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City Manager Update - Illegal Marijuana Dispensaries - 2/27/2017

Feb 27 2017

CITY MANAGER UPDATE

February 27, 2017

Illegal Marijuana Dispensaries

Greetings to all residents, businesses and visitors of the City of Jurupa Valley,

The City has received a number of resident and local business owner complaints regarding the illegal marijuana dispensaries in the City. Their concerns are the negative impact they are having on the surrounding businesses, and exposure to children from some of the clientele frequenting these establishments. The City has also learned of a significant amount of misinformation circulating in the public domain concerning the legality of these dispensaries and the City allowing them to operate. First off, let me start by saying that ALL dispensaries currently operating in the City are ILLEGAL and PROHIBITED under City ordinance as authorized under state law, and have no permits whatsoever to operate. Additionally, all of them are in various stages of the legal process through the courts for closure, which I will discuss later in this update.

Current state law under both the medical marijuana legalization from the mid 1990’s and most recently, Proposition 64 for recreational use, allows cities and counties to regulate and prohibit commercial cultivation and commercial sale of marijuana, including medical marijuana. There is a misconception that because both of those initiatives legalized their use, that commercial sales were legal as well. This is not the case. Since incorporation of the City, marijuana dispensaries have been illegal in the City under the previously adopted Riverside County ordinances, and at no time were they ever legalized. Recently, with the passage of Proposition 64, City Ordinance 2016-13 was adopted which Amended Chapter 11.25 of Title 11 of the City’s Municipal Code to regulate marijuana in conformance with the new statute. Proposition 64 specifically confirms that cities and counties can still prohibit any commercial activity related to cultivation, retail sales and mobile deliveries of marijuana, which includes prohibiting dispensaries. As such, the new City ordinance continues those prohibitions in the City, but does allow home grown plants- 6 per household for recreational use, and 12 per person, 24 total per household, for medical purposes with a valid medical marijuana card issued by the County, subject to certain restrictions as to location on the property. To review the entire ordinance, please visit the City website or contact the City Clerk’s office for a copy.

With respect to enforcement of the illegal dispensaries in the City, at one time several years ago, there were 45 illegal dispensaries operating in the City. Through aggressive action by the City’s Code Enforcement and legal teams, only 13 dispensaries remain as of this writing. Several of those are fairly new as they continue to open illegally. The remaining illegal dispensaries are very well funded due to the high volume of cash transactions they perform, have experienced lawyers who know how to delay the legal process, and are assisted by a court system that is slow. What we have learned from property owners that have contacted the City regarding these dispensaries is that these dispensary operators are offering property and building owners up to $100,000 cash, paid up front, for leasing a storefront or building. Additionally, in many cases these dispensary operators, and even the property owners, change hands and business names, which requires additional amendments to the original legal actions, and thus additional delays. The dispensaries don’t care how much it costs for attorneys and delays because they are generating so much income from the illegal sale of marijuana on a daily basis, the costs are negligible to them. The City is also confident that a very large percentage of the people frequenting these dispensaries do not live in the City.

As an example of the process and the time delays that the City incurs in these legal proceedings, what follows are two current active cases.

Downtown Patient Collective ("DTPC") — 9106-9110 Mission Boulevard

The City filed a complaint in November 2015 against Downtown Patient Collective (dispensary) and Jorge Ortiz, Jr. (property owner). In February 2016, the Superior Court issued a Preliminary Injunction prohibiting the distribution of marijuana on this property or any other properties in the City by the dispensary or property owner. On December 19, 2016, the Court held the dispensary in contempt of the Preliminary Injunction. The Court fined the dispensary $1,000 and awarded payment of our attorneys' fees in an amount to be determined at a later date. Previously, in October 2016, the Court declined to hold the property owner in contempt on grounds that he had a pending Unlawful Detainer (eviction) action to evict the dispensary. That eviction case was dismissed on January 18, 2017 when the property owner's attorney apparently failed to appear at trial. This was the second time that attorney failed to diligently prosecute the eviction action. The City has been advised that the property owner has retained a new Unlawful Detainer attorney and has commenced a third round at eviction. In late December 2016, the City learned that the dispensary changed its name to Neighborhood Wellness Center (new dispensary), Francisco Rodriguez (tenant) is the named tenant on the lease, and Franco Enterprises, Inc. (corporation) is registered at the property. On December 27, 2016, the City added the new dispensary, tenant, and corporation as defendants. Legal service on them has been completed, but they have not yet appeared in court in the action. The City expects to file requests for entry of default against them the week of February 27,2017. Most recently, the City has been advised that the dispensary intends to vacate the property in March 2017 and relocate to the former Wells Fargo building at Mission Boulevard and Glen Street (across the street from the current location) as it is purchasing the building. The next hearing in this litigation is a Status Conference on April 12, 2017.

Master Spot Center — 5524 Mission Boulevard

The City filed a complaint in June 2016 against Master Spot Center (dispensary) and Nortglen Realty Group Corp (property owner). Both defendants answered the complaint. In October 2016, the Court issued a Preliminary Injunction prohibiting the distribution of marijuana on this property or any other properties in the City by the dispensary and the property owner. In October 2016, the dispensary filed a notice of appeal to challenge the issuance of the Preliminary Injunction. The dispensary's appeal is currently pending. The property owner has indicated that it will not evict the dispensary for fear that the dispensary will file a countersuit for breach of lease. The City is pursuing contempt against the dispensary, the property owner, and its chief executive officer, Greg Eliasian. The Court will hold a hearing on March 20, 2017 to determine whether these parties are in contempt of the Preliminary Injunction.

As can be seen in just these two examples above, these dispensaries, and property owners, clearly have no intention of obeying the City ordinance, nor ceasing operations even under a court order. Additionally, efforts to engage the Sheriff Department and the District Attorney’s office in investigation and action for any possible criminal activity that may be associated with these dispensaries have to date been unsuccessful. In fact, the District Attorney even declined to file felony criminal charges against a dispensary (since closed) over what was clearly an attempted bribe of a public official. They claim the evidence was not strong enough to gain a conviction. The City strongly objected to their decision, however, their decision stood. The only dispensaries (two) that have been closed by law enforcement were as a result of the San Bernardino County Sheriff’s office closing them as part of a broader criminal proceeding originating in San Bernardino County. Just recently, however, the Riverside Sheriff Department and the District Attorney have signaled that they are now looking into stepping up investigation and enforcement activities related to these dispensaries, so hopefully this will help. Additionally, it was just announced on February 23rd, that the Federal government is going to re-engage in cracking down on recreational marijuana distribution as marijuana in any form is still illegal under Federal law. Hopefully this will also help as more details emerge on this, and we begin discussions with the U.S. Attorney’s regional office and request assistance.  As also can be seen, the legal process through the courts is very slow, something the City has absolutely no control over.

The question of- “why not legalize and tax them?” comes up occasionally. The current policy of the City is to not legalize any commercial marijuana activity due to the as noted before, negative impacts to the residents and businesses in proximity to these facilities. As far as taxing them, first, it would take a vote of the registered voters in the City to approve any tax, and there is no guarantee that the City would receive the full amount taxes that would be due. This is due to the fact that because of Federal law, virtually all banking institutions refuse to allow these dispensaries to have accounts for fear of violating Federal banking regulations. Thus, this industry is a cash basis, with no ability for the City, the State or the Federal government to adequately audit these operations to ensure the appropriate taxes are paid. Thus there is no guarantee that the City would ever receive the full amount of taxes that would be due, and would never receive the taxes that the industry proponents will claim the City would receive. 

In conclusion, I hope this clears up some of the questions related to the illegal marijuana dispensaries in the City, and as always, please be sure to contact City Hall for any questions you have concerning City functions, problems that need addressed, or assistance in activities you are engaged in requiring working with City Hall.

Sincerely,

Gary Thompson
City Manager

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