Escondido, CA
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Lifting cannabis restrictions is not a ‘pot of gold’


More than half of pot consumers are in their 50s and older

The Escondido city council Wednesday, August 26 heard a report from Assistant City Manager William Wolfe on how other cities have lifted their commercial cannabis restrictions.

There are interesting realities at play. One is that at least half of the people who buy marijuana at legal establishments are in their 50s and above. Another is that while many cities have legalized cannabis and tax it, they never make as much money as they envisioned.

Mayor Paul McNamara introduced the subject: “When I ran for office I clearly heard a message that a lot of people wanted to have cannabis stores or some sort of presence in the city.”

McNamara and Wolfe have met many times on this issue and met with many different people. “You’ll hear people say that having a cannabis store is the panacea for revenue and so we wanted to find out if that was true. We met and talked with a lot of people. We found out that it’s not as simple as people think it is to find the right model.”

It is important to create the right ordinances that won’t cost the city more in public safety expenses, McNamara said. “I wanted Bill to give us a quick update on some of the things we found out and let everyone know we’re still moving, we’re still looking, we’re still researching and studying this to see what would be the best way forward.” 

Wolfe started his research a year ago. “One thing we’ve learned is that the more we’ve learn, we realize the more there is to learn,” he said.  It is a complex issue. “There’s not a pot of gold just sitting waiting for us to just simply walk over and pick it up.”

Wolfe made no recommendation or endorsement for any council action. He noted that in 1996 the voters of California approved Prop. 215 that specifically exempted medicinal marijuana and caregivers from prosecution. Twenty years later Prop. 64 decriminalized the adult use of marijuana for medicinal and recreational use and opened it to taxation. 

Marijuana use still violates federal law. “Whether it remains that way in the future I can’t predict but I can tell you that one of the concerns is how is that going to impact the state of California?” said Wolfe. “I haven’t seen the federal government taking any action against cities that participate in these laws Prop. 64 and Prop.  215 so I wouldn’t be too particularly worried about it coming in and raiding the city.  But I do remind you that it’s illegal federally, which creates its own set of issues when it comes to operating retail establishments.”

California law permits deliveries of cannabis products into jurisdictions, such as Escondido, that prohibit commercial pot activities. “Even though Escondido at this point prohibits it, it is still available to those who live within the city and want to have it delivered to them,” he said.

In California 161 of the 483 municipalities or about a third, allow some sort of cannabis commercial activities. That appears to be increasing as another 26 cities have some sort of marijuana measure on the ballot. “That doesn’t mean twenty-six more cities are bringing cannabis to their city,” said Wolfe. “It can be setting caps for how many of each type of operation can occur. It can be legalizing or prohibiting any number of things.” 

In San Diego County seven of 18 cities right now permit commercial cannabis. In Lemon Grove, for example, they only allow medicinal use, but recreational use is coming. Escondido’s neighbors, Vista and Oceanside only allow medicinal use. 

In Escondido, when Prop. 64 passed, 52% of residents voted for it, and 48% were opposed. In February, 2018 the city council voted unanimously to prohibit all commercial cannabis activity. 

That sentiment in the city appears to have grown since then.

In the June 2020 satisfaction survey conducted by True North Research, 2,000 respondents were asked “Should the city allow cannabis business Escondido?”:  49.4% said, yes, should allow;  34.5%, no, should not and 15.2% were unsure.

There are five components to marijuana commercial activity: cultivation, manufacturing, testing, distribution and retail sales. “The first and last are the ones most people talk about. That’s where the city and state makes its money,” he said.

California imposes 22% combined sales and excise tax on cannabis, while taxing cultivated pot by the pound. 

Wolfe has met with advocates, read numerous periodicals, visited city managers and their cities.  He asked frank questions as to what impact these laws had on their communities, including city revenues vs. expenditures. 

“I wanted to get into the nitty gritty details to get an idea of how something like this impacts cities,” said Wolfe. He also visited and inspected the retail shops whose proprietors were happy to show him their operations. “I also went with other city staff and looked at these shops and how they look in the neighborhood. Do they stand out? Do they blend in? Are they an improvement or not. I’ve checked specifically for odor because that was one of the things I was worried about. I’ve checked into how their zoning has improved the neighborhood when they are added.”

He added, “One of the most important things I learned is there’s no perfect model. Nobody has figured out a perfect model. Every city I talked to said ‘If I did it again I would do it a little bit differently.’ I’ve learned bits and pieces from each and put them together in my own mind but nobody yet was able to say to me ‘Man it was super easy and here’s how we did and it worked perfect the first time.’ ”

Some cities got into cannabis to solve their budget woes. But they were disappointed that reality didn’t meet their expectations. On the other hand, said Wolfe there is revenue to be made up front from permitting and processing.

Some cities assess a flat fee. Some base it on square footage. “You can impose taxes any number of ways to create revenue for the city,” said Wolfe. But that doesn’t eliminate the black market because by the time a consumer can purchase the product it has already been taxed and had fees assessed so it costs at least 40% above what the consumer would pay on the black market. 

One interesting fact Wolfe learned from visiting retail establishments, “and I’ve got pictures to prove it, more than fifty percent of those who visit these establishments are 50 years old and older. It’s surprising but that’s what I saw.” He saw a regular stream of customers ranging from those their 40s up to their 70s.”

Despite fears that such dispensaries encourage crime, “some cities will claim that there’s actually a decrease because the owners of these do what they can to make sure that they remain a welcome neighbor.”  He spoke to city managers and most said there was no increase in crime. 

He added, “Probably the most complicated part of this entire process is going to be the application process.  Every city I spoke to said it was complicated, lengthy and oftentimes leads to litigation because one applicant or another feels they’ve been discriminated against or the process itself is unfair.”

Setting up such a process might take more than a year. “Obviously cities are going to be generating revenue but the cities are also going to be doing a lot of work, so it’s not a simple process,” he said.

A detailed process and detailed zoning in place will prevent future problems. “I noticed that the shops in those areas blended in well with the community and didn’t stand out like you see with illegal dispensaries that pop up.”

He warned that the city would need more staff. “Cities made the mistake of thinking they could just spread this among existing employees.” They were wrong.

The most common regret, said Wolfe, came when cities tried to do it with the same number of staff. “This also offsets revenues. “The expectations of big dollars are a little dampened when the cities realized there are also costs involved,” he said.

Councilmember Olga Diaz recommended a full speed ahead approach. “It seems we are going to have some financial issues but that licensing fees could generate hundreds of thousands of dollars and that’s not a small number.” She added, “Don’t box yourself in that you’re going to spend it on more staff. You are going to have to get staff to do more important work. I think we have enough smart people to come up with a good model.”

She asked staff to return with a concept on how many licenses they propose granting and how much they would charge. “We need to face that fact that this is happening and figure out how to tax it. It’s more important to take action!” said Diaz. “The communities that have decided to take no action are those where ballot measures came forward that they couldn’t control.”

4 responses to “Lifting cannabis restrictions is not a ‘pot of gold’”

  1. STEPHEN A. WHEELER says:

    Kudos, Ms. Diaz.
    We shall miss you.

  2. Robert Mosemak says:

    Olga Diaz should create an oversight committee for pot shops at least if done right the city will make money. The problem with pot shops is that youre dealing with a substance that is easily grown and shipped and unmarked or taxed as alcohol is. The state in all its glory thought they would make billions by legalizing it which only increased the illegals market making millions for growers and brokers. When you walk into a cannabis shop you dont see tax stickers on the containers, its a cash business and who knows what the books look like. There needs to be accountability from the grower / source to the counter sales, inspections, tax collections and records to assure the municipalities are getting their share as well as the state.Who every set up the current process had no brains as to what was involved or how to enforce the laws. These idiots never involved law enforcement as to regulating it outside of licensing enforcement. Its the drug officers who know the process who can build a tight accountability system and make the tax money possible.

    • Laura Wilkinson says:

      California has a tightly regulated “seed to sale” software system that literally tracks all product throughout the supply chain. You can’t hide sales- even though it’s a cash business because of banking laws ( no money laundering because cannabis is still illegal federally) the accounting software required for licensing keeps a tight count on everything and variations of 2% or more triggers reporting and audits. This is not a high margin business in retail.

      • Mike Trent says:

        Also not mentioned, due to cannabis’ federal legal status, these businesses do not have the ability to take the normal federal tax deductions as say a liquor store does, for instance. Higher taxes means less profit. Less profit in turn means higher prices. Higher prices makes the Black Market more lucrative,. The Black Market in turn perpetuates criminality.

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