Title
Adoption of Resolution Amending Master Fee Resolution No. 12191 to Revise Fees to Add New Cannabis Business Operator and Regulatory Fees;
Public Hearing to Consider Introduction of Ordinance Amending the Alameda Municipal Code by Amending Section 30-10 (Cannabis) to (1) Add Cannabis Retail Businesses as Conditionally Permitted Uses in the C-1, Neighborhood Business and C-M, Commercial-Manufacturing Zoning Districts; (2) Add Two Delivery-Only Cannabis Retail Businesses as a Conditionally Permitted Use in the C-M, Commercial-Manufacturing Zoning District; (3) Amend Certain Portions of the Zoning Code to Enable Cannabis Retail Businesses to Dispense Non-Medicinal or “Adult Use” Cannabis; and (4) Amend Certain Portions of the Zoning Code to Eliminate the Dispersion Requirement for Delivery-Only Cannabis Businesses;
Introduction of Ordinance Amending the Alameda Municipal Code by Amending Article XVI (Cannabis Businesses) of Chapter VI (Businesses, Occupations and Industries) to (1) Eliminate the Cap on Testing Laboratories; (2) Add Two Delivery-Only Dispensaries; (3) Allow Adult Use; (4) Create a Two-Tier Buffer Zone from Sensitive Uses for Dispensaries and Cultivation Businesses; and (5) Make Other Clarifying Revisions; and
Recommendation to Confirm Continued Use of Request for Proposal (RFP) Process to Administer Cannabis Retail Dispensary Business Operators’ Permit Selection Process. (Economic Development)
Body
To: Honorable Mayor and Members of the City Council
From: David L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
In late 2017, Council directed staff to undertake a fee study to determine the cost of regulating cannabis business activities in the City. Accordingly, the City retained a consultant to assist with the preparation of a fee study.
On a parallel track, City staff has worked on potential amendments to the City’s existing cannabis regulations. At its May 18, 2018 goal-setting work session, City Council directed staff to report to Council on a number of issues concerning these regulations. Staff prepared the requested analysis in a semi-annual report for Council consideration at its July 24, 2018 meeting. At that meeting, Council directed staff to prepare the required ordinances to amend the Zoning Code and the Cannabis Business Regulatory Ordinance.
Following the August recess, on September 24, 2018, Planning Board conducted a public hearing on the proposed Zoning Code amendments related to cannabis and offered its recommendations.
At this evening’s meeting, the Council is to consider: (a) adding a new cannabis regulatory fee to the City’s Master Fee Schedule, based on a fee study; (b) introducing an ordinance amending the Zoning Code, after a public hearing on the Planning Board’s recommendations; and (c) introducing an ordinance amending the Cannabis Business Regulatory Ordinance, as described in this staff report.
BACKGROUND
In late 2017, the City Council directed staff to undertake a Cannabis Regulatory Fee Study to ensure that the cost of regulating cannabis business activity in the City is borne by the cannabis businesses.
During that time, the City Council also adopted two ordinances that covered all aspects of regulating the operations of cannabis businesses in Alameda. One ordinance regulates land use issues and requires a use permit for cannabis business activities (Zoning Ordinance). The other ordinance regulates cannabis business activity and requires an operator’s permit for cannabis businesses (Regulatory Ordinance). These ordinances were effective on January 18, 2018.
Pursuant to the regulatory ordinance, the maximum number of permits to be issued by cannabis business category is capped. The Council approved a Request for Proposals (RFP) process (including an evaluation rubric and a review panel) to select the businesses in each category that would be eligible to move forward with applying for and obtaining the requisite approvals, with the exception of testing labs, which were permitted to apply for a permit on a first-come/first-served basis.
These categories include:
• One nursery cultivation (including distributor’s) permit;
• Four manufacturing permits (including distributor’s) permit; and
• Two medicinal retail dispensary permits (including delivery permits)
The first RFP was issued in April 2018. Five proposals were received for retail dispensaries. No proposals were received for any other uses. Three of the proposals for retail dispensaries were deemed non-responsive as they were all located within the 1,000-foot buffer zone for sensitive uses. Two proposals were evaluated by the review panel and one proposer was awarded the right to move forward with its application for an operator’s permit. The proposer who was not selected appealed the panel’s determination. A hearing officer issued an opinion denying the appeal on September 24, 2018. The proposer who was selected is moving forward with its permit application.
At its May 18, 2018 goal-setting work session, the City Council directed staff to report on a number of issues related to the Regulatory Ordinance. Staff prepared the requested analysis in a semi-annual report for Council consideration at its July 24, 2018 meeting. At that meeting, Council directed staff to prepare the required ordinances to amend the Zoning Ordinance and the Regulatory Ordinance to:
• Eliminate the cap on the number of testing laboratories allowed in Alameda, but maintain the cap of two for dispensaries open to the public;
• Similar to testing laboratories, allow nursery cultivation and cannabis manufacturing businesses to apply for permits on a first-come/first-served basis;
• Maintain the buffer zone of 1,000 feet from public and private K-12 schools and reduce the buffer zone to 600 feet for all other sensitive uses for dispensaries and cultivation uses;
• Expand existing zoning to conditionally permit cannabis dispensaries in the C-1, Neighborhood Business and C-M, Commercial-Manufacturing zoning districts;
• Maintain the existing dispersion requirement for dispensaries, but not for delivery-only dispensaries;
• Confirm continued use of the RFP process, including the scoring rubric and review panel to allocate the limited right to apply for a cannabis business permit;
• Amend ordinance language to clarify that certain uses do not qualify as a “school,” including providing a definition for tutoring centers;
• Allow adult use (recreational) cannabis to be sold in Alameda;
• Clarify that off-island cannabis delivery businesses need only apply for a business license and pay applicable fees; and
• Recommend any clean-up amendments to the Regulatory Ordinance.
The requested fee study and ordinances have been prepared, and are before Council for its consideration and action.
DISCUSSION
Cannabis Regulatory Fee Study
In 2017, Council directed staff to undertake a fee study to determine full recovery of all costs associated with permitting and regulating cannabis businesses. The fee study is attached as Exhibit 1. These fees are legally limited to recovery of actual expenditures and cannot contribute to the General Fund. SCI Consulting Group was retained to perform the cannabis fee study which includes the required calculation and documentation of costs for permitting, regulating, monitoring, and enforcing cannabis related business activities.
The Cannabis Regulatory Fee Study was prepared in the midst of an emerging industry and regulatory framework for legalized cannabis in the State of California. After adoption, at a future date, it would be appropriate to review and update the fees identified in this fee study under the following circumstances:
• When the program under the Ordinances has been implemented for a period of time sufficient for the City to (a) have had an opportunity to review the actual costs incurred in processing permits and administering the Ordinances; and (b) have achieved some efficiencies in processing applications and undertaking monitoring and compliance;
• If the Ordinances are substantially amended such that the time and/or processes involved are substantially changed; or
• At the expiration of 10 years, which is the period over which the Fee Study proposes recovery of the City’s Cannabis Business implementation costs.
The study calculated and documented cannabis costs to-date related to developing and implementing a cannabis business regulatory program in Alameda. The total cost to-date is $222,411 which have been paid for by the General Fund. These fees are projected to be recovered over a 10-year period. If they are not recovered by that time, an updated fee study would determine how the remaining amount would be recovered. This cost recovery is in addition to the “going forward” costs of implementing the City’s regulatory framework for cannabis business activity including the cost of conducing the RFP process for retail dispensaries, and processing the operators permit and annual renewal permits.
To implement the fees necessary to regulate the cannabis business industry in Alameda, staff is recommending that the Council adopt a resolution amending the Master Fee Schedule based on the Cannabis Regulatory Fee Study to ensure that the cannabis business regulatory program is revenue-neutral and provides for full cost recovery.
Zoning Code Amendments
At its July 24, 2018 meeting, City Council directed staff to amend the Zoning Code to:
Expand Zoning Districts where Retail Cannabis Dispensaries can be Conditionally Permitted
The City Council directed staff to amend the Zoning Code to expand the zoning districts where retail cannabis dispensaries can be conditionally permitted to include the C-1 Neighborhood Business and C-M Commercial Manufacturing districts (Exhibit 2 is a map of C-1 and C-M zones). The purpose of the C-1 district is to “serve residential areas with convenient shopping and service facilities.” The C-1 districts are primarily located along the Lincoln Avenue and Central/Encinal Avenue at locations that once served as railroad stations. Today, these areas are populated with small businesses engaged in retail, food, and office businesses.
The C-M, Commercial Manufacturing Zoning District, is intended for a broad variety of general commercial facilities and light manufacturing uses such as food distribution, research labs, and warehouses. The Harbor Bay Business Park, Wind River Campus, and Ballena Bay are the primary business locations zoned C-M. Two other locations zoned C-M include Stewart Court off of Constitution Avenue and the City block containing Fire Station 3 and the Emergency Operations Center on Grand Street. Permitting cannabis retail sales conditionally in the C-M District could be complementary to the general commercial facilities and light manufacturing uses permitted in that District.
As a conditionally permitted use in both the C-1 and C-M Districts, the City has the ability to consider and impose conditions on any aspect of the cannabis business to address potential negative impacts.
Conditionally Permit Delivery-Only Dispensaries (closed to the public) in the C-M Zone
Allowing delivery-only dispensaries as a conditionally permitted use in the C-M district would be consistent with the underlying intent for that zone. The nature of delivery-only dispensaries would be no different than other distribution or warehouse uses that already exist in those locations. With all cannabis businesses, the City has the ability to impose conditions of approval to address potential impacts through the use permit process.
At its July 24, 2018 meeting, Council requested that staff contact business park representatives to receive input on locating retail and delivery-only dispensaries in the C-M zone. Staff received the attached letter from Harbor Bay Business Park opposing the proposed zoning amendment (Exhibit 3).
Allow Retail and Delivery-Only Dispensaries to Sell Cannabis for Adult Use (recreational use)
At its July 24, 2018 meeting, Council considered lifting the ban on adult-use sales based on a number of factors, including the filing of valid notice of intent to circulate a citizen-initiated petition to legalize adult use cannabis. Although lifting the ban on the sale of adult use cannabis would not raise new concerns from a land use and zoning perspective, an amendment to the Zoning Code is required should the Council decide to allow sale for adult use, as the Code only allows the sale or delivery of medicinal cannabis. Accordingly, as requested by the Council, staff has prepared ordinance amendments to facilitate a discussion and comment on allowing the sale of adult use cannabis in Alameda.
On September 24, 2018, the Planning Board held a public hearing to consider the zoning changes described above. The Planning Board recommended that the City Council adopt an ordinance making those changes as well as several other changes including:
• Moving the one (1) mile dispersion requirement in the Zoning Ordinance to the Regulatory Ordinance;
• Requiring that delivery-only dispensaries meet the same parking requirements as manufacturing uses rather than retail uses; and
• Review the guidelines for distances used by the California Department of Alcohol Beverage Control (“ABC”) to determine if cannabis buffer zones should be consistent with ABC’s.1
The ordinances as drafted include these changes recommended by the Planning Board. In addition, staff has further revised the draft ordinance based on the Planning Board’s discussion to include two definitions, one for Cannabis Retail and one for Cannabis Retail - Delivery Only, rather than a single definition. Two definitions are appropriate as these businesses are conditionally permitted in different zones, are subject to different parking requirements, etc.
Based on the Planning Board’s recommendation, staff recommends that the City Council introduce an ordinance amending the Zoning Code as described above.
Regulatory Ordinance Amendments
Staff has prepared a draft ordinance amending the Regulatory Ordinance based on Council direction received on July 24, 2018. The following is a summary of the key amendments to the Regulatory Ordinance.
Dispersion Requirement
As noted above, the Planning Board recommended that the dispersion requirement be removed from the Zoning Code and added to the Regulatory Ordinance. The Planning Board felt that the dispersion requirement was not a land use issue but a regulatory matter. The dispersion requirement prohibits retail dispensaries to be located within one mile of each other. Based on the Planning Board’s recommendation, the requirement was deleted from the Zoning Ordinance and added to the Regulatory Ordinance.
In addition, staff makes two recommendations. First, as is reflected in the draft amendments to the Regulatory Ordinance, amend the Ordinance to clarify that the dispersion requirement applies to retail dispensaries, but not to delivery-only dispensaries. Therefore, as drafted, the Ordinance would allow the proposed two delivery-only dispensaries to be located within one mile of each other.
Because these businesses would be closed to the public, staff believes that concerns about over-concentration would not be the same as if these businesses were open to the public. Second, given that the dispersion requirement for retail dispensaries would remain and the timing of when an operator’s permit is sought, staff recommends the regulation implementing the RFP process be amended to ensure that applicants demonstrate that they still meet the dispersion requirement. That way, applicants are aware of this issue during the LOI phase, rather the operator’s permit application phase.
Although this item relates to the buffer zones in the Regulatory Ordinance, which is not within the Planning Board’s purview, staff is nonetheless communicating this recommendation at the Board’s request. Accordingly, staff has no recommendation as to this item.
Two-Tier Buffer Zone
The draft ordinance retains the 1,000-foot buffer zone from public and private K-12 schools and reduces the buffer zone to 600 feet for other sensitive uses including, youth centers and tutoring centers, for retail dispensaries and nursery cultivation. The draft Regulatory Ordinance also provides that, for retail dispensaries, which are subject to the RFP process, the buffer zone will be established based on existing sensitive uses prior to the time of submittal of the Letter of Intent, or at the time of application, in the case of businesses that apply on a first-come-first-served basis. This change will ensure that businesses can proceed with the process and expend resources and funding without the risk that a sensitive use subsequently move in within the applicable buffer zone and then displace the cannabis business, rendering its proposed location ineligible.
The original Regulatory Ordinance included a definition of schools and youth centers, which are primarily recreational in nature, but did not provide a definition for uses that has an academic focus. As such, academic uses were construed as schools as a matter of application. For example, academic after-school programs and tutoring facilities fell within the plain meaning of a “school”. Moreover, the Ordinance did not address the applicable buffer for academic uses, as an ancillary use, within buildings that were not intended for such use (e.g., private homes, churches, etc.). Therefore, staff is recommending two changes. First, an amendment clarifies that ancillary academic uses are not a “school” for purposes of the buffer, therefore the 600-foot radius would apply. Second, the following definition for tutoring centers has been added:
“‘Tutoring Center’ means any enterprise, whether or not for profit, that operates in a commercial building or structure the principal use of which is to offer instruction of any kind to support academic instruction of K-12 students.”
The buffer zone of 600 feet from sensitive uses remains the same for all other cannabis business activities.
Remove Cap on Testing Labs
One of the earliest changes to the Regulatory Ordinance proposed by Council was to remove the cap on testing labs and that change is provided for in the draft ordinance. In addition, based on direction given, an implementing regulation was issued that allows nursery cultivation and manufacturing uses to apply for an operator’s permit on a first-come, first-served basis, similar to testing labs. As a result, testing labs, nursery cultivation and manufacturing businesses can all apply for an operator’s permit without going through a RFP process. To date, no applications have been received for any of these business uses.
Allow for Delivery-Only Dispensaries
On July 24, 2018, Council directed staff to expand the categories of permitted cannabis businesses to include up to two delivery-only dispensaries. These brick and mortar businesses would be regulated similar to retail cannabis dispensaries with two major features: (a) they would be closed to the public, and (b) would only be permitted in the C-M zone. To obtain the right to apply for an operator’s permit, a prospective business would compete through a RFP process.
The direction to allow up to two delivery-only dispensaries was informed by an interest in providing more options to consumers. There are consumers who may be unable to purchase cannabis products in a retail setting, given the declining nature of their health, the inconvenience due to other obligations, e.g., work or health appointments hours, etc., or want to support an Alameda-based business rather than patronize an off-island delivery business. For businesses, a delivery-only business may be a model that offers a lower barrier to entry into a growing industry in the State. Based on an industry rule of thumb that the market can support one dispensary for every 15,000 people, there is likely market capacity for up to two delivery-only dispensaries in addition to the previously approved two retail dispensaries. The ordinance as drafted allows for two delivery-only dispensaries.
Adult Use of Cannabis
As was reported at the July 24, 2018 meeting, a valid notice of intent to circulate a petition to legalize adult use cannabis was submitted to the City Clerk’s office on May 21, 2018. The petitioners have six months to gather signatures. If enough valid signatures are collected the Council can direct preparation of a report to evaluate the impacts of the petition and adopt an ordinance or place the measure on the ballot.
Given the anticipated high level of support for such an initiative (68% of Alameda voters supported the State ballot initiative to allow recreational use and sale of cannabis products) and the costs associated with conducting an election, should enough valid signatures be collected to put an adult use measure on the ballot, a majority of Council members expressed a willingness to allow the sale of cannabis products for adult use.
As noted above, both the draft Zoning Ordinance and Regulatory Ordinance allow for the sale of cannabis products for adult use. These ordinances already provide for the nursery cultivation and manufacturing of cannabis products for adult use.
Additional Clean-Up Amendments
Additional ordinance clean-up amendments are proposed to (1) “Permit Applications” section, which requires the applicant to provide a deed if the applicant will own the property; (2) “Cannabis Business Owner,” “Review of Applications; Appeal of Denials and Suspensions,” and “Labor Peace Agreement” language to comport with the State law; and, (3) reflect City department realignments.
Other substantive amendments include:
• False Statements/Representations. It shall be unlawful to make false statements in an application;
• Withdrawal of Application. Application withdrawals must be requested in writing and approved by the City. The City shall have continuing jurisdiction to deny a license even if it is withdrawn;
• Permit-Specific Conditions. Conditions specific to delivery-only businesses were added and authority to adopt by regulation other specific conditions for all permit types to expeditiously protect the public’s health, safety, and welfare and
• Implementing Regulations. The Planning, Building, and Transportation Department’s authority to adopt implementing regulations was expanded to encompass all cannabis ordinances, not only the Regulatory Ordinance.
Staff recommends that the Council review the draft ordinance amending the Regulatory Ordinance and make any changes necessary to accurately reflect direction given to date. Based on direction given, the Council could introduce the draft ordinance or direct staff to make additional changes and return to Council.
Request for Proposals Process
Based on direction from the July 24, 2018 Council meeting, staff is prepared to issue a second RFP, modeled after the initial RFP process, for the remaining opportunity for one retail dispensary and the new opportunity for up to two delivery-only dispensaries, with minor modifications:
• Proposers submitting a Letter of Intent for a retail dispensary location in the C-1, Neighborhood Business district would be required, at minimum, to use a third-party outside mailing service to notify neighbors located within 300 feet of its proposed retail dispensary location to provide feedback.
• The feedback would be used to inform the score for the following rubric categories:
o Has the proposer described what methods and means it will take to ensure that the business is integrated into the community? (5 points)
o Has the proposer adequately described its overall approach to operational safety as it relates to employees, customers, businesses, and the community? (5 points)
• Incorporate any changes needed as a result of adopting the Regulatory Ordinance amending Article XVI.
A request was made at the July 24, 2018 Council meeting to exempt Proposers that submitted Letters of Intent for locations that would qualify with the reduced buffer zones from paying an additional fee when re-submitting. Staff recommends applying the fee previously received for businesses that resubmit the same proposed dispensary location, provided that the form of the supporting Real Estate document is relatively the same (e.g., extension of term only). Those qualified Proposers who advance to the Proposal preparation phase would pay that required fee.
FINANCIAL IMPACT
There is no financial impact to the General Fund by introducing ordinances to amend the Zoning Code and Article XVI of the Municipal Code as described above. However, to date, the General Fund has been funding the staff work on this effort. Adopting a resolution amending the Master Fee Schedule to add Cannabis Business Regulatory Fees, based on the Fee Study attached as Exhibit 1, will ensure that the cost of staff work related to regulating cannabis business activities will be repaid and future work will be borne solely by cannabis businesses. Cost recovery is determined on a per permit or per proposal cost and includes $5,300 per proposal to complete the RFP process, $7,600 to process an application for an operator permit, and $2,300 to conduct the annual renewal process.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This report and its recommended actions have been prepared in conformance with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
California Environmental Quality Act (“CEQA”) review is not required for this action pursuant to Business and Professions Code section 26055(h) as the City of Alameda requires discretionary review and approval of subsequent applications to engage in commercial cannabis activity. As a separate and independent basis, this action is exempt from CEQA pursuant to section 15061(b)(3) of the State CEQA Guidelines because it can be seen with certainty that there is no possibility that this action may have a significant effect on the environment.
RECOMMENDATION
It is recommended that the City Council:
Adopt a Resolution Amending Master Fee Resolution No. 12191 to Add Cannabis Business Regulatory Fees
Hold a Public Hearing to Consider Planning Board’s Recommendations Concerning Introduction of Ordinance Amending the Alameda Municipal Code Section 30-10 (Cannabis) to (1) Add Cannabis Retail Businesses as Conditionally Permitted Uses in the C-1, Neighborhood Business and C-M, Commercial-Manufacturing Zoning Districts; (2) Add Delivery-Only Cannabis Retail Businesses as a Conditionally Permitted Use in the C-M, Commercial-Manufacturing Zoning District; (3) Amend Certain Portions of the Zoning Code to Enable Cannabis Retail Businesses to Dispense Non-medicinal or “Adult Use” Cannabis; and (4) Any Other Necessary Amendments, including Amending Certain Portions of the Zoning Code to Eliminate the Dispersion Requirement for Delivery-Only Cannabis Businesses
Introduce an Ordinance Amending Article XVI (Cannabis Businesses) of the Alameda Municipal Code to (1) Eliminate the Cap on Testing Laboratories; (2) Add Two Delivery-Only Dispensaries; (3) Allow Adult Use; (4) Create a Two-Tier Buffer Zone from Sensitive Uses for Dispensaries and Cultivation Businesses; and (5) Make Other Clean-Up Revisions
Confirm Continued Use of RFP Process to Administer Cannabis Retail Dispensary Business Operators’ Permit Selection Process
Respectfully submitted,
Debbie Potter, Base Reuse and Economic Development Director
By,
Lois Butler, Economic Development Manager
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Fee Study
2. Map of Zones
3. Letter