A Cautionary Tale

A beloved nonprofit has stirred controversy over its plan to open a medical cannabis dispensary in San Leandro.

For the past three decades, city and county officials have heaped praise on San Leandro’s Davis Street Family Resource Center for providing food, clothing, and medical services to low-income residents. The city has also helped steer millions of dollars in state and federal funding to the nonprofit. But now several San Leandro public officials say the relationship between the city and Rose Johnson, CEO of the Resource Center, has soured. That’s because Johnson is seeking to open a medical cannabis dispensary in San Leandro, and the growing animosity between her and the city is threatening the future of the business, which is to be known as the Davis Street Wellness Center.

And now other East Bay cities, which are also grappling with how to navigate California’s new cannabis licensing bureaucracy before an end-of-the-year deadline, are taking notice of San Leandro’s controversy.

Until recently, neighboring cities like Alameda viewed San Leandro’s strategy for opening its borders to medical cannabis dispensaries as a template. In 2015, San Leandro avoided politics and used objective criteria to allocate its first dispensary permit, which went to Oakland-based Harborside Health Center. During that process, city officials ranked the Davis Street Wellness Center as a distant second to Harborside among five finalists. City officials noted that the Wellness Center lacked expertise in the day-to-day operations of a dispensary.

But then the following year, the council changed course and awarded a one-year permit to the Wellness Center. San Leandro Mayor Pauline Russo Cutter said she believes a relentless lobbying effort successfully twisted arms on the council. “I felt like certain people [on the council] wanted them to get it,” said Cutter, referring to the Wellness Center. A few months later, the council also awarded a third dispensary permit to Blüm, which also runs a dispensary in Oakland. However, none of the dispensaries have yet to open in San Leandro.
Johnson’s permit for her proposed dispensary was only good for one year. Although the council extended the permit this summer, it may let it expire this fall — despite an intense lobbying campaign.

The political arm of the Davis Street Wellness Center has strong ties to San Leandro politics and is led by ex-Councilmember Gordon Galvan, who also serves as the Davis Street Family Resource Center’s board president. Galvan is also part of the Wellness Center dispensary group, in addition to being an East Bay lobbyist.

In an interview, Galvan readily acknowledged that his group heavily lobbied the city and council for a second dispensary permit in San Leandro. “We put out a proposal that was really compelling and supports the community,” he said. “People try to say, ‘Wow! You bullied the council.’ We didn’t. We talked. It’s their job to listen to people on both sides who lobby them.”

In recent months, the Wellness Center has also enlisted a former mayor and councilmember to gain the council’s support for a renewal of its one-year permit.

But during the past year, Davis Street Family Resource Center’s CEO Johnson’s public image has been tarnished by the dispensary controversy and her nonprofit’s inability to repay the city a $1.5 million loan.

The Wellness Center’s push for a dispensary permit in 2016 ran concurrently with Johnson repeatedly appearing before the council to answer questions about the loan after it had become delinquent. In an interview Johnson said she told the city that the nonprofit’s new clinic, which was constructed using federal funding, was struggling. In fall 2016, Johnson notified the city that she couldn’t repay the loan at the time, but could commit to a payment schedule. She said she was surprised to then receive a bluntly worded letter from the city manager that suggested she was a liar. She said the resulting negative public chatter was hurtful to her and the nonprofit, which has grown substantially since she took the helm in 1991.

Johnson said she heard people say, “Davis Street is going down the tubes,” and “she doesn’t know what’s she doing.”

The city’s relationship with Johnson and the Resource Center unraveled further last year when the city administration learned that the property the Resource Center used as collateral for the $1.5 million loan was encumbered by two other lenders. The arrangement alarmed city officials for its potential of leaving San Leandro taxpayers on the hook if the Resource Center defaulted on the loan.

Councilmember Lee Thomas was one of the first to publicly question Johnson. “We expect to be partners, and there’s a level of trust needed between partners,” said Thomas. “If you put a property up for collateral, and then you find out the city is third in line for the loan, there’s a level of trust that is broken.”

Thomas said Johnson and others who signed the loan document have a wealth of experience in financial matters. “I just don’t think that was a mistake,” he said.

Ultimately, the Resource Center repaid the $1.5 million loan after Johnson procured a separate loan from an outside investor.

But the Wellness Center faces additional obstacles for its dispensary proposal. The most significant one is the planned site on Teagarden Street, just a few blocks from Marina Boulevard. Although the site is in a permitted area of the city known as a “green zone,” city officials maintain it’s unacceptable because of its proximity to a recreational boxing facility that hosts programs for children.

In addition, the Resource Center purchased the planned Wellness Center dispensary property in 2010 using a portion of a $500,000 federal Community Development Block Grant loan it received, and city officials maintain that opening a cannabis facility at the location is a non-permitted use. If true, the nonprofit would have to pay back the remaining $320,000 balance on the federal loan. Attorneys for the Wellness Center have balked at the interpretation of the agreement, according to public records, saying there is not a defined use in the federal loan agreement. But city officials have been steadfast in their position.

California cities have until the end of the year to either ban cannabis businesses or allow them to operate. If they fail to do either, then the state is allowed to issue cannabis licenses in those jurisdictions and cities lose local control of the process. And many East Bay cities are now looking at San Leandro as a cautionary tale.

“I like the blind, apolitical method San Leandro used for its first dispensary — that’s attractive because anytime you have money involved, it’s susceptible to the political process,” said Alameda Councilmember Jim Oddie, whose city may green-light dispensaries and other cannabis-related businesses this fall.

The San Leandro Board of Zoning and Adjustments will hear the Wellness Center’s conditional-use permit proposal in early October. And though the Wellness Center’s managers like their chances, they say they’re mystified about how the debate over their plan has become ferocious. Galvan blames critics of the dispensary, including rival cannabis interests who he said are “jealous” of the Wellness Center’s proposal, and asserts those same interests are disseminating salacious information to city officials.

“Everybody wants us to stay in our lane,” said Galvan. “Rose [Johnson] is great only when she stays in her own lane and feeds the poor. But now she’s ruffling feathers and they don’t like that.”

Johnson, though, is more sanguine about the future. “I see this as a blip in San Leandro history. This is an unusual time, and, yes, this will pass.” l


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