Gov. Gavin Newsom has been presented with a bill to allow Amsterdam-style cannabis cafes across California, a bid to help invigorate an industry that has suffered from intense market saturation and a post-pandemic drop in customers.
But while San Francisco cannabis dispensaries would regard this change as positive, many proprietors said it would do little to address their biggest problem: There are simply too many shops chasing too few customers, particularly as the city’s tourism industry has taken a hit.
“Our revenue has dropped 43 percent in the last 18 months,” said Al Shawa, who owns Mission Cannabis Club on Mission Street near 21st Street, a mainstay in the neighborhood since 2010.
Shawa also owns two other dispensaries that opened this year — one in the Marina District and another in Russian Hill. “There’s no money to be made,” he said. Neither store is doing well.
Assemblyman Matt Haney’s bill, AB 374, passed the state legislature earlier this month and is now sitting on the governor’s desk, awaiting his approval — or veto. It would allow dispensaries that operate a lounge — where cannabis can be consumed on-site — to serve food and nonalcoholic beverages. The hope is they would turn into the sort of cafes that are a draw to tourists and locals alike in Holland and elsewhere.
But in San Francisco, dispensaries that include a lounge area represent a small portion of the field: 11 of the 80 or so dispensaries in the city. The vast majority of dispensaries operate under a permit that only allows the sale of cannabis, not its consumption on site.
Ali Jamalian — a veteran of the industry — runs a cannabis manufacturing company and chairs the Cannabis Oversight Committee, which advises the city on laws and regulations relating to cannabis. “At the moment, almost every conversation is prefaced by the market downturn,” he said.
While the industry by-and-large fared well during the pandemic — many customers were stuck at home and flush with disposable income, and a flurry of new dispensaries opened through the city’s equity program — the last year has seen revenue drop. And with more dispensaries, that income is dispersed among more people.
San Francisco hasn’t seen its last new dispensary, yet
Cannabis retail has its own, separate land use category with restricted available areas: Most are downtown, where foot traffic has dwindled post-Covid, and in commercial corridors in surrounding neighborhoods.
Map by Kelly Waldron. Data from the Office of Cannabis via a records request. Basemap from Mapbox.
“You keep slicing a pie into smaller and smaller pieces: Everyone’s portion is just going to get smaller,” said Jose Carmona, who is the inventory manager at MediThrive on Mission Street between 15th and 16th streets.
In 2018, the Office of Cannabis instated its equity program, which subsidized permits and facilitated applications for those from low-income backgrounds or those with prior marijuana arrests or convictions.
It was largely a success: 45 permits have been granted through the program, including Shawa’s; he utilized the program to open his two most recent dispensaries.
The Office of Cannabis has also distributed grants through the program, totalling nearly $11 million, it said in an email. In the most recent cycle, grants of up to $87,000 were distributed to 45 equity businesses and applicants: “We’ve heard from operators that these grant dollars were essential to keeping their businesses afloat during these challenging economic times. A common expense these grant dollars are used for is paying rent.”
The equity program was so successful, in fact, that the Board of Supervisors, citing market saturation and the economy, issued a moratorium on new permits in June. There are currently 70 applications under consideration which will be unaffected by the ban, as they were submitted prior to the moratorium.
Most of them are in saturated areas, particularly downtown neighborhoods disproportionately affected by a decline in foot traffic and tourism.
“Luckily the moratorium came through,” Carmona said.
Still, most dispensary proprietors were doubtful that business would recover in the immediate future, saying the industry had simply grown too fast too soon.
And what makes it worse, said Jamalian, are tight regulations on dispensary owners and a lack of available resources. “We don’t get a fair shake at running our business,” he said.
Unlike other kinds of retail stores, dispensary owners in California are subject to a cannabis excise tax: 15 percent on all sales. That is in addition to a base sales tax — about 8.6 percent. They are also subject to a section of the tax code that prevents them from writing off regular business expenses, unlike other retail shops.
Retail cannabis stores are also required to hire security personnel, can only operate between 6 a.m. and 10 p.m., and can only sell cannabis — although Haney’s bill would change that for some.
On top of all that — since cannabis is still listed by the Drug Enforcement Agency as a Schedule I drug — like heroin, LSD and peyote — it is federally illegal. As a result, dispensary owners cannot access certain federal resources that are available to other small businesses, such as funding from the Small Business Association.
That goes for financial support from traditional financial institutions, too — like getting loans, or even processing credit card payments — which trickles down to other people involved in the business: The landlords of cannabis retail spaces, for instance, may find themselves unable to continue their loans with a regular bank.
And despite cannabis legalization, the black market has not gone away.
While street sales have always been there — even right outside dispensaries’ doorsteps on Mission Street — now more than ever it’s difficult to compete with the black market’s going rates. Carmona said he recently saw a guy, walking down Mission Street, waving a turkey bag of weed shouting “$20! $20! $20!”
Carmona’s rates for an eighth of an ounce bag are between $9 to $65; the same bag on the street would cost around 40 to 50 percent less, he said.
Operating a business with so many hurdles is not for the faint of heart. “The resilience that this cannabis community has is next to none,” said Jamalian.
Still, there is some optimism.
Joseph Hunt, who had to close his first dispensary in the Haight for being too close to a school, opened another one around 19 months ago: Union Station, on Mission Street near 16th Street. Hunt is hopeful that business will get better, as cannabis becomes less of a taboo with bills like Haney’s.
“If you run a good business then people will come to your business,” he said. “Every month has pretty much been better than the last ever since we started.”
H/T: missionlocal.org
