Sacramento officials want moratorium on pot shop ownership changes following Bee investigation
The Sacramento City Council will consider a proposal Tuesday that would place a moratorium on marijuana dispensaries from making ownership changes and limit the number of storefronts a single person can own, a response to an investigation by The Sacramento Bee that revealed the city’s lax oversight of the lucrative marijuana industry, Mayor Darrell Steinberg said.
Separately, Steinberg is proposing the city hire a compliance officer to oversee the cannabis department, and allow five new dispensaries to open that would be owned by residents most affected by the “War on Drugs.”
Two men who in 2011 were listed as permit holders for two of the city’s 30 dispensaries today hold permits for nine, along with their three business partners under the Kolas brand, despite a city code that prohibits permits from being sold or transferred, The Bee found. One of the nine dispensaries is co-owned by a Ukrainian-born U.S. citizen who was indicted last month in an international campaign finance scheme.
“We need to be confident that we know who is selling cannabis in our city and that they are operating within our rules,” Steinberg said in a statement to The Bee. “We also need to make sure our rules are sufficient to produce a fair, transparent playing field.”
The Council is expected at its Tuesday meeting to approve a 120-day moratorium on ownership changes, which Steinberg proposed last month, he said. If passed, it would mean dispensaries would no longer be able to submit paperwork to the city that shows names being added or removed from ownership lists for the shops, Steinberg said.
Although city staff have been checking since 2014 to make sure at least one name remains in the application from the previous year, dispensaries have been allowed to add new names of owners, then over time, remove the names of original owners. Critics call it a loophole that’s allowed monopolies to gain control of the coveted 30 shops.
In addition, none of the city’s 30 dispensaries are owned by African Americans, according to Malaki Amen, president and CEO of the California Urban Partnership, who’s been pushing for equity in the city’s pot business for years.
To address that, Steinberg proposes the city raise its cap on storefront dispensaries from 30 to 35, and give the five additional permits to residents who have met certain zip code, income and other requirements under the city’s Cannabis Opportunity Reinvestment and Equity Program.
The idea of that program, adopted in 2018, was to give residents of communities where enforcement was disproportionately focused during the “War on Drugs” better access to what is now a lucrative industry. But none of the CORE program participants have been able to own a dispensary.
Steinberg wants to hire a full-time independent compliance officer who would work in the city auditor’s office to focus exclusively on monitoring the cannabis department, which oversees the city’s dispensaries, as well as cultivation, distribution and manufacturing businesses, he said.
“If there are yellow flags or red flags, they can be addressed immediately, as oppose to only after a formal audit,” Steinberg said.
Hiring the new position and raising the cap to 35 would require a City Council vote; that part of Steinberg’s plan is not scheduled for a council vote Tuesday and would have to be considered in the future.
The council in November of 2018 considered increasing the cap, but decided against it for at least a year, concerned about allowing too many shops in the city.
Steinberg also asked City Auditor Jorge Oseguera to update a 2017 review of the city’s dispensaries, including checking to find “best practices” from other cities with dispensaries.
Oseguera said that review will differ from the 2017 examination because recreational marijuana is now legal in California, so shops are no longer owned by collectives.
“We’ll look at what this has evolved into now that we have moved away from the collective model and what changes do we want to make, if we want to have a better handle of who has controlling influence over these permits,” Oseguera said.
The original audit found dispensaries were under-reporting revenue and the city was allowing over half the shops to submit incomplete permit renewal applications. The city has since made several changes, but is still not inspecting dispensaries to identify under-reporting of gross receipts and has not developed a program to identify high-risk violations quickly, as the 2017 audit recommended.
The 2017 audit was conducted after several dispensary owners alerted officials that permits were being sold and transferred, which caused Council members Angelique Ashby, Allen Warren and Larry Carr to voice concerns, but no significant changes were made to prevent permit transfers or ownership consolidation.
This story was originally published November 7, 2019 at 5:30 AM.
