ORANGE COUNTY, Calif. — Strapped for cash, some Orange County cities are turning to a green source to help make up budget shortfalls from the coronavirus catalyzed downturn.
A month after the election, four cities are now allowing or expanding their existing cannabis operations at a time when the global pandemic has hit city revenue hard.
Last month, the Fullerton City Council approved five retail dispensaries and other cannabis operations within the city.
During the election, voters in Costa Mesa voted in favor of having licensed cannabis retail storefronts and delivery services. The city had already allowed for cannabis manufacturing, testing, and distribution.
La Habra voters also approved for the city to authorize cannabis delivery operations. La Habra currently allows cannabis distribution and testing facilities.
And Stanton, which had passed a measure last year that allows for cannabis operations, including retail storefronts and manufacturing, has begun accepting applications to get its cannabis program ball rolling.
Meanwhile, Laguna Woods residents voted in favor of the city to establish the retail sale of medical or non-medical marijuana in the city.
Once implemented, Fullerton, Stanton, and Costa Mesa will join Santa Ana as cities in Orange County that allow for cannabis retail storefronts.
"For Costa Mesa and La Habra, this is the next step and evolution of allowing cannabis retail and deliveries into their cities," said Jennifer McGrath, a former Huntington Beach city attorney and now specializing in cannabis regulation. "We expect applications for retail cannabis in Fullerton to begin in January."
The new measures supporting cannabis operations come amid a global pandemic that has hurt city budgets. Several cities across Orange County have reported massive budget shortfalls due to the pandemic economy. As a way to make up some of the shortfalls, cities are turning to recreational cannabis businesses to help fill in the gap.
"COVID-19 has created an economic crisis for many of these cities," McGrath said. "Now is the time many are searching for new revenue sources."
Orange County residents' attitude regarding legalized cannabis operations has changed in the past decade.
In 2010, Orange County voters were one of several counties that struck down Prop. 19, a statewide ballot initiative that would have legalized marijuana for people 21 and older, and let local governments regulate and tax marijuana businesses. Medical marijuana has been allowed in California since 1996.
Six years later, in 2016, Orange County voters voted for the passage of Prop. 64, which legalized the possession, cultivation, and use of marijuana for recreational use. It also allowed local municipalities to regulate and tax marijuana businesses.
"What you see in Orange County is a conservative political base shifting in the acceptance and appreciation of the cannabis product from an economic standpoint," said Nicole Cosby, chief compliance officer at Fyllo, a cannabis compliance software and marketing company. "The state and many of these cities are feeling a lot of financial pressure and looking for new revenue sources at a time when there aren't a lot of new industries popping up."
Allowing cannabis operations and taxing it could be a solution to city budget woes.
The closure of Disneyland, fewer hotel stays, reduced sales tax, and other impacts from the coronavirus have Fullerton facing a $7.9 million operating deficit. City staff estimates that allowing retail cannabis operations could generate $2.25 million to $3.75 million in annual revenue.
Facing a possible $30 million deficit next fiscal year, Costa Mesa estimates taxes from cannabis retail sales could generate up to $3.1 million.
Last year, Santa Ana, the only city that currently allows cannabis retail storefronts, netted nearly $8 million in revenue from their 30 or so retail dispensaries, according to the Orange County Register.
The city expects to net $10 million this year.
"Cannabis is a multi-billion-dollar industry," Cosby said. "If you look at the trends and patterns, in 2025, cannabis is going to be a $60 billion industry. We're seeing the emergence of a new net vertical."
Since 2018, the state has generated more than $1 billion in revenue from cannabis tax revenue.
But as these cities begin to allow legal retail cannabis operations, Adam Spiker has some words of advice for them.
"Make sure you have a clear and concise licensing process," said Spiker, the executive director of the Southern California Coalition, a Los Angeles-based cannabis trade organization with more than 200 active members.
While he welcomes the news of cities in Orange County allowing cannabis retail storefronts and delivery, he's also seen the challenges they face once the licensing process begins.
"It's a mixed bag," Spiker said of cities allowing cannabis retail storefronts. "The idea and concept of licensing of cannabis, obviously, is an incredible win. It's great that they want to move forward, [but] how they move forward is the critical aspect. [They] have to create a very sound and very tight, very resolute process for issuing licenses, or else you're going to turn this into a nightmare."
Spiker points out what happened in the city of Oxnard in Ventura County. Oxnard passed an ordinance to allow a select number of retail cannabis operations within the city, only to terminate it last month due to inconsistencies in the city's appeals process.
Oxnard now has to re-do its entire retail cannabis program.
In the two years since Santa Monica approved two retailers to operate in the city, those retailers have yet to begin operation.
"Cities need a pristinely tight process," Spiker said. "Because there is such a high demand and there's only going to be a few spots available that there's going to be appeal from businesses that don't get chosen and even lawsuits from NIMBYs or someone else."
Still, there is a payoff at the end of the road.
There is an additional benefit to licensing legal cannabis operations, Spiker said.
"This is going to make it that much harder for children to buy the product," Spiker said. "We are actually protecting kids. You don't want them to buy unregulated, untested, and untaxed cannabis. We already know cannabis is here. Legalizing it. Taxing it. This is how we bring it out of the shadow."