San Jose mellows cannabis rules to help industry grow

San Jose officials are relaxing cannabis regulations and instead want to refocus efforts to end the black market industry.

The San Jose City Council unanimously voted Tuesday to reduce fines on dispensaries that violate city policy. Councilmembers also expanded hours of operation from 9 a.m. to 9 p.m. to 6 a.m. to 10 p.m. The move is aimed at helping the legal cannabis industry remain competitive and profitable, but officials said there is more work to be done to crack down on illegal weed sales.

A dispensary will receive a $250 fine for a first-time violation, lowered from $1,200. That can escalate into $5,000 for a litany of reasons, including repeat offenders, issues with registration or failure to display identification badges clearly. In comparison, a first offense in Redwood City is $100.

Councilmember Peter Ortiz wants to take changes a step further by having the San Jose Police Department’s cannabis division prioritize regulating smoke shops instead of hyper-focusing on legal cannabis dispensaries. He said smoke shops should be more top of mind because they’ve become the de-facto spots for selling illegal cannabis products.

Ortiz’s stance includes a policy that would pause business licenses for smoke shops, which he hopes to introduce next year.

“I’m concerned about the overconcentration of smoke and vape shops, which have been illegally selling cannabis, nitrous oxide and in some occasions even mushrooms. I’ve seen this personally,” Ortiz told San José Spotlight. “You could throw a stone in East San Jose and hit a smoke shop.”

Dispensary owners and some officials say the city’s overregulation on legal dispensaries is the reason the black market has become a more attractive option for consumers. Legal cannabis shops are regulated by the state and city, but San Jose’s fees and fines are notably more expensive.

Some dispensary owners said they’ve raised prices to compensate for the hefty fees and fines—and lost customers as a result.

The city has a vested interest in ensuring its 16 dispensaries continue making money, because cannabis sales generate as much as $18 million in annual city taxes. Dispensaries also ensure products are safe and not laced with other toxins or drugs like fentanyl. This year revenue is set to generate about $15.8 million in taxes, a nearly 13% decrease from the 2022-23 fiscal year, according to projections in the city’s budget.

Dan Georgatos, chief legal officer for the Purple Lotus dispensary, said softening the fine schedule and extending operating hours is great for the industry. But he emphasized until the city prioritizes enforcement on illegal markets, dispensaries are still going to suffer economically.

Moreso, illegally sold weed products are dangerous because they are not put through the same rigorous testing standards as legal products.

“(Smoke shops) flout state and federal law by selling hemp and synthetic THC products that are inhalable and edible,” Georgatos said. “The synthetic products are not tracked, not lab tested, not taxed and are very likely being sold to persons aged 18 to 20, which we know will go into the community’s high schools.”

The fine schedule changes come months after the city allowed for dispensaries to open more than one storefront and set up shop in commercial areas. Purple Lotus is set to open its second location in downtown San Jose at a later date.

Contact Jana at [email protected] or follow @Jana_Kadah on X, formerly known as Twitter.