Title
Staff Report for First Reading of Draft Ordinance Revisions that will Authorize a Fourth Retail Cannabis Dispensary Business, as well as a Resolution Awarding the City of San Leandro’s Fourth Cannabis Dispensary Operating Permit to DSWC II Inc., to be Effective 30 Days Following the Adoption of the Ordinance
Staffreport
SUMMARY AND RECOMMENDATIONS
The City Manager presents to the City Council the following analysis and attached application from DSWC, Inc. (doing business as NUG Wellness), which seeks to establish an additional cannabis dispensary in the City of San Leandro. Also presented for the City Council’s adoption, should it so choose, is a first reading of an ordinance that would authorize a corresponding fourth cannabis dispensary operating permit. Lastly, a draft resolution representing the aforementioned fourth operating permit and conditions of approval written into said permit is also attached to this staff report for the City Council’s consideration. The draft resolution awarding the fourth permit, if approved by the City Council, would be effective 30 days after the adoption of the ordinance.
Background
Following extensive dialogue with the community and numerous City Council discussions over several years, in December 2013, the City Council approved a medical cannabis regulatory ordinance to facilitate the approval, regulation, and operation of one cannabis dispensary in San Leandro. That ordinance, in conjunction with the California Medicinal and Adult-Use Cannabis Regulation and Safety Act, implements strict zoning, security, and other requirements on the operations of cannabis businesses.
In December 2014, a request for applications from parties interested in serving as San Leandro’s first dispensary operator was publicly released and 15 teams ultimately applied for the first dispensary permit. Following a robust review of the 15 applicant proposals, the following three teams (in alphabetical order) were identified as having demonstrated the optimal combination of knowledge, expertise, experience, and alignment with the City Council’s adopted selection criteria:
• Blum San Leandro
• Davis Street Wellness Center (now known as NUG Wellness)
• Harborside San Leandro
On September 8, 2015, a recommendation from the City Manager was presented to the City Council, and the City Council unanimously voted to award the first dispensary permit to Harborside San Leandro.
Based upon City Council direction provided at subsequent Council meetings in 2015 and 2016, the City Council later adopted various amendments to the dispensary ordinance, including provisions that allow for the issuance of up to three total dispensary permits, the latter two of which were ultimately awarded by the City Council to Davis Street Wellness Center (now known as NUG) and Blum San Leandro. All three businesses identified locations for their proposed dispensaries and ultimately received approval of separate Conditional Use Permits from the City of San Leandro Board of Zoning Adjustments and commenced operations at the following locations:
• NUG Wellness, 3089 Teagarden Street
• Harborside San Leandro, 1965 Marina Blvd.
• Blum San Leandro, 1911 Fairway Drive
Analysis
According to the attached letter from the property owner of 1911 Fairway Drive (Fairway Medical Plaza, LLC hereafter referred to as “Fairway”), which was the previously approved location for Blum San Leandro, the prior lease between Fairway and Blum was terminated and all business operations ceased as of approximately December 31, 2024.
As a result, Blum San Leandro is no longer in operation at the 1911 Fairway Drive location. Nevertheless, the associated Conditional Use Permit (CUP) that authorized that particular property for use as a retail cannabis dispensary remains in effect. As with all CUPs, the specific land use that is authorized by such an entitlement runs with the land, irrespective of the specific entity that operates the authorized land use. Notably, NUG also successfully entered into a new lease agreement with the property owner, which became effective on December 24, 2024.
If the City Council were to adopt the draft ordinance amendment and resolution that are included as part of this agenda item, it would enable NUG to open a second dispensary location in San Leandro at the 1911 Fairway Drive location that was formerly operated by Blum San Leandro. NUG Wellness has demonstrated itself to be a competent operator that has maintained compliance with the various State and local regulations that are applicable to retail cannabis dispensaries. NUG has also complied with the City’s local gross receipts tax, which is currently set at 5% of gross receipts, thereby significantly contributing to the City’s General Fund each year. For context, the three dispensaries in San Leandro collectively contribute approximately $1 million per year in gross receipts taxes, which are deposited into the City’s General Fund. NUG Wellness also pays its annual business license and annual regulatory fee each year as well. NUG has affirmed in writing that if it were awarded the permit to operate at the 1911 Fairway Drive location, that it would maintain full compliance with all the conditions of approval associated with the existing City-issued entitlements associated with the property.
According to NUG’s attached application letter, this second dispensary location would serve as a “satellite” or “express” retail facility that would primarily fulfill online orders and offer an “express” in-store experience. The addition of this facility would also seek to alleviate customer traffic from their current primary facility at 3089 Teagarden Street and allow a renewed focus on a personal in-store experience at that primary facility.
According to its application letter, NUG has also been a strong partner to the San Leandro community. For example, they state that they have developed strategic relationships with other San Leandro businesses to help drive NUG customers to shop at local businesses, engaged in San Leandro Chamber of Commerce activities, and contributed to support their local community benefits partner, the Davis Street Community Center.
Although the former tenant Blum San Leandro is no longer in operation at the 1911 Fairway Drive location, at this time the company continues to maintain rights to its former City Council-issued dispensary operating permit. More specifically, when the City Council issued the operating permit to Blum in 2016, that permit (like the other two dispensary operating permits) was not tied to a specific location and was therefore deemed to be a portable operating permit that could be used at any Zoning-compliant site in San Leandro that complied with the City’s various codified requirements including setbacks from sensitive uses (such as schools, houses of worship, residential areas, and youth centers), through a Conditional Use Permit. By allowing NUG to commence operations at 1911 Fairway Drive via issuance of a fourth permit, such an approach would potentially enable Blum San Leandro (the former occupant at the Fairway site) to seek out an alternative code-compliant site in order to re-establish its operations through the issuance of a new Conditional Use Permit, which would be subject to review and approval at a public hearing by the City of San Leandro Planning Commission.
It should also be noted that per Sections 4-33-700 and 5-24-108 of the San Leandro Municipal Code, both dispensary operating permits as well as conditional use permits are each separately eligible for suspension or revocation by the City Council or the Planning Commission & Board of Zoning Adjustments, respectively at a noticed public hearing if there has been a discontinuance of the exercise of the entitlement granted by the permit for 180 days. In this instance, both the dispensary operating permit as well as the Conditional Use Permit would each be separately eligible for such actions by either body beginning after June 30, 2025.
Fiscal Impacts
If the fourth operating permit is authorized, the City will collect a $35,000 annual dispensary regulatory permit fee from the permit holder. In addition, like all the other dispensaries, NUG’s proposed satellite dispensary would be required to contribute 5% of its annual gross receipts to the City of San Leandro General Fund.
ATTACHMENTS
• A) Proposal from NUG Wellness
• B) Letter from Fairway Medical Plaza, LLC
• C) Draft Ordinance
• D) Resolution Awarding Fourth Cannabis Dispensary Operating Permit to NUG
PREPARED BY: Eric Engelbart, Deputy City Manager, City Manager’s Office