San Jose considers lifting ban on recreational weed, allowing current shops to sell and deliver pot

SAN JOSE — With less than two months to go before recreational pot becomes legal in California, the Bay Area’s largest city is considering lifting its ban on non-medical cannabis and looking at how it regulates and taxes the emerging industry.

Under the proposal, San Jose’s 16 sanctioned medical pot dispensaries could sell and deliver recreational cannabis to people age 21 and older with a state license. Last November, San Jose lawmakers passed a temporary ban on recreational marijuana a week before voters approved Prop. 64, which legalized pot use for adults. Officials said the ban stopped the spread of illegal pot shops and allowed City Hall time to devise a regulatory scheme to oversee the new industry.

Other Bay Area cities including Palo Alto, Campbell, Foster City, Hayward, Davis and Martinez have all taken similar steps. Though voters in every Santa Clara County city passed the measure that allowed adults to legally consume marijuana, the law gives cities local control over regulation — even allowing them to completely ban it.

Now, the San Jose City Council on Tuesday will consider tweaking its medical marijuana rules to allow the city’s 16 pot shops “to cultivate, process, manufacture, distribute and sell” non-medical cannabis.

“It’s a bold step for the city to take,” said Sean Kali-rai, president and founder of Silicon Valley Cannabis Alliance who represents five San Jose medical marijuana dispensaries. “It’s about honoring the will of the voters. And because San Jose has figured out how to regulate the medical market, they’re confident moving forward with the recreational market. If we don’t do this, we’ll see a return to the unregulated market prior to 2016 where there were 100-plus clubs and illegal drug sales everywhere.”

Medical marijuana patients at Elemental Wellness Center in San Jose on Monday said they welcome sharing the space with recreational pot customers.

“Having a place that sells both medical and recreational marijuana can help educate people,” said Ana Lopez, 22, a phone company sales representative who uses cannabis to deal with anxiety. “I’m worried there could be longer lines but I think it’s part of a growing industry. But overall I think it’s a good idea to let them sell both.”

Three years ago, San Jose became one of the first major cities to regulate medical marijuana. Leaders adopted two laws: One that outlined where the shops could go — away from schools, parks and other collectives — and another that controlled who can run a shop and how it operates. The city also required shop owners to register and pay fees, including a 10 percent tax on their gross receipts.

After the rigorous application process, only 16 shops made the final cut and are legal in San Jose — down from hundreds of illegal shops that once operated here. The legal pot shops gave San Jose a huge financial boost, paying $10.5 million in annual taxes, serving 245,000 patients and completing more than 1.5 million transactions in the past year.

San Jose’s revenue stream is expected to increase by at least 30 percent when the city legalizes and taxes non-medical marijuana, Kali-rai said.

Elemental’s CEO Joe LoMonaco said the company is hiring more employees to deal with the surge in business.

“We are ready and we’re excited about it,” LoMonaco said. “The 16 collectives are already secured, badged, background-checked and following the city rules. It just makes sense to entrust the rollout of recreational marijuana with those who’ve already been doing medical marijuana.”

Matthew Mahood, president of the silicon valley organization, the area’s chamber of commerce, urged city leaders to approve recreational pot sales, saying the cannabis industry is booming in Silicon Valley. It’s the first time his business group has supported marijuana, which Mahood said generates millions in revenue and “supports the regional economy.”

“California voters have made their intent clear through Proposition 64, with nearly 57 percent of Santa Clara County residents voting to approve its passage,” Mahood wrote in a letter. “Therefore, the city of San Jose should be proactive in supporting a growing business and industry.”

Tuesday’s proposal requires the 16 collectives to obtain a license from the state then submit an application and pay registration fees to San Jose to sell recreational weed. Once approved, those shops can also deliver non-medical weed — as long as drivers undergo a police background check and agree to outfit their cars with GPS devices and cameras to protect against diversion of cannabis.

The collectives would continue to pay a ten percent tax on total sales to San Jose and 15 percent to the state.

Outdoor cultivation will still be prohibited in San Jose, as will testing and manufacturing labs.

A trio of San Jose lawmakers also want the city to reconsider a rule that prohibits a single business from operating more than one of the 16 dispensary locations allowed in the city.

“What this means is that each of the existing 16 dispensaries must be owned by a different operator,” wrote Councilmen Johnny Khamis, Donald Rocha and Sergio Jimenez in a memo. “With this memo, we propose that staff return with a recommendation as to whether we should continue this prohibition once they have had a chance to review the proposed State regulations.”

Kali-rai supports lifting this ban, saying it’s an overreach and cannabis owners should be allowed to sell their business to other owners.

“We don’t tell McDonald’s owners how many locations they can have in San Jose. We don’t tell Starbucks how many locations they can have in San Jose,” he said. “This is the city interfering with business. Some dispensaries are doing well and others are not — why couldn’t they merge?”

The San Jose City Council meets 1:30 p.m. Tuesday inside the chamber at City Hall, 200 East Santa Clara Street in San Jose.

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