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A Great City Goes to Pot

Cannabis sales tax revenues fall short of expectations, but San Francisco finds reasons to celebrate 420 anyway.

 

Last April 20, the Waldos and other pot fans celebrated something they thought they’d never see in their lifetimes: legal recreational cannabis in California. The Waldos, as locals know, are the five San Rafael High School teenage boys whose inside joke, “420”—a reference to the time of day they sat smoking pot after school in the 1970s—became a worldwide code for marijuana and evolved into a high holy day of celebration. Commercial sales to those 21 and older launched with fanfare Jan. 1, 2018, and as adults started lighting up without shame, billions of dollars in sales and an estimated billion dollars in tax revenues were projected.

But a funny thing happened along the way: Instead of doubling under legalization as has been the case in other states, cannabis sales in California shrank from $3 billion in 2017 to $2.5 billion in 2018, according to GreenEdge, a BDS Analytics’ sales tracking platform. The figures are noted in The State of Legal Marijuana Markets 2019, a forecast by Arcview Market Research in partnership with BDS Analytics. Industry experts say dispensary sales were hampered by layers of state and local licensing, backups in lab testing of products for dosage and purity, and steep taxation that have combined to drive consumers to cheaper cannabis on the underground market.

What a buzzkill. Or is it?

There’s actually plenty to celebrate this year, says Steve DeAngelo, a globally renowned cannabis activist and the co-founder of Harborside dispensary in Oakland. He points to Canada’s legalization of cannabis for adult use in October and Mexico’s Supreme Court ruling in October that found a total ban on recreational pot to be unconstitutional. “We have a free cannabis zone from the Arctic Circle to the Tropic of Cancer—that’s what we’re celebrating,” says DeAngelo. “It’s a remarkable thing, when you consider that a little over 20 years ago, California was the only political jurisdiction anywhere in the world that had any form of legal cannabis commerce—medical commerce. Now we have huge swaths of the globe, blocks of continents, that are becoming free cannabis zones.”

San Francisco sparked the evolution with individuals like Mary Jane “Brownie Mary” Rathbun and Dennis Peron giving cannabis to dying AIDS patients in the 1980s and 1990s. The Compassionate Use Act of 1996 for caregivers and patients followed and, subsequently, California Senate Bill 420, which allowed for collectives that grow cannabis. Proposition 64 in 2016 legalized cannabis use for adults 21 and older. The plant’s popularity grows as people around the world find that it assists with insomnia and pain, while others, like cannabis investor Todd Traina, say the rise of luxury vape pens and edibles, typically used in moderation, shows that cannabis is also “a lifestyle tool.” The FDA’s approval last summer of Epidiolex, a cannabis-based medicine for the treatment of rare, severe forms of childhood epilepsy, represents “a tiny chink in the armor,” says Tom Adams, managing director and principal analyst of industry intelligence at BDS Analytics. “But that’s how battles get won.” Worldwide spending is expected to grow to $17 billion in 2019, a 39 percent increase over 2018, and to hit $31.6 billion by 2022, according to the Arcview and BDS Analytics report.

In San Francisco, Nicole Elliott, director of the Office of Cannabis, is working to keep industry operators regulated and processing some 430 permits for cannabis activities, including indoor cultivation, manufacturing, distribution, testing and storefront retail (outdoor cultivation is not allowed). She’s met with visiting officials from Nevada, New York, Australia and New Zealand seeking insights about consumption lounges and California’s multilayered licensing requirements. Along with local licenses, cannabis operators must obtain licenses from the state Bureau of Cannabis Control, the California Department of Food and Agriculture, and/or the California Department of Public Health, which has proven onerous for some. On the bright side, Elliott says, “We have brought quite a few businesses into a much more compliant space.” Across California, 625 dispensaries are currently licensed for commercial sales, according to the state’s Bureau of Cannabis Control. Among them is Moe Greens on Market Street, near Twitter’s headquarters. The consumption lounge is upscale, with brick walls, Sputnik-like light fixtures and avocado-hued leather booths. It’s the second outpost for co-owner and CEO Nate Haas, whose Barbary Coast Dispensary lounge on Mission Street draws techies, tourists and bachelorette parties, as well as San Franciscans. “We’ve had to navigate some pretty interesting legislative, as well as bureaucratic, things in San Francisco,” says Haas. “It has not been easy. Moe Greens has taken over four years to sign the lease. Four years and a few tears!”

Others celebrating survival amid the regulations are Silicon Valley’s Amanda Jones of Kikoko, a cannabis-infused tea (ranked by BDS Analytics as the state’s leader in cannabis beverage sales), and Jake Heimark of San Mateo-based PLUS gummies (ranked by BDS Analytics as the leading edibles brand in sales and units sold). Both companies spent vast sums to find labs or acquire machinery that could verify dosage and purity of products. “It took us years of working with labs to get one lab that was willing to… do the due diligence to discover how to test cannabinoids in a hot beverage—in any beverage,” says Jones. “We’re now in the clear with that. It’s great.” Plus, high-pressure liquid chromatography machines were installed in its plant for testing, Heimark says, because “if you say 100 mg of THC on your package, you have to be within 90 or 110 mg.”

By next year, legal cannabis could be cheaper, under a bill by Assemblyman Rob Bonta, D-Oakland, to reduce cannabis taxes, and by summer, pot sales at public events in San Francisco could be legal under legislation proposed by Supervisor Rafael Mandelman and recently approved by the board. The Waldos, meanwhile, will celebrate with new branding opportunities surrounding their fame. For years, they freely lent their name and story to Lagunitas Brewing Company’s Waldos Special Ale, but have now signed a multiyear marketing deal with the beverage-maker. And, in July, they’ll launch a $125 glow-in-the-dark 420 Waldos watch with Time Concepts. “At 20 past the hour, there will be a marijuana leaf,” says Dave Reddix, one of the group’s members, with glee. As the saying goes, it’s always 4:20 somewhere.

 

Originally published in the April issue of San Francisco

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