San Jose Downtown Association
28 N. First Street, Suite 1000
San Jose, CA 95113
sjdowntown.com
408.279.1775
February 15, 2022
The Honorable Mayor Sam Liccardo and City Council
City of San José
200 East Santa Clara Street
San José, CA 95113
RE: Items 8.1 & 10.2: Cannabis Equity Assistance Program & Review of Cannabis Land Use and Regulatory Provisions
Dear Mayor Liccardo and City Councilmembers,
The San Jose Downtown Association (SJDA) has represented downtown for 35 years and together with more than 1,800 current businesses and property owner members we strive to increase the vitality of our downtown. SJDA has reviewed the staff recommendation and supports the requested amendments to the current municipal cannabis ordinances as this can help activate underutilized spaces, mitigate vacancy rates and increase activity in our community.
Since July 2014, when the Medical Marijuana Regulatory Program was initiated, we have appreciated how careful the city has been in limiting the number of permits as well as the areas cannabis establishments could locate. We believe the city has now reached the moment to safely increase the permits and allow areas like downtown to accept – and model – new retail stores in this expanding, well-regulated industry.
An important component of this process is security. Per the staff memo, based on the 16 registered dispensaries, the total average crime rate was significantly less on blocks containing dispensaries and this is due to the increased security required as well as the additional accountability of the city staff to check in with these establishments. As part of supporting the staff recommendation, we agree that more resources will need to be allocated to the planning and police departments.
While we are at it, this is also the time for the city to consider new safe social consumption policies as well, beginning with a pilot project at some of downtown’s special events to demonstrate a prototype program – think San Francisco’s ”Grasslands” in Golden Gate Park for the Outside Lands festival.
We appreciate the City Council’s consideration for this item and look forward to working with the city and these retail establishments in our downtown.
Cordially,
Scott Knies
Executive Director
2/14/22, 11:42 AM Mail - Agendadesk - Outlook
https://outlook.office365.com/mail/ inbox/id/AAQkADUxOWI4ZjE3LTRkNDEtNGUzMS04MjAwLTIzNzdiYTdkMjc5NAAQA… 3/3 This message is from outside the City email system Do not open links or attachments from untrusted sources
Office of the City Clerk at San José
Re: February 15, 2022 Council Meeting – Agenda Items 8.1 and 10.2 February 14, 2022
Page Two
3. Request: Change of definitions pertaining to equity applicants to ensure the city is not creating a situation wherein the equity businesses are “straw man” operations for multi-state operators.
Reason: The current definitions for equity applicants only address “ownership” ( e.g., 51% of the cannabis business must be “owned” by a person that qualifies as an equity applicant). This same definition has been used in other jurisdictions in California and I have personally seen it used as a means of creating straw man operations in cities such as Oakland and Los Angeles. There is a misconception held as to the meaning of ownership in that ownership is not the same thing as share of profit. When this same language is used in other jurisdictions, I have seen situations where an entity is created in which the equity applicant owns a 51% interest, but a separate agreement is drafting wherein the 49% owner receives 100% of the profit. Thus, in those situations, the equity applicant does not benefit from their 51% ownership other than to receive, in most cases, some nominal fee for remaining a 51% owner. If the city truly wants to create an equity program where equity applicants will be true participants, the city cannot continue to use the same failed language other jurisdictions have used.
4. Request: Revise the definition of “business entity” in SJMC Section 6.88.203 or “manager” is SJMC Section 6.88.225
Reason: The revised definition of “manager” includes “business entity”, when read together, would read as follows:
“Manager" means an individual who, directly or indirectly, is engaged in the management of a Cannabis Business, or any business entity [any organization or enterprise including, but not limited to, a proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation, association, or nonprofit organization, if the business entity or any parent, subsidiary, or otherwise related business entity has an interest in real property in San Jose, or does business or plans to do business or has done business in San Jose at any time during the two years prior to the date the disclosure statement is required to be filed] owning a cannabis business, or any business entity [any organization or enterprise including, but not limited to, a proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation, association, or nonprofit organization, if the business entity or any parent, subsidiary, or otherwise related business entity has an interest in real property in San Jose, or does business or plans to do business or has done business in San Jose at any time during the two years prior to the date the disclosure statement is required to be filed] owned by a cannabis business, as may be evidenced by the individual being responsible for the establishment, organization, registration, supervision, or oversight of the operation of the business and/or its employees, which oversight may include but not be limited to the following: performing the functions of president, vice president, board member, director, ow ner, operating officer, financial officer, secretary, treasurer, supervisor or manager.
The revised definition would require a property owner that is leasing property to a cannabis business would have to undergo a background check. This is too far-reaching.
Office of the City Clerk at San José
Re: February 15, 2022 Council Meeting – Agenda Items 8.1 and 10.2 February 14, 2022
Page Three
5. Request: Revise the definition of “owner” in SJMC Section 6.88.255.
Reason: The definitions of Owner and Manager appear to overlap. Based upon the revision, officers/directors/etc. of an entity owner would be deemed “owners” and “managers”. Which would take precedence?
6. Request: Revise the phrase “Business registered on or before December 18, 2015, and continuously registered since that date” in Table 6.88 -310 to “Business with valid Notice of Completed Registration for retail sales as of December 15, 2021”.
Reason: Per the table, only a “Business registered on or before December 18, 2015, and continuously registered since that date” would be eligible to have two dispensary (retail) locations.
It is my understanding that most, if not all, of the businesses in San Jose have changed since they were initially registered on December 18, 2015. Most of the cannabis business in San Jose changed their ownership entity in 2018 after the State regulated the industry and allowed for cannabis businesses to operate a for profit businesses (previously, all of the registered cannabis businesses in San Jose operated as non -profit mutual benefit corporations pursuant to the Attorney General Guidelines for Proposition 215 businesses). Further, since 2018, there have been new operators that have obtained licenses in San Jose by acquiring an existing cannabis business. I do not bel ieve it was Staff’s intent to preclude any current operator with a retail cannabis business in San Jose from opening a second location, as such, I suggest the phrase “Business with valid Notice of Completed Registration for retail sales as of December 15, 2021” as this is the most recent registration issued to the cannabis businesses in San Jose. Failure to correct this language would result in substantial harm to the existing retail cannabis businesses in San Jose which have been advised that they will be permitted to open a second location.
7. Request: Remove Notes 1 and 3 in Table 6.88-310.
Reason: These Notes appear to limit all delivery operations in San Jose to industrial areas. The State allows all cannabis storefront cannabis retailers to conduct reta il sales in- store and via delivery. By the language of these Notes, a cannabis business in San Jose that opens a retail facility in the commercial zone would not be permitted to conduct delivery operations from the new location and would, instead, have to maintain two locations. I understand that the city would like stand-alone non-storefront (delivery) retailers to be located in the industrial zone, but this should not preclude storefront retailers in commercial zones from conducting sales via delivery.
Additionally, by preventing storefront retailers from conducting delivery operations, the city is requiring existing cannabis businesses to retain th eir current locations in the industrial zones thereby ensuring that the concentration of businesses in the industrial areas remains.
8. Request: Revise Note 4 in Table 6.88-310
Reason: This Note appears to state that, if an existing cannabis business currently owns more than one cannabis business in San Jose, they would be limited to only opening one additional location.
I believe it was the intent of the city to allow each of the 16 cannabis retail businesses to open a second location. There are some cannabis businesses that own more than one location in San Jose Office of the City Clerk at San José
Re: February 15, 2022 Council Meeting – Agenda Items 8.1 and 10.2 February 14, 2022
Page Four
so those businesses would and should be required to open a second location per existing registration.
9. Request: Add language allowing cannabis businesses to open the second location under a different entity.
Reason: Most, if not all, of the cannabis businesses operating in San Jose are owned by entities (either corporations or limited liability companies) . As with most businesses (not just cannabis) that operate in the world, there are various reasons to have an entity as the operator including, but not limited, multiple owners, liability, risk, taxes, et c. By precluding the existing cannabis businesses from creating a new entity to open their second location, the city is infringing on a fundamental right of the cannabis business owners to own their property in a form of their choosing.
I understand the st aff’s concerns that they do not want new operators to use this as a method to obtain a license in San Jose. There is a method by which to alleviate staff’s concerns and still allow for the existing businesses to create a new entity for their second locatio n. Currently, businesses must disclose all entities that have an ownership interest in any cannabis business until they reach the individual owners. For the second locations, the existing cannabis businesses can be allowed to create a new entity with the l imitation that the new entity have the same ownership as the current entity under which it operates. This would alleviate the concerns of staff while allowing cannabis businesses to mitigate harm they may face in having two businesses operating at two diff ident locations under the same entity.
10. Request: Remove SJMC Section 6.88.600. This section requires all cannabis businesses to submit an annual audit to the city.
Reason: The audit required is not a financial audit but an operational audit. The audits are expensive (average costs is approximately $30,000.00+), unnecessary, ineffective, and unduly burdensome on the cannabis businesses . The audits are unnecessary from a financial perspective because the city’s Finance Department conducts its own au dits of the financials . The audits are unnecessary from an operational perspective because the San Jose Police Department conducts its regular inspections of the businesses to confirm that operations are compliant. As existing cannabis businesses struggle with this requirement, it would also be difficult and expensive for the equity applicants. Accordingly, before equity applicants become registered in the city, i t would be best, and equitable, to relieve all cannabis businesses of this requirement.
Sincerely,
Sharmi Shah, Esq.
Enclosures
cc: Sean Kali-rai; Clients (via email)
86 ENGAGEMENTS FACEBOOK TWITTER LINKEDIN
most part we are ok with most of the Title 6 enhancements to the program. We have serious concerns with the Equity program. (see embedded article below)
Concerns:
1. Proposed Zoning changes were not expanded enough to provide the desired number of potential locations. Following more state sensitive use distances is a better solution.
2. Giving the current 16 dispensaries the opportunity and ample time to find a new location and/ or 2nd storefront ahead of any equity storefronts. Allowing at least 6 months to find a new location(s) should be considered.
3. With the addition of 2nd storefronts, reduced registration fees for 2nd location should be evaluated to insure lower cost to cannabis operators.
4. Equity cannabis program should be further studied to make sure that loopholes within the program do not create unintended consequences and prevent its true intention.
See attached article… On Equity Programs, its not very long.
Social Equity and Cannabis
Tue / Feb 1st by Christine De La Rosa (no relation to me) This
editorial was contributed by Christine De La Rosa, co-
founder and CEO of , a
California-based and equity-focused multistate
cannabis operator. Full story after the jump.
A WORD FROM OUR SPONSORS:
they can sell. Why are there limits on the very people who were harmed the most? Seriously, sit with that. Policymakers seem to be saying, “We harmed you and your communities, and now we will allow you to participate in the billion- and soon to be trillion-dollar industry, but only a little bit.”
But microbusinesses can only sell the product they make. Under New York’s current legislation, microbusinesses are not allowed to sell anyone else’s products. This means smaller operators can’t support each other and larger operators are not incentivized to work with microbusinesses.
Investors can’t invest in more than three companies in New York. Raise your hand if you think there is going to be a stampede to invest in BIPOC, legacy, and companies run by formerly incarcerated founders. I can tell you from experience there will not be.
New York has threatened heavy fines for those operating in the legacy market. What do you think will happen to those who can’t afford to cover those fines? Which racial/ethnic groups do you think will be most impacted? This is a repurposing of harm: a new, buttoned-up drug war.
New York, like many states before them, is set to enter into a Hunger Games-like competition and may the odds be ever in your favor.
How we fix it
First, we stop calling it social equity because the process, initiatives, and legislation have not been equitable for any of us. Social equity has been co-opted as a catchphrase, and we deserve more than that.
Second, we need to solve the problems facing SE operators. We are four years into the use of the term social equity — what we didn’t know then, we absolutely know now. It is not working to undo the harm, it is not adding SE operators to the industry, we have no wins, at scale, to celebrate. Not only do qualified SE operators need access to capital, but they also need to learn how to access capital. Access to capital includes how to build a data room, understanding what a capital stack is, knowing when to use debt financing, equity financing, or a combination of both.
Good evening Council,
My name is Ashley Block and I am here tonight on behalf of social equity applicants intending to apply for retail storefront licensure in San Jose. I would like to kindly ask, and strongly urge, that you do not force 5 social equity operators to be stuck in the delivery only form of licensure, while the legacy operators continue to dominate the retail space. Allowing only 5 of the new social equity licenses to engage in retail sales would mean that social equity retailers only account for roughly 11% of the cities retail sites. Allowing all 10 to engage in retail sales would still only amount to 23% of the cities retailers, which although still not in line with other municipal social equity programs, is worlds better than 11%. More specifically, I would like to point to Amendment PP 21-002, provision C(2), which states "Allow up to ten new cannabis dispensary businesses with equity business owners to register, only 5 of which may be storefront dispensaries". I would like to suggest that you strike the second portion of that provision that reads "only 5 of which may be storefront dispensaries". Thank you for your time and consideration.