company, and the name of any vendor monitoring the Premises.
(3) Lock Standards. At a minimum, all points of ingress and egress shall be secured with commercial-grade, non-residential door locks. (4) Video Surveillance Requirements.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 28 of 345Page 1998 of 4584 a) Prior to exercising the privileges of a Cannabis Permit issued under this Chapter, an Applicant must install fully operational video surveillance and camera recording system. The recording system must record in digital format and meet the requirements outlined herein.
b) All video surveillance records and recording must be stored in a secure area that is only accessible to the management staff of the Cannabis Permittee.
c) Video surveillance records and recordings must be made available upon request to the City Manager or designee for a purpose authorized by this Chapter or for any other State or local law enforcement purpose. d) Video surveillance shall be held in confidence by all employees and representatives of the City Manager, except that the City Manager may provide such records and recordings to any State or local law enforcement agency for any purpose authorized under this Chapter for any State or local law enforcement purpose.
e) A sign shall be posted in a conspicuous place near each point of public access, which shall not be less than 12 inches wide and 12 inches long, composed of letters not less than one inch in height, stating that "All Activities Monitored by Video Camera" or "These Premises Are Being Digitally Recorded" or otherwise advising of all persons entering the Premises that a video surveillance and camera recording system is in operation and recording all activity as provided in this Section. f) The Premises shall utilize video surveillance equipment and a camera system that shall be remotely accessible by the City and Los Angeles County Sheriff's Department.
(5) Video Surveillance Equipment.
a) Video surveillance equipment shall, at a minimum, consist of digital or network video recorders, cameras capable of meeting the recording requirements described in this Section, video monitors, digital archiving devices, and a color printable capable of delivering still photos. b) All video surveillance systems must be equipped with a failure notification system that provides prompt notification to a Cannabis Permittee of any prolonged surveillance equipment interruption and/or the complete failure of the surveillance.
c) Cannabis Permittees are responsible for ensuring that all surveillance equipment is properly functioning and maintained so that the playback quality is suitable for viewing and the surveillance equipment is capturing the identity of all individuals and activities in the monitored Premises.
d) All video surveillance equipment shall have sufficient battery backup to support a minimum of four hours of recording in the event of a power outage.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 29 of 345Page 1999 of 4584 (6) Placement of Cameras and Required Camera Coverage.
a) Camera placement shall be capable of identifying activity occurring within 20 feet of all points of ingress and egress and shall allow for the clear and certain identification of any individual and activities on the Premises.
b) All entrances and exits to the Premises shall be recorded from both indoor and outdoor vantage points.
c) The system shall be capable of recording all pre-determined surveillance areas in any lighting conditions. If the Premises has a medicinal cannabis cultivation area, a rotating schedule of lighted conditions and zero-illumination can occur as long as ingress and egress points to those areas remain constantly illuminated for recording purposes.
d) Areas where medicinal cannabis is grown, tested, cured, manufactured, or stored shall have a camera placed in the room facing the primary entry door at a height that will provide a clear unobstructed view of activity without sight blockage from lighting hoods, fixtures, or other equipment.
e) Cameras shall also be placed at each location where weighing, packaging, preparation, tagging activities occur, or other distribution preparation activities occur.
f) At least one camera must be dedicated to record the access points to the secured surveillance recording area.
(7) Location and Maintenance of Surveillance Equipment. a) Surveillance recording equipment must be housed in a designated, locked, and secured room or other enclosure with access limited to authorized employees, the City Manager or designee, Los Angeles County Sheriff's Department, as authorized by this Chapter, other State or local law enforcement purpose, and service personnel or contractors. b) Premises must keep a current list of all authorized employees and service personnel who have access to the surveillance system and/or surveillance system room on the Premises. Premises must keep a surveillance equipment activity log on the Premises to record all service activity, including the identity of all individuals performing services on system service, the service date and time, and the reason for such service to the surveillance system.
c) Off-site monitoring and video recording storage of the Premises by an independent third party may be authorized so long as standards exercised at the remote location meets or exceeds all of the standards applicable to onsite monitoring.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 30 of 345Page 2000 of 4584 d) Each Premises located in a common or shred building must have a separate surveillance room/area that is dedicated to that specific Premises. The facility that does not house the central surveillance room is required to have a review station, printer, and map of camera placement on the Premises. All minimum requirements for equipment and security standards as set forth in this Section apply to such review station. (8) Video Recording Retention Requirements.
a) All camera views of all recorded areas must be continuously recorded 24 hours a day.
b) All surveillance recordings must be kept for a minimum of 30 days and be in a format that can be easily accessed for viewing. Video recordings must be archived in a format that ensures authentication of the recording as legitimately-capture video and guarantees that no alteration of the recorded image has taken place.
c) The surveillance system or equipment must have the capabilities to produce a color still photograph form any camera image, live, or recorded, of the Premises.
d) The date and time must be embedded on all surveillance recordings without significantly obscuring the picture. e) Time is to be measured in accordance with the official United States time established by the National Institute of Standards and Technology and the U.S. Naval Observatory at www.time.gov. f) After the 30-day surveillance retention schedule has lapsed, surveillance video recordings must be erased or destroyed prior to being discarded or disposed of for any other purpose. Surveillance video recordings shall not be destroyed if the Cannabis Permittee knows or should have known of a pending criminal, civil, or administrative investigation or any other proceeding sfor which the recording may contain relevant information.
(9) Other Records. All records applicable to the surveillance system and cannabis tracking system shall be maintained on the Premises. At a minimum, Premises shall maintain a map of the camera locations, directions of coverage, camera numbers, surveillance equipment maintenance activity log, user authorization list and operating instructions for the surveillance equipment.
(s) Audit. Each Cannabis Permittee shall maintain accurate books and records in an electronic format, which detail all revenues and expenses of the business, including, but not limited to, all assets and liabilities. On no less than an annual basis, or at any time upon reasonable request of the City, each Cannabis Permittee shall file a sworn statement detailing business activity during the previous 12-month period (or shorter period based upon the timing of the request). The statement shall include gross sales for each month and all
Administrative Record - Review Hearing - Herbal Dragon LLC Page 31 of 345Page 2001 of 4584 applicable taxes and fees paid or due to be paid. On an annual basis, each owner and operator shall submit to the City a financial audit of the business's operations conducted by an independent certified public accountant. Each Cannabis Permittee shall be subject to a regulatory compliance review and financial audit as determined by the City Manager or designee. (t) Inspections. The City Manager, or designee, or Los Angeles County Sheriff's Department shall have the right to enter all Premises from time to time unannounced during a Cannabis Permittee's hours of operation for the purpose of making reasonable inspections to observe and enforce compliance with this Chapter, to inspect and copy records required to be maintained under this Chapter, or to inspect, view, and copy recordings made by security cameras, all without requirement for a search warrant, subpoena, or court order, and subject to appropriate fees, as specified in the Development Agreement, or adopted by the City.
5.20.060 Application and fee requirements.
(a) All applicants wishing to obtain a Cannabis Permit from the City shall file an application with the City upon a form approved by the City Manager and shall pay a permit application fee as established by the City. The fee may vary depending on the type of Cannabis Permit. The City Manager or designee may require and conduct background checks, as necessary, to process and evaluate Cannabis Permit applications.
(b) Prior to operating in the City, each Cannabis Permittee shall timely and fully pay all fees associated with the establishment of Commercial Cannabis Activity.
The fees shall be as set forth in the schedule and fees and charges established by the City Council, including, but not limited to, the following:
(1) Application fee for accepting a registration application, due and payable in full at the time an application is submitted;
(2) Processing fee for the cost to the City of processing an application and reviewing, investigating, and scoring each application in accordance with any evaluation system to determine eligibility for issuance of a Cannabis Permit, due and payable in full at the time a registration application is submitted;
(3) Permit issuance fee for the cost to the City of preparing a Development Agreement, Planning Commission and City Council review of the Development Agreement and the Cannabis Permit, and preparation and issuance of the Cannabis Permit, as authorized by the Cannabis Permit; (4) Amended registration fee for the cost to the City of reviewing amendments or changes to the registration form previously filed on behalf of an Applicant, due and payable in full at the time amendments or changes to any Cannabis Permit form is submitted to the City;
Administrative Record - Review Hearing - Herbal Dragon LLC Page 32 of 345Page 2002 of 4584 (5) Permit renewal fee for the cost ot the City of processing an application to renew a Cannabis Permit, due and payable in full at the time application is made to renew a Cannabis Permit; and
(6) Any fees set forth in the applicable Development Agreement.
5.20.070 Permit conditions.
(a) A Cannabis Permit application may be denied and not awarded by the City if:
(1) The Applicant or the Applicant's agent(s) has made one or more false or misleading statements or omissions in the application or during the application process.
(2) The proposed Premises or Commercial Cannabis Activity at the Premises is not allowed by State Law or City law.
(3) The Applicant is not a legal representative of the proposed Cannabis Permittee.
(4) The Applicant or any of its officers, directors, owners, managers, or employees is under 21 years of age.
(5) The Applicant's facility or its location is in violation of any building, zoning, health, safety, or other provision of this Chapter or of any State or local law that substantially affects the public health, welfare, safety, or morals, or the facility or its location is not permitted in the proposed area, or the issuing or continuation of a Cannabis Permit would be contrary ro the public health, welfare, safety, or morals.
(6) The Applicant or any of its officers, directors, owners, managers, or employees has been sanctioned by the City, State, or any county for unauthorized cannabis activities or has had a registration revoked under this Chapter in the previous 3 years.
(7) The Applicant or the Applicant's agent(s) have engaged in unlawful, fraudulent, unfair, or deceptive business acts or practices. (8) The Applicant has not been or is not in good standing with the City related to other or previous business activities operated in the City. (9) The Applicant has not satisfied all requirement of this Chapter. (10) For Good Cause, as defined in this Chapter.
(b) A Cannabis Permit shall be awarded by the City to Applicants in accordance with the process established by the City Manager.
(c) Before a Cannabis Permit can be issued to an applicant, a Cannabis Permit fee must be paid to offset all related costs to the City, and the proposed Premises must pass all applicable inspections.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 33 of 345Page 2003 of 4584 (d) Each Cannabis Permit is subject to the conditions of approval in the applicable Development Agreement for the parcel of real property upon which the Premises is located.
(e) Each Cannabis Permit is subject to any additional conditions that may be applied by the City at the time of issuance or renewal as necessary to properly regulate the applicable Commercial Cannabis Activities and to protect the public. (f) Each Cannabis Permittee shall execute a Development Agreement with the City to, among other things, fully reimburse the City for all fiscal impacts, costs, expenses, fees, and attorneys' fees incurred by the City related to the Cannabis Permit and the related Commercial Cannabis Activity of such Cannabis Permittee.
(g) Each Cannabis Permittee shall:
(1) Carry liability insurance in the amounts and types set by the City Manager or the City Manager's designee, and name the City as an additional insured on all such insurance policies.
(2) Execute an Indemnification Agreement prepared by the City that fully indemnifies the City for all liabilities associated with the Cannabis Permit, the Cannabis Permittee's Commercial Cannabis Activities, and any action taken by the Cannabis Permittee pursuant to this Chapter. Such indemnification may be set forth in the applicable Development Agreement.
(3) Defend the City, at the Cannabis Permittee's sole expense, in any action against the City or its agents, officers, officials, or employees associated with the Cannabis Permit, the Cannabis Permittee's Commercial Cannabis Activities, or any action taken by the Cannabis Permittee pursuant to this Chapter. The City may, at its sole discretion, participate in the defense of any such action, but such participation shall not relieve the Cannabis Permittee of its indemnification and reimbursement obligations. (4) Reimburse the City for all costs, expenses, fees, and attorney's fees incurred by the City related to any action against the City or its agents, officers, or employees associated with the Cannabis Permit, the Cannabis Permittee's Commercial Cannabis Activity, or any action taken by the Cannabis Permittee pursuant to this Chapter.
(h) A Cannabis Permittee shall keep the City and law enforcement updated with the names, addresses, and relevant criminal histories of the Applicant's Agents.
Relevant criminal histories shall include any drug-related or felony convictions, the nature of such offenses, and the sentences received for such convictions. (i) Transfer.
(1) Any Cannabis Permittee may not sell, transfer, pledge, assign, grant an option, or otherwise dispose of his or her ownership interest in the Commercial Cannabis Business authorized pursuant to the Cannabis Permit.
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Administrative Record - Review Hearing - Herbal Dragon LLC Page 34 of 345Page 2004 of 4584 (2) In order for a Cannabis Permittee to transfer its Cannabis Permit to any Person, such Cannabis Permittee must submit a transfer application to the City Manager or City Manager's designee. The City Manager or designee may create a transfer application and reasonable transfer application process, including mandatory fee, that Cannabis Permittees and the City must follow and pay for Cannabis Permit transfer requests. Each transfer request of a Cannabis Permit and the related transfer application is subject to the prior approval of the City Manager or designee. (3) Applicants for Cannabis Permits must show proof of lawful possession of the applicable location. Evidence of lawful possession consists of properly executed deeds of trust, leases, and other written instruments, as may be accepted by the City.
(4) The location shall only be the geographical area that is specifically and accurately described in executed documents verifying lawful possession.
No Cannabis Permittee is authorized to relocate to other areas or units within a building structure without first filing a change of location application and obtaining approval form the City regardless of any possessory interest or right to possession to such additional space. No Cannabis Permittee shall add additional contiguous units or areas, thereby altering initially-approved Premises without filing an application to modify the location on forms prepared by the City Manager, including any applicable processing fee.
(5) No Cannabis Permittee is authorized to sublet any portion of any Premises for any purpose unless all necessary forms and applications to modify the existing location to accomplish any subletting have been approved by the City.
(6) The City Manager shall develop and promulgate a process for the renewal of Cannabis Permits and the establish related fees, in accordance with applicable laws.
U) To the fullest extent permitted by law, the City does not assume any liability, and expressly does not waive sovereign immunity, with respect to any Commercial Cannabis Activities, or for the other activities of any Cannabis Permittee or for any other activities taking place at Premises. (k) Changing, Altering, or Modifying Location.
(1) After issuance of a Cannabis Permit, the Cannabis Permittee shall not make any physical change, alteration, or modification to the Premises that materially or substantially alters the location, production estimates, and/or usage of the location form the plans originally approved under the applicable Development Agreement, without the prior written approval of the City Council or designee. The Cannabis Permittee whose Premises are to be materially or substantially changed is responsible for filing an application with the City in order to obtain requisite approval.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 35 of 345Page 2005 of 4584 (2) Material or substantial changes, alterations, or modifications requiring approval include, but are not limited to, the following: (i) an increase or decrease in the total physical size or capacity of the location; (ii) the sealing off, creation of or relocation of a common entryway, doorway, passage, or other such means of public ingress and/or egress, when such common entryway, doorway, or passage alters or changes limited access areas; or (iii) the installation or replacement of electric fixtures or equipment, the lowering of a ceiling, or electrical modifications made for the purpose of increasing power usage ..
(3) The City Council or designee may grant approval for the types of changes, alterations, or modifications described herein upon the filing of an application by the Cannabis Permittee and payment of any applicable fee, subject to any requisite amendments to the applicable Development Agreement. The Cannabis Permittee must submit all information requested by the City Council or designee including, but not limited to, documents that verify the following: (i) the Cannabis Permittee will continue to have the exclusive possession of the Premises, as changed, by ownership, lease, rental agreement, or other means, and sole control over all activities; and (ii) the proposed change conforms to any and all City restrictions related to the time, manner, and place of regulation of the applicable Commercial Cannabis Activity.
(I) To the fullest extent permitted by law, the City does not assume any liability, and expressly does not waive sovereign immunity, with respect to any Commercial Cannabis Activities, or for the other activities of any Cannabis Permittee or for any other activities taking place at Premises.
5.20.080 Enforcement and Appeals.
(a) Any Commercial Cannabis Activity within the City in violation of this Chapter is hereby declared to be unlawful and a public nuisance. (b) Any Person who willfully or knowingly (i) engages in a violation of this Chapter or (ii) owns, possesses, controls, or has charge of any parcel of real property in the City upon which a violation of this Chapter is maintained and who has actual knowledge of such violation ( or would have actual knowledge of such violation after a reasonable inquiry), shall be subject to the penalties and remedies provided by this Chapter.
(c) Any violation of this Chapter shall constitute a separate offense for each and every day the violation occurs or persists.
(d) Any Person in violation of any provision of this Chapter or who causes another Person to be in violation of this Chapter shall have committed a misdemeanor. In addition which shall be punishable by a fine of up to one thousand dollars ($1,000) for each violation and for each day the applicable violation continues to persist.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 36 of 345Page 2006 of 4584 (e) Any person in violation of any provision of this Chapter shall be punishable by an administrative fine of up to a $1,000 per offense.
(f) Any material violation of this Chapter or any other relevant City law or State Law by a Cannabis Permittee, or a Cannabis Permittee's agent, is grounds for suspending or revoking the relevant Cannabis Permit. In addition, the City Manager or the City Manager's designee may suspend or revoke a Cannabis Permit, disqualify an Applicant from the application process, or elect not to renew a Cannabis Permit if any of the following occur:
(1) The City Manager or the City Manager's designee determines that the Cannabis Permittee has failed to comply with this Chapter, any condition of approval, or any agreement or covenant as required pursuant to this Chapter.
(2) The Cannabis Permittee's Commercial Cannabis Activities cease for more than ninety (90) calendar days.
(3) Ownership of the Cannabis Permittee is changed without approval from the City.
(4) The licensed Commercial Cannabis Activity moves from the licensed Premises to a different, unauthorized location.
(5) The Cannabis Permittee fails to provide remote access to the security cameras to the City Manager, the City Manager's designee, or Los Angeles County Sheriff's Department, or fails to allow inspection of the security recordings, the activity logs, or of the Premises by authorized City officials.
(g) Any decision regarding the suspension or revocation of a Cannabis Permit, disqualification of an Applicant from the application process, or election not to renew a Cannabis Permit may be appealed to an independent neutral third-party administrative hearing officer appointed by the City Manager or the City Manager's designee (the "Hearing Officer"). Said appeal shall be made by a notice of appeal from the Person appealing within thirty (30) days from the date of the City's decision. The appeal shall be accompanied by a written verified declaration setting forth the basis for the claim that the City's decision was improper. The Hearing Officer's decision shall be final and binding upon the City and the appellant Cannabis Permittee or Applicant. Alternatively, the City Manager may provide for the appeal to be made to the City Council, in lieu of a hearing officer. In such case, the City Council's decision shall be final and binding upon the City and the appellant.
(h) These penalties and remedies are cumulative, and in addition to any other penalties and remedies available to the City.
5.20.090 State Medicinal License Requirement.
(a) Cannabis Permittees must obtain a State Medicinal License in accordance with State Law, including, but not limited, to the temporary and permanent State Medicinal Licenses provided for in MAUCRSA.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 37 of 345Page 2007 of 4584 (b) Each Cannabis Permittee must expeditiously provide proof of receipt of the applicable State Medicinal License by such Cannabis Permittee to the City Manager or designee.
5.20.100 Medicinal Cannabis Cultivation.
(a) Purpose. The purpose and intent of this Section is to permit and regulate the medicinal Cannabis Cultivation in order to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to State Law. (b) Scope; Medicinal Cannabis. This Section permits and regulates the medicinal Cannabis Cultivation pursuant to State Law, including MAUCRSA.
Subject to the terms of this Chapter, Cultivation Permits may be issued by the City for medicinal Cannabis Cultivation pursuant to and in accordance with State Law, including MAUCRSA.
(c) Outdoor Cultivation is prohibited within the City.
(d) Indoor Cultivation is permitted only on properties within the applicable Permit Zone with a valid Cultivation Permit and other requisite permits and entitlements. (e) Indoor Cultivation may include growing Cannabis plants, harvesting Cannabis plants, and drying Cannabis flowers but shall not include the Manufacturing or of Cannabis Products, unless otherwise authorized pursuant to this Chapter. (f) Entrance to the Cultivation area, and all storage areas, of the applicable Premises shall be locked at all times and under the control of the staff of such Premises.
5.20.110 Medicinal Cannabis Products Manufacturing.
(a) Purpose. The purpose and intent of this Section is to permit and regulate the medicinal Cannabis Products Manufacturing to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to State Law. (b) Scope; Medicinal Cannabis. This Section permits and regulates medicinal Cannabis Products Manufacturing pursuant to State Law, including MAUCRSA.
Subject to the terms of this Chapter, Manufacturing Permits may be issued by the City for medicinal Cannabis Products Manufacturing, pursuant to and in accordance with State Law, including MAUCRSA.
(c) Medicinal Cannabis Products Manufacturing is a permitted use only on properties within the applicable Permit Zone with a valid Cultivation Permit and other requisite permits and entitlements.
(d) A Manufacturing Permittee must employ at least one (1) member of its personnel dedicated full time to quality control.
(e) The Manufacturing Permittee must establish standard operating procedures and batch records that comply with current good manufacturing practices and applicable State Law, including MAUCRSA.
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Administrative Record - Review Hearing - Herbal Dragon LLC Page 38 of 345Page 2008 of 4584 (f) All Cannabis Products produced by a Manufacturing Permittee must be labeled in compliance with applicable State Law, including MAUCRSA. (g) All Cannabis Products produced by a Manufacturing Permittee must be packaged in child resistant containers prior to leaving the Premises fOf such Manufacturing Permittee in accordance with applicable State Law, including MAUCRSA.
(h) Manufacturing Permittees may conduct Manufacturing using any type of solvents, including Volatile Solvents, or Manufacturing processes if such Manufacturing complies with the requirements of this Chapter and State or local law, including but not limited to Health and Safety Code Section 11362.775 (or any successive State Law) all applicable fire and building codes in the City and any other laws of the City designed to ensure the safety of such operation. (i) Manufacturing Permittees using Volatile Solvents for Manufacturing Cannabis Products must operate in a manner to reduce the risk of explosion or danger to public health, including through the use of a close-loop · or solvent dispersion system consistent with the requirements of Health and Safety Code Section 11362.775 (or any successive State Law).
U) If hazardous materials, flammable gas, flammable liquefied gas, flammable and combustible liquids, or other flammable material, as those terms are defined in California Fire Code Section 202, are to be used in the processing of medicinal Cannabis, then the provisions of California Fire Code Section 407 shall be applicable where hazardous materials are subject to permits under California Fire Code Section 50 (Hazardous Materials) are located on the Premises or where required by the applicable building or fire official.
(k) Storage, use, and handling of compressed gases in compressed gas containers, cylinders, tanks, and systems shall comply with California Fire Code Chapter 53. Partially full compressed gas containers, cylinders, or tanks containing residual gases shall be considered as full for the purposes of the controls required. Compressed gases classified as hazardous materials shall also comply with California Fire Code Chapter 50 for general requirements and California Fire Code Chapter 53 addressing specific hazards, including California Fire Code Chapter 58 (Flammable Gases), California Fire Code Chapter 60 (Highly Toxic and Toxic Materials), California Fire Code Chapter 63 (Oxidizers, Oxidizing Gases and Oxidizing Cryogenic Fluids, and California Fire Code Chapter 64 (Pyrophoric Materials). Prevention, control, and mitigation of dangerous conditions related to storage, use, dispensing, mixing, and handling of flammable and combustible liquids shall be in accordance with California Fire Code Chapters 50 and 57.
(I) Labeling Requirements - Edibles.
(1) Before a Manufacturing Permittee prepares any edible Cannabis or edible Cannabis Product for retail sale, it shall be labeled and placed in tamperevident packaging which at least meets the requirements of State Law, including, but not limited to, MAUCRSA.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 39 of 345Page 2009 of 4584 (2) All items to be sold or distributed shall be individually wrapped at the original point of preparation by the Cannabis Permittee. (3) Labeling must include a warning if nuts or other known allergens are used, and must include the total weight (in ounces or grams) of Cannabis in the package, not to exceed ten (10) milligrams of tetrahydrocannabinol (THC) per serving.
(4) A warning that the item is a medication and not a food must be clearly legible on the front of the package and/or must comply with state packing requirements.
(5) The package must have a label warning that the product is to be kept away from children.
(6) The label must also state that the product contains Cannabis and must specify the date of Manufacture and the Manufacture Permittee's information, including, but not limited to, address, and phone number. (7) Distributions must be in a properly labeled opaque package when distributed.
(8) The City Manager, or designee, may impose additional packaging and labeling requirements on Cannabis or Cannabis Products.
5.20.120 Medicinal Cannabis and Cannabis Products Retail Delivery (Retail Delivery Only, Dispensaries Prohibited).
(a) Purpose. The purpose and intent of this Section is to regulate the Retail Delivery of medicinal Cannabis and Cannabis Products in order to promote the health, safety, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to the State Law. (b) Scope; Medicinal Cannabis Only. This Section permits and regulates the Retail Delivery of medicinal Cannabis and Cannabis Products pursuant to State Law, including MAUCRSA. Subject to the terms of this Chapter, Retail Delivery Permits may be issued by the City for the Retail Delivery of medicinal Cannabis and Cannabis Products pursuant to and in accordance with State Law, including MAUCRSA. The point-of-sale sale of Cannabis or Cannabis Products is strictly prohibited.
(c) Retail Delivery of Cannabis and Cannabis Products is a permitted use only on properties within the applicable Permit Zone with a valid Retail Delivery Permit and other requisite permits and entitlements.
(d) The Retail Delivery of medicinal Cannabis and Cannabis Products may only include the Retail Delivery of Cannabis and Cannabis Products by a Retail Delivery Permittee to a customer, patient or primary caregiver, in accordance with State Law, including MAUCRSA.
(e) Retail Delivery Permittees shall implement sufficient security measures to both deter and prevent unauthorized entrance into areas containing Cannabis
Administrative Record - Review Hearing - Herbal Dragon LLC Page 40 of 345Page 2010 of 4584 and Cannabis Products and theft of Cannabis and Cannabis Products from the Retail Delivery Establishment or employees participating in Retail Delivery. (f) All Cannabis and Cannabis Products shall be stored in a secured and locked room, safe, or vault, and in a manner as to prevent diversion, theft, or loss. (g) Individuals shall not be allowed to remain on the Premises comprising of the Retail Delivery Establishment unless they are engaging in activity expressly related to the operations of the Retail Delivery Establishment or are a customer. (h) A Retail Delivery Permittee shall notify the City Manager or the City Manager's designee within 24 hours of discovering any of the following:
(1) Significant discrepancies identified during inventory. The level of significance shall be determined by the City Manager or the City Manager's designee.
(2) Diversion, theft, loss, or any criminal activity involving the Retail Delivery Establishment or any agent or employee of the Retail Delivery Establishment.
(3) The loss or unauthorized alteration of records related to Cannabis, Cannabis Products, registered qualifying patients, primary caregivers, or Retail Delivery Establishment agents or employees.
(4) Any other material breach of security.
(i) The Retail Delivery of medicinal Cannabis and Cannabis Products shall comply with all State and local Law, including all laws requiring presentment of government-issued identification card, physician's recommendation, or medicinal Cannabis identification card at the time of initial purchase.
U) With respect to medicinal Cannabis, physicians' recommendations for medicinal cannabis use shall be verified by a Retail Delivery Permittee prior to the Retail Delivery any medicinal Cannabis to a qualified patient or primary caregiver and at least every six months thereafter.
(k) A Retail Delivery Establishment may not employ or enter into any agreements with any physicians who recommend medicinal Cannabis; Physician Services are prohibited from any and all Retail Delivery Establishments. (I) A Retail Delivery Permittee shall inspect all Cannabis and Cannabis Products received for quality assurance prior to the Retail Delivery to any Person. (m) The Retail Delivery of Cannabis and Cannabis Products shall occur only after such Cannabis and Cannabis Products have been inspected and quality tested in accordance with applicable State Law, including MAUCRSA. (n) Each Retail Delivery Establishment shall do regular monthly inventories and record the total quantity of Cannabis and Cannabis on the Premises. These records shall be maintained for three years from the date created and shall be open to inspection by the City Manager, the City Manager's Designee, and law enforcement.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 41 of 345Page 2011 of 4584 (o) A Retail Delivery Permittee shall register with the City each location where Cannabis or Cannabis Products are stored for purposes of Retail Delivery by such Retail Delivery Permittee within the City.
(p) A Retail Delivery Establishment shall maintain customer and patient and other business records in a secure location (including electronically or cloud-based) j. that is compliant with, as applicable, HIPAA and other federal and state privacy laws.
(q) During the Retail Delivery of Cannabis or Cannabis Products, each vehicle driver shall carry a copy of the Retail Delivery Permit, a copy of the Retail Delivery request, a form of government-issued identification, and all other information required by State and local Law. The driver shall present these documents upon the request of law enforcement, the City Manager, or the City Manager's designee.
(r) Prior to Retail Delivery of Cannabis and Cannabis Products, such Cannabis and Cannabis Products shall be labeled and placed in a tamper-evident package.
Labels and packages of Cannabis and Cannabis Products shall, at minimum, meet the requirements specified under State Law, including MAUCRSA. (s) All Retail Delivery vehicles shall:
(1) Be equipped with, and utilize, a vehicle alarm system. (2) Have and utilize a direct communication system with the related Retail Delivery Establishment.
(3) Keep all Cannabis and Cannabis Products in a secure and locked container.
(4) Have an internal partition between the driver and all passengers from the Cannabis and Cannabis Products storage containers that prevents access by the driver and passengers to all cannabis products from inside the vehicle.
(5) Not carry more Cannabis and Cannabis Products than allowed by State and local Law and required to fulfill all immediate Retail Delivery requests (6) Not display any logo, signage, or other information that identifies, advertises, or lists the services or the products offered.
5.20.130 Medicinal Cannabis and Cannabis Products Distribution. (a) Purpose. The purpose and intent of this Section is to permit and regulate the Distribution of Cannabis and Cannabis Products between Cannabis Permittees in order to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to State Law.
(b) Scope; Medicinal Cannabis Only. This Section permits and regulates the Commercial Cannabis Activity of Distribution of medicinal Cannabis and Cannabis Products pursuant to State Law, including MAUCRSA. Subject to the terms of this Chapter, Distribution Permits may be issued by the City for the
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Administrative Record - Review Hearing - Herbal Dragon LLC Page 42 of 345Page 2012 of 4584 )
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Distribution of medicinal Cannabis and Cannabis Products pursuant to and in accordance with State Law, including MAUCRSA. Distribution of Cannabis and Cannabis Products requires a Development Agreement with the City and must be located within the applicable Permit Zone. -,
(c) Distribution activities includes the receiving and releasing of Cannabis and Cannabis Products for inspection, Testing, and quality assurance, as required under applicable State Law and such other activities as are permitted pursuant to State Law.
(d) A Distribution Permittee shall only Distribute Cannabis and Cannabis Products between Cannabis Permittees or to facilities or portions of facilities wholly controlled by such Distribution Permittee to the extent permitted by State Law.
(e) A Distribution Permittee shall inspect all Cannabis and Cannabis Products received by it for quality assurance prior to Distributing to any Cannabis Permittee, as required under applicable State Law.
(f) In addition to the application requirements in Section 0, a Distribution Permittee shall register with the City each location within the City where Cannabis and Cannabis Products are stored for purposes of Distribution activities within the City.
(g) A Distribution Permittee shall Distribute Cannabis and Cannabis Products to Cannabis Permittees only after such Cannabis and Cannabis Products have been inspected and quality tested in accordance with applicable State Law, including MAUCRSA.
(h) A Distribution Permittee may also hold any other Permit type to the extent permitted by State Law. To the extent permitted by State law, a Distribution Permittee that also holds another Permit type may self-distribute its Cannabis Products.
5.20.140 Medicinal Cannabis and Cannabis Products Microbusiness. (a) Purpose. The purpose and intent of this Section is to permit and regulate the medicinal Cannabis and Cannabis Products Microbusiness in order to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City is authorized to regulate this activity pursuant to State Law, including MAUCRSA.
(b) Scope; Medicinal Cannabis Only. This Section permits and regulates Microbusinesses, pursuant to State Law, including MAUCRSA. Subject to the terms of this Chapter, Microbusiness Permits may be issued by the City pursuant to and in accordance with State Law, including MAUCRSA. (c) All Microrobusinesses shall require a Development Agreement with the City and must be located within the applicable Permit Zone.
(d) All components of a Microbusiness (i.e., Cultivation, Manufacturing, etc.) must be in compliance with the provisions of this Chapter and State Law, including MAUCRSA.
Administrative Record - Review Hearing - Herbal Dragon LLC Page 43 of 345Page 2013 of 4584 (e) The City may authorize the smoking, vaporizing, and ingestion of Cannabis or Cannabis Products on the Premises of a Microbusiness if all of the following are met:
(1) Access to the area where Cannabis consumption is allowed is restricted to persons 21 years of age and older.
(2) Cannabis consumption is not visible from any public place or nonagerestricted area. (3) Sale or consumption of alcohol or tobacco is not allowed on the Premises.
5.20.140 Medicinal Cannabis and Cannabis Products Testing. (a) Purpose. The purpose and intent of this Section is to permit and regulate the Testing of medicinal Cannabis and Cannabis Products in order to promote the health, safety, morals, and general welfare of the residents and businesses within the City. The City intends to be on the forefront of medicinal Cannabis research and Testing. The City is authorized to regulate this activity pursuant to State Law.
(b) Scope; Medicinal Cannabis Only. This Section permits and regulates Cannabis and Cannabis Products Testing, pursuant to State Law, including MAUCRSA. Subject to the terms of this Chapter, Testing Permits may be issued by the City for the Testing of medicinal Cannabis and Cannabis Products pursuant to and in accordance with State Law, including MAUCRSA. (c) Testing of Cannabis and Cannabis Products requires a Development Agreement with the City and must be located within the applicable Permit Zone. (d) Each Testing Permittee must employ at least one (1) full time quality control personnel employee.
(e) Testing Permittees must operate, and all Cannabis and Cannabis Products must be properly tested by Testing Permittees, in accordance with applicable State Law.
(f) All Testing devices used by a Testing Permittee must be "UL listed," and/or otherwise approved for the intended use by the City's Building Official, the Fire Department or other person designated by the City Manager or designee. (g) Each Testing Permittee must notify the State Department of Public Health and the City Manager, or the City Manager's designee, within one business day after the receipt of notice of any kind that its accreditation has been denied, suspended, or revoked.
SECTION 10. Recognizing that there is a potential conflict between federal and State law, it is the City Council's intention that this Ordinance shall be deemed to comply with applicable State Law and shall defer to such applicable State Law through preemption.
SECTION 11. The City Council determines that it is in the best interest of the residents of the City to allow Commercial Cannabis Activities in compliance with applicable State Law, including MAUCRSA, to be established and operated as permitted uses within certain areas of the City subject to the regulations and restrictions provided in this
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Administrative Record - Review Hearing - Herbal Dragon LLC Page 44 of 345Page 2014 of 4584 Ordinance. It is the City Council's intention that nothing in this Ordinance shall be construed to:
1. Allow a Person to engage in conduct that endangers others or causes a public nuisance.
2. Allow any activity relating to Cannabis that is otherwise not permitted under State law.
SECTION 12. The City Council finds that the actions contemplated by this Ordinance are exempt from the California Environmental Quality Act pursuant to Section 15061 (b )(3) and 15305 of the Guidelines, in that the Ordinance alone does not have the potential for causing a significant effect on the environment. Further permits and approvals will be required before any activity that will affect the environment will be permitted. In addition, Business and Professions Code Section 26055 exempts local ordinances from CEQA that authorizes commercial cannabis activity through discretionary review and approval.
SECTION 13. If any section or provision of this Ordinance is for any reason held to be invalid, unconstitutional, illegal, or unenforceable by any court of competent jurisdiction, or contravened by reason of any preemptive legislation, then such section or provision shall be severed and shall be inoperative, and the remainder of this Ordinance shall remain in full force and effect.
SECTION 14. By regulating Commercial Cannabis Activity, the City is only undertaking to preserve the general welfare through implementing the MAUCRSA. The City Council is not assuming, nor is it imposing on its officers and employees, an obligation for which a breach thereof would expose the City to liability in money damages to any Person who claims that such breach proximately caused injury. To the fullest extent permitted by law, the City shall assume no liability whatsoever, and expressly does not waive sovereign immunity, with respect to any provision of this Ordinance or for the activities of any Cannabis Permittee. To the fullest extent permitted by law, any actions taken by a public officer or employee under the provisions of this Ordinance shall not become a personal liability of any public officer or employee of the City. Nothing in this Ordinance shall be deemed or considered in any respects to constitute authorization to violate any law.
SECTION 15. Inconsistent Provisions. Any provision of the Cudahy Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, is hereby repealed or modified to the extent necessary to implement the provisions of this Ordinance.
SECTION 16. Severability. If any section, subsection, subdivision, paragraph, sentence, clause or phrase of this Ordinance, or any part thereof is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance or any part thereof. The City Council hereby declares that it would have passed each section, subs,ection, subdivision, paragraph, sentence, clause or phrase thereof,
Administrative Record - Review Hearing - Herbal Dragon LLC Page 45 of 345Page 2015 of 4584 irrespective of the fact that any one or more section, subsection, subdivision, paragraph, sentence, clause or phrase would be subsequently declared invalid or unconstitutional.
SECTION 17. Publication and Effective Date. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in a newspaper of general circulation within fifteen (15) days after its adoption. This Ordinance shall become effective thirty (30) days after adoption.
PASSED, APPROVED AND ADOPTED by the City Council of the City of Cudahy at the / ." ,_, regular meeting of this 11th day of September, 2017. ,.,_,,,_ /4. ~VY
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
CITY OF CUDAHY
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SS:
Chris Garcia
Mayor
I, Richard Iglesias, Deputy City Clerk of the City of Cudahy, hereby certify that the foregoing Ordinance No. 673 was introduced for a first reading on the 14th day of August 2017 and approved for a second reading and adopted by said Council at its regular meeting held on the 11th day of September, 2017 by the following vote, to-wit:
AYES: Markovich, Hernandez, Garcia
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NOES: Guerrero
ABSTAIN: None
ABSENT: Sanchez
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Richard lgles~a~ / 7 · · · ·-:---___ __
Deputy City B r:I<
Administrative Record - Review Hearing - Herbal Dragon LLC Page 46 of 345Page 2016 of 4584 EXHIBIT "A": OVERLAY ZONE
IIABI! NA~ l'!ATIJRl!B
,-.... I._.J Cuclohy Boundary
-Railroad, EXISTING ZONING - Boundaries of Overlay Zone .,r Portion of High Density Residential Zone which shall be available for Medicinal Commercial Cannabis Activity upon rezoning by the City Council by General Plan Amendment, Zoning Map Amendment, or other means.
CUDAHY GENERAL PLAN
Administrative Record - Review Hearing - Herbal Dragon LLC Page 47 of 345Page 2017 of 4584 ATTACHMENT B.
City Council Resolution No. 18-17
Administrative Record - Review Hearing - Herbal Dragon LLC Page 48 of 345Page 2018 of 4584 RESOLUTION NO.18-17
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF CUDAHY, CALIFORNIA, APPROVING THE
ISSUANCE OF COMMERCIAL CANNABIS PERMIT NO. CCPlS0019 (LOCATION: 4916 CECILIA STREET, APPLICANTS:
CUPER DEVELOPMENT, THE 420 CLUB, GENIUS DISTRIUTION,
GO CUDAHY, DANIEL AND GOLIATH, DAVINA, HERBAL
DRAGON).
WHEREAS, to strengthen the public planning process, encourage private participation in comprehensive planning and reduce the economic risk of development, the Legislature of the State of California adopted Section 65864 et seq. of the California Government Code (the Development Agreement Statute"); and
WHEREAS, the Development Agreement Statute authorizes the City to enter into a property development agreement with any person having legal or equitable interest in real property for the development of such property in order to establish certain development rights; and WHEREAS, in accordance with California law, the City of Cudahy has adopted Municipal Code Chapter 20.28 (Development Agreements) establishing the procedures and requirements for the consideration of development agreement with the City; and WHEREAS, on September 11, 201 7, the City Council for the City of Cudahy passed Ordinance No. 673 establishing regulations and a discretionary review process for the allowance of medicinal-only commercial cannabis activities ( cultivation, distribution, manufacturing, deliveries, micro-business and laboratory testing) in a specified Overlay Zone through a development agreement; and
WHEREAS, all procedures of the California Environmental Quality Act ("CEQA"), California Public Resources Code §21000 et seq., and the CEQA guidelines, title 14 of the California Code of Regulations, chapter 3, §15000 et seq. have been satisfied. The City has found that the proposed Project is Categorically Exempt from California Environmental Quality Act (CEQA) requirements under provisions of CEQA Guidelines Section 15301 -Existing Facilities.
This exemption applies to projects characterized as alterations to existing facilities meeting the conditions described in Section 15301;
WHEREAS, the City of Cudahy Planning Commission ("Planning Commission") conducted a properly noticed public hearing to consider approval of a Commercial Cannabis Permit and a Development Agreement, at which testimony and evidence, both written and oral, were presented to and considered by the Planning Commission; and WHEREAS, the City Council shall approve a development agreement by ordinance; and WHEREAS, subsequent to receipt of the recommendation of the Planning Commission, the City Council conducted a properly noticed public hearing to consider the approval of a Commercial Cannabis Permit No. CCP18-0019 and Development Agreement(s) Nos. DA18-019C, DA18-012C, DA18-016C, DA18-018C, DA18-020C, DA18-021C and DA18-022C, at which testimony and Administrative Record - Review Hearing - Herbal Dragon LLC Page 49 of 345Page 2019 of 4584 Resolution No. 18-17
evidence, both written and oral, were presented to and considered by the City Council.
NOW THEREFORFE, THE CITY COUNCIL OF THE CITY OF CUDAHY
DOES HEREBY RESOLVE, DECLARE AND DETERMINE AS FOLLOWS:
SECTION 1. RECITALS
That the above Recitals are true and correct and are incorporated as though fully set forth herein.
SECTION 2. APPROVAL OF COMMERCIAL CANNABIS PERMIT
That the City Council hereby approves Commercial Cannabis Permit No. CCP18-0019, subject to the terms and conditions stated therein, to allow a Commercial Cannabis Facility for the Site located at: 4916 Cecilia Street. A copy of the permit is attached hereto and incorporated herein by this reference as Exhibit "A." The Commercial Cannabis Permit shall be issued upon execution by the City of a Development Agreement for the Site.
SECTON3. SEVERABILITY
That the City Council declares that, should any provision, section, paragraph, sentence or word of this Resolution be rendered or declared invalid by any final court action in a court of competent jurisdiction or by reason of any preemptive legislation, the remaining provisions, sections, paragraphs, sentences or words of this Resolution as hereby adopted shall remain in full force and effect.
PASSED, APPROVED, AND ADOPTED by the City Counc~f the City regular meeting on this 15th day of May, 2018. / /
ATTEST:
Richard
Deputy City
Iglesias
Clerk
~
u.
Chris Garcia
Mayor
udahy at its
l
Administrative Record - Review Hearing - Herbal Dragon LLC Page 50 of 345Page 2020 of 4584 Resolution No. 18-17