Roughly two dozen San Diego indoor pot farms and factories making marijuana edibles have ceased operations in recent days, disrupting the local supply chain for the drug and shrinking city tax revenues.

City officials ordered the semi-legal marijuana cultivation businesses to shut down because Thursday marked the end of a two-year grace period they received under San Diego’s 2017 ordinance legalizing cultivation.

Many of the semi-legal businesses knew the end was coming and had prepared for it, but nine managed to secure one of 40 coveted city permits to continue operating long-term. Those businesses had expected to remain open.


However, only two of those nine were allowed to stay open because the other seven haven’t yet received final clearance from the city to continue operations under the new law.

Industry leaders said those seven will likely be allowed to re-open within a few weeks, though the gap in operations will be costly.

In addition, six of the semi-legal cultivators managed to secure city permits to operate at a different location than they had been using. Industry leaders said they don’t think any of those businesses got final clearance to begin operating in their new locations.

Those businesses also will face an unexpected gap in operations.


A city spokesman said Friday that the Development Services Department, which oversees permitting for marijuana businesses, could not provide an update on how many marijuana production businesses had received final clearance.

The spokesman said he also couldn’t say what steps city officials had taken to shut down the semi-legal businesses once their grace periods ended on Thursday.

Industry leaders said the businesses facing closure orders had voluntarily complied.

When the city legalized cultivation two years ago, officials expected many of the 40 businesses allowed under the new law to already be operating at this point, so it seemed sensible to set an October 2019 deadline for semi-legal cultivators to close.


But the businesses that have secured the 40 city permits have struggled to get final clearance to open — called a certificate of occupancy — because of various city and state regulations.

Those include meeting ordinary city rules for parking, electric vehicle charging stations, bike storage and compliance with the Americans with Disabilities Act.

But because the businesses are essentially new to California and San Diego, there are also new fire safety regulations, equipment inspections and other red tape that has lengthened the approval process.

“All of this takes a lot of work and substantial investment and some considerable time,” said attorney Jessica McElfresh, who represents some of the affected businesses.


Gina Austin, another attorney who represents several of the affected businesses, said the impact these delays are having is significant.

“If I have to shut my doors for three weeks and I’m an indoor cultivator, that just killed my entire crop,” she said. “If I am a manufacturer with food that is being infused, being forced to destroy all of that is a huge financial impact.”

Austin said she thinks the city should have allowed continued operations for at least the nine semi-legal cultivators who secured long-term permits for the same site.

“They are being unfairly treated,” she said. “You’ve got hundreds — if not thousands — of businesses operating in the city of San Diego that are technically in code violation for things like parking or signs. These businesses should be treated no different.”


The only way the city could have granted the businesses a reprieve would have been an emergency vote by the City Council.

McElfresh said she advised her clients to comply with city orders to shut down, partly because operating without local permission could affect their ability to obtain state marijuana licenses in the future.

“Operating without a valid local permit is a little risky,” she said. “This is not like operating with a few, garden variety code violations.”

In a letter to the affected businesses in late September, Kim Wallace-Ross of Development Services told them that they must close down by the end of Thursday.


“Please cease operating the marijuana production facility before Oct. 18, 2019 (Friday),” she wrote. “Failure to cease operating may result in the initiation of a code enforcement investigation.”

While the closure of so many cultivators has put a large dent in the local supply chain, McElfresh said local dispensaries won’t have a problem because there are suppliers across the state with available product.

A spokeswoman for a group of local dispensaries, the United Medical Marijuana Coalition, echoed those sentiments.

“The reality is that new brands, vendors and distributors approach our shops daily, and what’s actually in short supply is shelf space,” said the spokeswoman, Rachel Laing.


But Laing said the delays were still a disappointment.

“Our local vendors and suppliers have great products we’d like to be able to sell, and they support the local economy and contribute to the city’s tax base,” she said. “Everyone wins if we can get our San Diego producers permitted.”

All marijuana businesses pay sales tax. In addition, they must pay a special marijuana tax approved by city voters in 2016.

The marijuana tax increased from 5 percent to 8 percent on July 1 and is projected to generate $12 million during the fiscal year that runs through June 30.


That amount is expected to significantly increase when all 40 cultivation businesses open.

Austin and McElfresh, the two marijuana attorneys, said they expect roughly 10 to 15 cultivation businesses to have secured final clearance to begin operations by the end of the year.

The semi-legal cultivators were given business licenses beginning in 2014 primarily because when the City Council created a legal process for dispensaries to open that year, the council didn’t address cultivation and manufacturing.

Consequently, city planning officials concluded the city had decided not to regulate such businesses and issued licenses with zoning use certificates to the cultivators as long as they met zoning requirements.