San Diego is creating a new Cannabis Permitting Bureau to step up enforcement of city regulations and potentially revoke permits of dispensaries and production facilities that repeatedly violate the rules.
The bureau, with a nearly $1 million annual budget and nine full-time employees, will also centralize the permit approval and renewal process for the city’s cannabis businesses as the industry continues to steadily expand.
Amid the COVID-19 pandemic, the first wave of permitted cannabis production facilities has begun to open and more permitted dispensaries are beginning operations across the city.
Business boomed at San Diego dispensaries when they were declared essential operations during the early days of the pandemic lockdown, but industry leaders say sales have waned since then.
A key factor has been that many customers shifted away from in-store purchases toward deliveries, where permitted dispensaries face sharp competition from the region’s cannabis black market.
The industry also has face similar hurdles as other businesses implementing safety protocols, such as cleaning facilities and providing personal protective equipment for workers.
Cannabis businesses are not eligible for federal stimulus money because federal law, which still calls the drug marijuana, classifies it as illegal to buy, sell, produce or consume.
The city’s new Cannabis Permitting Bureau will have a dual goal of centralizing approval of cannabis businesses and cracking down on ones that violate their complex and highly restrictive city permits, said P.J. Fitzgerald, an assistant deputy director in the Development Services Department.
“We will be doing proactive code enforcement where necessary and revoking permits for what we call ‘bad actors’ if necessary,” she said.
That will be a significant shift for the city, which now regulates such businesses only in reaction to complaints.
Fitzgerald said it makes sense to treat cannabis businesses differently than other businesses with conditional use permits. Dispensaries are often compared to bars, and the city’s new approach will reflect that.
“I think it’s the nature of the use,” Fitzgerald said of the motive behind proactive enforcement. “It also aligns the city of San Diego with other cities and jurisdictions throughout the state and country.”
The local cannabis industry is welcoming the new bureau, particularly the city’s decision to dedicate more resources to approval and renewal of permits. The bureau will have an annual budget of $970,000.
The stepped-up enforcement also is getting positive reviews from the industry, which generally has strived to comply with city laws as part of an overall effort to legitimize businesses that were illegal only a few years ago.
Legal vs illegal operations
Rakesh Goyal, owner of the Apothekare dispensary in Mission Valley, said most dispensaries have a full-time compliance officer dedicated to ensuring that the business obeys every city and state regulation.
Dispensary owners have spent so much to obtain scarce city permits that it makes no sense to jeopardize their businesses with violations, he said.
“This is coming because of maybe one or two bad actors,” said Goyal, who is on the board of a coalition of local cannabis businesses called the United Medical Marijuana Coalition.
Opponents of legal cannabis are giving the city’s new bureau mixed reviews.
Scott Chipman, a leading local cannabis opponent, said the bureau would further legitimize what he characterizes as illegal drug dealing by creating a new bureaucracy around it.
“It’s nice to know the city actually recognizes that some of these permitted businesses are operating outside the law,” he said. “But I have little expectation it will make a difference.”
Another concern is a city plan to pay for the bureau by increasing fees paid by the industry. Chipman said that would increase the price gap between cannabis from legal businesses and from the black market.
Goyal said that price difference — always a factor in the black market’s persistence — combines with customers’ preference for deliveries more than in-store purchases during the pandemic.
Black market cannabis operations have become experts at delivery, he said, because their businesses have been forced to focus on that since the city shut down hundreds of illegal storefronts a few years ago.
Many legal dispensaries also offer deliveries, but they charge more and often take hours longer because the cannabis must be bagged, tagged and recorded under state and city rules.
Goyal said he thinks a significant chunk of cannabis sales have shifted to black market deliveries during the pandemic.
“Their sales are blossoming while many of us are just treading water,” he said. “Anyone who thinks we have cash raining down on us is sorely mistaken.”
Goyal also is competing against other permitted dispensaries, which continue to steadily open across the city.
The number of operating dispensaries reached 20 during the pandemic, and five more have received city approvals. Of those five, four are in the process of obtaining city building permits and one is facing delays due to ongoing litigation, Fitzgerald said.
Also 13 of the city’s permitted dispensaries were approved in 2015, so their five-year conditional use permits expire this year. Fitzgerald said seven of those have begun seeking renewals.
The City Council is scheduled to consider next month a proposal to streamline the renewal process, she said.
The first wave of permitted cannabis production facilities — which include indoor cultivation of cannabis flowers and manufacturing of cannabis edibles — have started to open during the pandemic.
While the City Council didn’t make such businesses legal until 2017, some began to operate before then under a city loophole that granted them business tax certificates.
Of the 11 cannabis production facilities now operating in the city, six began operating several years ago with those tax certificates. Five of the 11 are brand new operations.
The 11 production facilities are among 40 in total the council has approved. Of the other 29, 18 are in the process of securing city building permits and 11 are in earlier stages of the approval process.
City officials say it’s crucial for enough production facilities to open for there to be a reliable local supply chain for cannabis.