CENTRAL VALLEY – SIERRA ASSOCIATES
401 Pine Avenue, Long Beach, CA 90802
Phone: (909) 210-7031 | Email: [email protected]
July 13, 2023
SENT VIA ELECTRONIC MAIL
Ken Irwin, City Manager
[email protected]
Dear City Manager,
By way of introduction, my name is Anthony Almaz, counsel for Central Valley – Sierra Associates (“CVSA”), a cannabis retail dispensary owned and operated by Sadie Schut. CVSA has been informed that the City of Patterson (the “City”) is scheduled to consider adopting the following resolutions (1) revoking Conditional Use Permit No. 17-21 (“CUP”) for Failure to Comply with Conditions of Approval; and (2) recommending that City Council adopt an ordinance confirming the termination of the Development Agreement (“DA”) between the City and Catalyst and authorizing the recording of a notice of termination of the DA. As you are well aware, this resolution comes as a result of the City’s belief that CVSA has failed to satisfy its obligation to pay the “Public Benefits” agreement pursuant to the DA.
In response, we believe the City has acted in extreme bad faith in its dealings with CVSA. Specifically, the facts and history of the City’s dealings demonstrate that the City has imposed obligations on CVSA and the other cannabis businesses that can be classified – at a minimum – as any of the following: (1) an unconstitutional business tax, (2) and “Taking” in violation of the Fifth Amendment, or (3) predatory and damaging lending practices.
Here is a brief background of the “Public Benefit” arrangements. On December 5, 2017, the City Council adopted Ordinance No. 812 approving the DA by and between the City and CVSA to allow Developer to operate a commercial cannabis retail business (the “Project”). Although no formal inquiry was made on the true economic costs to the City related to the business, the DA called for the following payments made to compensate the City for the expenses incurred related to the Project:
1. A payment equal to the greater of ten thousand dollars ($10,000.00) or five percent (5%) of the Business Gross Receipts, beginning the earlier of (i) the issuance of the CUP, or (ii) six (6) months from the effective date of the DA, then,
2. On the thirteenth (13th) month following the issuance of the CUP, a payment equal to the greater of $25,000.00 or five percent (5%).
Notably, these “Public Benefit” payments were required to be paid irrespective of whether the business received a CUP or began operations. In any case, a first payment was due by no later than October 1, 2018.
However, recognizing that there were substantial flaws in this financial arrangement, including the fact that CVSA had not commenced operations, on October 16, 2018, the City empowered the City Manager to enter
into “Side Letter” arrangements with CVSA in an attempt to provide relief. However, the Side Letter was nothing more than a payment deferral plan on past debt and required CVSA to continue to accrue debts to the City until the business opened – at which point, CVSA would be required to increase its required Public Benefits payments to satisfy its unpaid Public Benefits payment.
Under this payment plan, CVSA would need to open its business immediately in order to generate the income needed to repay the debt. However, due to a lack of communication by the City and unnecessary delays in permitting, CVSA was not able to open within the anticipated time frame (Note: any delay in opening the business would only financially benefitted the City). As such, on May 30, 2019, the parties entered into a Second Side Letter requiring CVSA to pay fifty percent (50%) of the Deferred Benefit Fee ($48,750) within sixty (60) days of opening the Project, and to agree to have paid in full the initial Deferred Benefit Fee from the Side Letter by the opening date. This was entered into knowing full well that, on November 6, 2018, the citizens of the City granting City Council to impose a standard business tax at a rate of up to fifteen percent (15%) of the gross receipts on a cannabis business.
CVSA was finally able to open the business on June 7, 2020, at which time, they were indebted to the City by well over one hundred thousand dollars ($100,000.00) (although its unclear what the exact amount was as the City has yet to provide an accounting).
After finally opening, and as a result of the confusing language of the First and Second Side Letter, it was entirely unclear how much CVSA owed the City. Like any business, CVSA had a slow start and was only able to make good faith payments to the City on its Public Benefits payments.
Then, on October 21, 2020, the City finally put in place a new tax program pursuant to Measure Y requiring that all cannabis businesses pay a business tax equal to “the greater of seven thousand dollars ($7,000.00) or seven percent (7%) of its gross receipts.” Yet again, the City sought to extract a minimum tax on a business regardless of whether or not it sold zero dollars ($0) or five hundred thousand dollars ($500,000.00).
After finally passing a more reasonable – yet unconstitutional tax – the City’s attorney sent CVSA Default Notice stating that, as of October 21, 2020, CVSA had incurred six hundred forty-five thousand dollars ($645,000.00) of debt to the City and has only paid a total of seventy thousand seven hundred and fifty dollars ($70,750.00) of that debt. According to the letter, this was despite “[CVSA’s] . . . showing that [CVSA] had annual income to be seven hundred thousand dollars ($700,000.00).” So, according to the City’s attorney, the City was entitled to nearly all the revenues generated by CVSA during that time, irrespective of the incredible expenses associated with running a dispensary.
Since then, all attempts to reason with the City and to work out a proper payment plan that reflects the economic realities have failed. Now, rather than looking at whether the City’s actions have made it impossible for this business to recover from its obligations, the City instead wishes to end the business once and for all.
Although it is unclear why the City has taking this incredibly harsh stance against one of its own businesses, what is clear is that the actions, policies, and programs established by the City did nothing more than create the false hope of a thriving business, using means that can only be described as both unconstitutional and predatory.
. . . .
With this in mind, we now implore the City to work with us in good faith to resolve these matters, including an entire forgiveness of all debts that were unconstitutionally imposed on the business by the City.
Should you have any questions, I can be reached by phone at (909) 210-7031 or via email at [email protected]
Respectfully Submitted,
Anthony Almaz
Counsel
$0.00
DEVELOPMENT AGREEMENT
RECITALS
{CW049135.4}
Attn: City Clerk
City of Patterson
P.O. Box 667
1 Plaza
Patterson, CA 95363
SPACE ABOVE THIS LINE FOR RECORDER'S USE
Recording Fee Exempt per Government Code §6103
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL
TO:
THIS DEVELOPMENT AGREEMENT (“Agreement”) is made and entered into this 5th day of December, 2017, by and between the CITY OF PATTERSON, a municipal corporation of the State of California (“City”) and CENTRAL VALLEY - SIERRA ASSOCIATES, a California nonprofit mutual benefit corporation (“Developer”). City and Developer may be referred to herein individually as a “Party” or collectively as the “Parties.” There are no other parties to this Agreement.
A. On October 9, 201 5, Governor Jerry Brown signed three bills into law (Assembly Bill 266, Assembly Bill 243, and Senate Bill 643) which are collectively referred to as the Medical Cannabis Regulation and Safety Act (“MCRSA”). MCRSA establishes a statewide regulatory system for the cultivation, processing, transportation, testing, manufacturing, and distribution of medical marijuana to qualified patients and their primary caregivers.
C. On June 27, 2017, Governor Jerry Brown signed into law the Medicinal and AdultUse Cannabis Regulation and Safety Act (“MAUCRSA”), which creates a single regulatory scheme for both medicinal and adult-use cannabis businesses.
MAUCRSA retains the provisions in MCRSA and AUMA that granted local jurisdictions control over whether businesses engaged in Commercial Cannabis B. On November 8, 2016, California voters enacted Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act, also known as the Adult Use of Marijuana Act (“AUMA”), which establishes a comprehensive system to legalize, control, and regulate the cultivation, processing, manufacture, distribution, testing, and sale of nonmedical cannabis, including cannabis products, for use by adults 21 years and older, and to tax the growth and retail sale of cannabis for nonmedical use.
DEVELOPMENT AGREEMENT
CITY OF PATTERSON
& CENTRAL VALLEY-SIERRA ASSOCIATES
Stanislaus, County Recorder
Lee Lundriqan Co Recorder Office
DOC- 2018-0017054-00
Monday, MAR 12, 2018 14:02:09
Ttl Rd $0.00 Rcpt # 0004098009
AKN/R2/1-64
020189001705400064
Section 4.2. Public Benefit.
No Public Benefit Due
Collectively, these amounts shall be known as the “Public Benefit (c)
{CW049135.4}
Any failure or refusal of Developer to provide any statement or report to City, the State Taxing Authority, or any other State Licensing Authority, as required within the time required, or to pay such sums due hereunder when the same are due and payable in accordance with the provisions of this Agreement, may constitute full and sufficient grounds for the revocation or suspension of the Conditional Use Permit.
Section 4.4. Records. Developer shall keep records of all Commercial Cannabis Activity in accordance with Chapter 16 (commencing with Section 26160) of Division 10 monitoring compliance with any permits issued or approvals granted or the performance of any conditions (each a “Ministerial Fee” and collectively, the “Ministerial Fees”). $10,000 or 5% of Gross Receipts from
Operations each month, whichever is
greater (“Tier 1 Amount”).
$25,000 or 5% of Gross Receipts from
Operations each month, whichever is
greater (“Tier 2 Amount”).
DEVELOPMENT AGREEMENT
CITY OF PATTERSON
& CENTRAL VALLEY-SIERRA ASSOCIATES
(b)
Amount”.
Developer shall file an applicable statement that complies with the California State Board of Equalization, California Department of Tax and Fee Administration, or either’s successor agency (the “State Taxing Authority”) for sales tax purposes showing the true and correct amount of Gross Receipts from Operations of the Project during the applicable time period. Developer shall provide a copy of such statement to City upon request by City.
Section 4.3. Reporting. Developer shall provide City with copies of any reports provided to a State Licensing Authority within forty-five (45) days of that submission.
Effective Date
First (1st) Business Day of 1st Month
Following Issuance of the Conditional Use
Permit, or of sixth (6th) Month from
Effective Date, whichever is first. _
1st Business Day of the Thirteenth (13th)
Month Following Issuance of the
Conditional Use Permit Through the End of
the Term.
(a) The Parties acknowledge and agree that this Agreement confers substantial private benefits upon Developer that will place burdens upon City infrastructure, services, and neighborhoods. Accordingly, the Parties intend to provide consideration to City to offset these impacts that commensurate with the private benefits conferred on Developer (the “Public Benefit”). In consideration of the foregoing, Developer shall remit to City as follows:
[SIGNATURES ON FOLLOWING PAGE]
“DEVELOPER” “CITY”
Date: , 2018
Approved to as Form
{CW049 135.1}
costs, which may be set by the court in the same action or in a separate action brought for that purpose, in addition to any other relief to which such Party may be entitled.
IN WITNESS WHEREOF, this Agreement has been entered into by and between Developer and City as of the Effective Date of the Agreement, as defined above.
By:
Sadie Schut
Its: CEO
CITY OF PATTERSON, CA
a California Municipal Corporation
1 , 201#
CENTRAL VALLEY-SIERRA
ASSOCIATES, a California nonprofit
mutual benefit corporation
Zdic jcbux
CITY OF PATTERSON,
& CENTRAL VALLEY-SIERRA ASSOCIATES
Date:JCxoUCk(U 9)
Attest:
Maricela L. Vela
City Clerk
{CW049 135.1} {CW049 1 35. 1 } {CW049 1 35. 1 }
DEVELOPMENT AGREEMENT
(p) Calculation of Time Periods. All time referenced in this Agreement shall be calendar days, unless the last day falls on a legal holiday, Saturday, or Sunday, in which case the last day shall be the next business day.
By:
Ken Irwin
City Manager
By: Z '
Tom P. Hallinan
City Attorney
any permits issued or approvals granted or the performance Operations
(c)
{CW049135 4}
DEVELOPMENT AGREEMENT
CITY OF PATTERSON
& CENTRAL VALLEY-SIERRA ASSOCIATES
(b)
Amount”.
Effective Date
First (1st) Business Day of 1st Month
Following Issuance of the Conditional Use
I Permit, or of sixth (6th) Month from
I Effective Date, whichever is first.
I 1st Business Day of the Thirteenth (13th)
I Month Following Issuance of the
I Conditional Use Permit Through the End of
| the Term.
monitoring compliance with ; ' Of any conditions (each a "Ministerial Fee" and collectively, the "Ministerial Fees”)- Section 4.2. Public Benefit.
(a) The Parties acknowledge and agree that this Agreement confers substantial private benefits upon Developer that will place burdens upon City infrastructure, services, and neighborhoods. Accordingly, the Parties intend to provide consideration to City to ?, seJ these impacts that commensurate with the private benefits conferred on Developer (the Public Benefit”). In consideration of the foregoing, Developer shall remit to City as No Public Benefit Due.
$10,000 or 5% of Gross Receipts from
Operations each month, whichever is
greater ("Tier 1 Amount”).
$25,000 or 5% of Gross Receipts from
Operations each month, whichever is
greater (“Tier 2 Amount ).
Collectively, these amounts shall be known as the "Public Benefit (c) Developer shall file an applicable statement that complies with the California State Board of Equalization, California Department of Tax and Fee Administration, or either’s successor agency (the “State Taxing Authority”) for sales tax purposes showing the true and correct amount of Gross Receipts from Operations of the Project during the applicable time period. Developer shall provide a copy of such statement to City upon request by City.
Section 4.3. Reporting. Developer shall provide City with copies of any reports provided to a State Licensing Authority within forty-five (45) days of that submission.
Any failure or refusal of Developer to provide any statement or report to City, the State Taxing Authority, or any other State Licensing Authority, as required within the time required, or to pay such sums due hereunder when the same are due and payable in accordance with the provisions of this Agreement, may constitute full and sufficient grounds for the revocation or suspension of the Conditional Use Permit.
Section 4.4. Records. Developer shall keep records of all Commercial Cannabis Activity in accordance with Chapter 16 (commencing with Section 26160) of Division 10 \
August 10,2018
Re:
Background
Analysis
Deferral Payment I.
Cannabis Development Agreement - Public Benefit Amount Payment Dear Ms. Schut:
Developer acknowledges and agrees that fifty percent (50%) of the Tier 1 Amount equals Five Thousand Dollars ($5,000) per month (“Deferral Payment”). City agrees to allow Developer to pay the Deferral Payment Pursuant to the terms approved by the City Council, this Side Letter provides the City’s agreement to allow the Deferral, which is calculated upon the date of this Side Letter (the “Effective Date”), under the conditions outlined herein.
Pursuant to Section 4.2 ofthe Original Agreement, Developer was scheduled to remit their first Public Benefit Amount on February 1 , 20 1 8 (“Public Benefit Due Date”), in the amount ofTen Thousand Dollars ($ 1 0,000) (the “Tier 1 Amount,” as defined in the Original Agreement).
Developer has yet to open their business to the public. Developer now seeks a deferral for a portion oftheir Public Benefit Amount until Developer opens its business to the public (“Deferral”).
On November 7, 20 1 7, the Patterson City Council (the “City Council”) adopted Ordinance No. 806 to establish a Cannabis Business Pilot Program, which allows for the regulation of cannabis businesses within the City pursuant to a development agreement and a conditional use permit. On December 5, 2017, the City Council adopted Ordinance No. 807 to establish zoning limitations and requirements for all cannabis businesses.
Central Valley - Sierra Associates
Attn: Sadie Schut
100 West Las Palmas Avenue, Suite H
Patterson, CA 95363
City ofPatterson
Administration Department
1 Plaza
P.O. Box 667
Patterson, California 95363
Phone (209) 895-8010 Fax (209) 895-8019
www.ci.patterson.ca.us
On December 5, 20 1 7, the City Council approved Ordinance No. 8 12 which authorized Developer to operate the Project in exchange for the monthly payment of a “Public Benefit Amount.” This correspondence constitutes a side letter (“Side Letter”) concerning the development agreement (“Original Agreement”) between the City of Patterson (“City”) and Central Valley - Sierra Associates (“Developer”), relating to the Developer’s operation of a cannabis dispensary business (the “Project”).
Public Benefit Due Date Deferral Payment
February 1, 2018 $5,000 per month
II. Effect of Deferral
Sincerely,
2 Ken Irwin
City Manager
Developer acknowledges and agrees that Developer will be responsible for paying the Deferral Payment amount, each month, for every month that Developer fails to open their business to the public. In order to catch up on the amount of Thirty Five Thousand Dollars ($35,000), Developer must pay that amount in full by September 28, 20 18. Ongoing payments for the Deferral Payment amounts will be due on the first day ofeach month.
Total Due as of the
Effective Date
$35,000
Number of Months
in Deferral
7 All other terms and provisions ofthe Original Agreement shall remain in full force and effect. Ifany terms or provisions ofthis Side Letter conflicts with terms and provisions ofthe Original Agreement, the terms and provisions ofthis Side Letter shall control.
Developer acknowledges and agrees that fifty percent (50%) of the Tier 1 Amount equals Five Thousand Dollars ($5,000) per month (the “Remainder Amount”). Developer acknowledges and agrees to pay the Remainder Amount in twelve (12) monthly equal payments once their business opens to the public. Developer agrees and acknowledges that the Remainder Amount shall be paid, in addition to any Public Benefit Amount then due and payable.
from the Public Benefit Due Date until Developer opens their business to the public. The chart below summarizes the current relevant amounts to the Deferral Payment:
April 17, 2019
Dear Ms. Schut,
The Development Agreement establishes potential consequences for Central Valley's failure to pay any outstanding Public Benefit Amounts, including the assessment of a non-performance penalty. Central Valley's failure to comply with the terms of the Development Agreement may also delay or ultimately At this time Central Valley is in default of the Development Agreement and the deferral agreement. By not signing the deferral agreement, you are currently required to pay the full amount prescribed in the Development Agreement. To get back into good standing, Central Valley would need to pay the fees in full. If you prefer to sign the deferral agreement I will be comfortable letting you pay the deferral amount. The current non-deferred amount is $195,000 and the deferred amount owed is $97,500. At a minimum the deferred Public Benefit fee accompanying the signed deferral side letter will be required prior to obtaining a business license and opening business.
The site will also need to be inspected for the minimum compliance with Public Safety, ADA requirement, and a landscape plan will need to be submitted for review.
After careful consideration, we are unable to consider your request for forgiveness for the amount you owe for the past 6 months. On June 19, 2018, an agenda item was brought to City Council regarding the Public Benefit Fee for them to consider deferring the Public Benefit fee for the businesses that had not yet began business. This was due to the unavailability of vacant buildings or buildings that required major tenant improvements. At that time, they were strongly opposed to deferring more than 50% of the Public Benefit fee prior to the individual businesses opening their operations. As I had explained in my email to you on Nov 28, 2018, the Council was not interested in further cuts to the Public Benefit fee.
A resolution was passed that night that allowed the business to pay a deferred amount of 50% of the negotiated fee from the Development Agreement (DA) codified by a side letter to the DA. After the Business opened, they would be required to pay 100% of the Public Benefit fee plus would have to make up the deferred amount within one year of opening.
Central Valley Sierra Associates
Attn: Ms. Sadie Schut
PO Box 135
Patterson, CA 95363
City of Patterson
Office of the City Manager
1 Plaza
P.O. Box 667
Patterson, California 95363
Bus. (209) 895-8015
Main (209) 895-8010
Email kirwin@,ci.patterson.ca.us
As you are aware, the Patterson City Council ("City Council") approved a development agreement ("Development Agreement") by and between the City of Patterson (the "City") and Central Valley - Sierra Associates ("Central Valley") for the operation of a cannabis dispensary.
Sincerely,
2 The City's goal is to work with you to ensure compliance with the terms of the Development Agreement and is not assessing a non-performance penalty at this time. Please feel free to contact Kevin in the Finance Department if you have any questions regarding your payment amount. bar any subsequent City approvals necessary for the project, or ultimately result in the possible suspension or revocation of the project's CUP or termination of the Development Agreement.
If Central Valley fails to make the necessary Public Benefit payments, the City may exercise all options available under the Development Agreement, including, but not limited to, initiating the process of revoking the project's CUP and terminating the Agreement.
Ken Irwin
City Manager
churchwellwhite.com
October 28, 2020
VIA CERTIFIED MAIL/RETURN RECEIPT REQUESTED
Re: Development Agreement: Default: Notice
Dear Ms. Schut:
Failure to Pay Public Benefit
{CW098395 4)
In consideration for Developer's vested right to operate the Project, the Developer is required to pay the City a "Public Benefit Amount” due on the first business day of any applicable month. Pursuant to section 4.2 of the Agreement, Developer is obligated to This communication is formal notice that Developer is in default of the Agreement for the reason specified below. In the event the Developer fails to rectify the breach by the end of the Cure Period discussed below, the City will take the necessary steps to terminate the Agreement and revoke the Project's Conditional Use Permit ("CUP").
Archie Norris, PLC
2033 North Main Street, Suite 800
Walnut Creek, CA 94596
Sadie Schut
Central Valley - Sierra Associates
100 West Las Palmas Avenue, Suite H
Patterson, CA 95363
1414 K Street, 3'd Floor
Sacramento, CA 95814
T 916 468 0950 I F 916 468 0951
Nubia I Goldstein
T 916 468 0946
Nubia@churchwellwhite com
On December 5, 2017, the Patterson City Council ("City Council”) adopted Ordinance No. 812 approving the development agreement (the “Agreement”) by and between the City of Patterson (the "City”) and Central Valley - Sierra Associates, a California nonprofit mutual benefit corporation (the "Developer") to allow Developer to operate a commercial cannabis retail business (the "Project”) at 100 West Las Palmas Avenue, Suite H, Patterson, CA 95363 (the "Property").
Churchwell White LLP
{CW098395 4}
In addition to the Public Benefit Amount, the City is entitled to impose a NonPerformance Penalty of one percent (1%) to all past due payments, pursuant to section
4.5 of the Agreement, and an additional ten percent (10%) penalty for failing to comply with the Side Letter ("Non-Performance Penalties”). Bringing Developer into compliance with the Agreement forces the City to accrue considerable costs, and is a primary consideration when deciding whether to apply the Non-Performance Penalties. Although the City has not yet imposed the Non-Performance Penalties, it still remains an option. Further, section 4.6 of the Agreement imposes an additional On November 29, 2018, Developer executed a side letter ("Initial Side Letter") agreeing to a deferral for a portion of the Public Benefit Amount until Developer opens the Project ("Deferred Benefit Fee”). On May 30, 2019, the City and Developer entered into a second side letter ("Side Letter") wherein Developer agreed to pay Fifty Percent (50%) of the Deferred Benefit Fee, Forty-Eight Thousand Seven Hundred and Fifty Dollars ($48,750), within sixty (60) days of opening the Project. Developer further agreed and acknowledged that the Deferred Benefit Fee in the Initial Side Letter and the Public Benefit Amount shall be paid in full.
make minimum payments to the City of Ten Thousand Dollars ($10,000) or five percent (5%) of gross receipts, whichever is greater, from operations for the first twelve (12) months. On the first (1st) day of the thirteenth (13th) month of operation through the end of the Agreement, Developer is required to pay the City Twenty-Five Thousand Dollars ($25,000) or five percent (5%) of gross receipts, whichever is greater, from all operations.
Sadie Shut
October 28, 2020
Pursuant to section 4.2 of the Agreement, the City has calculated the Developer's outstanding Public Benefit Amount to be at six hundred and forty-five thousand dollars ($645,000.00). As of October 21, 2020, Developer has paid a total of seventy thousand seven hundred and fifty dollars ($70,750.00) of the Public Benefit Amount Based on Developer's partial payments and non-payments, the total Public Benefit Amount due to date is five hundred and seventy-four thousand and two hundred and fifty dollars ($574,250.00). This is despite Developer's license renewal documents showing Developer's annual income to be seven hundred thousand dollars ($700,000).
Developer's failure to remit the required payments of the Public Benefit Amount to the City constitutes a default of the Agreement pursuant to section 8.1(a).
Cure Period
Kind regards,
Churchwell White LLP
/s/ Nubia I. Goldstein
Nubia I. Goldstein
cc: Ken Irwin, City Manager (via email)
{CW098395 4)
Sadie Shut October 28, 2020
Non-Performance Penalty of eighteen percent (18%) per annum for failure to pay the one percent (1%) Non-Performance Penalty.
Developer has ten (10) calendar days of this notice (the "Cure Period”) to cure Developer's failure to pay the outstanding Public Benefit Amount in full. Once the Cure Period lapses and Developer has not made the required payment, the City may institute procedures to terminate the Agreement and revoke the CUP.
If you have any questions or concerns regarding the contents of this letter, please do not hesitate to contact me.