San Diego’s cannabis supply chain is falling into place

San Diego is making swift progress on its plan to have a local supply chain for its marijuana dispensaries, with 15 indoor pot farms and cannabis edible factories slated for final city approvals in coming weeks.

Those businesses will follow the city’s first approved marijuana production facility, a food products factory for Otay Mesa that cleared its final city hurdle last week.

The accelerated progress comes just a few months after leaders of the local marijuana industry expressed concerns that rigorous city environmental approvals and other regulatory hurdles were slowing the process down.

Torrey Holistics employee Taron McElroy arranges jars of cannabis in San Diego, Calif., Thursday, Dec. 14, 2017. On Thursday, California issued its first batch of business licenses for the state’s upcoming legal marijuana market, setting the stage for sales to begin to adults in January. The first license for recreational retail sales went to Torrey Holistics in San Diego. (AP Photo/Julie Watson)

Since then, city officials have become more comfortable with these previously unfamiliar businesses, allowing the city to streamline the environmental approval process and less frequently require expensive greenhouse gas studies.

In addition to the 15 marijuana production businesses scheduled for approval hearings between now and early October, another nine have been declared exempt from state environmental law and will soon get their own hearing dates.

Most of the proposed businesses are located in Mira Mesa, Kearny Mesa and Otay Mesa, with a handful in other neighborhoods that have the necessary light industrial zoning.

San Diego officials want the 18 legal dispensaries they’ve approved to have a local supply chain as soon as possible to eliminate the need to truck marijuana in from elsewhere and to prevent a local “black market” of marijuana producers.

Boosters expect the businesses to boost the local economy, create jobs and improve the quality and safety of local marijuana.

They are also expected to generate millions in revenue for San Diego from a 5 percent city cannabis tax, which took effect in January with the beginning of recreational sales in California.

That tax is slated to increase to 8 percent in July 2019, but the City Council has the discretion to raise it to 15 percent at any time. The revenue it generates for San Diego is in addition to sales tax that local marijuana businesses collect.

While the first two dozen marijuana production businesses appear headed toward swift approvals, city officials and industry leaders say they expect things to get more complex as San Diego nears a cap of 40 such businesses set by the council.

Businesses competing against each other for the final few spots are expected to appeal each other’s environmental exemptions, which hasn’t happened so far with the 24 businesses deemed environmentally exempt.

In addition, project approvals granted by the city’s hearing officer may be appealed to the San Diego Planning Commission, which would then hold a public hearing at which it would be asked to provide a final approval.

The first marijuana production facility was approved by the city’s hearing officer on July 18, and that approval became final last week when 10 business days passed without anyone appealing the decision to the Planning Commission.

Elyse Lowe, director of the city’s Development Services Department, said she expects appeals to become the norm as the city approaches the cap of 40.

“There are some folks who are trying to rush through and be first on the agenda because of the cap of 40,” she said. “Bottom line is we have 67 applicants for 40 positions.”

Lowe said city officials have prioritized an atmosphere of fair play as they work with the applicants to move them through the approval pipeline and schedule hearings.

“Our biggest concern is to keep parity in the process for the applicants,” Lowe said by phone on Wednesday. “Everyone is being treated equally — no one is getting special treatment.”

Appeals were much more common during the approval process for dispensaries. That was partly because the city set a cap of four dispensaries in each of the city’s nine City Council districts, making the competition more intense earlier in the process.

With marijuana production facilities, there is no cap per council district, only a citywide cap of 40. In addition, dispensaries are prohibited from opening within 1,000 feet of each other, while production facilities are not.

Gina Austin, a local attorney who represents six of the 24 marijuana production businesses at the head of the pack, said she expects the appeals to start soon.

San Diego recently approved a sharp increase in the cost for an environmental appeal from $100 to $1,000 to accelerate approvals of housing developments and other projects.

Scott Chipman, an opponent of marijuana legalization, said the change could deter his group, San Diegans for Safe Neighborhoods, from filing appeals.

Chipman said by phone on Tuesday that he hopes to persuade community planning groups to file the appeals, because they can do so for free.

Austin said city officials began expediting approvals for marijuana production businesses in similar fashion to how things accelerated for the early dispensary approvals in 2014 and 2015.

“They had increased requirements at the beginning, but things loosened up once the city got its feet wet, understood what’s going on and made sure everything is consistent,” Austin said by phone on Tuesday.

The biggest hurdle was greenhouse gas emissions studies that the city was initially requiring of applicants — which cost about $25,000 each.

City officials considered them necessary because San Diego’s climate action plan, adopted in 2015, commits the city to slashing its greenhouse gas emissions 15 percent below 2010 levels by 2020 and 50 percent below that benchmark by 2035.

Austin said, however, that city officials have since changed their perspective, primarily because most of the marijuana production businesses are proposed for existing industrial spaces.

“Upon further analysis, an industrial use is an industrial use whether it’s cannabis or whether it’s steel manufacturing,” Austin said. “The zones for industrial use were already analyzed under the climate action plan with the structures as they exist.”

PJ Fitzgerald, who leads the marijuana permitting team in the city’s Development Services Department, said only a few of the 67 proposed businesses would be new construction requiring an expensive greenhouse gas study.

Jessica McElfresh, another local marijuana attorney, said she expects approvals to slow a bit because the 24 leading projects are mostly free from any controversy about their locations.

Like dispensaries, production facilities can’t be within 1,000 feet of sensitive land uses like parks, churches, schools and youth-oriented facilities.

Proposed businesses that clearly meet those requirements have moved quickly to the front of the pack, while proposed businesses facing questions about those requirements may still be working their way through the process, McElfresh said.

Kimberly Simms, another local marijuana attorney, suggested there may be appeals coming from resident groups in areas where the production facilities would be concentrated, particularly Mira Mesa.

Community planning groups in Mira Mesa and Otay Mesa changed their typical approach and decided to delay recommendations until after the businesses have obtained environmental approvals.

Rob Hixson, chairman of the Otay Mesa Planning Group, said the process has worked well. His group has recommended approval for three of the four projects on which it’s provided advisory votes to the city’s hearing officer.

Hixson said the fourth was rejected because community planners didn’t get enough information about the proposal from the applicant.

Chipman, the marijuana opponent, criticized the city for combining three types of marijuana businesses – cultivation, manufacturing and distribution – into one city permit: marijuana production facility. He said that decision means San Diego’s marijuana industry will be far larger than people realize, because many of the businesses will tackle all three of the areas.

“They haven’t really approved 40 new businesses, they’ve approved 120 new businesses,” Chipman said.

The first marijuana production business approved in San Diego is proposed for 9874 Via de la Amistad in Otay Mesa.

Four more are scheduled for approval on Wednesday. They are located at 9565 Heinrich Hertz Drive in Otay Mesa, 8859 Balboa Ave. in Kearny Mesa and 7542 Trade St. and 5550 Oberlin Drive, both in Mira Mesa.