California marijuana market keeps growing as more cities, counties embrace MJ

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In June, a marijuana shop opened in Union City in the San Francisco Bay Area. Typically, a cannabis store debut isn’t news in this state.

But this one, run by Grupo Flor, a vertically integrated operator based in Salinas, is located in a prime spot: a shopping center called Union Landing that features a Walmart, a Best Buy, a Burlington Coat Factory and more.

That’s a dramatic shift. Not long ago, most cities would force cannabis retailers into less desirable industrial zones, as if the marijuana industry represented an eyesore.

What it exemplifies to Grupo Flor CEO Gavin Kogan is a wider metamorphosis in California reflecting scores of new marijuana markets and business opportunities for cultivators, manufacturers, retailers, testing labs and other MJ businesses around the state.

Several factors are driving this:

  • Stigmas surrounding marijuana continue to recede across California and the nation as more states legalize recreational and medical cannabis.
  • California cities and counties now acknowledge the economic benefits of legal cannabis.
  • Those same local governments must grapple with budget shortfalls related to the coronavirus pandemic.

“There are not only new communities embracing cannabis, but (they’re) embracing it in their retail zones,” Kogan said.

“Before, they had them in their industrial or airport zones because they were fearful of problems, crime primarily. Now, they’ve realized, there isn’t even a crime issue, and they get higher revenue and higher sales with more of a retail presence.”

“Now, (cities) are more comfortable putting cannabis on Main Street,” Kogan added. “That’s a major cultural shift.”

That means there will likely be even more openings for new marijuana businesses across California in the years ahead, as additional cities and counties embrace the industry.

That should hearten any entrepreneur hoping to tap California’s immense cannabis market, which the 2021 MJBizFactbook projects will approach $7 billion in retail sales by 2025 versus around $5 billion this year.

More licenses on the way

Scores of cities and counties are preparing to issue marijuana business permits or are writing ordinances in order to award licenses, according to Los Angeles-based consultant Hirsh Jain, the founder of Ananda Strategy.

By Jain’s count, 18 cities across California already have begun handing out retail permits since the November election, in which more than 30 local jurisdictions approved pro-marijuana business ballot measures.

And, he said, at least another 18 jurisdictions are poised to do the same.

“These city council members are basically saying, ‘People are driving into neighboring cities, and we’re not getting that tax revenue,’ and you’re seeing an instinctive, ‘We don’t want to lose taxes to other cities,’” said Jain, who closely tracks cannabis business licensing developments.

“It’s just revenue opportunity.”

Jain said most of the marijuana licensing he’s aware of is focused on retail opportunities. But many other opportunities also exist, ranging from testing labs to cultivation to manufacturing.

“The California market is at a fraction of its long-term potential, and it will be a three- or four-year process for it to realize its potential,” he said.

By the numbers

State law giving local governments the right to prohibit cannabis companies is one of the primary hurdles that has kept industry numbers relatively low, compared to the state’s population of 39 million.

But the industry is growing slowly and determinedly.

In early 2019, about a year after the legal market launched, only 161 of California’s 482 municipalities and 24 of 58 counties permitted any type of legal marijuana business.

Jain said that according to his research, that number has grown to about 182 cities and 31 counties as of July 2021. But he noted that only 114 so far allow marijuana retailers.

So the number of local governments that have allowed marijuana companies is up from about a third, to around 40%, Jain said.

And that growth is certain to continue, he projected.

“There are 745 dispensaries in California right now,” Jain said (not including licensed delivery services or microbusinesses). “On a per-capita basis, there should be between 4,000 and 5,000.”

He said he believes that will become a reality, but not until about 2025.

“Every year, the market is just going to get a little better. It’s going to be a slow trickle, but we’ll get there,” he said.

Cities awarding licenses

All the cities listed below either approved a ballot measure in November – and subsequently launched a licensing process – or approved an ordinance on their own and began handing out marijuana business permits.

Some have licensing windows that are still open, while others have been closed for months. But all will be coming online either later this year or sometime in 2022, Jain said.

Together, the cities will be awarding at least 92 cannabis retail licenses, perhaps more. And some will also be awarding other types of marijuana permits, such as cultivation.

Much of the information below is based on Jain’s research:

  • Chico: This rural Northern California town is poised to award three retail cannabis licenses.
  • Corona: This L.A. suburb in Riverside County will award 12 retail permits and an unlimited number of distribution, manufacturing and testing lab licenses. Cultivation, however, remains banned.
  • Costa Mesa: This Orange County city was one of 31 where voters approved a pro-marijuana tax measure in November. And now the city is on track to award 10-15 retail permits. Costa Mesa already allows for marijuana distribution, manufacturing and testing labs.
  • Daly City: This city, immediately south of San Francisco, is working on issuing six retail permits and also will award testing lab licenses.
  • Fairfield: Located about halfway between San Francisco and Sacramento, this is another town where cannabis prevailed on the November ballot. Authorities have already awarded four new retail permits, along with several manufacturing licenses. The city is still accepting applications for testing labs.
  • Fresno: In the heart of California’s Central Valley, this city is selecting 21 retail permit winners along with licenses for cultivation, distribution and nonretail microbusinesses.
  • Grass Valley: Voters in this small mountain town northeast of Sacramento also gave cannabis the thumbs-up last November. The town is accepting applications for marijuana businesses until Aug. 12 and will award one retail permit as well as licenses for testing labs, manufacturers, nurseries and distributors.
  • Guadalupe: Just north of L.A., this small town is prepared to award one retail permit.
  • Hemet: This small desert town east of L.A. is set to award two MJ retail permits. It also appears likely to hand out licenses for manufacturing, distribution, testing labs and indoor cultivation.
  • Madera: In another November electoral victory for the marijuana industry, this Central Valley city is expected to award eight retail permits along with licenses for delivery, manufacturing, cultivation, distribution, microbusinesses and testing labs.
  • National City: South of San Diego, this city will award up to six licenses, including three for marijuana retail.
  • Red Bluff: This small Northern California town will award two marijuana retail licenses.
  • Redwood City: This Bay Area town closed its application period for marijuana retail licenses in February and will award four permits.
  • Stanton: Located in Orange County, this city will award four cannabis retail permits as well as four licenses each for delivery, distribution, manufacturing, cultivation and testing labs. The application window closed in October.
  • Sonora: Located west of Yosemite National Park, this town will award two marijuana retail permits and likely additional licenses for manufacturing and testing labs.
  • Tulare: In the southern tip of California’s Central Valley, this town will hand out two cannabis retail permits.
  • Vacaville: After another electoral marijuana industry victory, this Northern California town will award four retail permits, but it appears the City Council is still tweaking the details of its ordinance.
  • Ventura: This town north of L.A. will award as many as five retail permits and 10 other licenses for “industrial locations.”

According to Jain’s tracking, he expects the following cities and counties to pass ordinances allowing for some additional number of marijuana retail businesses this year or in the first half of 2022.

These could account for an additional 66 retail permits in:

  • Arvin
  • Barstow
  • Covina
  • Delano
  • Hawthorne
  • Lathrop
  • Long Beach
  • Los Angeles County
  • Manteca
  • Monterey
  • San Benito County
  • San Bernardino
  • San Jose
  • Santee
  • Seaside
  • Signal Hill
  • Visalia
  • West Sacramento

John Schroyer can be reached at