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California Cities, Counties Grapple With Cannabis

Josh Stephens on
Apr 2, 2018

When California voters approved Proposition 64 in 2016, they did not necessarily unleash an epidemic of cannabis use. Experts say it is too soon to tell whether legalization will lead to an increase in statewide usage over the former combination of black market and medicinal sales that has developed since the 1990s. What they did unleash, though, was a massive and multifaceted regulatory scheme that local and state officials — including urban planners — are just beginning to hash out.  

January 1 marked the official start of legalized recreational cannabis sales statewide. State law permits cities and counties to embrace or reject legalized cannabis as they see fit. Since then, cities and counties have been considering a daunting range of policy options. 

"It’s going to be a long slog,” said Dale Gieringer, California State Coordinator for NORML. "It’s a tough thing to bring everybody into compliance with extremely extensive regulations.” 

Roughly two dozen cities — primarily large cities, such as San Francisco, Los Angeles, Oakland, San Diego, and Santa Ana — have adopted regulations that permit a range of cannabis-related activities. Large swaths of the state, primarily along the eastern border, remain so-called “cannabis deserts.” 

Many, though, have adopted moratoria allowing them to deliberate and observe how regulations play out in permissive cities. 

“The politics is dictating whether they banned or put the moratorium in place,” said Heather Stratman, CEO of the Association of California Cities-Orange County. “Some of the more middle-of-the-road cities want to understand it first.”

Other localities have opted for outright probation.

“There’s no question that a lot of local governments have kicked the can down the road,” said Gieringer. “They’ve just passed a ban so they don’t have to worry about it.” He said he has been “pleasantly surprised” by cities including Fresno, Carmel, and Lompoc that used to be “dead-set against cannabis” but are now allowing some form of legalized cannabis. 

Permissive cities are responding to enticements such as revenue, suppression of the black market, and popular demand. At the same time, they are also running headlong into tough decisions about land use, taxation, public health, public safety, commerce, and community character, among others. 

“My guess would be 120-150 are looking at some form of implementation,” said Tim Cromartie, Senior Advisor for Cannabis Compliance at HDL Companies and former point person for cannabis at the League of California Cities. “The challenge is that many cities didn’t even wake up to this until Prop 64 passed…about a year after that, now they’re getting traction.”

Arguably the biggest debacle so far has taken place in rural Calaveras County. County officials announced a preliminary permitting program and accepted fees from applicants several months ago. The county then did an about-face, announcing that cannabis would be prohibited, absorbing application fees and potentially squandering start-up capital that aspiring businesses had spent.

Most cities that have permitted retail cannabis have instituted controls such as limits on the number of stores, buffer zones between stores and sensitive uses (mainly schools), and regulations on signage and storefront design. While these regulations may seem like common sense, they are not without unintended consequences. 

“Cannabis is this microcosm of all of economics happening all at once. You see the way that policy affects on-the-ground actions,” said Allan Steiner, a consultant with Green Rush Consulting. “You see the fight between regulation and non-regulation and the way that different policy can affect different economic realities.”

Planning and cannabis intersect most directly in the regulations concerning placement and types of facilities that a city adopts. In some ways, facilities for growing, processing, and distributing cannabis are less controversial than retail stores. Industrial facilities are more likely to be viewed as “invisible” — especially if they are confined to areas already zoned for industrial uses — whereas retail facilities must, by their nature, be visible to the general public. 

Greg Minor, assistant to the Oakland City Administrator, said Oakland has tried to restrict locations as little as possible.  

“Essentially we allow them to locate where their non-cannabis equivalent can located, but with some buffers for sensitive uses or buffers for retail,” said Greg Minor, assistant to the Oakland City Administrator and staffer for the Oakland Cannabis Commission.

Nicole Elliott, director of the San Francisco Office of Cannabis, said that San Francisco’s regulations for legalized cannabis are somewhat more liberal than their prior regulations for medical cannabis. The city’s new “Green Zone,” as she put it, reduces many buffers from 1,000 feet to 600 for certain sensitive uses. 

In some cities, especially those that do not place numerical limits on the number of facilities, zoning regulations act as a de facto, or “organic,” limit. They mean that, effectively, there are a limited number of potential sites in a city for cannabis businesses, and that number may or may not comport with consumer demand or entrepreneurial ambitions. 

According to Steiner, this can mean that cannabis entrepreneurship amounts to something of a land rush, in which businesses that receive permits are simply those who secured their real estate first — often at premium prices. 

“What you create is a real estate grab sort of mentality,” said Steiner. “Having control over the real estate becomes one of the primary pieces that makes you competitive.”

While some cities are encouraging cannabis entrepreneurship among minority and disadvantaged populations, the permitting process can work at cross-purposes. 

“Starting a business in San Francisco is very expensive,” said Elliott. "Sitting on that land and going through the appeals process can be an incredibly high barrier to entry for any small business, especially cannabis.”

The City of Oakland is trying to avoid this problem by issuing its limited number of citywide permits to approved operators (determined by a combination of application and lottery) regardless of whether they have storefronts already secured. Minor said that the city has issued eight permits, out of about 115 applicants. 

“The overall philosophy has been to minimize barriers to entry,” said Minor. “We did not require that people have a property owned or leased as a prerequisite, which I think was unique or definitely not common. Typically even the city of Oakland in the past had required people to have a property up-front.”

Even this strategy is not without complications. 

“I've heard anecdotally that landlords will increase the price for a cannabis operator as compared to a non-cannabis operator,” said Minor. “On the flip side, we hear some anecdotes about non-cannabis operators being displaced…. We’re sort of balancing those concerns.”

Even on their merits, Steiner has questioned whether buffer zones, which are typically 600 or 1,000 feet, even serve their intended purposes. He suggests that they serve more as political bargaining chips, which cities can use to satisfy skeptics of legalized cannabis, rather than genuine protections against abuse. 

“I don’t know that the difference between 600 versus 1,000 feet from a school makes any difference in how often (children) see that building, how enticing that business is to them, how accessible it is,” said Steiner. “It’s a taboo subject, so we use buffers rather than having conversations.”

Elliot said that buffers tend to inspire “some of the most politically driven conversations."

Steiner suggested that even before cities delve into the niceties of buffer zones and permitting schemes, they first need to understand the existing cannabis-related landscape. In particular, cannabis’ quasi-legal status over the past decade or so created a literally countless number of grey-market businesses. Some say that cities must first discover and map those businesses before they implement an aboveboard permitting scheme. 

“You need to understand the businesses that are currently operating in your town,” said Steiner. “If you don’t think they’re there, there’s a good chance you’re not paying attention.”

Some cities have offered temporary “amnesty” to these businesses to enable them comply with new regulations. 

Even communities that have rejected cannabis are not necessarily immune to the cannabis trade, legal and illegal. The absence of legalized retail cannabis in some places all but ensures that the black market will continue to thrive. Orange County, a geographically small county with a population of over 3 million, has only two permitted cannabis stores, both in Santa Ana. 

“When cities ban it or put moratoriums in place, it drives the black market,” said Stratman. “I think that’s an issue that has not come to a head yet. If we’re trying to regulate it well, keep it out of the hands of children, and put tight restrictions in place, we lose the opportunity to do that by just saying no.”

Stratman said that this situation is a natural consequence of local political decision-making. 

“You have 34 cities (in Orange County) that, when they’re creating these ordinances, look at it from their own jurisdictional boundaries,” said Stratman. “Versus where my thoughts go all the time: these are all transcending issues. The sale of marijuana has no jurisdictional boundaries.”

A handful of traditionally conservative counties, such as Butte, Lassen, and Yolo, have approved cultivation of cannabis without approving manufacturing or retail. Presumably this reflects the proliferation of marijuana farms that often elude law enforcement in the first place. Ironically, California’s bumper crop of now-legal marijuana may be fueling black markets elsewhere. 

Cromartie noted that Californians consume only 30 percent of the marijuana produced in-state (a crop estimated to be worth over $20 billion annually). The rest of of it goes somewhere else, meaning, “we’re basically the breadbasket for cannabis in this country." He lamented that the state did not cap the total amount of marijuana grown in the state to a level that would be consistent with in-state consumption — especially because of the federal government’s concerns about interstate trafficking. 

“So of course we’re in the gunsights of the feds,” said Cromartie. “They have an ongoing justification to ramp up enforcement efforts.”

Local officials are generally complimentary of the state’s regulations, in part because they give so much discretion to localities. They acknowledged, though, that the situation for the next few years will remain in flux. The current regulations were drafted as emergency regulations and therefore are expected to be amended as policymakers develop a sense of what the recreational cannabis industry looks like. 

Elliott in San Francisco and Minor in Oakland both said that original state regulations neglected to allow for shared use of facilities, such as different producers using the same industrial kitchen to produce edibles. Elliot added that another shortcoming that has become evident are strictures on times and methods of delivery to retail establishments that don’t have generous street frontage or loading zones. 

“They haven't necessarily thought about how these activities occur in dense urban environments when drafting their regulations,” said Elliott. 

Elliot suggested that the operators have ample opportunity to demonstrate their good faith and neighborliness. She cited one store that is acting like a miniature business improvement district by hiring roving security personnel and beautifying their block. She said that her office serves in part for a resource for other businesses that want to be good neighbors in the legalized economy. 

“With the creation of this office and the new permits we are trying to ensure that they are integrating into their communities in a thoughtful way,” said Elliott.

Ultimately, cannabis’ presence in the urban landscape may depend on the arcana of tax policy. Currently, the state taxes cannabis purchases at 15 percent, and localities are free to add their own taxes. Many are doing so, arguing that — like it or not — cannabis represents a revenue source. Supporters of legalization caution against setting tax rates so high that they inadvertently privilege the black market. 

Cromartie noted that the tax burden on legal cannabis is even heavier than it might appear. Cannabis businesses cannot take any federal tax write-offs and therefore must bear greater financial burdens than conventional businesses do. 

“Unlike other businesses -- if they’re selling tires -- they get deductions from their taxes,” said Cromartie. “The cannabis business gets zip. They have additional overhead that other businesses don’t have, and they have to just eat it.”

What this means for cities is that storefront cannabis is still competing with streetcorner drug deals. 

“I think it's going to take 2-3 years to really implement a statewide licensing system that displaces the criminal market, at least for California,” said Gieringer.

Contacts & Resources  

California Cannabis Portal

Weedmaps - California

Be Green Legal Regulation Map

Tim Cromartie,Senior Advisor for Cannabis Compliance, HDL Companies, TCromartie@hdlcompanies.com

Nicole Elliott, Director, San Francisco Office of Cannabis, nicole.elliott@sfgov.org

Dale Gieringer,California State Coordinator, NORML, dale@canorml.org

Greg Minor, Assistant to the Oakland City Administrator and staffer for the Oakland Cannabis Commission, GMinor@oaklandnet.com

Allan Steiner, Client Relations Specialist, Green Rush Consulting, services@greenrushconsulting.com

Heather Stratman, CEO, Association of California Cities-Orange County,  hstratman@accoc.org

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