Natural Healing Center loses preliminary ruling for reinstatement of SLO cannabis permit
A judge has denied a temporary restraining order requested by a local cannabis company seeking to reinstate its operator permit in the city of San Luis Obispo.
SLO County Superior Court Judge Judge Rita Federman issued her written ruling Tuesday regarding the lawsuit that Natural Healing Center (NHC) has filed against the city.
The city revoked the permit in October, citing false and misleading information provided by Helios Dayspring, the business’ former owner, during the city’s cannabis permit application process.
That led to the business’ automatic disqualification, according to SLO officials.
Dayspring pleaded guilty in July to federal bribery and tax evasion charges and faces a Feb. 11 sentencing.
Federman’s ruling means that NHC’s lawsuit against the city may proceed, but NHC won’t get its permit back for the time being.
Federman wrote that NHC’s request for injunction failed to meet the legal threshold, citing persuasive evidence presented by the city to show that Dayspring made “material misrepresentations in the application process that adversely impacted the approval of the permit. Such acts violate the San Luis Obispo Municipal Code.”
“The fact that Mr. Dayspring is no longer a member or owner of (NHC) is of no moment, given that his statement formed the basis of approval,” Federman wrote. “In short, (NHC) fails to show that this is an ‘extreme case’ where the right to a mandatory temporary restraining order is clearly established.”
NHC filed the lawsuit against the city, claiming the license for its retail store operator permit was improperly revoked in October and alleging the city misapplied its own permitting policies — which the city denies.
Reinstating the permit would not allow NHC to open, but it would allow the company to “continue with the process of completing the remaining city sign-offs needed to open,” according to NHC’s attorney, John Armstrong, of Laguna Hills.
NHC has SLO County cannabis stores in Grover Beach and Morro Bay as part of its various business operations.
The company was planning to open a store on Broad Street in SLO, where it had completed extensive building upgrades.
Bribery, tax evasion impacts
In July, Dayspring pleaded guilty to one count each of bribery and filing a false tax return, encompassing a period leading up to the falsified city operator permit application, San Luis Obispo officials said.
Dayspring admitted to federal charges of bribery involving the late SLO County Supervisor Adam Hill, whom he paid $32,000 in exchange for votes and influence affecting Dayspring’s cannabis business interests, according to U.S. Attorney’s Office, Central District of California.
Dayspring also admitted that he and a business associate attempted to bribe former Grover Beach Mayor John Shoals with $100,000 during a dinner meeting in September 2017; Shoals never responded to the offer, and Dayspring didn’t pay the bribe, the news release said.
And Daypsring under-reported millions of dollars in taxes, for which he must pay $3.4 million in restitution to the IRS, the U.S. attorney said in a news release.
“NHC and Mr. Dayspring concealed and failed to disclose in the application process — as required — Dayspring’s shocking history of criminal and fraudulent conduct, which included bribing elected officials to obtain favorable treatment in his various cannabis enterprises and committing felony tax evasion,” wrote attorneys Jeffrey Dunn and Daniel Richards, who represent the city in the case.
Dayspring’s NHC ownership interests have been transferred to his girlfriend, Valnette Garcia.
SLO’s attorneys added: “Simply stated, it is not and cannot be the law that the city can be compelled to be an unwilling and unwitting instrument of fraud and to perpetuate the operation of the fruits of that fraud in the city.”
NHC’s argument
Armstrong, NHC’s attorney, wrote that the city terminated the license “without a hearing in violation of the city’s own ordinances, and before NHC was open to the public for business.”
“This has put NHC’s state cannabis license in jeopardy since a local license is required to maintain the state license, and it will take 12 to 14 months to reinstate NHC’s state license, at which time NHC will run out of funding and not be able to open its cannabis dispensary for such unnecessary delay from the city’s improper conduct,” Armstrong wrote.
NHC contends the landlord’s cost and expense of improving the planned Broad Street location for opening its retail shop is in excess of $4 million and NHC will remain liable under its lease with the landlord, which has a term of five years at $55,000 per month, NHC’s request for relief noted.
And because Dayspring’s interests have been transferred to Garcia, who has no criminal record, the permit should remain valid, according to NHC’s case.
But the city noted that Dayspring is the landlord of the SLO building, saying that NHC has acknowledged that.
“(NHC) alleges and acknowledges that Dayspring remains the ‘landlord/property’ owner of the building at which NHC hopes to operate, and thus remains in a position to both exercise substantial control over the operation and to benefit financially from NHC’s operation,” SLO’s attorneys wrote.
In October, a large group of NHC employees protested outside City Hall, calling on the San Luis Obispo City Council to reverse staff’s decision to revoke the company’s permit.
In response, city staff members said in a statement that officials were disappointed to learn of Dayspring’s criminal actions, adding the city seeks to ensure a level playing field for businesses to support a safe cannabis industry.
“While the business has not yet opened a storefront in San Luis Obispo city limits, we cannot ignore evidence of admitted criminal conduct that suggests the city was induced to issue a storefront permit under false pretenses, irrespective of current ownership,” the city added.
This story was originally published February 3, 2022 at 10:57 AM.
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