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Modesto council approves permits for city’s first eight marijuana dispensaries

The Modesto City Council on Wednesday awarded its first-ever permits to eight retail marijuana businesses looking to sell cannabis products out of storefronts.

The council held a special meeting Wednesday afternoon to discuss and then vote on approving the permits for the dispensaries. The public and the retail applicants were invited to attend and speak at the meeting.

More than 20 people spoke during the three-hour meeting. About half of them were opposed to the businesses operating near residential neighborhoods, near schools or in already congested areas with minimal parking. The other half were marijuana retailers who felt the permitting process was unfair or cannabis owners defending their operations and explaining the benefits of opening Modesto to this new industry.

“We knew that we’re not going to make everyone happy,” Councilwoman Jenny Kenoyer said during the meeting. “I just hope that before you start throwing rocks at us that you give it a chance and see how it works out. And if it doesn’t work out, and it’s really bad, then you can throw rocks at us.”

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Mason Neumann, 15, right, holds a sign protesting the permitting of three cannabis retailers on McHenry Avenue during a special Modesto City Council meeting on cannabis dispensary permitting at Tenth Street Place in Modesto, Calif., Wednesday, Dec. 19, 2018. Andy Alfaro aalfaro@modbee.com

Kenoyer, Mayor Ted Brandvold and Councilman Mani Grewal made up the council’s Ad Hoc Cannabis Committee. The committee, along with city staff, recommended eight retail cannabis businesses as finalists out of its pool of 20 total applicants following a nearly year-long vetting process. Representatives from HdL Companies, Modesto’s contracted cannabis compliance agency, helped city staff review the applications and select the finalists.

The council voted 6 to 0 to approve the eight retail permits. Councilwoman Kristi Ah You recused herself from Wednesday’s vote. As a managing partner of Franklin & Downs Funeral Homes, which has a location along McHenry Avenue near some of the marijuana retailers, Ah You said she had a conflict of interest.

“I don’t want to be the swing vote,” Ah You said shortly before leaving the meeting.

In December 2017, the council decided to allow up to 10 marijuana retail businesses to be permitted, but barred them from the downtown area. The two remaining retail permits are still available and can be awarded by the council at a later date if necessary. The two-year permits have a stringent compliance process that could result in suspensions or revocations of the permits, according to city officials.

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Council members Jenny Kenoyer, left, and Bill Zoslocki listen to public comment during a special Modesto City Council meeting on cannabis dispensary permitting at Tenth Street Place in Modesto, Calif., Wednesday, Dec. 19, 2018. Andy Alfaro aalfaro@modbee.com

Several audience members were upset that four finalists are opening storefronts along McHenry Avenue, three of them located between Orangeburg Avenue and downtown Modesto. Some wondered about saturating the area with competing businesses, while others were worried about the vagrancy and crime that they felt could result from such businesses.

Amy Neumann, a resident of the neighborhood near McHenry Avenue, said the area already suffers from vagrancy and theft because of its proximity to the busy corridor that leads to downtown. Neumann is a member of the Modesto City Schools Board of Education, but she was not speaking on behalf of the board.

“This is not fair; this is not right,” Neumann told the council.

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Terry Swehla, also a resident who lives in the neighborhood near McHenry Avenue, wondered why city officials weren’t recommending cannabis retailers in north or east Modesto.

“There are other locations, go back to the drawing board,” Swehla told the council members.

Grewal told the audience that they tried to recommend retailers that were farther apart from each other or in other areas of town, but they didn’t have control of which businesses applied for the permit. Nine of the 20 applicants were for storefronts along McHenry Avenue.

Aside from location, Grewal said, the committee wanted to make sure the retailer business plans and revenue projections were attainable. He also said that retailers’ vested interest in the community was an important factor.

For instance, one business applicant along Yosemite Boulevard is owned and operated by a married couple with a child in a local school district.

“One of the biggest things we looked at was local. People that were vested in the community, people that were afraid of their name being brought out in the media if something got done wrong,” Grewal said.

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Council memebers listen to public comment during a special Modesto City Council meeting on cannabis dispensary permitting at Tenth Street Place in Modesto, Calif., Wednesday, Dec. 19, 2018. Andy Alfaro aalfaro@modbee.com

The councilman told the audience that the committee put a lot of thought and deliberation into its decisions, and they wanted to mitigate the risks to the city and the nearby neighborhoods. The committee asked applicants about their security plans, both security guards and electronic surveillance.

Attorney Mike Warda, representing CV Wellness and Phenos Cooperative, which had their dispensaries on McHenry Avenue approved, said the facilities all have great security plans. Phenos Cooperative, which has operated the Patient Care First dispensary in Ceres for the past year, sees over 800 customers a day and has had no calls for police service during that time.

“Whatever neighborhood you put them in actually improves the neighborhood in terms of security. There’s no doubt about that,” Warda said.

The approved Phenos Cooperative site is in the old In-Shape gym on McHenry Avenue, between Orangeburg and Roseburg avenues. The other three sites on McHenry would go into the old Mitri’s Rugs building (CV Wellness), the former Bonanza Books & Comics site (The People’s Remedy) and new construction on the current SmogTech property (Medallion Wellness).

Depending on how much renovation needs to be done to the properties, the dispensaries could take up to about six months to open. The council also required an 8-foot-high wall to create a barrier between the cannabis retailer and nearby residential neighborhoods, schools or parks.

Each of the 20 cannabis retail applicants underwent a multi-step vetting process that included submitting business plans, undergoing background checks, providing financial disclosures, establishing security plans and completing face-to-face interviews. They were then given technical scores and community benefit scores, which were compiled into their final scores.

The recommendations, however, did not just select from the top total scores. City staff said the committee also took the diversity of operator backgrounds, variety of operational sizes, business locations and general neighborhood and safety impacts into account.

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Aaron Boshart represents Modesto Cannabis Company as he makes a comment to the city council during a special Modesto City Council meeting on cannabis dispensary permitting at Tenth Street Place in Modesto, Calif., Wednesday, Dec. 19, 2018. Andy Alfaro aalfaro@modbee.com

The City Council has approved an 8 percent tax for cannabis retail businesses. The council at its Dec. 4 meeting also approved tax rates for other types of cannabis businesses in Modesto, including distribution, microbusiness, manufacturing, indoor cultivation and testing labs.

Modesto’s retail tax will be in addition to state taxes and regular sales taxes on cannabis products in California. That means cannabis customers in Modesto retail stores will likely be paying slightly more than 30 percent in taxes, which will be reflected in their sales receipts.

About a dozen recreational cannabis shops are currently open in the unincorporated parts of Modesto and across Stanislaus County, many of which had been open as medical marijuana dispensaries before Proposition 64 was passed in November 2016.

The county is still in the midst of its own, separate permitting process for its cannabis retailers. The county could begin bringing its finalists to the Planning Commission and Board of Supervisors as early as January.

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Rosalio Ahumada writes news stories about criminal court cases in Stanislaus County for The Modesto Bee, issues related to immigration and immigrant communities and breaking news related to crime and public safety. From time to time, he covers the Modesto City Council meetings. He has worked as a news reporter in the Northern San Joaquin Valley since 2004.
Marijke Rowland writes about new business, restaurant and retail developments. She has been with The Modesto Bee since 1997 covering a variety of topics including arts and entertainment. Her Business Beat column runs multiple times a week. And it’s pronounced Mar-eye-ke.
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