SLO cannabis retailer files lawsuit against city over revoked permit. City defends action
A San Luis Obispo County cannabis company has filed a lawsuit against the city, claiming the license for its retail store operator permit was improperly revoked in October — which the city attorney vehemently denies.
Natural Healing Center (NHC) is formerly owned and operated by Helios Dayspring, who has pleaded guilty to federal charges of bribery involving the late SLO County Supervisor Adam Hill and under-reporting millions of dollars in taxes, according to U.S. District Court records.
Dayspring is scheduled to be sentenced on Feb. 11, 2022. His NHC ownership interests have been transferred to his girlfriend, Valnette Garcia.
The lawsuit alleges the city misapplied its own permitting policies when SLO officials sent a letter to the company in October revoking NHC’s permit based on Dayspring’s criminal actions, citing “false or misleading information in obtaining and maintaining the operator permit.”
The lawsuit said the city had authority to deny the permit during the application process, but not after it was granted, based on its own policies.
“The city only has discretion to deny a cannabis license applicant from applying or obtaining a permit,” NHC’s lawsuit claims. “Once a cannabis application has ripened into a cannabis permit, the ordinance governing cannabis applications no longer applies to permit holders by its express terms.”
NHC also claims that at the time the permit was granted, Dayspring “was not a member or owner of NHC, as his interests had previously been transferred to Ms. Valnette Garcia, with the city’s written consent.”
“Garcia had no criminal past — nor were there any other circumstances that would disqualify her or (NHC) from operating a retail operation under the permit,” the lawsuit states.
The lawsuit, filed in San Luis Obispo County Superior Court on Dec. 23 by the company’s Laguna Hills attorney John Armstrong, also alleges the company should have been granted a hearing before the permit was taken away, according to city policy, but wasn’t.
NHC could see ‘financial destruction’
NHC is on the hook for a five-year lease at an initial monthly rental rate of $55,000 per month, the lawsuit claims, and “NHC anticipates that it will be liable for the landlord’s cost and expense of improving the premises, over $4 million, which will result in the financial destruction of NHC.”
NHC also has retail cannabis stores in Morro Bay, Grover Beach, and Lemoore, as well as delivery services.
The permit was revoked before NHC ever opened its doors for operation in SLO. The business was renovating the shop, nearing completion to open, when the city informed the business it couldn’t operate.
The cannabis company held a rally attended by several employees outside of City Hall on Oct. 19 lobbying the City Council to reverse the city’s staff’s decision to terminate the permit.
But the effort came to no avail, as City Manager Derek Johnson said at the council meeting that the decision to revoke was a difficult one, but the facts supported disqualification.
Johnson said the company’s application for permitting needed to “adhere to both truthfulness and a background check and, unfortunately, we are in the situation that the facts led staff to its decision.”
SLO response
City attorney Christine Dietrick told The Tribune on Thursday that the city’s position has not changed, calling it “legally supportable.”
“Their (principle owner’s) criminal misconduct was entirely within their control,” Dietrick said. “And the consequences for that are theirs. We think that the city has acted fairly, appropriately, and in a way that’s legally supportable.”
Dietrick added: “I don’t think there’s anything that we’re seeing in the lawsuit itself that is different in nature from than what they’ve asserted previously.”
In an October city news release citing the company’s permit revocation, SLO officials point to an application process in which Dayspring told San Luis Obispo officials that he had “not ever spent money for illegal purposes, falsified any documents or was involved in tax fraud or evasion of taxes.”
The city approved the company’s retail operator permit in March 2019.
“However, (through the guilty plea) he now admits to committing several crimes before the application period, including making a false tax return in 2018, underreporting his individual taxable income, bribing an elected official and attempting to bribe another elected official,” the city said.
Dietrick told The Tribune that “providing false or misleading information in the application process is an automatic disqualification.”
“Their argument is essentially, ‘Well, you didn’t catch it then. So now you have to pretend it didn’t happen.”
Describing the situation as “a bit of common sense,” Dietrick said: “They’ll argue their case to the court and so will we. The fact that they continue to invest millions of dollars into the building is neither here nor there, because they were the only ones that were in control of the information.”
Dietrick said that “we were super clear that we didn’t want people who were engaged in that kind of conduct doing business in the city of San Luis Obispo.”
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