DATE: February 19, 2025
TO: Honorable Mayor and City Councilmembers
FROM: Development Services Department
TITLE: PROPOSED RECOMMENDATIONS FOR STOREFRONT CANNABIS RETAIL (TYPE 10) LICENSING PROGRAM
RECOMMENDATION
title
Staff recommends the City Council provide staff direction on the proposed framework for a storefront cannabis retail license (“Type 10”) program.
body
The following table summarizes staff’s recommendations regarding implementation of the proposed storefront cannabis program.
TABLE 1: EXECUTIVE SUMMARY OF STAFF RECOMMENDATIONS
|
TOPIC |
STAFF RECOMMENDATIONS |
|
1. Number of Licenses |
A. Open two competitive Type 10 storefront retail licenses to the public. B. Offer one Type 10 storefront retail license to the City’s existing Type 9 (non-storefront/delivery) cannabis business operator, provided that operator meets “minimum qualifications” of the evaluation criteria (thereby creating a potential maximum of three Type 10 storefront retail licenses). C. Eliminate the existing vacant Type 9 (non-storefront/delivery) license. |
|
2. Zoning |
A. Expand allowable districts beyond staff’s initially recommended General Commercial (CG), Special Commercial Highway Oriented (CS-HO), Limited Industrial (IL), and General Industrial (IG) districts to also include the following: Neighborhood Commercial (CN), Community Commercial (CC), Limited Commercial (CL), and Special Commercial Limited (CS-L) districts. Remove the Mission Ave and Oceanside Boulevard corridors restriction. B. Preclude storefronts in the Downtown District and Coastal Zone. C. Restrict storefronts in the Mission San Luis Rey commercial village core as opposed to the entire Mission Historic District. |
|
3. Evaluation Criteria |
A. Provide preference to existing licensed cannabis operators. B. Score applications based on three, equal point sections: 1.) Business and Employment Plan; 2.) Community and Employee Benefits; and 3.) Location. |
|
4. Local License Awarding Process |
A. Utilize a weighted/tiered lottery system with a 90% minimum score requirement. B. Conduct the lottery at a public meeting utilizing a physical lottery machine. |
|
5. OZO Separation Requirements |
A. Continue to implement existing Article 36 waiver of locational requirements. |
|
6. Integrity and Safeguards |
A. Eliminate all applications which have duplicate ownership. B. Eliminate duplicate applications received for the same location. C. Close “proxy owner” loophole per consultant’s recommendation. D. Institute license deadlines to become operational (12 months to obtain Conditional Use Permit (CUP); 18 months to become operational following CUP approval) |
BACKGROUND AND ANALYSIS
The City of Oceanside’s Cannabis Program was established on April 11, 2018 when the City Council adopted Ordinance 18-R0199-1 to allow medical cannabis businesses, including nurseries, cultivation, distribution, manufacturing, and testing labs, within City limits, subject to certain restrictions. Subsequently, in 2018, the City Council adopted Ordinance 18-OR0449-1 to allow no more than two medical cannabis non-storefront delivery licenses. On August 5, 2020, the City Council adopted Ordinance 20-OR0463-1 removing the medical -only restriction on cultivation licenses. The medical-only restriction was lifted for the balance of the allowable cannabis uses on June 16, 2021, thereby allowing licensed businesses to grow, process, transport, or deliver cannabis ultimately for recreational use.
To date, the City has issued 20 cannabis local licenses, of which 3 are currently active (i.e. in operation).
TABLE 2: BREAKDOWN OF LOCAL LICENSES
|
Business Type |
# Licenses Allowed |
# Licenses Issued |
# Active Licenses |
|
Manufacturing |
No limit |
4 |
1 |
|
Distribution |
No limit |
5 |
1 |
|
Cultivation |
12 |
10 |
0 |
|
Non-storefront Retail (Type 9) |
2 |
1 |
1 |
|
Testing Lab |
No limit |
0 |
0 |
|
TOTAL |
- |
20 |
3 |
In November 2020, voters approved Measure M allowing the City to impose use taxes on cannabis businesses and setting the upper and lower limits for those tax rates. On December 16, 2020, the City Council approved Resolution 20-R0707-1 setting cannabis taxes as shown in Table 3 below. Staff is not recommending any adjustment to the current Measure M tax rates at this time.
TABLE 3: EXISTING CANNABIS BUSINESS TAXES
|
Business Type |
Established Tax Rate |
Limits of Measure M |
|
Retail |
5% |
2% - 6% |
|
Manufacturing |
2.5% |
2% - 6% |
|
Distribution |
2% |
2% - 6% |
|
Cultivation |
2% |
0% - 3.5% |
|
Testing Lab |
No Tax |
No Tax |
On April 19, 2023, the City Council directed staff to develop a program allowing up to two licenses for storefront cannabis sales. Staff returned to the City Council on November 1, 2023 after creating a recommended framework for executing the proposed Type 10 storefront retail program. At the meeting, the City Council provided staff direction regarding the categories of zoning, awarding process, local preference, license deadlines, and tax rates. The staff report for the November 1, 2023 City Council meeting, which provides in-depth explanations of the previous recommendations considered by Council, can be found in Attachment 3. Table 4 below provides a comparison between the City Council’s direction to staff at its November 1, 2023 meeting and the current staff recommendations.
TABLE 4: 2023 DIRECTION AND CURRENT RECOMMENDATIONS COMPARISON
|
Topic |
November 2023 City Council Direction |
2025 Staff Recommendations |
|
Number of Licenses |
A. Open two competitive licenses to the public B. Offer separate license to existing Type 9 operators C. Eliminate vacant non-storefront license. |
A. No change B. No change C. No change |
|
Zoning |
A. CG, CS-HO, IL, IG districts along Oceanside Blvd and Mission corridors B. Prohibit storefronts in the Downtown District and Coastal Zone C. Prohibit storefronts in Mission San Luis Rey Historic District |
A. Expand allowable districts to include the CN, CC, CL, & CS-L districts. Remove corridors restriction. B. No change C. Prohibit storefronts in the Mission San Luis Rey Commercial Village Core as opposed to the entire Historic District. |
|
Evaluation Criteria |
A. Staff to work with consultant to develop evaluation criteria. |
A. Applications scored based on three, equally-weighted sections: 1.) Business and Employment Plan, 2.) Community and Employee Benefits, and 3.) Location. |
|
Local License Awarding Process |
A. Weighted lottery with preference for existing license holders |
A. No change B. Also incorporate local preference into the evaluation criteria by awarding points to applications with majority local business owner and/or resident ownership. |
|
OZO Separation Requirements |
A. Standard Article 36 waiver of locational requirements. |
A. No change |
|
Integrity and Safeguards |
A. 12 months to get CUP. Then 18 months to become operational. B. Safeguards to be determined with consultant’s advice. |
A. No change B. Automatically eliminate all applications which have duplicate ownership. C. Automatically eliminate all applications received for the same location. D. Close “proxy owner” loophole per consultant’s advice. |
|
Tax Structure |
A. Tax modifications to be determined with consultant’s advice. |
A. No change |
At the November 1, 2023 City Council meeting, staff shared the fact that the City’s prior cannabis licensing consultant, HdL, had recently terminated its contract with the City. As a result, staff recommended that development of the final recommended licensing program be postponed until after a new cannabis consulting firm was hired so that staff could tap its expertise in creating the new framework.
In May 2024, the City Council awarded Rincon Consultants Inc. (“Rincon”) to act as a cannabis consultant and fully develop the proposed storefront retail program. Rincon has proven to be a reputable consulting firm which has executed similar contracts for cannabis support services with the cities of Los Angeles, West Hollywood, and Salinas, as well as the counties of Santa Barbara, San Luis Obispo, and Monterey.
Since May 2024, staff has worked with Rincon to develop a draft storefront program. During that process, staff encountered a few topical areas for which City Council direction is sought prior to proceeding with the necessary legislative actions to implement the program.
Recommendation 1: Number of Licenses and Local Preference
Staff recommends offering two Type 10 storefront cannabis local licenses to the public as well as a license to the City’s existing Type 9 non-storefront retail/delivery cannabis operators. Upon the City Council’s approval of staff’s recommendation, a total of three licenses would be available for Type 10 storefront retail operators.
Background and Reasoning
Consistent with the current staff recommendation, the City Council at its November 1, 2023 meeting directed staff to offer two licenses to the public and a separate license to the City’s existing Type 9 non-storefront/delivery operator. Given the close correlation between retail delivery and retail storefront operational requirements Staff and Rincon find this a reasonable and appropriate approach to managing existing operational Type 9 licensees. The existing Type 9 non-storefront/delivery would still be required to meet the minimum qualifications of the application process, though they would not have to participate in a lottery. Should the existing Type 9 non-storefront retail/delivery operator decline the license or fail to submit a qualifying application, that license would be eliminated and not be opened up to the public.
For licenses opened to the public, the City Council expressed desire to include local preference for existing license holders. Staff and Rincon have incorporated local preference into the proposed evaluation criteria, including additional weighting for existing operational license holders of cultivation, manufacturing, or distribution licenses. As well, local preference for local business owners and residents is reasonable and has been incorporated by Staff and Rincon. Those applications which have an existing operational non-delivery license and/or majority of ownership comprised of Oceanside business owners and/or residents would receive a clear weighted advantage in the lottery. A detailed breakdown of the recommended evaluation criteria is outlined in the Evaluation Criteria subsection below. The comprehensive proposed evaluation criteria can be found in Attachment 2.
Recommendation 2: Allowable Zoning Districts
Staff recommends allowing storefront cannabis uses in the Neighborhood Commercial (CN), Community Commercial (CC), General Commercial (CG), Limited Commercial (CL), Special Commercial Highway Oriented (CS-HO), Special Commercial Limited (CS-L), Limited Industrial (IL), and General Industrial (IG) districts, while prohibiting them in the Downtown District, the Coastal Zone, and the Mission San Luis Rey Commercial Village area. Staff also recommends prohibiting storefronts at sites regulated by a master development plan, planned development plan, or planned block development plan. A map of the recommended allowable districts is provided below.
Background and Reasoning
At the November 1, 2023 City Council meeting, staff recommended that the City allow Type 10 storefront retail operators only in the CG, CS-HO, IL, and IG districts along the Mission Avenue and Oceanside Boulevard corridors and outside of the Mission San Luis Rey Historic District. Following further analysis, however, staff recommends expanding the allowable zones to avoid the possibility of over-restricting what otherwise may be a suitable storefront location. To avoid the pitfalls of being too permissive, staff recommends precluding individual sites based on objective separation criteria in the local license process. For instance, all sites located within 1,000 feet of a high school would be disqualified, regardless of its zoning designation. More information about the locational criteria can be found below in the Evaluation Criteria subsection, below.
Staff previously recommended restricting storefront cannabis uses to the CS-HO, CG, IL, and IG districts because they are expected to be the most intensive and therefore the most buffered from sensitive land uses. However, the City’s commercial designations are not easily discernable from one another. For instance, the shopping center north of State Route 76 and west of College Boulevard, which currently is anchored by a Target discount retail store and Sprouts Farmer’s Market, is designated Community Commercial; the center off Marron Road west of College Boulevard which hosts a Walmart Supercenter and Kohl’s Department Store is also designated Community Commercial. The center on Mission Avenue and Barnes Street anchored by an El Super supermarket is designated Neighborhood Commercial. Staff finds that the zoning designation of a site is not a beneficial indicator of how buffered a site is from nearby residential districts and other sensitive land uses and that precluding sites based on their actual distances would be more effective.
At the November 1, 2023 City Council meeting, staff recommended prohibiting storefront cannabis uses in the Downtown District, the Coastal Zone, and the Mission San Luis Rey (SLR) Historic District. Staff is now suggesting slight modifications to the original recommendations; to limit the restriction in the SLR Historic District to just the Commercial Village area. A map showing the different Historic District boundaries is provided below. Limiting the restriction to only the Commercial Village area would allow cannabis storefronts in the four commercial centers abutting Mission Avenue east of El Camino Real and west of Old Grove Road. While these four centers are located within the SLR Historic District overlay, they lack a historic “feel” and are fairly well buffered from the nearest residential districts and the San Luis Rey Mission itself. The Mission SLR Commercial Village area was envisioned to be a lively, pedestrian-oriented locale consisting of small shops connected by narrow streets and paths to create an inviting “gateway” to and from the Mission. Although the Commercial Village area has yet to evolve as envisioned, allowing storefront retail cannabis uses could potentially disrupt the future transformation of the area. Therefore, staff recommends prohibiting cannabis storefronts in the Commercial Village area, while allowing storefronts in the centers along Mission Avenue.
Staff also recommends precluding storefront cannabis uses from sites regulated by a master development plan, planned development plan, or planned block development plan. Many of the existing master development plans, planned development plans, and planned block development plans base their allowable uses on the previous or underlying zoning designation through code reference, while explicitly prohibiting certain uses the applicant deems undesirable. Given that the City would be introducing a new allowable land use after those documents were processed, staff recommends precluding storefront cannabis uses from those areas, consistent with the City’s past practices for other cannabis uses (e.g., manufacturing, distribution, etc.) which are currently prohibited in these areas.
Recommendation 3: Evaluation Criteria
Staff recommends that each storefront local license be scored on three, equal point categories: 1) Business, Labor, and Employment Plan; 2) Community and Employee Benefits; and 3) Location. The full recommended evaluation criteria can be found in Attachment 2. Documentation showing compliance with local and state regulations would not be scored or included in the evaluation criteria; applications which cannot demonstrate their compliance accordingly would be eliminated.
Background and Reasoning
The Business, Labor, and Employment Plan is focused on ensuring the business would be successful if awarded a local license. In this section, applicants would demonstrate that they have considerable knowledge of the industry, that they have sufficient funding to open their business, that their business model predicts future solvency, and whether a majority of the ownership interest is held by Oceanside residents and/or Oceanside business owners.
The Community and Employee Benefits section would guarantee that the community receives a tangible benefit in return for allowing storefronts within City limits. Community benefits can take many forms such as cash donations to honorable local causes or charities, volunteering time to improve the community, and educating the public or raising awareness to relevant issues. To remove as much subjectivity as possible, the proposed evaluation criteria focus on proportional monetary donations to Oceanside-based non-profits or City-led initiatives. These donations would be separate from the proceeds derived from the City’s adopted cannabis tax, Measure M.
Beyond community benefits, applicants must demonstrate that their employees would receive commensurate benefits. This section would ensure employees are compensated fairly, above County minimum wage requirements. Applicants which propose to pay their employees at least 10% above minimum wage requirements would receive full points, whereas applicants which propose less would incur point deductions. Applicants which intend to pay their employees minimum wage would be disqualified.
The Location section seeks to establish objective, distance-based criteria to certain regulated uses and sensitive land uses that warrant buffering from cannabis storefronts. Regulated uses, which could have a compounding effect on negative impacts when located near a cannabis storefront, are bars, liquor stores, and smoke shops. Sensitive land uses include existing residences, schools, public parks and playgrounds, youth centers and libraries, childcare facilities, and churches.
In order to develop the locational criteria, staff analyzed 30 random commercial and industrial locations, as well as 25 actively for-lease locations, to ensure the separation thresholds were adequate. Staff and the consultant sought to strike a delicate balance between having too strict or too lenient locational criteria. Having locational criteria that are too strict could result in no feasible sites or so few feasible sites that would constitute a special privilege for the owners of those properties. Having locational criteria that are too lenient could also expose result in an application being awarded a local license with an unsuitable location, and potentially unable to obtain a Conditional Use Permit after devoting substantial resources into the project. By creating a transparent, objective framework for evaluating the suitability of a location, staff hopes to provide ample potential sites and discourage applicants from attempting to locate in close proximity to other regulated uses or sensitive land uses.
Recommendation 4: Local License Awarding Process
Staff recommends awarding local licenses through a weighted/tiered lottery with a high (90%) minimum score. Additional information on the weighting scale to be used for the lottery process will be presented at the February 19 City Council meeting. At its November 1, 2023 meeting, the City Council directed staff to develop a storefront retail cannabis program that would utilize a weighted or tiered lottery, as stated above. The benefit of a weighted lottery is that it integrates the best qualities of both merit-based systems and lotteries. That is, it eliminates “poor” applications while placing qualified applicants on equal footing and leaving the final selection between highly qualified applicants up to chance. Staff believes that a weighted lottery with a minimum qualifying score would be most effective and recommends setting the minimum qualifying score at 90%, as depicted in the attached draft proposed evaluation criteria (See Attachment 2).
Staff further recommends holding the lottery at a public meeting while using a physical lottery machine so that all interested persons can observe the process and result.
Recommendation 5: Regulated Use Separation Requirements
At its November 1, 2023 meeting, the City Council concurred with staff that storefront retailers would be subject to the separation requirements of Article 36 of the Zoning Ordinance. Article 36 requires that cannabis uses locate at least 1,000 feet from other regulated uses, as well as the following sensitive land uses:
1. Public or Private School;
2. Park, playground or public beach;
3. Church or other similar religious facility; and,
4. Child care or pre-school facility.
If a potential Type 10 location does not meet one or more of the previous required
separations, the cannabis facility must request a waiver subject to City Council discretion. The applicant must justify how a strict interpretation of the above separations is inappropriate and that the proposed site meets the intent of Article 36. Article 36 seeks to avoid overconcentration of regulated uses. Once the buffers from the sensitive land uses and existing regulated uses are factored in, it may be challenging to meet all of the locational requirements. Therefore, a proposed storefront retail location would likely need to seek a waiver of locational requirements subject to the specific findings set forth in Oceanside Zoning Ordinance Section 3605.
As proposed, this framework would afford the City a two-pronged approach to reviewing proposed storefront locations. First, locations would be scored in an objective manner during the consultant’s review of the local license application. Secondly, in the event a location could not meet the required separations of Article 36 of the Zoning Ordinance, the City Council would have the discretion to approve or deny the waiver of locational requirements depending on whether or not the required findings of fact can be made.
Recommendation 6: Integrity and Safeguards
In order to protect the integrity of the program, staff recommends instituting the following safeguards.
1. Eliminate all applications which have duplicate ownership
2. Eliminate all applications received for the same location
3. Close the “proxy owner” loophole
4. Institute license deadlines to become operational
Background and Reasoning
The above program safeguards are recommended to combat “gaming” of the system whereby an interested party could not improve their odds of being awarded a local license by proposing ownership in multiple applications. Similarly, property owners would not be able to improve their odds at a local license by letting multiple applications submit for their site.
Staff also recommends instituting restrictions in the City Code to combat the common loophole of “proxy owners” who sell their ownership interest to the highest bidder after being awarded a local license. Lastly, staff and the City Council concur that the City should institute deadlines for license holders to become operational. On November 1, 2023, the City Council directed staff to require that license awardees obtain their CUP within 12 months of receiving a local license and commence operations within 18 months of CUP issuance. No modifications are proposed for these deadlines. With these safeguards in place, staff believes the storefront program will maintain its integrity while ensuring that license awardees establish their business in a timely manner.
Future Action Items and Timeline
Upon receipt of direction regarding the recommendations outlined above, staff will work towards finalizing the program and bringing a series of items before the City Council for formal adoption. The entire package would consist of the following items:
• City Code amendments
• Zoning Ordinance amendments
• Application procedures, materials, and format
• Updated cannabis fees
• [If Applicable] Cannabis retail use tax modification
• [If Applicable] Contract for background checks
Once the City Council officially adopts the Type 10 storefront retail program, an application window will be determined and posted on the website. The application window should give applicants sufficient time to find a suitable location and prepare an adequate application. Staff is recommending creating a 45-day buffer period before a 45-day official application window allowing applicants a total of 90 days to prepare a complete application. At the close of the application window, the City’s consultant will review the applications for completeness and give applicants a short window to correct their applications should they be missing any pertinent materials or information. This should take approximately four weeks. Applicants which fail to cure their application would be disqualified and the consultant would commence the official review of all complete applications. Staff expects this to take 45 days but this timeframe could be influenced by the number of applications received. After the applications are reviewed and scored, those with scores above the predetermined threshold (recommended at 90%), would be entered into the lottery. The lottery would be held during a public meeting shortly thereafter. The winners of the lottery would then be able to submit for the requisite CUP. A tentative estimated timeline for the aforementioned items can be found below, which is subject to change.
|
Spring 2025 |
City Council provides direction to staff |
|
Spring 2025 |
Planning Commission makes recommendation to City Council regarding City Code and Zoning Ordinance amendments |
|
Spring 2025 |
City Council adopts storefront cannabis package |
|
Summer 2025 |
Application window opens |
|
Summer 2025 |
Consultant begins completeness screening of applications |
|
Fall 2025 |
Application reviews completed by consultant |
|
Fall 2025 |
Lottery at public meeting |
|
Fall 2026 |
CUPs brought before applicable decision makers for consideration |
|
2027 - 2028 |
Deadline for businesses to become operational |
FISCAL IMPACT
This item is for discussion purposes only. An analysis of fiscal impact will be provided once the formal adoption of the Type 10 storefront retail cannabis program is brought forward for City Council consideration.
CITY ATTORNEY’S ANALYSIS
The City Attorney has worked with staff on the development of its recommendations. Following City Council direction, the City Attorney’s Office will finalize all required ordinances and resolutions to be considered by the City Council.
end
Prepared by: Dane Thompson, Associate Planner
Reviewed by: Darlene Nicandro, Development Services Director
Submitted by: Jonathan Borrego, City Manager
ATTACHMENTS:
1. Staff Report
2. Draft Evaluation Criteria
3. November 1, 2023 Staff Report