Move to legalise recreational cannabis has not been entirely welcomed by cities and states, but cities’ zoning policy poses a threat to entrepreneurs and money
The market will decide how many pot shops survive on local streets
In San Francisco, federal prosecutors’ recent decision to shut down 22 cannabis shops, putting its 3,700 legal marijuana outlets out of business, has many entrepreneurs fearing their own fate. For now, it seems, no large, legal industry is safe. But cities have full powers to affect the flow of money from marijuana businesses.
After California’s elections last year made cannabis legal, many investors moved in to open the state’s new wave of marijuana businesses, spending at least $250m for licenses in businesses that can sell the plant for recreational use.
Legislators in California claimed that their action would not restrict the legal market, but nonetheless those who studied the matter concluded that the state could see a rollback in the number of retail outlets selling cannabis, a move that would starve the industry of funds.
This fear may now be realised. To develop a solid legal industry, many on the market rely on private equity from their backers to expand their businesses, giving other entrepreneurs the funds needed to expand, but when the revenues dried up the entrepreneurs had no choice but to think about shutting down.
Some entrepreneurs saw this as a good time to buy out their competitors. If they could cheaply purchase their rivals from all over the state, they would have a chance to raise more money for expansion, right? Not so fast.
In California, municipal-owned property, such as parking lots, may be sold at market value, with potential threats to the existence of retail stores who no longer count on that valuable property to fund expansion.
The movement to legalise recreational cannabis has not been entirely welcomed by cities and states across the US. In Oakland, California, there are six cannabis dispensaries operating alongside four big retail stores.
Oakland’s mayor, Libby Schaaf, announced in December that she would ignore federal and state law and refuse to enforce a federal ban on marijuana businesses operating on city property.
A law in Washington state places marijuana stores in the same realm as restaurants and bars, so cannabis sellers had no choice but to erect their own retail outlets in the centre of the largest city in the state. It was too much for some, and now Washington’s biggest manufacturer of cannabis, the Precision Cannabis Company, has left the city and set up shop in Boise, Idaho.
“The city of Oakland can’t adapt to the new law in California and they had been in talks with a couple of cannabis businesses to relocate elsewhere. They decided to leave,” says David Oliveros, the company’s chief operating officer.
In Colorado, where weed was legal until 2016, there is a constitutional amendment on the ballot for 2020 that legalises marijuana use for recreational and medical purposes. According to a recent poll of voters, 66% think it should pass. In Colorado, however, legal businesses are feeling the pinch.
“The movement in Colorado to try to regulate cannabis as a drug was a first for the US and there is no template that can be used to sort of determine how a plant that has never been studied for chemical compound development should be handled. There is a lot of angst,” says Frank Nellis, a cannabis lawyer.
While in Washington state, there were many businesses to close down, public opposition to cannabis laws in California is dominating state politics.