Sacramento cannabis dispensary owners can sell businesses after city council changes rules

Sacramento’s 30 existing cannabis dispensary owners will now be able to sell the majority of their business after the city council Tuesday night approved new rules allowing ownership transfers.

Dispensary owners have complained that an outright city ban on dispensary transfers or sales was unfair, but the rules were imposed in November 2019 after The Sacramento Bee disclosed that one business group had acquired a third of the city’s dispensaries despite prior city transfer prohibitions.

The rules Tuesday also allow dispensary owners to own minority interests in other dispensaries, changing the one dispensary per owner rule, but the ownership stake is limited to five percent.

“What we put forth today is a symbol that we are serious about a good business environment,” said Sacramento Mayor Darrell Steinberg ,who was joined by the eight-person city council in approving the measure.

Members of the city council are also eyeing whether they should lower the four percent city tax on gross revenue from cannabis businesses in Sacramento, though no action was taken at Tuesday’s meeting.

City Councilman Jay Schenirer, chairman of the law and legislation committee, said Sacramento must stay competitive with its tax rates.

“We have a pretty good chance that the county will get into this business,” he said, stating three of the five county supervisors now favor allowing marijuana business in unincorporated parts of Sacramento County, where they are now banned.

One change in the city’s marijuana rules appears off the table for now. A plan suggested by city cannabis manager Devina Smith to allow cannabis consumption lounges connected to dispensaries was not in the package approved by the mayor and council.

Only two council members Tuesday night, Sean Loloee and Katie Valenzuela, voiced support for discussing the matter in the future.

Much of the discussion Tuesday centered on 10 new dispensaries scheduled to open in Sacramento under the city’s social equity or core program.

Steinberg expressed concern as to how the city could help 10 new owners be successful when they are competing against larger corporate interests that are entering the cannabis business in Sacramento.

The social equity program gives preference to dispensary applicants who were victims of the war on drugs, such as serving time in jail for previously illegal drug sales, or who lived in low-income areas affected by the drug war.

The social equity owners are allowed to sell up to 49% of their business to minority owners, but must retain 51% for 10 years. It’s unlike the 30 existing dispensary owners, who are now allowed to transfer up to 99% of their business under the new rules.

The rules also require all dispensary owners to disclose all their ownership interests. Owner or ownership groups face revocations of their licenses if they don’t comply.

For years, Sacramento city officials failed to enforce its ownership rules on dispensaries.

A 2020 city audit found that 18 of the city’s 30 dispensaries had changed ownership since 2009, despite city prohibitions on the transfers. Recreational cannabis became legal to sell in California in 2018 but the dispensaries were allowed to operate under medical marijuana rules before then.

The audit also confirmed findings by The Bee that one group of business partners had gained ownership of nearly a third of the city’s dispensaries.

One of those shops was co-owned by Andrey Kukushkin, who in 2019 was indicted on campaign finance charges along with two close associates of Rudy Giuliani. Kukushkin is no longer an owner of the shop.

The other five men — in some cases individually and in some cases as a group — still own nine shops, the audit said in 2020.

This story was originally published June 1, 2022 at 9:38 AM.