In 2016, California voters approved recreational cannabis. Once San Francisco established local regulations, advocates said it was time to open the floodgates to the free market and competition, with retailers opening their doors in 2018.
SF also introduced a social equity program, making it easier for people impacted by the war on drugs to open a shop by lowering financial and bureaucratic barriers. Advocates argued that the city should do everything possible to help qualified people start a business — and that restrictions were anticompetitive and inequitable.
“San Francisco’s Cannabis Equity Program envisioned putting us in a position of real ownership by connecting us to the new incoming wave of cannabis investment, post-legalization,” Malcolm Weitz, now owner of the Union St. MedMen dispensary, wrote in a 2018 op-ed. “If we insert a cap on equity applicants, then we limit competition. A cap does not serve the interests of the equity program or adhere to its vision.”
A few years later, a moratorium on new shops is looking increasingly likely. SF’s Board of Supervisors could soon debate a bill to cap cannabis retail, and several industry boosters, Weitz included, are open to the idea. They believe they’re facing too much competition. “We, being the pioneers of the social equity program, need a little bit of time to settle in, get our brands right, get some breathing room, maybe get some new investment,” Weitz tells The Frisc.
Generally, customers benefit from increased market competition (lower prices, better access to goods) as opposed to protectionism. The city has also struggled for years with empty neighborhood storefronts, which the pandemic exacerbated and which officials have tried to address in different ways.
Nevertheless, a cross-section of retail operators contacted by The Frisc supported a cap; all but Weitz declined to speak on the record until legislation was drafted. The idea should be popular as well with San Franciscans against pot shops in their neighborhoods. Consistent resistance often brings disputes all the way to the Board of Supervisors. On Jan. 24, during an appeal of a permit for a new Excelsior District dispensary, Sup. Catherine Stefani said she was working with the city attorney’s office on “a citywide restriction and cap” on cannabis retail, and that draft legislation should be out in coming weeks.
When contacted by The Frisc, Stefani’s staff and the city attorney’s office declined to provide specifics, so it remains unclear if Stefani is proposing a cap on new retail licenses or a moratorium on applications — a critical distinction.
A cap on licenses would be bad news for the more than 100 aspiring entrepreneurs who have submitted applications for permits and are waiting on approval from the city’s Office of Cannabis, Planning Department, or Department of Building Inspection.
A pause on new applications, however, would be less controversial to both industry advocates and detractors because it does not target applicants who have already spent time and money on the approval process, which often takes more than a year and costs hundreds of thousands of dollars, even with fee waivers, as I reported here. (Disclosure: I am a member of the Brownie Mary Democratic Club, which advocates for medical marijuana use.)
Stefani’s plan isn’t the first. In 2020, supervisors Ahsha Safaí and Shamann Walton floated a cap proposal, citing a backlog of 145 applications and concerns about competition. An aide to Safaí said the supervisor’s reasons for supporting a cap today remain the same.
What California can handle
For context, there has been an average of about 70 cannabis storefronts operating in San Francisco since the second quarter of 2019, according to a September 2022 controller’s report. That’s about one dispensary for every 11,645 San Franciscans. Several major cities in California, including Los Angeles, have proposed or enacted caps at thresholds between 10,000 and 15,000 residents, which some consultants and public health officials agree is the maximum a local market can handle in California.
Even before most of SF’s shops were opened — 2020 marked a big increase in approvals — a different controller’s report recommended a cap, citing the long application queue and the risk of increased competition for existing stores.
As Safaí pointed out on Jan. 24, angst has been particularly concentrated in San Francisco’s southern neighborhoods after seven dispensaries received licenses in short succession in 2018 — three of them in one night. Russel Morine, an Excelsior resident who publicly opposed the opening of the dispensary Elevated SF in 2021, said that “if worded correctly, [a cap] would be a good idea.” (He wants to make sure new legislation doesn’t remove other restrictions on opening a store, like the mandatory 1000-foot distance between dispensaries.)
For years, an average of 70 cannabis storefronts have operated in San Francisco. That’s about one dispensary for every 11,645 San Franciscans.
When appeals go before the Board of Supervisors, appellants often seem to be consulting the same playbook. They regularly use the no-fault argument that owners didn’t allow for enough community input — a strategy also deployed against ice cream shops and other local proposals. Another tactic is to argue that a new dispensary is too close to a daycare, preschool, or playground, even though the shops can’t get a permit in the first place without at least 600 feet of distance.
One longtime opponent of new dispensaries has been the San Francisco Community Empowerment Center, which advocated for legislation prohibiting dispensaries in Chinatown. A woman answering the phone at the center, who declined to be named, said the organization would also likely support a citywide cap. The center connects mostly Chinese immigrants to government and nonprofit resources, and also hosts ESL classes and recreational activities like karaoke night. “A lot of people come to us and complain,” she said. “They can’t understand the language so they come to us to complain for them.”
Cap vs. bottleneck
It’s unclear how much impact a retail cap will immediately have. It’s worth asking if SF even needs one. There’s already a bottleneck preventing would-be dispensary owners from opening their doors: city bureaucracy. And it’s not likely to get better any time soon.
Of the more than 100 dispensaries currently in line for approval, 31 already have their building inspection permits and are only waiting for the Office of Cannabis final green light, according to the office’s spokeswoman Sophie Hayward. The rest are working their way through the lengthy and expensive earlier application requirements: proving they qualify for the social equity program, registering their business, conducting community outreach, seeking approval from the Planning Department and Department of Building Inspection, setting up a business plan, hiring staff, and applying for a state permit — all while paying rent on a retail location if they do not own it.
The office has the equivalent of four full-time staff reviewing applications, each taking one application at a time to completion before working with the next. That means it will be some time before each of these applications make it through the process, if they are even approved.
The easiest solution to this backlog would be more staff. The office has a $1.1 million budget and the equivalent of nine full-timers, but the city is facing an estimated $728 million deficit with many cuts across the board expected.
Accelerating the speed of permit approval at the Department of Building Inspection is a whole other issue — and given the scandals and corruption at the department in recent years, not one that will likely be resolved anytime soon. The Planning Department, for its part, appears more concerned with increasing the rate at which it can approve housing projects.
Still, Weitz is confident a pause on new cannabis retail will bring the reduced competition he needs to stay afloat in a compact city, no matter what can be tweaked in the budget: “We live in a seven-by-seven — God put us in a unique place, and it has its boundaries, and we have to live within those.”
Veronica Irwin is a writer in San Francisco and has covered cannabis, fintech, and more for The Frisc, the SF Weekly, Protocol, and the SF Examiner.