Your first step should be to locate an attorney to evaluate the actual facts as you know them. You will get advice you can rely on instead of analysis.
That attorney can then send a cease and desist letter with the appropriate exhibit of your trademark registration. It will have a totally different reception than if you write it alone.
Next would be to file an ICANN complaint to remove the allegedly cybersquatting offender.
The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.
Yes, you have legal grounds to make them stop. Even without a federally registered trademark, you have common-law trademark rights in the brand name you use for your business. You may also have claims under California law. You may also have grounds to stop them from using that domain name under the UDRP. Consult with a trademark attorney ASAP.
This comment is NOT LEGAL ADVICE and is posted for informational purposes only. I am not your attorney; you are not my client. Both you and any other person reading this comment SHOULD NOT RELY UPON this comment. Regardless of the information provided in this comment, any reader of this comment should CONSULT AN ATTORNEY to get the legal advice you are seeking.
You seem to be conflating domain name registration and trademark/servicemark protection. You could, if you are the first user in commerce with six years priority, likely stop either. The servicemark would be a claim for infringement in a state court if these are, as you say, local to the same area. The domain name would be an issue for what is called a UDRP proceeding. For either, you will need an IP attorney, and it would be best to get one local. Several will answer your question. Choose one and give a call.
I am not your lawyer and you are not my client. Free advice here is without recourse and any reliance thereupon is at your sole risk. This is done without compensation as a free public service. I am licensed in IL, MO, TX and I am a Reg. Pat. Atty. so advice in any other jurisdiction is strictly general advice and should be confirmed with an attorney licensed in that jurisdiction.
While I agree with the other attorneys that an attorney is probably the best route at this point, you could try and draft a cease and desist on your own. If that doesn't work, which it probably won't then your only real option would be to hire an attorney who handles these matters. In areas such as this, it is not necessary to hire a local attorney, but it is critical to hire one that understands trademarks, domain names and internet law.