San Diego has never legalized commercial cultivation of marijuana, manufacturing of marijuana byproducts or the testing of either, but 27 businesses engaged in such activities are operating in the city.

There is significant debate about whether this was an unintended consequence of the city’s zoning laws, a quiet city effort to allow a supply chain for 15 dispensaries the city has approved, or a calculated move by politicians to allow cultivation and manufacturing without officially legalizing them.

No matter how it happened, the existence of these businesses has thrown a monkey wrench into the City Council’s decision later this year whether to ban or allow with regulations the cultivation, manufacturing and testing of marijuana.

The council last week approved allowing dispensaries selling medical marijuana to begin selling recreational marijuana later this year when state guidelines get finalized.


Prestigious pot-testing lab faces uncertain future in Ocean Beach

But the council left any decision on legalizing cultivation, manufacturing and testing until later this year.

They agreed to allow the existing businesses engaged in such activities to stay open until then, but it’s not clear how a ban or legalization would affect them.

Under a ban, could they continue operating as a previously allowed nonconforming use, would they be immediately shut down or would they be given “sunset” clauses allowing them to stay open for a short period and then close?


Under new regulations, what would happen if those rules include zoning requirements the businesses don’t meet or other restrictions that require changes they can’t feasibly make?

“There’s really a wide range of options,” said Bob Vacchi, director of the city’s Development Services Department, which enforces zoning rules.

Vacchi said the 27 businesses — 17 manufacturers, eight commercial cultivators, one testing lab and one warehouse — don’t actually have any legal standing despite being given city business tax certificates, more commonly known as a “business license.”

But the businesses are in a far different position than dozens of unpermitted dispensaries that the city has struggled to close down. Those businesses are clearly illegal, Vacchi said, because such businesses need a conditional use permit approved by the Planning Commission and none of them have one of those.


And Vacchi said the business licenses could be enough to prompt the council to declare them legal, nonconforming uses that could continue to operate but not expand or upgrade their operations.

Vacchi said the businesses were given licenses primarily because the council didn’t address cultivation, manufacturing and testing when they approved a rigorous permitting process for medical marijuana dispensaries in 2014.

“When we did the ordinance for medical marijuana dispensaries, nobody even thought about cultivation or manufacturing so we didn’t change any of those codes,” Vacchi said.

Consequently, the city issued business licenses with zoning use certificates to many marijuana businesses as long as they met zoning requirements.


For cultivation that essentially meant being located in an agricultural or industrial zone, for manufacturing that meant being in an industrial zone, and for testing it meant being in an agricultural, industrial or commercial zone.

“You can get a zoning use certificate to grow corn or wheat or marijuana so long as the zone allows cultivation of crops, so we’ve been issuing a bunch of these,” Vacchi said.

Gina Austin, a local attorney representing many of the affected businesses, offered a similar take.

“The determination was made that the new conditional use permit process in 2014 regulated storefronts but did not regulate any of the ancillary services, so those ancillary services were allowed by right,” Austin said.


Jessica McElfresh, another attorney representing marijuana businesses, said she thinks there was more to it.

“Parts of the city government wanted to work to have a regulated supply chain, and you can’t really have that without registration,” she said. “There were specified zones and you had to state very clearly what you were doing.”

A young marijuana plant Photo by Charlie Neuman (Charlie Neuman / San Diego Union-Tribune/Zuma Pre)

Owners of the businesses have stressed that each of them specified they were engaged in activities related to marijuana and were still issued city licenses, something they characterize as the city acknowledging their legality.


Austin said that’s debatable, but noted that state officials have said the operators will need more than a business tax certificate to get newly required state permits later this year because California marijuana law requires local governments to expressly authorize marijuana-related businesses.

“They will need something else than just a business tax certificate,” she said. “The state says a BTC is not local authorization.”

Zach Lazarus, chief operating officer for the city’s first permitted dispensary in Otay Mesa, said he thinks the 27 businesses were tacitly allowed to open as part of a clever political move.

He said that many of the city’s elected officials have privately expressed in recent years a desire to allow a local marijuana supply chain, but a reluctance to fully legalize it with an ordinance until the state takes more concrete action.


Since then, the state approved comprehensive medical marijuana regulations in 2015 and then state voters legalized recreational marijuana last November.

“Absolutely they knew tax certificates were being handed out for marijuana cultivation, but they didn’t want to draft an ordinance because they were on the fence and they wanted to take a wait-and-see approach,” Lazarus said. “And they are still debating it.”

Austin said some of the 27 businesses either aren’t yet operating or are operating on a relatively small scale.

“It’s a large investment, so because of uncertainty whether the city is going to ban or expressly allow it, there’s a lot of hedging of bets going on,” she said.


david.garrick@sduniontribune.com (619) 269-8906 Twitter:@UTDavidGarrick