State seeks to boost cannabis industry, with food and cash
The state is making moves to help California’s ailing cannabis industry, but a stronger prescription may be needed.
The most intriguing effort isn’t a big one: legislation that would allow cannabis “consumption lounges” to serve food and nonalcoholic beverages.
A more traditional step is being taken by a state agency, which this week announced $20 million in grants to make marijuana products more available in what might be described as “cannabis deserts” — areas where people don’t have easy access to regulated marijuana even though the local jurisdiction allows dispensaries.
Cannabis businesses continue to be hurt by the booming illegal trade, which legalization advocates years ago predicted would eventually wither away because customers would prefer the quality, safety and legitimacy offered by legal marijuana stores. That didn’t happen.
The state’s illegal cannabis market approaches $8 billion annually, twice the volume of legal sales, according to various estimates.
Dispensaries, growing operations and the relatively new lounges face greater financial obligations than their illicit competition: government fees, high tax rates, costly regulations and federal restrictions that limit banking options.
Those burdens need to be eased for the industry to thrive, according to cannabis business supporters.
Growing competition from other legitimate cannabis businesses also is having an impact. The city of San Diego, for example, started granting dispensary permits before other cities in San Diego County, but other local jurisdictions are catching up.
That’s one of the reasons the city is revising its proj
ected revenue from cannabis businesses downward, according to David Garrick of The San Diego UnionTribune.
But Garrick noted that the other factors — especially illegal sales — appear to be having a bigger impact on city revenues. The lower prices on the black market may be particularly appealing during these inflationary times.
In the fiscal year ending June 30, the city had been expecting $25.7 million in cannabis tax revenue, but is now planning on $19.8 million — a drop of 23 percent.
Like other businesses, some cannabis stores were hit hard by the coronavirus pandemic. That also may have made illegal operations, which mostly are delivery services, more attractive.
There’s hope that the growth of lounges will help. A bill by Assemblymember Matt Haney, D-San Francisco, would allow lounges and other cannabis retailers to sell food, nonalcoholic beverages and tickets to live musical events and other performances.
Assembly Bill 374 was introduced just this month, so it’s not clear what kind of support or opposition it will have.
Yet any expansion of regulated marijuana draws opposition from people who opposed legalization in the first place. They say the drug can cause harm to individuals and society at large, and that legalization has generated more users who help fuel the illegal market.
The rules regulating lounges would be similar to state law regarding dispensaries in that the decision to allow them would be up to local governments.
AB 374 has the potential to turn such establishments into cafes, clubs and even restaurants — when some now are essentially smoking rooms. Supporters say this will further help cannabis businesses become more mainstream, like other food, entertainment and social venues — and, in theory, an appealing alternative to the illegal market.
But so far, lounges haven’t proved as popular as predicted. The extensive permitting process and pandemic may have slowed things down. But even some cities that allow dispensaries do not license lounges, including San Diego and Los Angeles.
In California, consumption lounges were largely pioneered in the San Francisco-Oakland area. Palm Springs, West Hollywood, Eureka and Ojai are among other cities that allow them.
The first lounge in San Diego County is expected to open this year in National City. Sessions by the Bay will be located in a 13,000square-foot building on the waterfront. The proprietors plan to make food available to customers by teaming up with a neighboring restaurant and food trucks, according to Tammy Murga of The San Diego Union-Tribune.
Artist Tree Dispensary & Weed Delivery in West Hollywood does something similar. Lauren Fontein, a coowner of Artist Tree, told the Los Angeles Times that food enhances the atmosphere for customers, but the proceeds
go to the restaurant.
“That’s the big problem, which is why this bill is very important,” Fontein said. “The food and beverage is a big part of the revenue scheme and we’re not able to take advantage of that now.”
Industry representatives applaud the legislation but say stronger action is needed. They advocate repeal of Section 280e of the federal tax code, which would allow access to traditional banking. They also say taxes should be reduced. The state tax on marijuana sales is 15 percent — in addition to local taxes and regulations.
Gov. Gavin Newsom’s administration hasn’t addressed AB 374, but last year the governor signed 10 bills largely aimed at expanding the regulated cannabis market.
On Tuesday, the Department of Cannabis Control launched what it said is a first-in-the-nation program to assist local governments to expand regulated cannabis in “underserved areas.”
The $20 million in grants will be targeted for areas where surveys show high cannabis consumption but not much access to legal marijuana.
“Lack of access to California’s legal cannabis marketplace threatens consumer safety and perpetuates the illegal market,” the agency said in a statement.
Food and drinks and $20 million may indeed help the cannabis industry, but how much of a dent that can make in $8 billion in illicit sales remains to be seen.