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San Diego may create California's first city-sanctioned cannabis trade association

San Diego Union Tribune logo San Diego Union Tribune 11/24/2020 David Garrick
a close up of a green plant: A marijuana leaf on a plant at a cannabis grow in Gardena, Calif., in 2019. (Associated Press) © Provided by San Diego Union Tribune A marijuana leaf on a plant at a cannabis grow in Gardena, Calif., in 2019. (Associated Press)

San Diego officials are proposing California’s first city-sanctioned trade association for cannabis dispensaries, to help the industry fight black market operators, coordinate lobbying and help low-income people enter the industry.

Modeled after the city’s tourism marketing district for hotels, the cannabis “business improvement district” would tax San Diego’s nearly two dozen legal dispensaries and pool the money for efforts on their behalf.

While the main goal is creating promotional efforts to fight black market delivery operations, the new organization would also eliminate the “free rider” program many dispensaries complain about.

Industry leaders say individual dispensaries often fight for legislative changes or new policies by themselves, allowing other dispensaries to benefit without having contributed to any of the expensive lobbying efforts.

“Many times the efforts that one store or group of stores must go through to resolve a regulatory issue really benefits the entire industry, even though the rest of the participants don’t know it has been resolved in their favor,” said Phil Rath, leader of a less formal dispensary organization called the United Medical Marijuana Coalition.

The new association would assess legal city dispensaries at a rate of 33 cents per $100 spent by customers. Rath estimates that would raise about $640,000 annually, but some industry leaders say the amount could be higher than that.

The initial proposal, which was presented last week to the City Council’s economic development committee, would spend 45 percent of the money on marketing, advertising and public relations.

Another 28 percent of the money would be spent on policy development and lobbying. About 20 percent would be spent on administration, collecting assessments and creating a reserve fund.

The remaining 5 percent would be spent creating a social equity program, which many other cities with legal cannabis industries have already done. The goal is opening the industry to more low-income residents and people of color.

That money would be spent on training and mentorships for "disadvantaged" cannabis entrepreneurs, which would include helping them get city approvals, form corporations and understand complex tax issues and regulations.

The social equity component would not include cash to help break into the industry, which other cities with cannabis equity programs have found to be the most significant hurdle.

Breaking into the industry typically takes hundreds of thousands of dollars to secure a property and pay for lawyers, zoning experts and other consultants to help navigate the complex approval process.

The lion’s share of the new association’s money would be spent on marketing because the city’s legal dispensaries face significant challenges from the black market.

City Attorney Mara Elliott and the San Diego Police Department have managed to shut down hundreds of illegal pot shops in recent years. But illegal delivery services continue to prosper, city and industry leaders say.

Illegal delivery services have begun advertising on social media platforms like Instagram and Snapchat, where they often target young people, industry leaders say.

The new cannabis association would use its pooled resources to promote the legal dispensaries as safer and more legitimate. They must have their products tested for purity and safety, and their employees pass background checks.

Rath said the black market is bad for everyone.

“It is a detriment to the (legal) businesses, it’s a detriment to the city for lost taxes, and it’s a detriment to the employees who do not receive minimum wage or any sort of protections whatsoever when they are in the illegal system,” he said.

Rath estimated that more than half of local cannabis sales are illegal.

Several dispensary owners spoke last week in favor of the proposed cannabis association. A majority of dispensaries must vote in favor of it in order for the organization to form and for assessments to begin.

Rath said his group has gotten positive feedback when it has reached out to legal dispensary operators in the city about the proposal.

“We feel confident there is significant support for this,” he told the economic development committee. “If we did not have the support of the businesses, we would not be asking to move forward.”

The economic development committee voted unanimously to continue exploring the proposal, which will include the city attorney’s office conducting a legal review.

Proposition 26, which California voters approved in 2010, requires city-sanctioned trade associations to provide clear benefits to members in exchange for any fees they are assessed.

Councilwoman Monica Montgomery Steppe said she would like the cannabis social equity program to become part of a wider city effort to boost equity. She helped launch a new city Office on Race and Equity this year.

Jessica McElfresh, a leading local cannabis attorney, said Monday that the proposed business improvement district is an “intriguing idea.” But she said officials should consider how it would work in a broader sense as the local cannabis industry evolves.

San Diego will have a new mayor and five new council members next month, which could shift the city’s positions on zoning for dispensaries, caps on the number of outlets and other issues.

The new association would only cover dispensaries, not cannabis production facilities, testing labs, or distribution businesses.

This story originally appeared in San Diego Union-Tribune.

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