San Jose will consider reducing fines for regulated cannabis dispensaries to help them become more financially lucrative.
The Public Safety, Finance and Strategic Support Committee, composed of five San Jose councilmembers, unanimously recommended reducing fines on legal dispensaries, among other ideas to ease the burden on cannabis sellers. The city council on Nov. 14 will vote on these recommendations.
Dispensary owners in San Jose say they are losing money by the thousands – not because consumption has decreased – but because customers are moving to the black market where products are easier and cheaper to buy. Owners blame the city’s overregulation, which leads to expensive fines, restrictions on hours of operation and forces price increases. Meanwhile, they say illegal sales are flourishing as the city turns a blind eye.
City regulated dispensary owners and operators are now asking for support from San Jose officials.
“We wouldn’t have a healthy surplus (in the city budget) if it wasn’t for our cannabis industry,” Councilmember Omar Torres said. “I think it’s important that the state has its regulations (but) ours are a little bit more restrictive and so we’re tying their hands. And that is why the black market is making a comeback.”
Dispensaries have regulations placed on them by the state and San Jose – but the city’s are far more stringent, said Wendy Sollazzi, cannabis division manager for the San Jose Police Department. If a dispensary violates city code, it receives a $1,200 fine for its first violation — but that can quickly 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. San Jose officials are recommending first time violations are reduced to $250.
The city has a vested interest in ensuring its 16 dispensaries continue making money, because San Jose cannabis sales generates as much as $18 million in annual city taxes. Dispensaries also ensure that 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.
Councilmember Sergio Jimenez also asked staff to explore if the city’s cannabis division, which collects thousands of dollars in fees annually from each dispensary, could use those dollars to crack down on the black market.
Sean Kali-rai, founder of The Silicon Valley Cannabis Alliance, also wants officials to work harder on curbing the growing black market. He said the city should do it quickly because not only are tax dollars going to plummet if legal cannabis shops are forced to close, but lives are on the line due to an increase in fentanyl-laced weed.
Several dispensary owners reportedly lost 20% of their profits from 2021 to 2022 – and they expect 2023 to be as high as a 25% loss.
Sharmi Shah, who represents eight of the 16 dispensaries in the city, said in 2021, those stores brought in $11 million in taxes for the city. That number dropped to $10 million in 2022, and 2023 is projected to be even lower. She said according to data provided by the city, there was no proactive enforcement against illegal operators — meaning the city only responds to resident calls of potential violations.
“Any enforcement that is done is not done against businesses. It’s done against property owners which has been wholly ineffective,” Shah said. “So we would like to see some additional support of these cannabis businesses…in terms of enforcement action to help benefit not just the businesses, but also the community at large.”
The proposed fine schedule comes months after the city allowed for dispensaries to open more than one storefront and allowed them set up shop in commercial areas. There is already a dispensary planned to open in Downtown San Jose.
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