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File #: 2018-5200 (90 minutes)   
Type: Regular Agenda Item
Body: City Council
On agenda: 3/6/2018
Title: Recommendation to Approve the Implementing Regulations Governing a Request for Proposals Process for Allocating Limited Privilege to Apply for a Cannabis Business Permit and the Request for Proposals. (City Manager 1010) [Not heard on February 20, 2018]
Attachments: 1. Exhibit 1 - Request for Proposals for Cannabis Business Operators Permit, 2. Exhibit 2 - Marijuana Crime Data, 3. Exhibit 3 - School District Suspension and Expulsion Rates, 4. Exhibit 4 - Implementation Regulation, 5. Presentation, 6. Presentation - REVISED

Title

 

Recommendation to Approve the Implementing Regulations Governing a Request for Proposals Process for Allocating Limited Privilege to Apply for a Cannabis Business Permit and the Request for Proposals. (City Manager 1010) [Not heard on February 20, 2018]

Body

 

To: Honorable Mayor and Members of the City Council

 

From: Jill Keimach, City Manager

 

Re: Recommendation to Approve the Implementing Regulations Governing a Request for Proposals Process for Allocating Limited Privilege to Apply for a Cannabis Business Permit and the Request for Proposals

 

BACKGROUND

 

On November 1, 2016, the City Council approved a referral directing staff to study updated regulations for, and potential taxation of, commercial cannabis activities.  On July 5, 2017, a second referral related to cannabis business activities was approved by the City Council. The July 5 referral directed staff to propose regulations to permit convenient and safe cannabis businesses in Alameda including dispensaries, cultivation, manufacturing, and purity and potency testing laboratories and quality control facilities.

 

On September 5, 2017, the City Council held a public meeting to review draft amendments to the Alameda Municipal Code (AMC) to implement the Council referrals.  On October 21, 2017, the City Council held a special public meeting to continue review and discussion of the proposed amendments. At that meeting, the Council requested a series of changes to the draft amendments and directed staff to prepare final ordinances incorporating those changes for adoption.

 

At the City Council’s request, as part of the October 21 special meeting, staff presented summary data for marijuana-related arrests over the last twenty years.  At that meeting, City Council requested that all of the data provided (race/ethnicity, geographic location, resident/non-resident) be broken down to facilitate a more detailed analysis of the data.

 

Council also requested that staff work with the Alameda Unified School District (AUSD) to obtain data about suspension and expulsion rates for students involved in marijuana-related discipline actions as part of collecting the data described above.

 

The Council requested the foregoing data to help inform the City Council’s discussion about the need for an equity program as part of granting approval of the medicinal dispensary permits and/or other cannabis business permits.  At that meeting, staff informed Council that they would provide the requested information as part of the Council’s discussion of the Request for Proposals (RFP) process. That information is discussed in more detail below.

 

At the November 7, 2017 meeting, the City Council introduced the following two ordinances that went into effect on December 21, 2017:

 

                     An ordinance amending the AMC to add a new Article XVI (Cannabis Businesses) to Chapter VI (BUSINESSES, OCCUPATIONS, AND INDUSTRIES). This new article covers all aspects of regulating the operations of cannabis businesses, including requiring an operator’s permit and granting the Community Development Department the authority to adopt implementing regulations (“regulatory ordinance”).

 

                     An ordinance amending AMC Sections 24-11 (Smoking Prohibitions in Places of Employment and Unenclosed Public Places) and 24-12 (Smoking Prohibitions in Housing) to address smoking of cannabis in the City of Alameda.

 

On December 5, 2017, the City Council introduced a separate ordinance governing land use:

 

                     An ordinance amending the AMC by Repealing Section 30-5.15 (Medical Marijuana Dispensaries and Cultivation) in its entirety and adding a new section 30-10 (Cannabis) to conditionally permit specific types of cannabis businesses in certain zoning districts (“zoning ordinance”).

 

The zoning ordinance went into effect on January 18, 2018.

 

The regulatory ordinance provides for Cannabis Business Operators Permits (CBOP) for the following:

                     

                     One nursery cultivation/distributor’s permit

                     Four manufacturing permits (including distributor’s permits)

                     Two testing laboratory permits

                     Two medicinal retail dispensary permits (including delivery permits)

 

Because the ordinance caps the maximum number of permits to be issued by business category, staff recommended, and the Council agreed, that a RFP process should be utilized to select the businesses in each category who would be eligible to move forward with operator permit and land use permit applications. Staff has prepared the form of the RFP (Exhibit 1) and, pursuant to Section 6-59.16 of Ordinance No. 3201 (regulatory ordinance), staff prepared implementing regulations governing a RFP selection process for City Council review and approval.

 

DISCUSSION

 

Request for Proposals Process

 

As noted above, staff has prepared a RFP for Council’s consideration.  This RFP lays out a competitive process for the right to apply for a CBOP.  The RFP is divided into two sub-parts and the process will result in selected businesses receiving the right to apply for CBOPs.  To apply for a CBOP, each business selected as part of the RFP process will still need to obtain a land use permit and business license and meet all CBOP application requirements, including obtaining any and all State-required licenses.  The permit application, which staff is developing, implements the requirements to operate a cannabis business that are contained in the City’s ordinance.

 

The goal of the RFP process is to provide businesses the opportunity to make their best case as to why their experience, approach to the business, resources to be dedicated to the company, etc. makes them most qualified to be awarded an opportunity to secure a CBOP consistent with the requirements of the City’s ordinance.

 

The RFP process is outlined below: (1) applicant submission of a Letter of Intent (LOI), (2) review of LOI for minimum requirements, (3) submission and review of proposals based on objective criteria, including an oral interview for qualifying proposers, (4) issuance of a conditional awarding letter, and maintenance of a RFP list of qualified applicants (waiting list).

 

Letter of Intent

All businesses planning to respond to the RFP must submit a Letter of Intent (LOI) by the specified date and time in the RFP. Community Development Department staff will review the LOIs to determine if the responders meet the following Minimum Requirements.

 

Minimum Requirements

 

LOI was submitted on or before the April 2, 2018 deadline

Pass/Fail

Pre-Application Review Deposit of $1,000 paid on or before the April 2, 2018 LOI deadline

Pass/Fail

Evidence that a proposed location for the cannabis business has been secured

Pass/Fail

Evidence that the proposed location is outside of cannabis buffer zones for sensitive uses

Pass/Fail

 

Any business not meeting the Minimum Requirements will be notified and eliminated from further participation in the RFP process. Businesses meeting the Minimum Requirements will be listed on the City’s website. If the number of LOIs received for a category is less than or equal to the number of permits allocated to that CBOP category, the RFP process shall terminate, and an award letter will be issued to the business(es) in that category, allowing them to apply for a CBOP. Businesses receiving award letters will then need to complete the CBOP application.

 

Submission and Review of Proposals in Response to RFP

Businesses that must compete for a permit slot, must submit a full proposal. The Evaluation Criteria for this sub-part is as follows:

 

In addition to items 1-4 above (the minimum requirements):

 

1.                     Statement of Qualifications. Proposer must describe the Cannabis Business Owners’ qualifications relative to the proposal, including experience running businesses similar to the one proposed, including cannabis and/or non-cannabis businesses.

 

2.                     Proposal Implementation. Proposers must provide verifiable, detailed descriptions of the persons or type of resources, and other background information for key individuals and owners of 20% or more of the business and describe resources, including financial resources, dedicated to implement the proposal.

 

3.                     Understanding and Approach. Proposer must provide a statement demonstrating the business’ understanding and approach to running the proposed cannabis business and how that approach will integrate the business into the community in which it is located.

 

Additionally, the Council elected to encourage, but not require, local hire initiatives, local ownership of cannabis businesses, and business involvement in the local philanthropic and non-profit community.  While not mandatory, these initiatives will be evaluated and scored as part of the RFP process as follows:

 

1.                     Local Hire/Local Ownership/Community Benefit.

 

a.                     Local hire:  Proposers may provide a plan demonstrating how they would hire locally. A local hire plan could address:

 

i.                     A minimum percentage of the business’ employment base hired locally.

 

ii.                     A recruitment plan for new hires, including outreach methods.

 

iii.                     The hourly wage of the lowest-paid employee.

 

iv.                     Estimated number of employees in the first year, second year, third year, fourth year and fifth year.

 

v.                     Available job pathways.

 

vi.                     Describe any plans to train employees and promote lower-level employees.

 

vii.                     Estimated number of full-time and part-time positions in years one through five.

 

b.                     Local ownership: More than 50% ownership of the business by a three-year resident(s) or business owner(s) in Alameda constitutes local ownership. The local owners must provide verifiable information regarding the number of years each owner has lived in, and/or owned a business in, Alameda.

 

c.                     Community benefit: A community benefit program could include college scholarships, incubation of minority businesses, business training sponsorships, supporting or sponsoring community programs, training programs, targeted donations, or a combination of the aforementioned or benefits of another kind.

 

2.                     Proposed schedule. Proposers must provide a schedule for opening their establishments. The schedule should include dates for the following:

 

a.                     Design review, if applicable

 

b.                     Signage approval, if applicable

 

c.                     Issuance of State license(s)

 

d.                     Issuance of CBOP/Land Use permit

 

e.                     Issuance of Building permit

 

f.                     Issuance of other regulatory permits (e.g., EBMUD discharge permit, etc.)

 

g.                     Completion of construction

 

h.                     Opening and commencement of operations

 

As noted above, the required deposit for the LOI in-take and review process is $1,000.  In addition to the LOI deposit, Proposers responding to the RFP must pay a review deposit of $6,500 on or before the April 23, 2018 deadline in order for their proposals to be considered.  The required deposits are consistent with the City’s 2017 Master Fee schedule.  Separate fees will be charged for those Proposers advancing to permit application and will be based on the Cannabis Program Fee Study currently underway.

 

Proposals will be reviewed by a staff panel and will be assessed based on the Evaluation Criteria listed below. Rankings will be from high to low.  The score cut-off to be used by the Selection Panel when reviewing the proposals to determine which Proposers are granted an oral interview is 60 points (or a score of at least 75%).

 

Following an initial review of the proposals, interviews will be conducted for qualifying Proposers, similar to the City’s selection process for development and other large projects.

 

The selection panel will be comprised of:

                     Chief of Police

                     Economic Development Manager

                     Assistant City Manager

 

Evaluation Criteria

 

Statement of Qualifications describing the company’s experience, abilities, knowledge, and overall qualifications to run the type of cannabis business for which it is seeking a CBOP

25

Verifiable detailed description of persons and type of resources, including financial resources, committed to implement the proposal

20

Description of company’s understanding of, and approach to, running the cannabis business

15

Local hire and/or local ownership plan

10

Community benefits plan

5

Proposed schedule

5

Total

80

Oral interview for qualifying proposers.  Interviews will be rated and ranked based on Proposer presentation, quality of answers to follow-up questions, etc.

50

Total

130

 

Conditional Awarding Letter and Waiting List

Following the oral interviews, the top-rated proposals in each category, subject to the cap, will receive a conditional letter awarding them the right to apply for a CBOP.  The business must apply within 60 days of receipt of the letter.  Once the category is filled, the remaining businesses will be placed on a waiting list that will be valid for one year.  If an awardee is unable to secure all of its entitlements within the proposed schedule or within one year, whichever is sooner, the next business on the list will be given the opportunity to apply for a CBOP.

 

Staff will provide Council with biannual updates on the progress of the cannabis permitting process.

 

It is recommended that the City Council review the form of the RFP and provide feedback to staff regarding the RFP requirements and scoring criteria.  Following City Council approval of the form of the RFP, staff will issue the RFP.

 

Additional Equity Data Information

 

As a follow-up to information presented at the October 21st City Council special meeting regarding marijuana-related arrests over the last twenty years, staff has provided the data by year as requested by Council (Exhibit 2).  This information is broken down by year for 20 years by:

 

                     Race

                     Percentage of arrests by race and ethnicity

                     Sector

                     Resident and non-resident arrests

 

A sector map is also included for reference. The data analyzes the three most common marijuana-related violations:

 

                     11357 Health and Safety Code (HS): Possession of > 28.5 grams of marijuana

                     11358 HS: Cultivation of marijuana

                     11359 HS: Possession of marijuana with intent to sell

 

A fourth common marijuana-related violation was decriminalized from a misdemeanor to an infraction about half way through the study period so those arrests are not part of the data.

 

Arrests over a 20-year period averaged 50 per year, with a high of 90 arrests in 2004 and 2005, and a low of 13 in 1997, and nine in 2017 (partial year ending in October).  The arrests were predominantly in Sector 3 (Willow to Fernside) and Sector 1 (Main Street to 8th Street) averaging 17 per year, or just over one per month.

 

Generally, over the last 20 years, Alameda’s demographic make-up is as follows:

 

                     54.0% White;

                     28.0% Asian-American;

                     10.0% Latino; and

                     6.4% African-American.

 

On average over the past 20 years, the demographic make-up of those arrested for marijuana-related violations is as follows:

 

                     36.0% White;

                     11.0% Asian-American;

                     17.0% Latino; and

                     29.0% African-American.

 

As was reported previously, it is difficult to draw meaningful conclusions from these raw numbers and percentages.  For example, it should be noted that, for all arrests in any given year, 50% of arrestees reported their home address outside of the City.  For marijuana-related arrests, the percentages were slightly different with 57% reporting their homes in Alameda and 43% residing outside of the City.  Therefore, it is difficult to correlate those arrested with City demographics due to the high number of arrests of non-residents.

 

Per Council’s request, staff contacted AUSD to request its data about suspension and expulsion rates for students involved in marijuana-related discipline actions.  The information provided by AUSD is attached as Exhibit 3.

 

Staff believes that the City of Alameda and its Police Department did not engage in a “war on drugs” over the past twenty years and that this is borne out by the low number of arrests for marijuana-related offenses in any given year over the past 20 years.  With a high of 90 arrests a year in two years, or less than eight arrests a month, it is clear that neither specific neighborhoods nor people of color were harmed by the war on drugs in any systemic way in the City of Alameda.  The lack of a systematic and disproportionate impact on the community argues against the need for a mandatory equity program within the Alameda cannabis regulatory framework.

 

However, staff recognizes that the war on drugs had a disparate impact on low-income neighborhoods and people of color in communities around the Bay Area and that there are barriers to entry into the cannabis industry for low-income people and people of color.  Therefore, the RFP provides an opportunity for businesses to propose Community Benefits (and receive additional points) to address some of the inequities that impact low-income people and people of color, including incubation of minority businesses and business training sponsorships.

 

In addition, on January 9, 2018, Assembly Member Bonta introduced AB 1793 to allow for the automatic expungement or reduction of a prior cannabis conviction.  It is recommended that City Council support this bill to help address inequities that impacted minorities prior to the decriminalization of cannabis.

 

FINANCIAL IMPACT

 

There is no financial impact to the City’s General Fund by approving the form of RFP and the selection process. The cost of staff work related to cannabis business activities will be borne solely by cannabis businesses.  A fee study is currently underway and the City’s 2017 Master Fee Schedule includes a Community Development Department Pre-Application Review Rate that allows the City to recover the cost of conducting the RFP process as it is a required Pre-Application step.  A comparison of fees charged by other jurisdictions in the Bay Area will be included as part of the fee study,

 

In addition to full cost recovery, staff anticipates there will be a future ballot measure to consider taxing cannabis businesses.  Prior to such a ballot measure, cannabis businesses will be required to pay the City’s business license tax as applicable.

 

MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE

 

Issuance of a RFP and selection of businesses to pursue cannabis business operating permits is in conformance with the Alameda Municipal Code.

 

ENVIRONMENTAL REVIEW

 

The California Environmental Quality Act (CEQA) applies only to projects, which have the potential for causing a significant effect on the environment.  This action is not a project and is exempt from CEQA review pursuant to CEQA Guidelines, sections 15061(b)(3) (General Rule) and 15378.

 

RECOMMENDATION

 

Approve implementing regulations governing a request for proposals process for allocating limited privilege to apply for a cannabis business permit and the request for proposals.

 

Respectfully submitted,

Debbie Potter, Community Development Director

 

By,

Lois Butler, Economic Development Manager

 

Financial Impact section reviewed,

Edwin Gato, Acting Finance Director

 

Exhibits:

1.                     Request for Proposals for CBOP

2.                     Marijuana Crime Data

3.                     School District Suspension and Expulsion Rates

4.                     Implementing Regulation