Administrative
Report
N.1., File # 23-6325 Meeting Date: 9/5/2023
To: MAYOR AND CITY COUNCIL
From: ELIZABETH HAUSE, ASSISTANT TO THE CITY MANAGER
BRANDY FORBES, COMMUNITY DEVELOPMENT DIRECTOR
TITLE
DISCUSSION AND POSSIBLE ACTION ON THE PROPOSED CANNABIS LICENSING
APPLICATION PROCESS AND ASSOCIATED COST RECOVERY FEES
EXECUTIVE SUMMARY
On September 6, 2022, the City Council adopted cannabis regulatory Ordinances for both inland and coastal areas of the City. The inland Ordinance became effective 30 days after adoption, and the coastal ordinance became effective when it was certified by the California Coastal Commission on March 9, 2023.
On November 8, 2022, the City Council adopted a resolution submitting to the City voters a ballot measure to establish a business tax on cannabis businesses. During the March 7, 2023 municipal election, voters passed Measure CT allowing the City to collect annual taxes from marijuana and hemp business operators at rates ranging from 3% to 9% of gross retail sales and from 1% to 3% of gross sales on cultivation, distribution, manufacturing, and testing. A Resolution to codify the tax rates by type, will be returned for City Council consideration when the business license selection process is approved for initiation.
As part of the City’s ongoing effort to implement local cannabis regulations, the City Council approved an agreement with HdL Companies (HdL) to review the City’s draft cannabis regulatory ordinances and other cannabis-related procedural tasks, including assistance with the development of an application process for future cannabis permits. The contract with HdL was approved on June 21, 2022.
Since adoption of the cannabis regulatory Ordinances and passage of Measure CT, HdL has worked with staff to create a permit application process for cannabis businesses interested in operating in Redondo Beach. After extensive research into processes other cities have established, and consideration of the regulations set forth by the City’s Ordinances, Commercial Cannabis Business (CCB) licensing application guidelines (Guidelines) were drafted for City Council consideration. On May 16, 2023 the City Council discussed the draft Guidelines and provided direction to staff on proposed revisions.
The revisions proposed by the City Council have been incorporated in the draft Guidelines (see attached) and are now ready for follow up discussion and consideration of approval. It is also recommended that the City Council provide direction on the finalization of a resolution to implement process integrity guidelines that will help ensure the proposal process is conducted impartially,
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process integrity guidelines that will help ensure the proposal process is conducted impartially, without undue influence on City officials.
BACKGROUND
In order to analyze and identify the cannabis regulations appropriate for Redondo Beach, a Cannabis Steering Committee was appointed by the previous City Manager. The body was comprised of representatives from the law enforcement community, Redondo Beach Unified School District, Beach Cities Health District and other outside interest groups familiar with common best practices for commercial use regulations of cannabis, including storefront siting, taxation, delivery and development agreement options. The Cannabis Steering Committee met multiple times over several years, and, on October 5, 2021, presented their recommendations to the City Council.
Based on those recommendations, City Council directed staff to begin preparing a draft ordinance designed to regulate commercial cannabis activity in the City. Per City Council direction, the Planning Commission reviewed the draft Cannabis Ordinances (inland and coastal) at a public hearing held on March 3, 2022. The Planning Commission provided several recommendations at the hearing, including that the City engage a consultant with experience advising the municipal regulation of the cannabis industry to assist in the review of the City’s draft Ordinance.
On May 10, 2022, the City Council considered the Planning Commission recommendations and provided direction to staff on the final preparation of the Ordinances. City Council, as part of that action, directed staff to prepare an agreement with HdL to review the City’s draft Cannabis Regulatory Ordinances and other cannabis-related procedural tasks, including preparation of a cannabis tax ordinance. The contract with HdL was approved at the June 21, 2022 City Council meeting.
HdL reviewed the City’s draft cannabis regulatory Ordinances and provided staff with recommendations and comments. The Ordinances were amended to include the Planning Commission recommendations as directed by City Council and the HdL recommendations supported by City staff. City Council adopted the Ordinances on September 6, 2022.
The contract with HdL also included the preparation of a Cannabis Taxation Ordinance as well as assistance with preparation of the subsequent ballot measure. At the September 20, 2022 meeting, City Council discussed the draft Cannabis Taxation Ordinance and provided direction to staff to add changes and return to the Council with a completed resolution to add the Cannabis Taxation Ordinance as a ballot measure for the March 7, 2023 municipal election.
The public hearing to consider the Resolution for this action was opened on November 1, 2022. The City Council and the City Clerk requested revisions to the language in the Resolution and Ordinance, and, as such, the public hearing was continued to November 8, 2022 to incorporate City Council’s direction on the documents. On November 8, 2022, the Council adopted Resolution No. 2211-092 submitting to the City voters a ballot measure to establish a business tax on marijuana and hemp business operators.
The City’s municipal election was held on March 7, 2023, and voters approved Measure CT allowing the City to collect annual taxes from marijuana and hemp business operators at rates ranging from
N.1., File # 23-6325 Meeting Date: 9/5/2023
the City to collect annual taxes from marijuana and hemp business operators at rates ranging from 3% to 9% of gross retail sales, and from 1% to 3% of gross sales on cultivation, distribution, manufacturing and testing. Since that time, HdL has worked with City staff to create a permit application process for cannabis businesses interested in operating in Redondo Beach.
On May 16, 2023, the City Council discussed the Guidelines and provided direction to staff on proposed revisions. That direction from City Council included the following:
1. If the City is able to receive indemnification from successful applicants, include that language as a requirement
2. Change weighting/scoring system - shift some points away from Proposed Site Plan and Community Benefits (“provide options” when it comes to scoring system)
3. Add language that will help screen Community Benefits (e.g. ensure the license holder isn’t “donating” to their own non-profit)
4. Ensure it is clear that the License can be revoked if the business is not up and running within a certain period of time
5. Information received from applicants should include whether or not they have cannabis business licenses elsewhere in CA and, if so, what is the status of those businesses
6. Include a revocable bond, so if the Licensee does not pay their taxes the City has some mechanism by which to recuperate those funds
Per City Council direction, items 2-5 above have been reviewed and incorporated into the draft documents and reviewed by the City Attorney’s office. Items #1 and #6 can either be addressed through the Financial Responsibility and Indemnity Agreement or otherwise incorporated into the Application Guidelines. Below is an overview of the permit application process outlined in the attached Guidelines as revised by City Council’s direction at the May 16, 2023 meeting.
Draft Permit Application Process
Application and Submittal Parameters
The Guidelines establish several general parameters with which CCB applicants must abide. Both a Zoning Verification Letter request and background check are required, and the only point of contact for questions from prospective applicants will be the assigned Assistant to the City Manager (ATCM).
The ATCM will also receive all CCB application packages. CCB application packages must be submitted in both hard copy and digital formats and can be submitted in person or by US Mail/common carrier service.
Once an application is submitted, it may not be amended by the applicant. That said, if, after initial review, there is minor information missing (e.g. missing signature, incorrect formatting, etc.), the applicant will be notified of the missing information and will be granted five business days to remedy the issue. Only the requested missing information will be considered - any additional documentation will not be accepted as part of the submittal.
Applicants possessing an ownership interest of ten percent (10%) or more in a CCB permit application are limited to submitting only one permit application. Additionally, the City will only accept a maximum of two application Zoning Verification Letters per property.
Required Documents
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Below is a list of documents required for submittal (drafts are attached):
· Commercial Cannabis Business Permit Application (inclusive of responses to Appendix A) · Financial Responsibility, Indemnity and Consent to Inspection Terms Agreement · Agreement on Limitations of City’s Liability and Indemnification to City · Application Fee and Background Check fee(s)
· Property Owner Consent/Landlord Affidavit
· Zoning Verification Letter (ZVL)
Application Processing and Procedures
The application process occurs in four phases:
Phase I: Determination of Eligibility During this phase, applications are reviewed for completeness and compliance. This is to ensure all required items outlined in the application have been submitted.
Applicants whose submittals are missing key sections (e.g., business plan) will be disqualified. There is no scoring of applications during this phase. As directed by City Council at the May 16, 2023 meeting, a requirement has been added that the applicant must provide copies of state and local cannabis business license(s) for other licensed cannabis facilities operated by the Applicant.
Phase II: Application Quality Assurance Review During Phase II, the assigned ATCM (or consulting firm, if contracted for the work) will review and score each application using the following evaluation criteria identified in Appendix A of the Guidelines:
· Business Plan (400 points)
· Labor and Employment Plan (400 points)
· Security Plan (400 points)
The ATCM (or consulting firm) will then determine how many applicants will be interviewed based upon the overall quantity and quality of applications received by the City.
Phase III: Interviews During Phase III, a Staff Selection Committee designated by the City Manager will conduct a discretionary merit-based interview process. Applicants will be scored using the following evaluation criteria also identified in Appendix A of the Guidelines. The scoring has been revised based on City Council direction at May 16, 2023 meeting, and language was added requiring that applicants attest that the non-profits receiving benefits from the cannabis business to meet this requirement must be a 501(c)(3) and must be organized, operated and managed independently from the cannabis business. City Council may provide additional direction to the scoring as the Guidelines and Application are finalized.
· Qualifications of Owners (600 Points)
· Neighborhood Compatibility (400 Points)
· Community Benefits and Investments Plan (300 Points)
· Proposed Site Plan (300 Points)
Once all interviews are completed, the Staff Selection Committee will calculate the scores of all applicants from Phase III to create a preliminary ranking. The ranking will be based solely upon the scores received through the Phase III interview process, with no consideration given to scores
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scores received through the Phase III interview process, with no consideration given to scores received during the Phase II Quality Assurance Review. The decision as to how many CCB applicants will advance to Phase IV will be determined by the ATCM based upon the overall quantity and quality of Applicants under consideration. CCB applicants selected to advance to Phase IV of the process will be required to undergo an additional background check conducted by the City’s Police Department.
Phase IV: City Council Interviews and Final Selection During this phase, staff will present to the City Council the top applicants from the Phase III process. The City Council will interview the top applicants and make a final determination as to which applicant(s) will be awarded a CCB permit. In making this decision, the City Council has full discretion over what criteria to consider when evaluating applicants. After the City Council has made a determination as to which, if any, of the applicants will be awarded a CCB permit, the successful applicant(s) will enter into a Development Agreement with the City (as defined in Section 6-2.05 of the RBMC).
Implementation
Per City Council direction, a provision has been added creating a 24-month timeline to obtain all land use approvals and permits. This is to clarify that a license can be revoked if the business is not operational within a certain period of time from the award of a license.
Appeals Process
Any applicant may appeal Phases I through III of the application process. This can be done by filing an appeal with the City Manager’s Office within ten (10) days of receiving the notice that they were not moved forward in the application process or not selected for permit issuance. Appeals must comply with the requirements of RBMC Section 1-4. Any decision made by the City Council during Phase IV regarding the award of a cannabis permit is final and is not subject to appeal.
Fees
Staff continues to work with HdL to complete a fee study and determine the appropriate staff time required to complete the application process and subsequent regulatory activities. A proposed fee schedule will be presented to Council for approval by resolution prior to initiation of the selection process. The following are fees staff propose the City collect as part of managing the CCB program and application process:
· CCB Application Fee: This fee is designed to recover City expenses for the intake and processing of CCB applications, and will be based upon the estimated dedicated staff time, consultant fees and other expenses necessary to the CCB application process · CCB Annual Regulatory Fee: City departments including the City Manager’s Office, Community Development, Financial Services and Police Departments will oversee the local cannabis industry and will need to carry out regulatory activities such as policy development, program management, public outreach and education, administrative enforcement, coordination with state agencies, public safety and other oversight activities. This fee will be a cost recovery for these activities
· Appeal Process Fee: CCB applicants wishing to appeal an application denial will be charged a non-refundable fee to recover the City’s cost to administer the appeal process · ZVL Fee: Cost recovery fee for the issuance of a ZVL by Community Development staff · Criminal Background Investigation Fee: Chapter 6-2 of the RBMC requires that cannabis business owners complete a criminal background investigation as part of the CCB application
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business owners complete a criminal background investigation as part of the CCB application process. A third-party consultant will be utilized to conduct initial criminal background investigations on behalf of the City, and this cost will be charged to the applicant Additional CCB Application Elements
A webpage will be created to provide all forms required for the application process, as well as a section dedicated to frequently asked questions. The URL for this webpage is expected to be www.redondo.org/CCBApplication
As part of the CCB application process, each Owner, as defined in RBMC Section 10-2.1626, must undergo a criminal history background check, which will be conducted through a third-party processor. As noted above, any CCB applicants selected to advance to Phase IV of the process will be required to undergo an additional background check conducted by the City’s Police Department.
A ZVL must be obtained by the CCB applicant as part of the application process - this letter is specific to the CCB applicant and location, and is separate and distinct from the standard zoning letter from the City. To secure this letter, an Applicant must make a written request to the Community Development Department via email to [email protected]. These letters will not be issued until the application process period has been initiated.
Items that Require Follow Up Action Depending on Final City Council Direction Site Requirement
The basic site requirement in the current draft of the Guidelines informs many of the other criteria for consideration, including:
· Security plan
· Pro forma
· Number of employees/point of sales terminals available and other operational issues · Neighborhood compatibility
· Number of Proposals Per Site
Technically, the City Council could choose to remove the site requirement, and, by extension, these additional criteria, and still have a process. However, this would reduce the number of items in the proposals to differentiate between applicants.
If City Council elects to maintain the basic site requirements in the current draft of the Guidelines, the City’s cannabis Ordinance regulations will need to be slightly modified. If Council chooses to make these amendments, it would be advisable to make a policy decision on how to proceed if the applicant after receiving a license discovers issues with the property and requests a change of location.
In addition, staff is seeking direction on the following:
Resolution for Process Integrity Guidelines
Passing a resolution to establish process integrity guidelines would help promote fairness, transparency and accountability and will help to build trust and confidence in the CCB application process. This Resolution would expressly forbid collusive activities among applicants, prohibit promotional outreach, hospitality or gifts to City staff or elected officials and reiterate communication
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promotional outreach, hospitality or gifts to City staff or elected officials and reiterate communication parameters set by the CCB Guidelines. The CCB Guidelines, as written, already include a section on process integrity (see page 3), though City Council may wish to take this additional, separate action to emphasize the importance of process integrity. Resolution No. CC-1003-294, adopted in 2010 during the procurement process for the City’s solid waste handling services contract, is attached for reference.
HdL Contract For Application Processing Services
During the May 16th meeting, Council was presented with a proposal from HdL for CCB application processing. Since that time, HdL has informed the City that its current staffing capacity is insufficient to take on additional work and, as a result, it cannot provide further assistance with this process.
Attached is HdL’s letter declining the extension to their contract with the City. As a result, City staff will manage the approved review process internally.
In summary, this agenda item seeks Council’s discussion and possible action on two items:
· Review of the drafted CCB application process Guidelines and provide direction to finalize · Direction on the preparation of a Resolution to establish additional process integrity guidelines
COORDINATION
The development of the CCB Application Guidelines was completed in coordination with the City Manager’s Office and HdL. The preparation of previous Ordinances and Resolutions were done in coordination with the City Manager’s Office, the City Attorney’s Office and HdL. Additionally, the City Attorney’s Office completed a review and analysis of the application process and draft guidelines as written and will provide a verbal report at the City Council meeting on the legal implications.
FISCAL IMPACT
The fiscal impact to the City for CCB application processing and management is unknown at this point, though a fee study in this area will be completed soon. Preliminary estimates indicate an application fee between $12,000-$16,000 per applicant, and an annual regulatory fee within the same range for each CCB permittee. These estimates are expected to change depending variables identified in staff resource allocation. Staff will have proposed fee amounts for Council’s consideration within the next several weeks.
Notwithstanding the above variables, staff’s initial estimate is that each licensed site in Redondo Beach could provide $500,000 to $1,000,000 in additional annual General Fund cannabis business tax revenue, provided the City moves forward with the adoption of a regulatory ordinance and the recommended tax and/or developer agreement fees.
The preparation of the Ordinances, staff report and community input survey are within the workplan and annual budgets of the Community Development Department, City Manager’s Office, and the City Attorney’s Office.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
· Draft CCB Application Guidelines - Revised June 30, 2023
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· Draft CCB Permit Application Required Forms - Revised June 30, 2023 · Reso - No. CC-1003-294 Establishing a City Council Policy on Process Integrity, March 16, 2010
· Letter - HdL Proposed Contract Amendment, July 17, 2023 · City Council Administrative Report, Draft Application and Forms, May 16, 2023