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Dispensary applicants sue Costa Mesa for a permitting process they say is far too hazy

A dispensary in Wilmington, Calif., seen in 2019.
A Wilmington, Calif., dispensary in May 2019. The city of Costa Mesa began accepting applications for retail cannabis business permits on Thursday, but one would-be operator claims the selection process is potentially unfair.
(Allen J. Schaben / Los Angeles Times)

Costa Mesa on Thursday began accepting applications for cannabis dispensary permits, but one business looking to grow roots in the city has already filed a lawsuit claiming the process is inscrutable and possibly favors certain candidates over others.

In a petition filed Tuesday in Orange County Superior Court, petitioners with RD x Catalyst-Costa Mesa LLC allege members of the City Council defied Measure Q — a ballot initiative passed by voters in November — when they left creation of a permitting process to the discretion of City Manager Lori Ann Farrell Harrison.

“The City Council improperly delegated significant policy issues with a blank check to the city manager in contravention of the letter and spirit of Measure Q,” the document states. “The city manager [then] developed a prioritization process that … provides a priority application window for highly coveted cannabis storefront retailers.”

Measure Q’s ballot language states retail cannabis regulations shall be “adopted by ordinance with a two-thirds vote of the entire City Council.” And while ordinances were passed with 5-2 votes in a first and second reading in April and May, the council never defined how applications would be reviewed and processed, instead leaving that up to city staff.

Petitioners allege Farrell Harrison drafted a “fake” social equity program and other last-minute rules that were posted to the city’s website Friday, six days before the application window opened.

For example, marijuana manufacturers and processors already doing non-retail business in the city’s “Green Zone” have been granted priority status for applying for storefront dispensary permits, even though the council and the city’s planning commission never indicated such provisions would be made.

A social equity program designed to give top priority to minority candidates historically subjected to unfair treatment under punitive marijuana laws, undone in 2016 by California’s Proposition 64, applies to candidates who have lived in Costa Mesa for at least five years and who meet certain other criteria.

“They made the city manager the god of cannabis. [And] the city manager, who’s not elected, came up with all the policies on her own,” Elliot Lewis, co-owner of RD x Catalyst-Costa Mesa, said in a phone interview Thursday. “That needed to be debated in the chambers of the City Council with free speech and democracy and input from everybody in the community.”

Damian Martin, a Long Beach attorney who filed the petition and is a co-owner alongside Lewis, said in an interview that he’s sued multiple municipalities on behalf of cannabis retail applicants denied permits by city staff who failed to follow their own policies and procedures.

Tuesday’s petition, however, marks the first time Martin has preemptively sued a city before an application had even been submitted.

“Even if you wanted to try to comply and go along with it, it was impossible,” Martin said of the process. “The rules that were proposed were totally confusing and inconsistent. And they only had 15 slots to process applications, so if you don’t make the first 15, you’re waiting.”

Martin and Lewis submitted an application for Catalyst-Costa Mesa two minutes after the 8:30 a.m. window opened on Thursday. But the effort to secure a storefront began months earlier when the owners, who’d scoped out a map of the Costa Mesa parcels where they might ply their trade, leased a commercial property on 17th Street in July.

“This has been on our radar for about five or six months,” Elliot said. “Once the map was out, we wanted to secure good real estate, because that’s super important.”

Costa Mesa officials did not respond Thursday to a request for clarification of the city’s application process, how many applications had been received and exactly how candidates would be selected.

Petitioners are seeking an injunction that would require the city to stop receiving and processing cannabis permit applications until the City Council adopts regulations specifically relating to social equity and a prioritization process.

But in the meantime, Martin and Lewis are hopeful that, lawsuit aside, the application they’ve submitted will stand on its own merit.

“All we ever want is a fair process,” Lewis said. “I suspect they’ll reject us, but we shall see.”

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