Gov. Gavin Newsom has been presented with a bill to allow Amsterdam-style cannabis cafes across California, a bid to help invigorate an industry that has suffered from intense market saturation and a post-pandemic drop in customers.
But, while San Francisco cannabis dispensaries would regard this change as positive, many proprietors said it would do little to address their biggest problem: There are simply too many shops chasing too few customers, particularly as the city’s tourism industry has taken a hit.
“Our revenue has dropped 43 percent in the last 18 months,” said Al Shawa, who owns Mission Cannabis Club on Mission Street near 21st Street, a mainstay in the neighborhood since 2010.
Shawa also owns two other dispensaries that opened this year, one in the Marina District and another in Russian Hill. “There’s no money to be made,” he said. Neither store is doing well.
Assemblyman Matt Haney’s bill, AB 374, passed the state legislature earlier this month and is now sitting on the governor’s desk, awaiting his approval — or veto. It would allow dispensaries that operate a lounge — where cannabis can be consumed on-site — to serve food and non-alcoholic beverages. The hope is they would turn into the sort of cafes that are a draw to tourists and locals alike in the Netherlands and elsewhere.
But in San Francisco, dispensaries that include a lounge area represent a small portion of the field; 11 of the 80 or so dispensaries in the city. The vast majority of dispensaries operate under a permit that only allows the sale of cannabis, not its consumption on site.
Ali Jamalian, a veteran of the industry, runs a cannabis-manufacturing company and chairs the Cannabis Oversight Committee, which advises the city on laws and regulations relating to cannabis. “At the moment, almost every conversation is prefaced by the market downturn,” he said.
The industry by-and-large fared well during the pandemic. Many customers were stuck at home and flush with disposable income, and a flurry of new dispensaries opened through the city’s equity program. However, the past year has seen revenues drop. And with more dispensaries, that income is stretched among more businesses.
SF hasn’t seen its last new cannabis dispensary yet
Cannabis retail has its own, separate land-use category with restricted available areas: Most are downtown, where foot traffic has dwindled post-Covid, and in commercial corridors in surrounding neighborhoods. Map by Kelly Waldron. Data from the Office of Cannabis via a records request. Basemap from Mapbox.
“You keep slicing a pie into smaller and smaller pieces: Everyone’s portion is just going to get smaller,” said Jose Carmona, who is the inventory manager at MediThrive on Mission Street between 15th and 16th streets.
In 2018, the Office of Cannabis instated its equity program, which subsidized permits and facilitated applications for those from low-income backgrounds or those with prior marijuana arrests or convictions.
It was largely a success: 45 permits have been granted through the program, including Shawa’s. He utilized the program to open his two most recent dispensaries.
The 2018 equity program saw a flurry of new permits granted
A moratorium on new permits was introduced in June 2023.
14
12
10
8
6
4
October
April
October
October
2
2019
2020
2021
2022
2023*
The 2018 equity program saw a flurry
of new permits granted
A moratorium on new permits was introduced in June 2023.
14
12
10
8
6
4
2
2021
2019
2020
2022
2023*
*Includes permits granted in 2023 through September 12. Source: The Office of Cannabis via records request. Chart by Kelly Waldron.
The Office of Cannabis has also distributed grants through the program, totalling nearly $11 million, it said in an email. In the most recent cycle, grants of up to $87,000 were distributed to 45 equity businesses and applicants: “We’ve heard from operators that these grant dollars were essential to keeping their businesses afloat during these challenging economic times. A common expense these grant dollars are used for is paying rent.”
The equity program was so successful, in fact, that the Board of Supervisors, citing market saturation and the economy, issued a moratorium on new permits in June. There are currently 70 applications under consideration which will be unaffected by the ban, as they were submitted prior to the moratorium.
Most of them are in saturated areas, particularly downtown neighborhoods disproportionately affected by a decline in foot traffic and tourism.
“Luckily, the moratorium came through,” Carmona said.
Still, most dispensary proprietors were doubtful that business would recover in the immediate future, saying the cannabis industry had simply grown too big, too fast.
And what makes it worse, said Jamalian, are tight regulations on dispensary owners and a lack of available resources. “We don’t get a fair shake at running our business,” he said.
Unlike other kinds of retail stores, dispensary owners in California are subject to a cannabis excise tax: 15 percent on all sales. That is in addition to a base sales tax of about 8.6 percent. They are also subject to a section of the tax code that prevents them from writing off regular business expenses, unlike other retail shops.
Retail cannabis stores are also required to hire security personnel, can only operate between 6 a.m. and 10 p.m., and can only sell cannabis, though Haney’s bill would change that for some.
On top of all that, since cannabis is still listed by the Drug Enforcement Agency as a Schedule I drug like heroin, LSD and peyote, it is federally illegal. As a result, dispensary owners cannot access certain federal resources that are available to other small businesses, such as funding from the Small Business Association.
That goes for financial support from traditional financial institutions, too, like getting loans, or even processing credit card payments, which trickles down to other people involved in the business: The landlords of cannabis retail spaces, for instance, may find themselves unable to continue their loans with a regular bank.
And, despite cannabis legalization, the black market has not gone away.
While street sales have always been there — even right outside dispensaries’ doorsteps on Mission Street — now, more than ever, it’s difficult to compete with the black market’s going rates. Carmona said he recently saw a guy, walking down Mission Street, waving a turkey bag of weed, shouting “$20! $20! $20!”
Carmona’s rates for an eighth of an ounce bag are between $9 and $65; the same bag on the street would cost 40 to 50 percent less, he said.
Operating a business with so many hurdles is not for the faint of heart. “The resilience that this cannabis community has is next to none,” said Jamalian.
Still, there is some optimism.
Joseph Hunt, who had to close his first dispensary in the Mission for being too close to a school, opened another one around 19 months ago: Union Station, on Mission Street near 16th Street. Hunt is hopeful that business will get better, as cannabis becomes less of a taboo with bills like Haney’s.
“If you run a good business, then people will come to your business,” he said. “Every month has pretty much been better than the last, ever since we started.”
Mission Cannabis is across the street from Purple Star, which is always busy. Purple Star has a good range of flower and good prices.
I have looked inside Mission Cannabis. It charges too much. I could easily shop there if there was some reason to. But there isn’t. Don’t blame the economy. Blame your products and prices.
Ali,
Let me be frank, and let’s figure this out for you. Your business is not welcoming to the vast majority of customers.
1. Customers don’t want to hang out in a dispensary or buy product where people are hanging out. Customers want to get in and out quickly. Get rid of all of the chairs, tables, and couches. Cut your space in half and move the counters closer to the door.
2 Customers want a clean and light interior to better see the product and feel safe. Get rid of the dark paint inside and out. Get nice and bright lights inside. Open up the front with more windows, natural light, and an inviting entrance.
3. Have a variety of products and prices.
4. Train your employees to be nice to the customers, be good at customer service, and to not be disrespectful to anyone.
If you don’t do all of this your business will fail.
Good luck.
Running any retail establishment in a city where the business districts are empty of foot traffic is difficult at best. Throw in 33%+ effective tax rate, with headwinds due to lack if banking options, constant break ins, lack of classic tax benefits, black market, lack of workers, a city that relies too heavily on small business to fund its operating budget and you’re now in a survival of the fittest mode. I say, keep reimagining relevant models given the state of the SF Marketplace.
Purple Star is the best! Mission Cannabis Club is trying too hard to be fancy and boutique-y
Would we give $11 M to liquor store owners? Time to get over the specialness of pot stores.
I can understand the concern about the proliferation of dispensary licenses in SF, but any concern about illegal sales is misplaced. I’m going to spend $20 on a bag of stuff a stranger is hawking on the street when I can get reliable products from a licensed dispensary. No way.
I appreciated this article but wish it would have provided more hard data to prove a condition of “market saturation”, rather than relying on anecdote. Sounds from the comments section like Mission Cannabis has other problems.
Even if one concedes the point, it is strange to be talking about all of the challenges of operating such businesses and at the same time needing a moratorium because too many are opening. Something must be wrong in the way that the City — and the operators — are understanding this particular marketplace…
I think it’s funny that the owner of Mission Cannabis is going to complain there’s too much competition and not enough customers. His revenue is down because the man has absolutely no idea how to run a successful business. Take my experience for example. I had heard some negative things being said about Mission cannabis prior to me going there. I had heard the owner is not nice and the prices were on the high side. I do not judge anybody and wanted to see how it was for myself. This was over two years ago and guess what? I still have not gone back and I will never go back. The owner is extremely disrespectful and very creepy to be honest. The staff wasn’t that bad, but the prices were absolutely ridiculous. Selling cannabis is a very simple thing to do. Keep a clean and safe space, Sell quality products at competitive prices, and get people out the door as fast as possible without making them feel rushed.I don’t care about these cannabis stores selling anything else but cannabis I for one do not like to hang out in those spots I just like to grab my stuff and go.
@ ppl mentioning the prices at mission canna/club being high I just wanted to let ppl know that on Mondays and Tuesdays they have a neighborhood discount, if you either live in or work in, the neighborhood. I don’t think they advertise this, I only found out because a nice woman named Varvara was working there one time like 2 years ago and I mentioned working in the neighborhood, and she put a note in my account and now whenever I stop in on Monday or Tuesday I get a discount, as well as the credits program that most dispensaries have where you end up saving like at least 20 dollars a month if you visit often. Also there’s a commenter up above , mark, who seems to have confused the owner of MCC with the owner of sunset connect but they are separate businesses/different people. Anyway. Smoke weed everyday. Grow your own, roll your own, or shop around, there’s deals to be had. Peace.
Does the $11 million come from the City taxpayers?
It’s definitely a crowded space. Here’s my review ranked from best to worst:
Urbana — Love this place. Reasonable prices, good quality, knowledgeable and friendly staff. The best part is that it’s setup like a normal retail store. You can walk around and pick things up rather than have everything behind the counter. Definitely my go-to place these days.
Mission Canabis Club — Beautiful and huge space. Good staff. But the prices are on the high side.
Pancho Brothers — I want to support these guys — it’s a family operation — but the selection is limited to what they grow, so it’s really not practical for me (no edibles).
Purple Star — The cheapest prices in my experience, but the staff doesn’t have a clue what they are selling — it’s just a high volume operation and has a kind of sketchy vibe.
Dr. Green Thumb — Staff is rude and sketchy. Don’t appreciate the security guard smoking right at the front door. I’m never going back.
The entire SF storefront ecosystem is dispensaries, plant stores, and skin care. I presume there are limits to how many providers of each we need.
Good article Kelly,
I am not a marijuana smoker myself .
This is fantastic news for the consumer . More competition leads to lower prices and a better quality service . The consumer is the winner . Supply and means will eventually intersect and they may build more of the marijuana clubs or some Will shutdown .
The SAN FRANCISCO Cannabis Moritorium is related to new applications for retail. The applications in the pipeline will be processed.
Biggest issue is high taxes, quick expansion, IRS, high costs making Cannabis Retail difficult.
Cannabis is a plant medicine, should be treated as such, not as a threat to society.
We need to break the stigma, bring facts to the public, which will increase demand, customers for Cannabis.
Really, economics 101… 🙏🏽
Good points, Bram. Having owned a dispensary, I’ve experienced the myriad of challenges facing the industry. It’s not an easy business to operate. Absurd taxation and license fees, inability to deduct normal business expenses, banking issues, security issues that are mainly related to lack of banking, stringent regulations (I operated in another state, one that was arguably the most heavily regulated in the country), unionization, advertising restrictions, real estate and zoning issues, funding issues, stigma, etc. Operating in the space would definitely be easier if federal law changed.
I appreciate what SF is doing in an effort to assist incumbents. It’s not the first time a government (whether it be federal, state or local) has stepped in to help an industry (and/or consumers). On the other hand, as a consumer, I appreciate how market forces can effect prices, quality, experiences, customer service, etc. We all want a great price for the best possible product and service. Increased competition should spawn that, and there will be winners and losers.
Operating a legal cannabis business is an expensive undertaking. Add that to its competitive landscape, I humbly admit that it’s not for the faint of heart. In order to operate a sustainable, scalable cannabis business, you’ve gotta be willing to suck it up and work smart and hard to differentiate your company. Easier said than done, especially given federal prohibition. It’s going to be interesting to see how things evolve.
Why even have a moratorium? Let the market deal with it – plus there appear to be plenty of pending applications. If folks want to take the gamble, let them. Maybe their venture is better, maybe it isn’t and their operation provides a temporary economic boost. How is it anyone’s job to protect incumbents? We don’t take this tack with other businesses. No one goes around counting the number of ice cream shops and trying to deduce if it’s optimal.
It really is an idiotic pander from Ahsha Safai to propose this, and just as bad that the whole BoS approved it. The city should not be arrogating the power to pick winners and losers within a sector of the economy, which is effectively what it does when it props up incumbents and prevents newcomers from getting permits.
One quibble – it absolutely *is* a classic SF NIMBY move to do this in other sectors as well. That’s the whole point behind things like longtime restrictions on “formula retail” – to say “we know the market better than the actual consumers and firms, and we’re going to make sure that you can’t open another location of that store here even though your other six locations in the city have been wildly popular and profitable.”
Sure but formula retail doesn’t discriminate on shop type, whereas this is picking on only cannabis
Formula retail might not be a perfect analogy – that was just the first one that popped into my head. But there absolutely are other examples of the city thinking it’s smart to micromanage the economy like this even if they aren’t quite formalized policies – another one is the way that the city effectively allows small numbers of NIMBYs a veto over any particular business that wants to enter their neighborhood. As long as they make a big enough stink about it to the SF Planning Department, it doesn’t matter if the business meet all the actual legal requirements – the supervisors and planners will *still* intervene to hold up their permits.