TO: HONORABLE MAYOR FROM: Chris Burton
AND CITY COUNCIL Anthony Mata
Sarah Zárate
SUBJECT: CANNABIS PROGRAM DATE: February 10, 2022
SUPPLEMENTAL INFORMATION
Approved Date
02/11/22
SUPPLEMENTAL
REASON FOR SUPPLEMENTAL
In the course of conducting community outreach around the proposed Cannabis Equity Pilot Program (Item 8.1), the Administration was notified of the following issues that pertain to both Items 8.1 and 10.2. The Administration wishes to inform the City Council of these issues and provide some background and policy alternatives.
AB 1291: Labor Peace Agreements
Background
Assembly Bill 1291, signed by Governor Gavin Newsom on October 12, 2019, clarified existing state law regarding labor peace agreements in the cannabis industry. Previous law required cannabis businesses to provide the state licensing agency with a statement that it will enter into (or demonstrate that it has already entered into) and abide by the terms of a labor peace agreement. Now, under AB 1291, any cannabis licensee with 20 or more employees (not including supervisors) must file a notarized copy of the business’s labor peace agreement with the state. Any business with less than 20 employees must attest that within 60 days of hiring its twentieth employee, the business will enter into a labor peace agreement.
In an outreach meeting with United Food and Commercial Workers, Local 5 (UFCW 5) and Working Partnerships USA, the Administration was alerted to concerns about industry compliance with the labor peace provisions of state law.
Staff first sought to determine how many of San José registered businesses have 20 or more employees. San José requires cannabis business employees to be fingerprinted and badged by the San José Police Department’s Division of Cannabis Regulation. Badges must be turned in to the Division of Cannabis Regulation within 72 hours of an employee leaving or being terminated, so COUNCIL AGENDA: 02/15/22
FILE: 22-149/22-152
ITEM: 8.1/10.2
HONORABLE MAYOR AND CITY COUNCIL
February 10, 2022
Subject: Cannabis Program Supplemental Information
employment data is nearly current. Badges and requirements are different for employees, managers, and drivers.
The Division reviewed employee badge information and determined that approximately 15 of the 16 of the existing registered cannabis businesses presently have 20 or more staff members badged as “employees.”
According to the labor organizations, one of the 16 registered cannabis businesses in San José has a collective bargaining agreement, while another is in the process of collective bargaining.
Staff reached out to the State Department of Cannabis Control to learn more about AB 1291 compliance and the status of San José’s fourteen other registered dispensaries. Of these, four have provided copies of labor peace agreements to the State of California. Staff has reviewed these documents and found one was unsigned and one was executed with an organization that is not affiliated with any of the American Federation of Labor and Congress of International Organizations (AFL-CIO) central labor councils in California or the nation. Two were executed with bona fide labor organizations.
The remaining registered cannabis businesses have, per the Department of Cannabis Control, submitted attestation forms, signed under penalty of perjury, that they will, within 60 days of hiring their twentieth employee, enter into a signed Labor Peace Agreement.
State licensing staff can verify the information provided through a compliance check or at the time of license renewal. Since attestations are provided under penalty of perjury, any misrepresentation may be cause for denial or other licensing action.
Policy Alternatives
Some California cities currently require cannabis businesses to provide copies of their labor peace agreements as part of the application or renewal process for local regulatory approval. The employee threshold varies from city to city. Los Angeles, San Francisco, and West Hollywood have set the threshold at 10 employees, while Santa Ana and some smaller cities have set it as low as two.
Following are two policy alternatives for Council consideration:
1. Give direction to the City Manager to add a requirement that new applicants or renewing applicants demonstrate compliance with state law by submitting a copy of a labor peace agreement with a bona fide labor organization as part of their initial registration packet and/or annual renewal. This provision would be added to the City Manager’s Regulations for cannabis registration. If a cannabis business failed to provide the documentation, the Division of Cannabis Regulation would be unable to issue a Notice of Completed Registration.
HONORABLE MAYOR AND CITY COUNCIL
February 10, 2022
Subject: Cannabis Program Supplemental Information
2. Alternately, the City would continue to rely on the State Department of Cannabis Control to enforce the provisions of AB 1291.
Distances between Storefront Retail Cannabis Businesses
The current recommendation, based on input from the Community and Economic Development Committee, is for a distance between two storefront retail cannabis businesses of 1,000 feet (lowered to 500 feet in Downtown and Urban Villages). Representatives of the cannabis industry have suggested that the 1,000-foot distance be lessened to ensure that there are adequate available parcels.
Staff estimates that there are approximately 1,400 commercial parcels that could meet the zoning requirements for storefront retail. Under the draft ordinances, there would be a maximum of 37 storefront retail operations seeking sites (assuming every existing operator wants to move and open a second location, plus five new equity-owned businesses). Staff acknowledges that many of these may already be leased and some property owners may not be interested in leasing to cannabis businesses, however, 1,400 is significantly higher than the approximately 600 sites that met the cannabis zoning criteria in 2014.
Staff recommended the 1,000-foot separation between dispensaries for the following reasons:
• Preventing over concentration of dispensaries in one location. With 1,000 feet separating two storefronts, it would be unlikely for one strip mall to have more than one or two cannabis outlets.
• Avoiding over-concentration and neighborhood impacts. The proposed zoning changes locate cannabis storefronts closer to residential areas than currently allowed by using the “path of travel” to measure distance between a dispensary and nearby homes. A prominent community concern from the survey results was residents’ reluctance to have cannabis storefronts located too close to their neighborhoods. By disbursing the storefronts, no single neighborhood would see an over-concentration. • Impacts on youth. The Police Department is concerned youth may be more interested in trying cannabis as retail stores open in more public-facing areas. The Department is concerned more stores in highly visible areas will contribute to adolescent’s reduced perception of cannabis’ harmfulness. More distance between retail storefronts is preferred.
The distance between businesses is a policy decision for the City Council. However, staff cautions that the change from industrial to commercial zoning is a significant shift in policy. For this reason, staff recommends taking a cautious approach.
HONORABLE MAYOR AND CITY COUNCIL
February 10, 2022
Subject: Cannabis Program Supplemental Information
Ownership Structure for Second Locations
Representatives of the currently registered cannabis businesses have requested that they be allowed to create second corporate entities to own and operate their second locations.
Staff opposes this for the following reasons:
• Opening a second location under a new business entity is essentially allowing new businesses to register rather than adding a second location to an existing business. Under this scenario, it is possible that the separate storefronts could be sold or transferred separately in the future.
• Allowing additional corporate entities creates the potential for businesses to exploit regulatory loopholes, avoid taxes and liabilities, and other business activities that stretch regulatory limits. While staff does not anticipate such actions by current registered businesses, it is not prudent to create pathways that could allow for questionable practices.
• This scenario also raises the policy question of why San José would not open registration to other new businesses.
Delivery from Industrial Zoning
The draft ordinances would require delivery of cannabis to take place in an industrial or combined industrial/commercial zone, either from a non-storefront (delivery-only) retail business or from one of the existing cannabis storefront retailers. Representatives of the cannabis businesses have requested that delivery be allowed from storefront retail sites in commercial zoning districts as well.
Retail sites such as strip malls and larger shopping centers generally have more traffic and customers than an industrial site. Additionally, parking for delivery drivers may not be immediately adjacent to the storefront.
Given this, staff has concerns about security, employee/driver safety when stocking delivery vehicles or dropping off payments, impacts on neighboring businesses from the increased traffic flow, and impacts on availability of parking.
Pilot program for outdoor cannabis sales and consumption
Industry representatives and the San José Downtown Association have raised the idea of a pilot program to allow outdoor cannabis sales and consumption, in accordance with state law.
Even for a pilot program, consideration of state-licensed consumption events would require significant review, analysis, community outreach, and internal coordination with staff that work on special events (Office of Economic Development and Cultural Affairs, Department of Parks,
HONORABLE MAYOR AND CITY COUNCIL
February 10, 2022
Subject: Cannabis Program Supplemental Information
Recreation and Neighborhood Services, San José Police Department, and San José Fire Department). This work is currently not on any of these departments’ workplans, and special event staff has several relief and recovery-related projects that have been added to their workplan since the pandemic.
Given these factors, if the City Council wishes to consider such a pilot program, staff recommends referring the work to the next priority-setting process for the Citywide Roadmap.
COORDINATION
This memorandum has been coordinated with the City Attorney’s Office and the Office of Economic Development and Cultural Affairs.
/s/
CHRIS BURTON
Director, Planning, Building
and Code Enforcement
ANTHONY MATA
Chief, San José Police
Department
/s/
SARAH ZÁRATE
Director, City Manager’s Office
of Administration, Policy, and
Intergovernmental Relations
The principal author of this memorandum is Michelle McGurk, Assistant to the City Manager, [email protected] or (408) 535-8254. For questions about cannabis zoning and land use items, please contact Martina Davis, [email protected] or (408) 535-7888.
For questions about cannabis regulation and the regulatory program, please contact Wendy Sollazzi, Division Manager, Division of Cannabis Regulation, San José Police Department, at [email protected] or (408) 537-9890.