City of Patterson
Office of the City Manager
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VIA EMAIL AND REGULAR MAIL
October 21,2021
Sadie Schut
Central Val ley-Sierra Associates
100 West Las Palmas Avenue, Suite H
Patterson,CA 95363
Re:Cannabis Development Agreement - Central Valley-Sierra Associates Dear Sadie Schut.
This correspondence concems the development agreement ("Development Asreement") between the City of Patterson feily) and Central Valley-Sierra Associates ("Develooer"), approved and adopted by the Patterson City Council in December 2017, for the operation of a cannabis retail business located at 100 West Las Palmas Avenue, Suite H, Patterson,CA 95363 (the "Proiect").
Developer is cunently in default of the terms set forth in the Development Agreement. As detailed below, there are several outstanding matters that need to be addressed.'Ihe City is implementing significant changes to the City's cannabis program that will apply to the Project, including amending the Development Agreement to include payment of a cannabis business tax as a requirement ibr the Project, a schedule to bring each operator current on their respective delinquent Public Benefit payments, and a timeline for completion of any construction or tenant improvements necessary for each cannabis business, ifapplicable.
To this end, this letter outlines the necessary changes to the Project's entitlements, including the Development Agreement, with the goal of bringing Developer back in good standing and enable the Project to operate under mutually beneficial terms.
Project Approval and Public Benefit
The Patterson City Council approved and adopted the Development Agreement in 2017. Under the terms of the Development Agreement, Developer is required to pay a monthly public benefit to City ("the Public Benefit"). Since the adoption of the Development Agreement and the subsequent land use entitlements for the Project, Developer and City have entered into alternative payment schedules of the Public Benefit at Developer's request. Developer requested and was granted a deferral ofhalfofthe amounts due until such time as the business opened to the public, with the remaining amounts due in twelve (12) equal payments after opening.
The City's agreement to defer the Public Benefit was predicated on Developer's assurances that the defened amounts would be paid as agreed upon and that the Public Benefit would be paid on time moving forward. Developer has paid $95,750 to the City as payment toward the total Public Benefit due. However, as of the date of this letter, Developer is delinquent in Public Benefit payments in the amount of $799,250. Developer's failure to remit the required Public Benefit at the agreed upon time to the City has resulted in an overdue Public Benefit amount, (the "Delinquent Public Benefit"). Repayment of the Delinquent Public Benefit is critical to the Project's ability to continue operating.
Cannabis Business Tax
In 2018, City voters passed Measure Y authorizing the levy ofa tax on cannabis businesses at the rate of up to fifteen percent (15%) of gross receipts. Until recently, the City Council has not imposed a tax on cannabis businesses since Measure Y was adopted, but instead solely relied on the Public Benefit established in the operative development agreements for each cannabis business to collect revenue. The City Council adopted a resolution in July 2021, establishing a tax rate for all cannabis business operations, including retailers, cultivation, and manufacturing based on monthly gross receipts. The tax rate for retail is set at a rate ofseven percent (7%o); the tax rate for manufacturing is five percent (5%); and the tax rate for cultivation is two and a halfpe rcent (2.5%o).
Development Agreement Revisions and Repayment
Developer must agree to the following items within the specified timeframe in order to extinguish the Delinquent Public Benefit and bring the Project back to good standing:
1. Developer agrees to pay City Seventy nine thousand nine hundred twenty five dollars ($79,925) to offset the entire Delinquent Public Benefit (the "Adiusted Public Benefit').
Payment shall be made in full within sixty (60) calendar days of the date Developer executes the required Acknowledgement and Acceptance form attached to this letter. The new Adjusted Public Benefit is calculated as 107o of the total Delinquent Public Benefit.
2. Upon Developer's payment, City acknowledges full and complete satisfaction of the Delinquent Public Benefit. City agrees to waive the remainder of the Delinquent Public Benefit amount through September 30,2021.
3. City shall process and Developer shall agree to execute an amendment to the Development Agreement to address the following:
a. The Adjusted Public Benefit constitutes City and Developer's final compromise as to the Delinquent Public Benefit. In the event Developer fails to make the Adjusted Public Benefit payment by the due date, it shall constitute a breach of the Development Agreement and condition of approval for the Project and City may in its sole discretion begin the necessary proceedings to terminate the Development Agreement and revoke the Conditional Use Permit for the Project. Developer shall waive the notice and cure provisions associated with any such delinquency set forth in the Development Agreement.
b. Developer will be subject to City's cannabis business tax on an ongoing basis. The amended Development Agreement will establish a new Public Benefit payment schedule requiring a monthly minimum payment of $7,000, or a 7Vo tax rate of Developer's gross receipts, whichever is higher. The new Public Benefit shall become effective on the first business day following adoption of the amended Development Agreement.
Your prompt attention to this matter is required. You must submit an executed Acknowledgement and Acceptance form by November 30,2021to give City stalf suflicient time to begin the process of amending the Development Agreement. The City's goal is for the Project to reach its full potential. However, the Project has not complied with its financial obligations to date. If the City does not receive an executed Acknowledgment and Acceptance form, we will initiate the proceedings to terminate the Development Agreement and revocation ofthe Project's Conditional Use Permit under the tenns ofthe Project approvals.
Please feel free to contact me or the City Attomey if you have any questions or concems.
Nubia I. Goldstein, City Attomey
Sincerely, ) ./r %/
Ken Irwin
City Manager
ACKNOWLEDGMENT AND ACCEPTANCE
Developer acknowledges receipt of the foregoing letter and agrees to act under and pursuant to the terms and conditions set forth herein.
DEVELOPER:
Central Valley-Sierra Associates
(name)
Date: