2022 brings new markets, opportunities for California marijuana firms

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Image of palm trees overlaid on cannabis leaves

More than a dozen California cities are opening new recreational cannabis licensing opportunities this year, either by embracing the legal marijuana industry for the first time or by increasing the number of available business permits.

Several other cities, meanwhile, are laying the groundwork for new markets down the road by drafting and/or developing cannabis ordinances.

The rollout of new adult-use markets and business opportunities come as cities across the state are eager to bring in additional tax revenue after the pandemic and other factors depleted public coffers.

The ongoing shift is a welcome sign for the state’s struggling marijuana sector, which remains forbidden in the vast majority of California cities and, at the same time, must compete against a thriving illicit market.

Map showing where California cities are looking to expand marijuana markets“Expanding doors is critical if we expect the legal cannabis market to survive,” said Harry Kazazian, chair and CEO of 22Red, a marijuana brand based in Pasadena.

“Communities that shut out legal retail stores will be serviced by the underground market.”

According to Hirsh Jain, founder of Los Angeles-based cannabis consultancy Ananda Strategy, only 115 of the state’s 482 cities, or roughly 24%, have a licensed dispensary open today.

But that is starting to change.

Retail expansion across the state

The retail expansion is far and wide, from urban centers in San Diego and San Jose to small towns such as Madera in the Central Valley and Oxnard along the Southern California coast.

Madera, about 25 miles north of Fresno, is issuing its first eight retail licenses, including two designated for social equity applicants.

The agricultural town, which hadn’t disclosed application timelines as of press time, also is offering unlimited permits for vertically integrated operators, an emerging shift among city and county governments in California.

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Hemet, a midsized town in Riverside County that’s struggled to recover from the Great Recession of 2007-09, has foregone licensing caps altogether and is instead relying on zoning allowances to dictate the number of retail outlets.

“This represents cities moving away from this limited-license framework,” Jain said.

Elliot Lewis, CEO of Long Beach-based Catalyst Cannabis Co., welcomes the competition.

In October, the retailer was approved for a storefront in neighboring East Hemet, in unincorporated Riverside County.

“Without good, legal, safe access, the industry is drowning,” said Lewis, who expects to open the location in March. “It needs retail outlets.”

National City, bordering San Diego to the south, approved several licenses in November.

Applicants in National City may apply for retail, cultivation, distribution, manufacturing and transportation permits, ushering in a new era of commercial activity.

Retail applicants are required to operate at least one other marijuana business on the property, according to the ordinance, and must limit the retail portion to no more than 40% of square footage.

National City plans to start accepting applications this quarter, with a few notable caveats: Officials plan to favor local ownership, and at least one of the six licenses will be set aside for a consumption lounge operator.

Second thoughts

San Diego, an underserved market considering its large population, is among several California cities with established commercial cannabis programs looking to expand.

The state’s second-largest city, with nearly 1.4 million residents, appears poised to lift several of its zoning restrictions, including narrowing a 1,000-foot buffer between marijuana businesses and parks, libraries, places of worship and playgrounds.

The constraints, critics contend, are a major reason why the city has opened only 25 dispensaries, despite approving 36 in 2014.

If those restrictions are eased, which could come within the next month or so, retail licenses could expand nearly 40%, according to The San Diego Union Tribune.

Those municipalities looking to expand existing programs also include the Silicon Valley hub of San Jose.

The Northern California city of a million residents has only 16 dispensaries.

The San Jose City Council is weighing a policy overhaul to boost retail and delivery locations to 42 while eliminating several zoning restrictions and easing others.

The tech mecca is also looking to create new business opportunities for social equity applicants.

Tracy, about 55 miles northeast of San Jose, plans to issue seven retail permits for a total of 11 after its City Council approved an expansion in November.

Only 10 applicants have advanced to the final-review stage, however, with four on the verge of approval.

The process has been lengthy. Tracy hasn’t accepted applications since October 2020 but stated on its website it might consider reopening an application window in “late 2022 or early 2023.”

Merced started accepting applications Jan. 10 for an additional storefront license, bringing the Central Valley town’s total to five.

The deadline to apply is Jan. 31.

Hanford, about 35 miles south of Fresno, is adding one retail location.

According to the city’s website, the cap of two stores and two non-storefront retailers has been met.

The city also is accepting applications for cultivation, manufacturing, lab testing, distribution and micro-business permits – all uncapped – on a continuous basis.

Oxnard, located along the coast in Ventura County, issued six additional retail licenses last year with three dedicated to local equity applicants.

The agricultural town – perhaps best known for hosting the Dallas Cowboys’ summer training camp, which draws thousands of fans every year – is expected to have 16 dispensaries open by year’s end.

Looking ahead, several other cities are in the process of drafting and/or developing cannabis ordinances, including Monterey, Riverside, Lodi, Delano and Visalia.

Numbers don’t add up

The lack of retail outlets, particularly compared to the number of licensed cultivators, has depressed California’s marijuana economy, according to Tom Adams, CEO and principal analyst of L.A. research firm, Global Go Analytics.

“The struggles the California legal cannabis market is undergoing, particularly the meltdown in wholesale flower prices in 2021, is largely due to the fact that local jurisdictions have licensed 10 times as many cultivation operations as retail storefronts – some 7,500 versus about 750,” he said.

Most agricultural products (think almonds or oranges) have the opposite ratio, in which retailers outnumber suppliers by a wide margin.

“Certainly, the number of cultivators is going to shrink from attrition,” Adams said, “but hopefully all these local moves to allow more storefronts also balance out the supply chain in a positive direction.”

Chris Casacchia can be reached at ccasacchia@hotmail.com.