PACIFICA — Five years after becoming the first city in San Mateo County to permit storefront cannabis businesses, Pacifica is on track to generate its annual target of $825,000 in tax revenue from the industry. That’s more than the sales tax it receives from all other industries combined, but that doesn’t assure a pot of gold for every entrepreneur who jumps at the opportunity.
Since approving storefront cannabis businesses in 2017, the city has collected $1,864,948 in tax revenue from the cannabis industry that got off the ground in October 2018. It also collected $295,389 in fees for the required Cannabis Public Safety License, totaling $2,160,337 in revenues since the legal marijuana market opened its doors in the city.
While these new taxes and fees help offset Pacifica’s growing $2 million deficit, three out of the five cannabis shops in the city report they have yet to enjoy profitability amidst a burden of taxes and security regulations — and one of these businesses has been at risk of going under.
After only two years in business, the permit for Tony and Ana Williams’ mom-and-pop cannabis shop, Seaweed Holistics, was revoked by Pacifica’s Planning Commission on Oct. 3. Planners reasoned that the business was not in compliance with two key aspects of an agreement struck to allow the operation: the storefront window was slightly smaller than allowable and the business hadn’t paid over $20,000 in fees incurred as a result.
During a Nov. 14. meeting, the City Council found no basis for the business’s appeal, but gave owners a temporary reprieve. The Williamses have until Dec. 15 to pay the original $4,080.56 fine and are expected to pay the balance owed in monthly installments of $1,822.69. If they fail to meet a payment deadline city officials say the permit will be revoked for good.
Pacifica’s municipal code requires that a cannabis operation’s storefront have glass across at least 45 percent of the entire storefront and 60 percent of the horizontal length of the store. The city’s ordinance defines “storefront” as the “front facade of the cannabis operation.” According to the city’s measurements, Seaweed Holistics’ storefront is 24-feet wide and eight-feet high, leaving the business’ storefront window short of the ordinance’s requirements.
However, the Williamses and landlord Ronald Grindrod take the ordinance’s definition of storefront to refer to the space within the building where business is conducted. In their view the storefront is 20 feet wide by eight feet high because the extra four feet in width from the store’s door to the nearest wall is non-cannabis retail space.
Grindrod told the Planning Commission that modifying the 30-year-old building would require substantial reengineering and cost more than the Williamses can afford.
“We are compliant, and always have been,” Tony Williams said. “Even though it was their mistake, we hadn’t discovered it in time.”
Despite grand expectations, California’s sales and tax revenue from its legal cannabis industry is declining, according to a recent policy study conducted by the Reason Foundation, Good Farmers, Great Neighbors, and Precision Advocacy. The study found that the state’s illegal market still accounts for two thirds of cannabis sales, a fact driven by taxes and lack of access to legal stores.
Pacifica looked to marijuana’s legalization in 2016 as part of the solution to its financial problems. This year, more cannabis merchants were permitted in the city — leading to a 10 percent increase from the previous year’s sales tax revenue for food and drugs.
Pacifica’s second-largest revenue generator is charges for services, including building, planning, other permits, recreation revenues and rentals, fines and reimbursements. Since last year, the city’s service charge revenues have declined by 6.2 percent. Its $2.1 million structural deficit for the 2023-24 fiscal year is expected to reach $3 million by the 2029-30 fiscal year.
There are only three cities in San Mateo and Santa Clara counties that allow retail sales of cannabis. Neither Redwood City nor San Jose share Pacifica’s window requirements. It’s a local ordinance that appears to be unusual in California.
“That is a requirement I have not seen,” said Amy Jenkins, president of Sacramento-based lobbying firm Precision Advocacy.
Jenkins, who lobbies for legal cannabis policy and legislation, explained that many municipalities drafted their cannabis ordinances through the lens of “a public safety issue that could potentially generate additional crime, and not as any other business enterprise.”
Typically, she said, communities come to recognize that these businesses haven’t threatened public safety and subsequently reduce their stringent regulations. They don’t observe increases in crime or youth consumption, and “enjoy significant tax revenues,” according to Jenkins.
Ana Leaño-Williams, CEO of Seaweed Holistics, explained that half of its monthly revenue goes toward just keeping lights on. It took them around two years in business to begin to break even, she said.
“Everyone thinks everyone in the cannabis industry is making money all the time,” said her husband, Tony Williams. “It’s not like that. At all.”
The Williamses maintain that they have complied with Pacifica’s other security measures — including paying an annual $23,577 fee to the police department to maintain a Cannabis Public Safety License and providing 24/7 access to their security cameras.
“They have full access. Shouldn’t that suffice?” Tony Williams asked.
When they joined Pacifica’s cannabis business permit lottery in 2017, the couple envisioned filling a “gap in the market.” They pride themselves on personalized care and attentiveness to older people and others seeking medicinal cannabis. Their clientele ranges from cancer, Parkinson’s disease and dementia patients, to those with sleep issues and chronic pain, they said.
Many customers caught wind of their permit revocation and worriedly called asking if they’re still in business. Seaweed Holistics remains in business today.
The topic is also personal. A decade ago, Tony Williams had his first seizure. He had no addictions, no trauma, no family history — no warning. Within weeks, he was experiencing up to 15 seizures a day.
Lengthy treatment at University of California, San Francisco, and an amalgam of medications followed until the small business owner’s seizures were managed. But it wasn’t until a friend recommended he try cannabis oil that his seizures really became more tolerable.
“Cannabis has genuinely saved my life,” Tony Williams said.
City councilman Mike O’Neill, who also filed an appeal on behalf of the businessowners, suggested a need for change in Pacifica’s security ordinance for cannabis businesses.
“Is it fair to close down someone’s business when they met the intent of the ordinance and have had no problems?” O’Neill pondered.
If they fail to pay their dues within the next 14 months, the Williamses’ options are few. California also recently ended provisional cannabis business permits — increasing the barrier to entry for the industry.
“(Their) only other option is to go to court, and if they can prove they were discriminated against, they can sue the city,” O’Neill said.
“What does the city gain by closing us?” he wondered.