To: MAYOR AND CITY COUNCIL
From: ELIZABETH HAUSE, COMMUNITY SERVICES DIRECTOR
TITLE
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DISCUSSION AND POSSIBLE ACTION ON THE CITY’S DRAFT CANNABIS REGULATORY ORDINANCES
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EXECUTIVE SUMMARY
On September 6, 2022, the City Council adopted cannabis regulatory ordinances for both inland and coastal areas of Redondo Beach, permitting no more than two storefront commercial cannabis retailers to operate within the City. The Inland Ordinance became effective 30 days after adoption, while the Coastal Ordinance took effect upon certification by the California Coastal Commission on March 9, 2023.
At its December 19, 2023 meeting, the City Council directed staff to engage Tierra West Advisors, Inc. (TWA) to review the final cannabis regulatory Ordinances, draft Commercial Retail Cannabis (CRC) permitting guidelines, and assist with application processing. TWA’s recommended revisions to the City’s regulatory Ordinances were presented at the May 14, 2024 and September 17, 2024 City Council meetings, at which time the Council provided direction on several key provisions. At the September meeting, the Council specifically instructed staff to review the retail permit application scoring and evaluation criteria to determine which items should be evaluated on a pass/fail basis and which should be graded on a range. The scoring criteria were discussed in length at the October 8 and November 12, 2024 City Council meetings, where the Council reviewed all seven sections of the criteria and provided direction to staff.
Attached to this report are drafts of the Cannabis Regulatory Ordinances, which capture the direction provided by Council to staff over the course of the last year. The item offers the City Council an opportunity to review the draft Cannabis Regulatory Ordinances, and direct staff to make any additional modifications, if desired.
BACKGROUND
The identification of cannabis regulations most appropriate for Redondo Beach began in 2018 with the appointment of a Cannabis Steering Committee. Following Planning Commission consideration and several City Council discussions on the topic, the current Cannabis Regulatory Ordinances were adopted on September 6, 2022. The Ordinances allow no more than two storefront commercial cannabis retailers to operate in the City. There are three Ordinances that are impacted by the proposed edits:
• Ordinance No. 3241-22: Amending Title 10, Chapter 2 Section 10-2.1626 of the RBMC to allow commercial cannabis activities in inland zones of the city.
• Ordinance No. 3235-22: Amending Title 10, Chapter 5 Section 10-5.1626 of the RBMC to allow commercial cannabis activities in coastal zones of the city.
• Ordinance No. 3240-22: Regulating commercial cannabis activities in Redondo Beach
Ordinance Nos. 3241-22 and 3235-22 provide definitions and zoning requirements for a cannabis permit program, as well as other parameters. These two Ordinances are identical in content, other than the zone to which they apply. Ordinance No. 3240-22 delves into application procedures and operating standards, and also sets the tax rate.
At the December 19, 2023 City Council meeting, portions of the regulatory Ordinances and the permit application process were identified as needing further review. At that time, the City Council provided direction to engage TWA to review the City’s existing Cannabis Regulatory Ordinances and assist with development and review of the cannabis permit application process.
Since the December 19 meeting, numerous elements of the Cannabis Regulatory Ordinances have been discussed by Council, including updated buffers, final selection of permittees and evaluation criteria.
Council direction incorporated into the drafted Ordinances includes the following:
• Location Requirement Updates
o At the March 5, 2024 meeting, Council directed staff to include a buffer area around Dale Page Park, distance to be determined by staff, to ensure the commercial properties near the park are ineligible for cannabis retail business operations. This can be found in the attached redlined version of Ordinance No. 3241-22 under Section 10-2.1626(c)(6)d.D.
o At the May 14, 2024 meeting, Council directed staff to update the Ordinance to require property obtainment prior to application submittal. This can be found in Section 6-2.09 of the redlined Ordinance No. 3240-22.
o At the May 14, 2024 meeting, Council provided direction on the process by which a Permittee may relocate. Business relocation will require City Council approval, contingent upon compliance with location and zoning requirements. This language is in Section 6-2.10 of the redlined Ordinance No. 3240-22.
o At the September 17, 2024 meeting, Council directed staff to remove the following language: “B. No retailer shall be established or located within 1,000 feet measured from the nearest property lines of each of the affected parcels, of any other cannabis retailer.” This can be found in the attached redlined version of Ordinance No. 3241-22 under Section 10-2.1626(c)(6)d.
• Permit Selection and Appeals Process
o At the May 17, 2024 meeting, Council directed staff to update the permit selection and appeals process so that applications are reviewed, and Permittees are selected, by an application evaluation committee appointed by the Permit Administrator. Applications will be evaluated on a scoring matrix composed of evaluation criteria scored on a well-defined range. Any appeal to the Committee’s selection of Permittee(s) will be made to the City Council. Several changes have been made throughout the redlined Ordinance No. 3240-22 to reflect this direction.
o In response to the above decision, staff has researched the appeals processes in other cities and has determined that the City of Chico has experienced a successful permitting program with their appeals process. Included in the attached redlined Ordinance No. 3240-22 is an appeals section (Section 6-2.13) using the framework from Chico, but incorporating elements of the Redondo Beach commercial retail cannabis permit program.
o At the September 17, 2024 Council meeting, Council selected to have the appeal hearing window changed from 15 to 30 days to 30 to 90 days. This is reflected in Section 6-2.13 of the redlined Ordinance No. 3240-22.
• Community Benefit Plan in the Application Process
o At the September 17, 2024 Council meeting, following a verbal report from the City Attorney, it was determined that the application process/scoring should not include a Community Benefit Plan.
• Allow for Delivery Only Applicants
o At the December 13, 2023 Council meeting, staff was directed to explore permitting processes for delivery only applicants. Parameters for delivery only applicants are now included in the Ordinance under section 6-2.07 of redlined Ordinance No. 3240-22. Currently, there is no limit to the number of delivery-only permits the City will issue, though this may be something the Council would like to include.
• Liquid Assets Requirement
o At the September 17, 2024 meeting, Council directed staff to lower the amount of liquid assets from $2 million to $1 million. This can be found in Section 6-2.03(h)(4) of redlined Ordinance No. 3240-22.
• Bond Requirement
o At the December 19, 2023 City Council meeting, Council directed staff to explore requiring a bond from permittees to ensure the City can recuperate any missed tax payments. This language for a tax compliance bond has been included in Section 6-2.04(g) of the redlined Ordinance No. 3240-22.
• Business Types Permitted by Ordinance
o At the May 14, 2024 Council meeting, Council directed that the Ordinance be refined to specify that it only allows for retail storefront and delivery services, excluding all other types of cannabis businesses. This update is in Section 6-2.02 of the redlined Ordinance No. 3240.22.
• Permit Term Length
o At the May 14, 2024 City Council meeting, Council directed staff to set the permit term as follows: A 5-year permit term will be established with the option to renew for two additional 2-year terms (done by the Permit Administrator); permits that are extended twice administratively may request an extension of up to five years by application to the City Council. This is captured in Section 6-2.11 of the redlined Ordinance No. 3240-22.
• Incomplete Applications
o At the September 17, 2024 Council meeting, Council directed staff to include language specifically relieving the City of any obligation to inform applicants that their application is incomplete. This has been included in Exhibit A of the redlined Ordinance No. 3240-22.
This report offers the City Council an opportunity to review the draft Cannabis Regulatory Ordinances, and direct staff to make any additional modifications, if desired. Key items that require further review by the Council are highlighted in green in the Ordinances and are listed below:
• Sales Tax Rate
o At the May 14, 2024 City Council meeting, Council directed staff to set the cannabis sales tax rate at 3%. At the September 17, 2024 City Council meeting, Council reconsidered this decision and wanted to explore possibly having a 4% or 5% sales tax rate instead. Council requested that this come back for consideration, and that is noted in Section 6-2.04(f) of the redlined Ordinance No. 3240-22.
• Transfer in Ownership
o The original Ordinance No. 3240-22 allowed for a transfer or change in ownership of a permitted storefront retail operation. This would be permitted after a minimum period of three years. Staff is requesting that Council provide direction on whether to keep this section in the Ordinance - Section 6-2.08. If so, additional language has been added to this section to outline the process for transferring ownership.
• Definition of Owner
o Currently, the definition of Owner is captured in the redlined Ordinance No. 3241-22 under Section 10-2.1626(b)(33). It reflects the definition of “Owner” contained in the State and Professions Code Section 26001. There is supplemental language as well, adding to the definition. For Council’s consideration is the aggregate ownership interest, which the current definition sets at 20% or more in the entity applying for a permit. Staff is requesting that Council affirm or amend this definition.
• Time Between Final Selection and Operation
o Per Council’s prior direction in mid-2023, a section has been added to Exhibit A of the redlined Ordinance No. 3240-22 stating that successful applicants selected to receive a permit have 24 months to obtain all required land use permits and other required approvals before operating. Staff is requesting that Council affirm or amend this direction.
• Interview Criteria
o At the November 12, 2024 meeting, Council directed staff to include applicant interviews into the evaluation process. This has been developed and included in the Evaluation Criteria in Exhibit A of the redlined Ordinance No. 3240-22.
Outstanding items related to the cannabis permitting program include a fee schedule to recover administrative costs of processing applications and permits. This task will be undertaken over the next several weeks in a collaborative effort between the Financial Services Department and all impacted City Departments once the application process has been affirmed by Council. Staff will also return to Council with supplemental items, including the Application Form, Property Owner Consent/Landlord Affidavit, and, ultimately, the Request for Proposals for the Commercial Retail Cannabis Permit program. Items highlighted in yellow in the attached redlines are minor follow-up items that may require updating, e.g. Section numbers may change if there are extensive edits to the Cannabis Regulatory Ordinances.
COORDINATION
This agenda item was prepared by the Community Services Department in coordination with the City Attorney’s Office, City Manager’s Office, and the Fire, Police, Financial Services and Community Development Departments. The Ordinance was drafted by TWA, updated by staff, and will be prepared by the City Attorney’s Office in final form for Council consideration.
FISCAL IMPACT
It is estimated that each licensed site in Redondo Beach could provide $150,000 to $300,000 in additional annual General Fund cannabis business tax revenue, provided the City moves forward with the adoption of a regulatory ordinance at a tax rate of 3%. A 4% tax rate could provide $200,000 to $400,000 in General Fund revenue per site, and a 5% rate would provide approximately $250,000 to $500,000 in General Fund revenue per site. At this time, it is difficult to determine what impact taxing cannabis delivery will have on General Fund revenue.
The fiscal impact to the City for CRC permit application processing and management is unknown at this time. A fee study to determine these costs must be completed. The application fees are expected to provide full City cost recovery for the processing of all license applications, including any related consulting services costs. Preliminary estimates indicate an application fee between $12,000 and $16,000 per applicant. An annual regulatory fee is anticipated to be within the same range for each CRC permittee doing business in the City. These estimates are expected to change, and will be refined, based on the final application process determined by Council and the number of staff resources needed to complete the application review.
APPROVED BY:
Mike Witzansky, City Manager
ATTACHMENTS
• Ord - Redlined Cannabis Regulatory Ordinance No. 3240-22
• Ord - Redlined Cannabis Regulatory Ordinance No. 3241-22
• December 2024 - Cannabis Buffer Map