Oakland looks to bring pot industry out of shadows, raise revenue

De'Leon Haley works at the marijuana plant counter at Harborside in Oakland, Calif., on Monday, May 2, 2016. De'Leon Haley works at the marijuana plant counter at Harborside in Oakland, Calif., on Monday, May 2, 2016. Photo: Scott Strazzante, The Chronicle Buy photo Photo: Scott Strazzante, The Chronicle Image 1 of / 4 Caption Close Oakland looks to bring pot industry out of shadows, raise revenue 1 / 4 Back to Gallery

Oakland’s medical marijuana industry may be big and proud and pioneering, but much of it still operates in the shadows — with growers, manufacturers, delivery drivers and unsanctioned dispensaries operating outside the bounds of city oversight, inspections and taxation.

But the City Council is expected to change that Tuesday night, passing laws to regulate the multimillion-dollar pot business from seed to smoke. The expected vote follows a unique, months-long process in the East Bay city to both rein in and exploit a growing sector of the economy, one based on a controlled substance.

While Oakland was the first city in California to regulate a handful of dispensaries, just eight now operate as fully sanctioned businesses, subject to sales tax, public health and safety regulations, environmental and employment rules, and other city laws.

“Obviously the cannabis and cannabis products don’t magically appear there,” said Greg Minor, assistant to the city administrator.

Opportunity for oversight

Thriving businesses grow the plants, while others make the pot products and sell the stuff in stores or make deliveries. But there has been little to no official oversight. Gov. Jerry Brown, though, signed a set of bills in October creating a regulatory structure for medical marijuana, one that allows cities to set policies related to all aspects of the industry.

The new laws in Oakland would increase the number of cannabis-related businesses permitted in the city from eight to nearly 100. Officials expect to permit eight new dispensaries, 30 cultivators, 12 delivery services, five distributors, five transporters, two testing entities and 28 manufacturers.

Oakland is among a growing number of cities seeking to sanction and control an industry frequently operating off the grid, creating a range of safety and environmental issues but not contributing a share of profits to local coffers.

Legitimizing medical cannabis isn’t seen as radical anymore, and cities are starting to line up behind the state in supporting and regulating it.

“This has taken off like gangbusters,” said David McPherson of HdL Companies, which offers guidance on handling the explosion of medical marijuana to cities and counties. “This is a land use and public safety concern; the money is just a second benefit of it.”

Even so, there is a lot of money to be had. Permitting 30 growers could bring in about $9 million in annual revenue to Oakland, McPherson said. Doubling the number of dispensaries? That’s $3 million more or so in sales and business taxes, he said. Add in manufacturing, delivery and testing, and new revenue only goes up.

The proposed regulations seek to ensure that city services required to oversee the industry are covered by the new money. The ordinance would also limit the industry in some ways — with a 600-foot buffer required between dispensaries and schools or youth centers.

In addition, the proposed regulations would ensure many of the jobs within the industry go to Oakland residents, including those with a criminal past.

They would require dispensaries to maintain a staff made up of at least 50 percent Oakland residents, with one-quarter coming from areas of the city with high unemployment rates. The companies would, as well, be financially rewarded for employing formerly incarcerated residents.

‘Legalized drug dealers’

The City Council will also consider whether to give priority to would-be dispensary owners who live in crime-plagued neighborhoods. The idea behind the employment rules, Minor said, is to offset the disparate impact of the war on drugs on poor communities and people of color.

Critics called such proposals ill-conceived.

“That is just absolutely ridiculous,” said Bishop Ron Allen of the International Faith Based Coalition in Rancho Cordova (Sacramento County), a drug-prevention group.

“We do not need the city of Oakland to make drug dealers out of our youth and young adults,” he said. “These individuals working in these industries are legalized drug dealers.”

For the most part, Oakland’s existing medical pot community supports the effort to regulate and legitimize the industry.

Steve DeAngelo, executive director of Harborside Health Center, one of the largest dispensaries in the country, is “thrilled” with the regulations, saying they would create a welcoming environment for new businesses — and a renaissance for the city.

“My vision is that we have companies, we have entrepreneurs, we have investors from all over the state and all over the world creating new businesses, bringing new money into the city,” DeAngelo said. “I think they will lock in Oakland’s destiny as the leading commercial center for cannabis in the United States of America.”

Jill Tucker is a San Francisco Chronicle staff writer. Email: jtucker@sfchronicle.com

Where can you buy medicinal marijuana?

City Permitted dispensaries Dispensary to population ratio Oakland 8 1:51,722 San Francisco 28 1:30,445 Berkeley 4 1:29,713 San Jose 16 1:63,487 Sacramento 30 1:15,990 Los Angeles 100 1:39,289