In April 2017, San Diego adopted an ordinance permitting and regulating retail marijuana outlets (shops that dispense recreational or medical cannabis).

On September 11, 2017, the San Diego City Council held a public meeting to discuss whether marijuana cultivation, distribution, manufacturing and testing businesses should also be allowed within the City.

The council debated two (2) options:

Option 1 presented a complete ban on marijuana production in the city, only allowing for the new use of marijuana testing.

Option 2 presented a permitting plan for two (2) new uses: marijuana production and marijuana testing.

Under Option 2, “marijuana production” includes, broadly, “marijuana production facilities which can engage in agricultural raising, harvesting and processing of marijuana; wholesale distributing and storing of marijuana and marijuana products; and producing from marijuana and marijuana products.”

THE SEPTEMBER COUNCIL MEETING

61 members of the public spoke at the meeting and more than 120 registered their support or opposition.

Public discussion focused on the implications of permitting marijuana production enterprises in the City and centered on the following core issues: public health and safety; potential economic impact; and the importance of clear regulation. Having already permitted retail marijuana outlets under the April 2017 Ordinance, the City Council had to confront the public policy reality that marijuana products for those retail marijuana outlets would either be produced within the City or imported, wholly, from outside the City.

Option 1, approval only of testing, was strongly supported by the San Diego Police Department’s Chief of Police, Shelley Zimmerman. Chief Zimmerman asserted that her colleagues in Denver (which has legalized recreational marijuana) informed her that the additional revenue generated by recreational marijuana activity to the City of Denver is not worth the increase in crime. Her message resonated with Councilmember Lorie Zapf (District 2), who urged the council to consider the impact upon youth and to do additional research before allowing production within City limits.

Councilmember Chris Ward (District 3) made the motion to adopt Option 2.

Ward cited the importance of accepting the will of the voters. Specifically, over 60% of voters in the City of San Diego supported Proposition 64 - the Adult Use of Marijuana Act - which passed by a wide margin in the November 2016 election (the Act). Ward further emphasized the potential economic benefit of Option 2 to the City, citing specific estimates of approximately 3,000 full time jobs to be created within the City by the activities permitted under Option 2. Councilmember Barbara Bry (District 1) seconded Ward’s motion to approve Option 2 and in her comments mirrored his focus on the will of the voters as a central reason for approval.

The final vote was 6-3 in favor of passing Option 2 (with amendments), with Councilmembers Chris Cate (District 6), Scott Sherman (District 7), and Lorie Zapf, opposing.

BUSINESS IMPLICATIONS

It’s undeniable that significant financial investments in the City of San Diego are being made in its future cannabis industry. Here is a high-level summary of what businesses and investors need to know:

1. When the City permitted retail marijuana outlets (read retail dispensaries) it set a limit of four (4) per City Council District. Using math – that’s 4x9 or up to 36 marijuana outlets Citywide. The adopted Option 2 allows a total of 40 marijuana production permits citywide. In summary, on a citywide basis, the City approved 36 permits for retail marijuana outlets (but no more than four (4) in any single council district) and 40 permits for marijuana production facilities.

2. Marijuana production facilities must be located in light and heavy industrial zones. Notably, many of the buildings purchased and permitted for retail marijuana outlets are in buildings that are not zoned for light or heavy industrial uses.

3. Cannabis businesses currently operating with a valid business tax license issued by the City will have 24 months to continue operation. Prior to the expiration of this grace period, these existing businesses will need to acquire one (1) of the 40 conditional use permits for marijuana production.

4. Under the City’s existing industrial zone land use requirements, businesses must be 1,000 feet from parks, day-care facilities, public libraries, schools, and churches.

5. The city council stated it will soon address the related issues of the legality of marijuana delivery services, labor requirements in the cannabis industry, and odor regulations.

The Act legalizes recreational marijuana activities in California and gave the State legislature until 2018 to pass implementing regulations and licensing requirements while leaving discretion to individual municipalities to determine whether and to the extent they would permit recreational marijuana activities. Under this framework, many municipalities, like the City of San Diego, have moved in response to the Act to permit and regulate specific marijuana activities (such as retail sales, manufacture, and testing) while others such as the County of San Diego have put a ban on all marijuana related activities.

Braden Mann and Addie Stone contributed to this article