Bay Area Cannabis Sellers Scramble for Second Locations - September 30, 2015 - SF Weekly
SF Weekly

Bay Area Cannabis Sellers Scramble for Second Locations

About a decade ago, Northern California's most successful cannabis entrepreneurs were a pair of brothers barely old enough to drink.

Winslow and Abraham Norton were 23 and 20, respectively, when they opened Compassionate Caregivers of Alameda County on Mission Boulevard in Hayward. There, in a small commercial space near rim shops and cheap motels, they sold $21.5 million worth of cannabis in 2006.

The following year, the business grossed $26.3 million through six months. The brothers wisely socked away their salaries in property investments and IRA accounts until the DEA had had enough and raided the operation in July 2007 (the brothers were then 26 and 23; the feds seized their retirement accounts, along with $600,000 owed to the state of California for sales taxes).

While the Winslows were in federal court trying to avoid a lengthy prison term — they eventually took a plea deal in 2013 to serve six months in jail — a prime opportunity opened. With proven demand for marijuana in the area and a major seller now out of business, a gaping market inefficiency emerged — and Stephen DeAngelo took advantage of it.

DeAngelo, his brother Andrew, and their partner dave wedding dress had opened their dispensary, Harborside Health Center, located just north of Hayward off of Interstate 880 in Oakland, the year before. With the Nortons out of business, their customers flocked to Harborside, which, as one of only four dispensaries allowed in Oakland at that time, had the Nortons' former market mostly to itself.

Now, eight years later, Harborside has 220,000 registered customers — dispensaries in California are nonprofit collectives or cooperatives whose patrons are registered members — and sales of about $25 million a year.

And DeAngelo, who opened a second location in San Jose as soon as that city allowed dispensaries, is one of the country's most prominent marijuana industry figures. He has had a reality television show, helped start the first prominent cannabis testing lab and investment fund, debated Bill O'Reilly on Fox News, and has been hailed as “the father of the legal cannabis industry” by former San Francisco Mayor Willie Brown (who, it should be noted, is on DeAngelo's payroll as a “legal and political consultant” and has been known to lobby officials in Sacramento on his behalf).

DeAngelo — born at the hour of 4:20 p.m., as he writes in his book, The Cannabis Manifesto, published Sept. 22 — is now making more auspicious moves. Today, Oct. 1, the first day recreational sales of marijuana is allowed in Oregon, Harborside plans to open its third store, near the Portland airport.

Expanding to other markets may be wise: Oakland has since added four more dispensaries for a total of eight, diluting the market somewhat, though an effort a few years back to open a dispensary in Boston failed in part after DeAngelo failed to disclose past felony convictions for marijuana sales on the application. (There's an added wrinkle in the statewide medical marijuana regulations awaiting Gov. Jerry Brown's approval. The regulations would require marijuana operations to acquire state licenses, and would limit how diversified a merchant can be. Harborside, which cultivates cannabis, sells it, and also tests it at Harborside-owned Steep Hill Labs, would be limited to licenses in just two categories and would also be limited to three retail locations.)

DeAngelo is not the only Bay Area pot merchant looking to expand. The Apothecarium, flush with success at its location at Church and Market streets, is looking to open a second, third, and perhaps even fourth location. With a Nevada-based partner, Apothecarium received a permit to operate a dispensary on the Las Vegas strip. The organization has also filed applications for additional locations on Noriega Street in the Sunset, Lombard Street in the Marina, and in Berkeley.

Of these, Berkeley may be the longest shot — despite strict zoning controls in the Sunset and an organized neighborhood there dead-set against dispensaries. Berkeley has three cannabis dispensaries — including megastore Berkeley Patients Group, which sold $15 million worth of weed in 2009, according to financial documents leaked to the media by a disgruntled employee — and will allow just one more. As many as 11 organizations, including operators of successful dispensaries in Vallejo and Oakland, are vying for that final permit.

After that, there are few options left. Looking around the Bay Area, there are outright bans on dispensaries in many Peninsula and South Bay cities, no dispensaries at all in Marin County, and strict limits at their capacities in the East Bay.

That leaves San Francisco, whose ludicrous rental market has been shoving out neighborhood businesses and nonprofits citywide. But this cutthroat climate isn't scaring anyone away. At least two new dispensaries are scheduled to open within the next few months, one in Dogpatch and another in South of Market. And applications have been filed to open dispensaries at Fisherman's Wharf and on Geary Boulevard.

As if it wasn't good before, now's an even better time to be a San Francisco landlord.