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Learn more about the history, current regulations, and overall status of recreational cannabis in San Diego. We also will be explaining issues and areas of improvement that will help secure the long-term viability of licensed cannabis in America’s finest city.

*Updated October 8, 2020,  to add our cannabis policy Q & A with Nora Vargas, candidate for San Diego County Board of Supervisors, District 1; Councilmember Mark West, candidate for Imperial Beach City Council, District 2; and Matthew-Leyba-Gonzalez, candidate for Imperial Beach City Council, District 4.

*Updated September 18, 2020,  to add our cannabis policy Q & A with Assemblyman Todd Gloria, candidate for Mayor of San Diego, and Stephen Whitburn, candidate for San Diego City Council, District 3.

In 2014, the City of San Diego was among the first cities in the State of California to pass an ordinance allowing the licensing of cannabis retail facilities. Because of this forward thinking decision, the first adult-use license was issued by the State of California went to a San Diego business, and the very first adult-use sale in the history of California took place here in San Diego.

However, six years later, the San Diego cannabis market has failed to reach its full potential due to many factors including over-restrictive zoning; a cumbersome, prohibitively expensive licensing process; and a thriving illicit market.

For the City of San Diego to deliver on its promise of 36 licensed Cannabis Outlets (COs), maximize cannabis tax revenue and ensure the financial stability and long-term viability of licensed cannabis, which was deemed an essential service by the State of California during the Covid-19 crisis, numerous issues must be investigated and addressed.

Cannabis Legislation Issues To Investigate:

  • Are local cannabis taxes prohibitively high, driving consumers to the illicit market?
  • What zoning changes are needed to reach the prescribed number of CO licenses in each of the city’s districts and ensure access to this essential service throughout the City?
  • Is the originally prescribed 36 COs sufficient for a city of more than 1.4 million people?
  • San Diego is the largest city in California whose cannabis policy does not incorporate a social equity program.
  • Shutting down the unlicensed cannabis market including unlicensed storefronts, cultivators and manufacturers operating both within and from outside of the jurisdiction.
  • A consumer outreach campaign to educate consumers on the risks inherent in the illicit market and the health and fiscal benefits of the licensed market

 

Interviews with San Diego Cannabis Roundtable & Election Series

Blue Water Government Affairs, along with partners Cannabis Real Estate Consultants and the Coastal Pacific PAC, present a series of webinars on local policy makers who support the future of cannabis legislation in San Diego.

Featuring Guest Speakers:

These videos offers a unique look at the top candidates and officials leading the way to significant progress for the cannabis industry.

Click top right to view different guest speakers.

 

History of Cannabis Legalization in San Diego

On March 25, 2014, the San Diego City Council passed ordinance O-20356, which created zoning for Medical Marijuana Cannabis Collectives (MMCCs). MMCCs were replaced by Cannabis Outlets (COs) with the passage of ordinance O-20973 on February 22, 2017.

The CO model went into effect on January 1, 2018, at the same time as adult-use cannabis licensing per Proposition 64, passed in November 2016. Measure N, which created a cannabis business tax on all non-medical cannabis sales in the City of San Diego, was approved by voters at the same time as Prop. 64.

Initially taxed at 5% of gross receipts, San Diego’s Cannabis Business Tax (CBT) was raised to 8% on July 1, 2019, as required by Measure N. The City Council has the authority to increase or decrease the CBT by ordinance at any time, with a maximum allowable rate of 15%.

The final piece of cannabis legislation passed in the City of San Diego was ordinance O-20859 to regulate commercial cultivation, manufacturing, distribution, and testing labs. This ordinance allowed for a total of 40 Cannabis Production Facilities (CPFs) with no limits per district.

 

Cannabis Outlets (COs) / Retail in San Diego

Cannabis Outlets are the retail arm of the cannabis industry where the direct-to-consumer sale of cannabis, cannabis products and accessories happens.

COs must operate with a Conditional Use Permit (CUP) and are designated as either adult-use, medical or both.

Delivery is allowed by COs, and as of March 26, 2020, curbside pickup is temporarily allowed in response to the Covid-19 crisis. CUPs for Cannabis Outlets are capped at 36 with a maximum of four in each of the nine city council districts.

Today, nearly six years after allowing retail cannabis outlets, the City has yet to reach its licensing cap of four per district, or thirty-six total. As of July 1, 2020, only 24 CUPs have been issued, and only 20 of those outlets are open for business.

There are an additional six applications moving through what has become a lengthy, expensive and highly competitive process. Of the six applications in the pipeline, one is for each of districts 4, 5, 7 and 8, and two are for district 9.

A full list of all currently licensed COs, as well as pending applications, can be found on the City of San Diego’s Cannabis Information page.

 

Cannabis Production Facilities in San Diego

Cannabis is grown, harvested, processed and manufactured in Cannabis Production Facilities (CPFs) in the City of San Diego.

The City also allows distribution at CPFs, but testing and retail sales are prohibited at these locations. Much like the alcohol industry, the cannabis industry operates under a distribution model, where farmers and manufacturers cannot sell directly to consumers but must use a distributor to sell their products to licensed retailers.

There are a total of 40 CPF licenses allowed for the City of San Diego, and that cap has been reached, with the overwhelming majority of these facilities being located in Districts 6 and 8. Increasing the number of outlets would require a change in the ordinance.

A full list of all currently licensed CPFs, as well as pending applications, can be found on the City of San Diego’s Cannabis Information page.

 

3 Main Issues of Cannabis Regulations in San Diego

 

Issue #1 – Consumer Access

When the City of San Diego licensed cannabis in 2014, the goal was to have 36 retail licenses, with a maximum of 4 in each of the 9 city council districts.

As you read above, we have fallen far short of that with only 20 operating retail COs as of July 1, 2020.

Zoning restrictions have made acquiring the final 12 permits nearly impossible since in council districts 3, 4 and 5 there are virtually no properties that meet the zoning criteria for a cannabis CUP. Not only does this prevent San Diego from realizing the full potential of its cannabis market and the tax revenue it should be generating, but it also creates “cannabis deserts” in parts of the city, driving consumers to the illicit market.

It is also important to ask ourselves, “what is the appropriate number of cannabis retailers for a city of over 1.4 million people?” A quick search at the California Department of Alcohol Beverage Control found that there are over 800 Active Active Off-Sale Retail Licenses in the City of San Diego for alcohol. Active Off-Sale is the alcohol license type closest to cannabis retail licenses and represents only one of at least four alcohol license types available.

Per California State law the density of off-sale alcohol licenses is one outlet per every 2,500 residents. Even if the full complement of 36 retail outlets were open In San Diego, that would be an approximate density of one cannabis dispensary for every 38,000 residents.

To ensure fair access for all consumers in the City of San Diego, the City must address the fact that there are multiple city council districts without sufficient access to the essential service. Especially while we are still under stay-at-home orders, it is critical that cannabis be available to residents in all parts of the city. Currently, there are 5 districts that have not yet reached the fill number of CO: Districts 3, 4, 5, 7 and 9 have only 8 approved and 3 pending dispensaries, representing only 11 of 20 originally promised.

Council Districts 1, 3, 5, 7 and 9 are all up for election in November and only District 1 has reached its full allotment of licenses. Talk to candidates in your district and ask them how they plan to address this issue

 

Issue #2 – Tax Shortfall

It is an undisputed fact that cannabis tax revenue in California has fallen far short of the projections that were made in the lead up to the Prop 64 vote in November 2016.

We are now in our third year of licensed sales and, according to the Bureau of Cannabis Control (BCC) search page, there are 690 active licensed retailers in California.

Even when taking into account that the first licensed retail sales did not take place until January 1, 2018, tax revenue is far below projected expectations.

It is widely reported that the majority of cannabis sales in California take place in the unlicensed or illicit market. Reporting on the size of the illicit market varies, but everyone agrees that it is large and thriving. Localities must take on the challenge of eliminating the unlicensed market if they hope to realize the full potential of cannabis revenue, which seems even more important now that we are facing enormous budget deficits.

The City of San Diego has an ambitious goal of $19.7 million in Cannabis Business Tax revenue for financial year 2021. 2020 numbers are not yet available, but the CBT revenue in 2019 was $12.6 million, which was a large increase from the $5.4 million collected in 2018. The City’s 2021-2025 Five-Year Financial Outlook report states that the 2019 increase was largely due to an increase in the number of retail outlets added that year. If we hope to meet the 2021 revenue projections, we must see more retail licenses issued.

 

Issue #3 – Zoning Restrictions

The City of San Diego first passed a medical cannabis retail ordinance in 2014 that allowed 4 dispensaries in each of the city’s 9 council districts, for a grand total of 36.

In 2017, updates were made to allow for adult-use sales, and the very first adult use cannabis sale in the state of California took place at San Diego’s Mankind Dispensary on Jan 1, 2018.

As of June 2020, only 24 of these retail licenses have been awarded, and not for lack of desire. San Diego is the second largest city in the state of California and eighth largest in the country, containing a substantial so-Cal surfer vibe to match. Instead, the inability to reach the maximum number of dispensaries comes from the city’s overly burdensome zoning and sensitive use setback regulations.

First, these storefront retail businesses are relegated to the city’s industrial zones, which are concentrated in council districts 1, 2, 6, 7, and 8, and the cap was quickly reached in each of these districts. The remaining districts, 3, 4, 5, and 9, either have few industrial zones, too many sensitive use receptors, or both.

Second, San Diego requires retailers to be 1,000 feet from sensitive uses AND other retail facilities. In districts where applicable zones are scarce, this, in essence, excludes the rest of the zone from retail use.

Lastly, churches are included in the city’s list of sensitive uses. San Diego is not the only city to include this, but has created a tremendous impact. Removing this exclusion would open many more potential parcels, especially in districts 4, 5, and 9.

The Union of Medical Marijuana Patients lawsuit has challenged San Diego’s cannabis zoning ordinance that locates dispensaries far from residential zones, forcing consumers to drive great distances to access cannabis. Read about the decision requiring environmental impact review here.

November 2020 Elections

On November 3, 2020, San Diego will be electing a new mayor as well as five new council members to the nine-member City Council. This means that San Diego could be heading in an entirely new direction, especially on the issue of cannabis. The current mayor has been staunchly against cannabis regulations and threatens to veto any legislation that does not come to his desk with a veto-proof majority. Candidate Assemblyman Todd Gloria has long been a supporter of a licensed, regulated cannabis in the City of San Diego, which he discusses with Blue Water President Dallin Young in our September 17, 2020 Cannabis Roundtable and Election Series Q & A.

As for the candidates running in the five council districts, the industry has a tremendous opportunity to make sure that the most pro-cannabis candidates are elected. Will Moore in District 1, Stephen Whitburn in District 3 and Kelvin Barrios in District 9 have been long-time advocates for the industry and have even worked on legislation for safe access in San Diego. If these candidates are elected, San Diego might finally have the opportunity to expand its licensing, address overburdensome taxation, zoning restrictions and, most importantly, provide social equity in the industry. It is vital that as an industry we support these individuals.

 

Contact Us to make a difference in the City of San Diego’s cannabis regulations!