The Morning Report
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Is pot really legal if no one’s allowed to grow it, process it, store it or test it?
That’s a riddle the San Diego City Council will be tackling Tuesday as it considers a sweeping proposal to ban all supply-chain activities related to medical and recreational marijuana, including cultivation or growing, manufacturing, storage and testing.
The proposal is probably the most controversial of all the city regulations being proposed to regulate marijuana. Whether the city allows these activities could be vital to the success of the legal cannabis industry in San Diego.
Though recreational marijuana use is now legal statewide, no place in the county is considering allowing the activities involved in creating and distributing it.
La Mesa passed a medical marijuana ordinance last year that may allow for some sites for these activities, but it wouldn’t be enough to keep up with demand. The San Diego County Board of Supervisors was considering some cultivation options for medical marijuana, but proposed banning all medical and recreational marijuana activities at its last meeting Wednesday.
If the city enacts the ban, it could effectively shut the door for new and existing businesses in San Diego to get involved with anything but the final sale of marijuana products.
For one, the move would leave many existing businesses that currently provide those services for the medical marijuana industry in flux. It’s uncertain whether they would be allowed to continue operating if the prohibition passes.
Once the component of state law allowing commercial sales goes into effect in 2018, legal marijuana retailers will have to track their product from seed to sale to ensure that it was grown, processed into other products like oils or edibles, tested and sold by licensed businesses – something dispensary owners say will be more difficult if they can’t access those parts of the industry locally.
The Ocean Beach Planning Board voted unanimously to oppose the move last week. In a letter to City Council members, members of the group said the city should instead create a permitting process for activities like cultivation, processing, transportation, distribution, storage and testing.
Ocean Beach voted overwhelmingly – 81 percent – in favor of Proposition 64, the statewide measure legalizing recreational marijuana, but because of the zoning restrictions imposed on dispensaries, there are no locations for legal dispensaries in Ocean Beach.
“As a local Planning Group we are outraged at the Planning Department’s attempt to leverage the land use code as a means to continue prohibition of Cannabis against the will of the voters of San Diego,” reads the letter.
What the beach community does have is a marijuana testing lab, PharmLabs, whose fate would be uncertain if the ban on testing went through. Legal marijuana products need to be tested to ensure they don’t include prohibited substances, like pesticides or other toxins.
“Without creating a safe full supply-chain, the providers of these services will likely end up operating in the unregulated and dangerous black market,” reads the Planning Board letter. “Moreover, by prohibiting these use types San Diego will lose local jobs in an industry that is predicted to bring in $25 billion in revenue to the state of California.”
PharmLabs has been in operation in San Diego since 2011 and tests products that are sold in every city in the county that allows medical marijuana.
“We are extremely concerned by this irresponsible proposal; specifically, its language prohibiting medical marijuana cultivation, manufacturing and especially testing in the San Diego City Zoning code,” wrote PharmLabs CEO Greg Magdoff in a letter to the city’s planning commission in December. “Testing is critical for patients’ health and safety, as it allows for proper dosing and to screen for dangerous toxins, molds and pesticides.”
Others, including Planning Commissioner Stephen Haase, also expressed concern about the impact the ban could have on San Diego’s biotech industry during a December planning commission hearing on the proposals. Biotech companies have started getting involved on the research and development side, creating new medical products and pharmaceuticals with cannabis.
“I’ve got to believe that this is a huge industry when you look at what could happen in this nation,” Haase said at the hearing. “There are publicly traded companies doing this and to somehow tell our industries here, ‘By the way you don’t get to play in that sandbox. This is not a business opportunity for you,’ makes no sense given our position in that world.”
The city had previously given out some business certificates to businesses where they fit in with existing land use functions. For example, cultivation was similar to agricultural land use.
Activities like large-scale manufacturing and cultivation require different rules than dispensaries, especially in a bourgeoning industry like cannabis where governments are still learning about potential hazards and how to regulate them. Over the past few years, there have been instances of explosions and fires related to growing and processing cannabis.
If the supply-side activities aren’t banned, they’ll need regulations governing fire hazards, electrical wiring, power use and water systems. People in the industry expected tougher regulations, but not a flat-out ban.
Part of the issue with supply-side activities was that they created a gray area for entities like code enforcement that are trying to shut down illegal operations. Someone could be operating a non-permitted dispensary and illegally selling marijuana products under the guise of cultivating or manufacturing because they are on agricultural- or industrial-zoned land.
The language in the proposal, including the ban, gives clarity on that front by reinforcing that city-permitted dispensaries are the only marijuana businesses allowed.
Dispensary owners also say that the prohibition would require them to get their products from outside the county.
Alex Scherer, owner of San Ysidro dispensary Southwest Patient Group said the city is risking tax revenue by proposing a flat-out ban. The jurisdictions that regulate the supply chain will reap the rewards if San Diego dispensaries have to source their products from elsewhere in the state, he said.
Having to go outside the county to cultivate and test products before they’re sold could raise costs for local legal dispensaries. Nor is doing so environmentally friendly, as trucking products from Los Angeles or Northern California would emit more greenhouse gases than if cultivation, manufacturing and testing happened locally.
Phil Rath, an attorney who represents most of the legal dispensaries in the city, said at the December hearing that he and the businesses he represents mostly agreed with the city’s marijuana proposals – except this one.
“It’s a little difficult for us to be told that all product in the future must come from outside the region,” Rath said. “It all must be trucked in. It must be tested by shipping it back and forth. It’s kind of baffling in face of the [Climate Action Plan] that we would decide that what we would do is lots more trucking, when we know we have facilities here that we know could do this in a controlled way.”
In December, the city’s planning commission recommended the City Council reject the piece of the proposal that would ban cultivating, manufacturing and testing, saying those aspects of the industry could and should provide jobs and tax revenue locally. Instead, the city should create separate regulatory and permitting structure for them, the commission said.
Scherer is also concerned that the ban will just encourage illicit activity in the industry. Legal dispensaries are already more expensive for consumers than illegal ones that don’t have to pay for permits, taxes, testing or security at their facilities.
Legal dispensaries need every cost advantage they can get, Scherer said.
“The increased costs will ultimately be translated onto the consumer,” Scherer said. “We obviously want the supply chain to be regulated, but if they just shut them down, the demand won’t go away. The demand will still exist.”