City Council Agenda Report
TO: Mayor Clauzel and Members of the City Council
FROM: Ken Irwin, City Manager
BY: Nubia Goldstein, City Attorney
MEETING DATE: August 15, 2023
ITEM NO: 8.3
SUBJECT: Approve First Reading and Introduction of Ordinance No. 871, Reading by Title Only, Waiving Further Reading, an Ordinance of the City Council of the City of Patterson, to Approve a Fourth Amendment to the Development Agreement By and Between the City of Patterson and Nucleus Homeopathics, Inc.
RECOMMENDATION
Motion to Approve First Reading and Introduction of Ordinance No. 871, Reading by Title Only, Waiving Further Reading, an Ordinance of the City Council of the City of Patterson, to Approve a Fourth Amendment to the Development Agreement By and Between the City of Patterson and Nucleus Homeopathics, Inc.
BACKGROUND
Following consideration and recommendations from the City of Patterson (the “City”) Planning Commission (“Planning Commission”), on December 5, 2017, the City Council approved Ordinance No. 815, which authorized the City of Patterson (the “City”) and Nucleus Homeopathics, Inc. (the “Developer”) to enter into a development agreement for the operation of a cannabis manufacturing business (the “Project”) located at 100 West Las Palmas Avenue, Suite G, Patterson, CA 95373, identified as Stanislaus County Assessor’s Parcel Number 131-003-017 (the “Development Agreement”). On January 4, 2018, Ordinance 815 took effect and the initial term of the Development Agreement commenced.
Since that time, the City has approved three separate amendments to the Development Agreement. On July 17, 2018, the City Council approved Ordinance No. 820 approving the First Amendment to the Development Agreement, adding a distribution license to the Developer’s Authorized License. On December 4, 2018, the City Council approved Ordinance No. 835, approving the Second Amendment to the Development Agreement to add a cannabis cultivation license to Developer’s Authorized License. On April 21, 2020, the City Council approved Ordinance No. 842, approving the Third Amendment to the Development Agreement to authorize continued operations of the Project at an alternative location located at 240 Park Center Drive, Patterson, CA 95363 (the “Alternative Site”).
Section 4.2 of the Development Agreement requires Developer to pay to the City certain amounts to offset the impacts to City infrastructure, services, and neighborhoods, commensurate with the private benefits conferred on Developer (the “Public Benefit Amount”), pursuant to the terms stated in that section. Developer failed to remit multiple required Public Benefit Amount payments, resulting in an overdue Public Benefit Amount (the “Delinquent Public Benefit Amount”) and a default of the Development Agreement pursuant to Section 8.1.
On May 23, 2023, following a period of discussions between the City and Developer in an attempt to resolve the default and bring the Project current, the City and Developer reached a resolution to settle the Delinquent Public Benefit Amount, cure the default, and bring the Project current and back into good standing.
ANALYSIS
Under the May 23, 2023, agreement, Developer agreed to pay One Hundred Nine Thousand Dollars ($109,000.00) to the City to offset the entire outstanding Public Benefit Amount, due in full by June 2, 2023. The City received this amount in full by the deadline, and now acknowledges full and complete satisfaction of the past due amount. Developer and the City further agreed that the Development Agreement would be amended. Section 1.9 requires that the Development Agreement may only be amended by mutual consent of the Parties, and all amendments must be in writing. Major amendments, which would include the proposed amendment here, must be approved by the City Council.
On July 13, 2023, the Planning Commission adopted Resolution No. 2023-05, recommending that the City Council adopt this Ordinance to approve a Fourth Amendment to the Development Agreement between the City of Patterson and Nucleus Homeopathics, Inc. This Ordinance will approve a Fourth Amendment to the Development Agreement, which will include the following terms:
1. The Adjusted Public Benefit payment of One Hundred Nine Thousand Dollars ($109,000.00) constitutes City’s and Developer’s final compromise as to the Delinquent Public Benefit amounts due as of the effective date of the Amendment.
2. The Amendment will establish a new Public Benefit payment schedule requiring a monthly minimum payment of Seven Thousand Dollars ($7,000.00), or a five percent (5%) tax rate of Developer’s gross receipts, whichever is higher. The new Public Benefit shall become effective on the first business day following the conclusion of the Project’s first quarter of operation.
3. Developer will be subject to the City’s cannabis tax on an ongoing basis.
4. Developer shall ensure the Project is open and operational within twelve (12) months of the effective date of the Amendment. In the event the Project requires additional time to become operational, Developer and the City may extend this period to eighteen (18) months upon Developer’s showing that progress is being made to the City’s satisfaction. Any failure of Developer to meet these conditions shall constitute a breach under Section 8.1 of the Development Agreement.
The City Council’s options are:
1. Introduce the Ordinance No. 871 for a first reading;
2. Continue introduction of the Ordinance No. 871 for a first reading to the next regular City Council meeting with changes or revisions as provided by the City Council; or
3. Reject the introduction of the Ordinance No. 871 for first reading.
RECOMMENDED ACTION
Approve First Reading and Introduction of Ordinance No. 871, Reading by Title Only, Waiving Further Reading, to Approve a Fourth Amendment to the Development Agreement By and Between the City of Patterson and Nucleus Homeopathics, Inc.
ATTACHMENTS
1. Proposed Ordinance No. 871
2. Proposed Fourth Amendment to Development Agreement
FISCAL IMPACT
The City would gain potential tax revenue when the cannabis dispensary opens at the Site, as well as public benefit payments received pursuant to the terms of the proposed Fourth Amendment.