Vista leads North County in the recreational cannabis industry

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EDITORS NOTE: This is part of The Coast News’ three week series on North County’s Marijuana.

VISTA – After two rounds of voting, Vista residents finally legalized recreational cannabis.

In 2016, California voters approved a statewide measure, Proposition 64, but the Vista City Council did not vote to allow marijuana-related business. Two years later, residents passed Measure Z, which opened the door to 11 medical cannabis dispensaries.

The early success of medical cannabis in Vista apparently turned the tide among councilors who later approved recreational marijuana last summer. Since then, the cities of Oceanside and Encinitas have followed suit, although Encinitas residents first had to pass through Measure H to force elected officials to act.

While Vista has positioned itself as the industry leader in cannabis, Oceanside is aiming for a breakthrough, especially since the city’s cannabis corporate tax rate is 5%, compared to 7% in Vista as determined by Measure Z.

“You must comply with a medical permit and can use adults too,” said Vista City Secretary Kathy Valdez of the transition to adult use. “The state has licenses for adults or adults and medicine. You have to get both. “

First on the market

Vista was the first North County town to allow adult cannabis retail stores to operate when they switched from medicinal to adult use earlier this year. About two years ago, the City of Oceanside approved cannabis for adult-only delivery, with MedLeaf being the first store in town. Oceanside is now making headway with adult cannabis with a 3% tax rate.

The city of Encinitas also needed a resident-led election to force their council to incorporate marijuana businesses into the city. Currently, the city is in the process of overcoming legal hurdles, but some, like Laura Wilkinson Sinton, said the city is slowly moving the process forward.

Escondido City Council recently rejected a proposal to approve cannabis, while Carlsbad and San Marcos voted years ago to keep cannabis illegal.

Every city in North County voted for Prop. 64, with Encinitas having the highest percentage at 65.2% and Escondido the lowest percentage at 52.1%.

Adult cannabis at The Cake House in Vista. Photo by Steve Puterski

“Essentially, we are dealing with an epic failure of local elected officials to comply with the wishes of their constituents and to deliver sound, data-driven public policy,” said Sinton. “They are missing out on the amazing revenues and inadvertently driving crime – the opposite of what they are accused of – their own law enforcement and public safety for their constituents.”

Vistas processes

Action Z had specific requirements and schedules that forced the city to act faster than it might like. Valdez said once the stores are identified it will be the responsibility of the owners to open them if they can. The first pharmacy opened in October 2019, said Valdez, who heads the city’s cannabis management program.

The last pharmacies opened this year for a variety of reasons, but the city took into account potential tax revenues in its biennial budget estimates. Valdez said the city has taken its problems with implementing Measure Z but has now gained a deeper understanding of the industry.

Councilor Joe Green has been one of the biggest proponents of the transition to adult cannabis, especially after revenue projections and the city’s ability to adapt to business owner concerns.

“We couldn’t change or add any conditions,” said Valdez. “I think if it was something out of town, there would have been different requirements. It was really just getting to know the process of the state. “

Valdez said the city will have to adjust its tax revenue for fiscal 2020-21 due to a growth explosion, increasing projections from $ 1.3 million to $ 3 million. And in its next two-year fiscal cycle, the city plans revenue of $ 4 million for fiscal years 2021-22 and 22-23; although the city expects at least $ 5 million each year.

The city also approved delivery, manufacturing, distribution, and testing facilities, with the last three categories allowing two businesses each. Valdez said there had been several manufacturing and distribution applications, but none for test facilities, despite inquiries.

“We’ve heard from people all year long as we implemented the cannabis deals,” she added. “The interest in testing was particularly high, so it is interesting that we did not receive any applications. I think it’s a lot more expensive than people think and I don’t know if it’s that profitable. “

In terms of revenue, cannabis was a boon to the city, and even helped it hit a deficit and run a surplus during the COVID-19 pandemic, a time when other municipal households were struggling.

Jon Jesse, owner of Dr.  GreenRx in Vista said pure volume is keeping its business afloat despite high taxes on cannabis products.  Photo by Steve PuterskiJon Jesse, owner of Dr. GreenRx in Vista said the volume is keeping its business alive. Photo by Steve Puterski

Valdez said the city has also hired HdL consultants to help with inspections and processing licenses. Jesse said he had been inspected twice by the HdL, but nothing by the state.

As for HdL, the company has come under fire from numerous cities and businesses and has been the subject of multiple lawsuits alleging unfair evaluation practices among applicants for cannabis permits and pay-to-play programs, according to various media reports.

According to The Daily Republic, the city of Fairfield has terminated its contract with HdL, reclaimed its money and suspended the granting of licenses.

Three cannabis companies in Chula Vista have each filed lawsuits citing the city in recent years and HdL failed to abide by city-approved rules, according to the San Diego Union-Tribune.

In Vista, no retailer has filed a formal complaint with the city regarding the procedure and contract with HdL.

Business expenses

Jon Jesse and Daniel Wise, owners of Vista’s Dr. GreenRx and The Cake House, respectively, said the application process was easy and simpler than in other cities. However, Jesse said the 7% tax rate was a cause for concern as retailers struggled to break even.

However, the likelihood of a change in the tax structure is difficult, Jesse said, as further voting action would be required to lift the rate set in Action Z.

Because of low margins and the cost of product, labor, safety, rent, and insurance to name a few, most retailers make very little profit, Wise and Jesse said. Wise said that because it has multiple locations, it can scale because it is able to buy in bulk and save money.

Daniel Wise, owner of The Cake House's retail cannabis store in Vista, said the city's application process is easy, but the tax rate leaves little room for profit.  Photo by Steve PuterskiDaniel Wise, owner of The Cake House in Vista, said the city’s application process is easy, but the tax rate leaves little room for profit. Photo by Steve Puterski

For a one-shop owner like Jesse, buying in bulk is not an option as cannabis is a perishable item with an expiration date. Jesse said he couldn’t afford to buy 10 pounds of a strain of cannabis because his customers might not like it, so it will sit and take up space.

Because the industry is so competitive, with limited number of retail stores allowed in a given community and high taxes, this poses a challenge, Jesse said. He said it will be a numbers game and that volume is what keeps most companies afloat.

As for the end of the rainbow, Jesse said the asset or business has value and where shopkeepers make money if or when they decide to sell.

“When we first opened … 30-50 people went out because they didn’t want a notice and you’re talking about $ 50 a head,” Jesse said. “The competition is huge and the margins are very low. It’s about volume. “

However, it was a success for the industry when Vista City Council decided earlier this year to recalculate its fee schedule for both delivery and delivery businesses. Originally, on the recommendation of HdL Consultants, the city approved fees of more than USD 20,000 per company.

However, the council reversed course and lowered the fees, which are an annual payment to operate.