Could economic slide lead to more California cannabis industry opportunities? Some industry experts say yes

The economic downturn stemming from the COVID-19 crisis is going to leave government officials at all levels scrambling for fiscal stimulation nearly anywhere they can find it to offset lost tax revenues and jobs.

As a consequence, some in the California cannabis industry see a window to expand marijuana businesses’ footprints around the state.

“A lot of the cities … are concerned about revenue streams when we come out of this pandemic. We know unemployment is going to be sky-high,” noted Daniel Yi, chief communications officer at Shryne Group, a large vertically integrated California marijuana company.

“Cannabis, relatively speaking, is going to come out of this with legs underneath, and cities that had not thought about cannabis ordinances are going to start thinking about them, and cities that had them in the pipeline are going to accelerate.

“We hear in offline conversations that this is something cities are going to be looking at very, very strongly. There’s going to be no other industry that’s really growing after this.”

A big part of the California cannabis industry’s woes since the legal adult-use market launched in 2018 has revolved around the fact that roughly two-thirds of the state remains off-limits to marijuana companies.

That’s because city or county officials have enacted bans that prohibit them from setting up shop within their borders.

As of February 2020, only 180 of California’s 482 municipalities and 29 of the 58 counties allowed some type of legal marijuana company to locate within their borders, according to data from CannaRegs. State law requires local approval before any marijuana business can operate legally.

But the coronavirus pandemic could change some minds in many of those localities, according to Yi and some other cannabis industry watchers.

In part, that’s because the cannabis industry was deemed “essential” by the state of California and has therefore fared relatively well compared to many other industries – such as restaurants, hotels and tourism-related companies – which had to shutter temporarily because of the virus.

Has it begun?

That trend might already be underway.

This week, news broke that the city councils in Anaheim – home to Disneyland – and Milpitas – a neighbor of San Jose and the Silicon Valley – are revisiting the option to license marijuana companies.

In Anaheim, the City Council is poised to take up the matter at its May 12 meeting, and several council members have already speculated on the benefits of allowing marijuana companies to operate legally in their jurisdiction, the Orange County Register reported.

And in Milpitas, the City Council is debating whether to put the question to voters in November as a local cannabis sales tax initiative, The Mercury News reported.

Both cities currently have marijuana business bans on their books, so a reversal could provide new business opportunities for cannabis entrepreneurs.

Such a movement could grow over time, as the economic downturn grows and more local governments begin to seek out ways to rebuild their hurting local economies, several cannabis industry insiders predicted.

Where else could open?

Longtime industry operative Sean Donahoe, who’s been talking with a wide array of local officials, said the cities of Chico, Concord and Fresno also are on his radar because they’ve already been leaning slowly toward opening their borders to the industry.

“These are cities that have been dipping their toe in the water for a few years, but now we know they’re dipping their toe in and they really need to get wet with their finances,” Donahoe said, which he referred to as “whoppers” for the marijuana trade.

“Those are a couple hundred thousand people in Chico and Concord and Fresno and Anaheim. Those are significant-sized cities.”

Dustin Moore, a principal at Sacramento-based Axiom Advisors, said he believes movement might occur on the pro-cannabis-licensing front in many other cities as well, including Tracy in the central valley; Oxnard to the north of Los Angeles; Pomona and Corona to the east of L.A.; and some San Diego suburbs such as Imperial Beach.

“It’s really in pockets” around the state where such conversations are being had, Moore said.

Budget season a key

The trend could accelerate quickly in coming months during the city and county budget season, said David McPherson, cannabis compliance director for HdL Cos., which has worked with scores of municipalities across the state to craft marijuana business ordinances.

Local governments will evaluate their budgets in May and June, and that’s when many officials will begin thinking about how they can replace tax revenues lost to the coronavirus crisis.

“I think this May, June, the budget process is going to put that question on the board,” McPherson said. “Anyone that was on the bubble of doing something, they’ll say, ‘Now I’ll do it because we need to.’

“This is a reality check. That’s kind of changing people’s thought process, from that standpoint.”

He added that HdL has already heard from several client cities that want to revisit marijuana licensing in some fashion.

But McPherson also noted that he doesn’t expect a wholesale reversal of local MJ bans around the state, because many cities and counties are set against cannabis and won’t change their minds.

“It’s going to vary from region to region, city to city. But you’ll also have some other councils that say … it’s low on their priority list,” McPherson said.

Even if the trend does play out as many in the cannabis industry hope, a lengthy lag will exist between when many cities approve ordinances and licenses and when those businesses might actually get up and running. The latter could take up to a year and a half, both McPherson and Donahoe noted.

“I could see the creeping rollout to the suburbs (from city centers by the marijuana industry), as required by fiscal needs,” Donahoe said.

“But it’s not going to happen fast enough to get them the money they need (in 2020). And they should have been planning for this for months, for years.”

John Schroyer can be reached at [email protected]

For more of Marijuana Business Daily’s ongoing coverage of the coronavirus pandemic and its effects on the cannabis industry, click here.


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3 comments on “Could economic slide lead to more California cannabis industry opportunities? Some industry experts say yes
  1. Robert Hunt on

    While I applaud the renewed interest in cannabis by these municipalities, I also fear that they will see cannabis only as a way to create tax revenue.

    Excessive tax in CA is already a major reason why the illicit market continues to thrive in the state. If lawmakers are not able to keep taxes low enough to allow the consumer to access legal cannabis for the same price that they can buy from the illicit market, then there is no incentive for consumers to change their buying behavior.

    75% of CA sales are still transacted illegally. This will not change until lawmakers stop viewing cannabis as a panacea to their budget woes.

    Reply
    • Pat on

      Agreed. And let’s be real: The state seriously messed up this law out the gate. It was not implemented statewide. The consultants described in this article are so self interested; they don’t discuss the reasons why their predictions might be completely wrong. These consultants don’t discuss why it is that 1/2 the counties and more than 1/2 of the municipalities have banned the state law from being implemented in their jurisdictions. But, I’ll bet they know the reasons. They’re just
      not talking.

      All the jurisdictions that prohibit the green lighting state law in their communities vary. However, these consultants seem to focus on local govts. need to increase tax revenue via the state’s MCMRSA law ( plan ). What these consultants omit, is the inherent corruption this law brings with it; and potentially to their communities. They also omit that if the “law” were implemented in their communities ( esp. rural/poor one’s ) that meeting all of the state’s demands would literally bankrupt those communities. With just this one state program! Why then, would they do it? To increase tax revenue for whom? Primarily the state. At the expense of the former. And the state doesn’t care. These rural and poor communities have had too many conflicts with the state in the past/ongoing state mandated programs that don’t give the counties enough $$ to carry out the state’s mandates. MCMRSA would break their backs on top of everything else. Not that the counties/municipalities that don’t want it ( the tax revenues ). Of course they would. It’s how the state designs its laws to benefit itself primarily; and quite often at the expense of local govt.

      So, how does local govt. fight back? ( And, it’s a sad testament that local govts. find themselves fighting their own govt. ( state AND federal ) around so many issues. The pot one is just another one thrown on top of the pile. So, knowing that the state is punking local govt. around the pot issue; and the feds are just going to keep sitting on their hands for another 100yrs…. The locals have found themselves taking control of the reigns, because the other two levels of govt. don’t care how they are impacted by some of their ridiculous and self serving policies/laws. Some local govts. understand that the stuff’s legal ( but now only under certain circumstances.? Really? ); so they allow citizens within their boundaries to grow it, with certain limitations/restrictions via an ordinance. That way, these local jurisdictions don’t have to deal with the state or the feds on this thing. Local govt says to them: “If it’s so important to you ( esp on such a small scale ), you deal with it.” So, guess what happens? Locals don’t get caught up in a state sanctioned cluster f. The feds really need to be spending the time/$$ dealing with the REAL problem of violent cartels growing on federal lands. The locals pretty much know who’s who ( largely small mo/pop shops that don’t bother anyone and don’t damage the environment and add to the local economy that the state/feds are so busy trying to suck away… ) and they monitor the situation enough to be able to address flare-ups within their own communities, AND the tax revenue from all of it largely stays in that jurisdiction e.g.: sales taxes, property taxes, etc. Even the state gets some of that ( Apparently, they want MORE ). Further, these people will have enough $$ at the end of the year to pay state and federal income taxes. It’s the special interests behind the state and the federal govt. that don’t like it because it takes market share away from their greedy, undeserved little hands. So, they spend all kinds of $$ getting politicians in the state legislature and the congress to create b.s. laws to meet their objectives. Not society’s.

      It’s this “new” grey market that has formed if only for the sake of survival within these jurisdictions, will continue to expand and not the other way around, as these consultants want the readership to believe. The loss of local tax revenue in these places as a result of Covid, is only going to intensify this model. Not only are the pre-existing growers going to expand, folks that have never grown one pot plant before are going to get into the fray. Just out of pure desperation, because the state and federal govt. isn’t doing enough during this pandemic. With a 15-20% ( We’ve blown past the Great Depression folks ) and growing unemployment rate in these areas, who couldn’t see that coming? The silver lining to the Covid crisis around this concern, will be that these communities will find themselves increasingly relaxing their restrictions around good citizens that are doing much much more to contribute to that particular local govt’s. and community’s bottom line. And, it’s likely going to bring the overall crime rate down in those places. It’s a big, righteous F’U to those special interests and politicians that never had anybody else’s interests in mind, but their own.

      Reply
  2. Webster on

    The ONLY way for cities, counties and the state to benefit from tax revenues from legal sale of cannabis products is for them to spend the money necessary to constrict the illegal sale of these products. Until then the black market will continue to thrive and those who pay licensing fees fees and follow the strict guidelines of METRIX and seed to sale tracking will not only be be supporting the legitimate sale of these products but will be at numerous disadvantages to the black market. Just imagine if after Prohibition 65-75% of speakeasies and illegal alcohol distribution remained in business because the state was lackadaisical and just looked the other way?

    Reply

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