S.F. Cannabis Regulations Go Official, But Will They Work?

The rush to pass legislation leaves some rather worrisome questions unanswered.

On Dec. 6, then-Mayor Ed Lee signed into law rules that will regulate the city’s sales of recreational cannabis. Having already missed the cut-off to put sales in place by Jan. 1 — the first day sales will be permitted in California under Prop. 64 — the Board of Supervisors rushed to get something onto the mayor’s desk. After months of contentious meetings that lasted well into the night, politicians — and City Hall reporters — breathed a sigh of relief.

As the ink dries and the cannabis industry prepares for an onslaught of new customers and tourism, there is still one question many are asking: Did they get it right?

At a glance, the new regulations cover all of the permit and operation basics. There is an option for San Francisco’s existing medical dispensaries to expand into recreational sales — as long as they’re at least 600 feet away from schools. The approved laws also introduce equity requirements, providing a path for those unfairly targeted for drug crimes to be given priority access to the local permits required to sell retail cannabis.

The cannabis industry has largely supported the idea of helping individuals penalized by draconian drug laws who are now eager to enter the marketplace. But the new regulations leave established businesses at a disadvantage, and offer few solutions for how qualified candidates can hope to actually start a business.

Sup. Malia Cohen organized a public forum on Oct. 21 in the Bayview District, where several concerned residents voiced frustration at the lack of infrastructure currently in place to support potential equity candidates. The scarcity of available real estate, the lack of loan opportunities, and the absence of publicly accessible education devoted to understanding the cannabis trade make the road for those wishing to take advantage of the equity program nearly impossible.

As it stands, the law dictates a one-to-one system for approving dispensaries to offer recreational sales, split evenly between existing medical dispensaries and forthcoming equity-qualified businesses — those that meet the criteria set forth by the city to help minorities, women, and individuals adversely affected by drug policy as defined by various criteria. This rule will remain in place until dispensaries that meet the equity criteria equal the number of non-equity dispensaries. With 46 dispensaries currently operating in San Francisco, this means that the next 46 approved will all have to be owned by equity candidates. How they will accrue the finances, support, industry acumen, and space is not addressed.

Another glaring omission is the still-unfinished tax component of the city’s plans to regulate recreational marijuana. Deciding how heavily to tax recreational sales will have a profound outcome not only on the volume of product sold through legalized channels, but also whether growers will opt to return to the untaxed black market where they can offer their product at a cheaper price.

A city controller’s draft cannabis tax report obtained by the San Francisco Examiner reveals the drastic differences between a 1 percent gross receipt tax and a 20 percent gross receipt tax. While the former would net San Francisco between $1 million and $2 million annually, the latter could yield up to $43 million. (And these taxes will come in addition to the state’s mandatory 15 percent excise tax on all marijuana sales, meaning that the cost of buying legal bud may soon skyrocket.)

Largely not considered in the greater conversation is what will happen to low-income patients who rely on compassionate care programs to receive discount or complimentary cannabis. As policies that are carried over from the days when cannabis providers were true co-ops and facing far more dire consequences, compassion programs may not survive the continuously tightening grasp of legalization.

Should taxes render legal cannabis unaffordable, is there any reason think individuals in need wouldn’t simply pivot back to the black market? As officials eye the June election for a vote on a measure concerning local cannabis taxes, it seems the solutions to several of San Francisco’s most pressing needs could be offered within its framework.

If San Francisco truly wishes to embrace equity, allocating a portion of the tax money generated by recreational sales to offer no-interest loans would be a strong first step. Tax money could also be used to establish a course in cannabis entrepreneurship at City College for approved equity applicants. Furthermore, it would take but a fraction of the money expected to pour in to ensure that every permitted dispensary is able to provide reduced-cost or free cannabis to low-income patients.

The city has given recreational cannabis the green light. It’s time they prove they intend to shine it on everyone.

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