Some cannabis dispensaries in San Diego could be forced to close if new City Council district boundaries shake up how many dispensaries are within each district, prompting leaders of the local cannabis industry to lobby for a solution.

Each of the city’s nine council districts are limited to four dispensaries under the 2014 city law that allowed legal dispensaries in San Diego for the first time. Three of the nine districts have already reached that cap.

If new council district boundaries being drawn this year move some dispensaries into different districts, some districts might then exceed the cap of four.

City Attorney Mara Elliott said dispensaries in a district where the cap is exceeded would not have to close immediately, but she said they would likely have to close when their five-year conditional use permits expire.

Industry leaders lobbied city officials Friday to quickly solve the problem, which city officials apparently didn’t anticipate when they wrote the dispensary law seven years ago.

The industry leaders told the City Council’s economic development committee that a dispensary operator should not be forced to close just because they suddenly become located in a new council district.

“This is an unnecessary and unfair result,” said Phil Rath, leader of the United Medical Marijuana Coalition trade association. “The city should amend the municipal code to acknowledge the existing operations and grandfather them against changes to district boundaries.”

Gina Austin, one of the leading attorneys for the local cannabis industry, said San Diego should follow the lead of other cities like Chula Vista, where dispensaries remain assigned to the district they were in when they received approval to open.

“That would be an easy solution for the city,” Austin said.

The industry leaders said it’s important for the city to solve the problem before the redistricting process is complete, which is expected in early 2022. District boundaries are redrawn every 10 years based on new census data.

The cap of four dispensaries per district was added to the city legislation in 2014 so that no individual district would face significantly more impact than others from the legalization of cannabis dispensaries.

In a recent opinion, Elliott said businesses with conditional use permits have many legal rights, but expiration dates carry a lot of weight.

“If the permittee has incurred substantial expense and acted in reliance on the permit, the permittee has acquired a vested property right in the permit and is entitled to the protections of due process before the permit may be revoked,” she wrote.

“It is unlikely, however, that this vested right to operate pursuant to an approved (conditional use permit) carries beyond the expiration date in the CUP,” she wrote. “Where a CUP has been granted and includes an expiration provision, the courts have determined that the permittee has agreed to be bound by the terms of the permit, including the expiration, and there is no implicit understanding that the permit would be renewed.”

The three districts that have reached the cap are District 2, District 6 and District 8, so there will be a problem if re-drawn boundary lines shift an additional approved dispensary into one of those districts.

Based on Elliott’s opinion, it appears the city would renew the permits of the first four dispensaries in that district whose permits expire, leaving the dispensary that is unlucky enough to have its permit expire last as the one whose permit gets revoked.

The problem may extend beyond the three districts that have already reached the cap. Three dispensaries have been approved in both District 1 and District 7, with a fourth dispensary nearing final approval in each. And a third dispensary just received final approval this week in District 9.

Industry leaders also lobbied Friday for the city to consider creating a cannabis business improvement district, where dispensaries would tax themselves to raise money to fight the black market of illegal cannabis delivery services.

Rath said the goal would be to use the money to increase consumer awareness of legal facilities and to drive consumers out of the “perilous” black market.

The economic development committee unanimously approved creation of the business improvement district last November, but city staff have not followed through.

Mayor Todd Gloria’s staff said Friday they have focused instead on efforts to create a citywide cannabis equity program, which would help low-income people and minorities break into the lucrative-but-expensive industry.

“That has been our priority, and that’s kind of what we’ve directed staff to work on at this point,” said Matt Yagyagan, Gloria’s deputy director of policy.
Councilmember Chris Cate said the city can create an equity program and a business improvement district simultaneously.