The Best Way to Crack Down on Illegal Dispensaries: Accommodate Legal Ones - Voice of San Diego

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The Best Way to Crack Down on Illegal Dispensaries: Accommodate Legal Ones

As cities like Lemon Grove grapple with marijuana policies, they’re finding something strange: The most effective way to crack down on illegal dispensaries might be to help legal marijuana businesses thrive.

When Lydia Romero first started as city manager of Lemon Grove in 2016, she remembers standing in front of the City Council and being asked to prioritize shutting down illegal marijuana dispensaries. That day, Jan. 19, 2016, the city banned all medical marijuana-related businesses.

A year later, thanks to a voter initiative allowing medical marijuana dispensaries, Lemon Grove must figure out how to legally fit the very businesses it’s been fighting into the fabric of the community.

As cities like Lemon Grove grapple with marijuana policies, they’re finding something strange: The most effective way to crack down on illegal dispensaries might be to help legal marijuana businesses thrive.

Starting in 2015, illegal marijuana businesses started popping up in unprecedented numbers in Lemon Grove.

So Romero and her sole code enforcement employee started the game of whack-a-mole, trying to shut down the illegal businesses.

It was frustrating, she said. Most of the operators and property owners where the dispensaries were located don’t live or have offices in Lemon Grove.

“They come under the dark of night,” Romero said. “They hide behind everything – LLC business names – and you can’t track down who the operators are or their offices.”

Occasionally the city would luck out and the Sheriff’s Department would get involved, forcing the dispensary’s hand. Once there was a robbery outside one of the illegal storefronts, and the officers noticed that the business had a camera. Officers got a warrant to go inside the store, which the city’s code enforcement workers couldn’t do, giving the city proof that it was an illegal dispensary.

Sometimes the city would close one shop down, only to have another pop up on the same property. Sometimes the businesses just wouldn’t stop, no matter the fines, so the city would have to go to the property owners. For one property, the city had to wait until it did its tax assessments – which happen once a year – so it could threaten the property owner with a $400,000 lien if they didn’t boot the dispensary on their land.

The November measure to allow medical marijuana dispensaries in Lemon Grove passed by only 90 votes. The city started accepting applications for legal dispensaries on March 20.

As Lemon Grove starts to allow medical marijuana dispensaries into the city, Romero said that the passage of Proposition 64, a statewide measure legalizing marijuana, and increased regulation could actually help cities in their fight against illegal dispensaries – though Lemon Grove will continue to ban recreational marijuana businesses within city limits.

“Regulation is ultimately your greatest path to shutting down illegal dispensaries,” said Kimberly Simms, an attorney who represents many clients in the cannabis industry.

Over the next few years, Simms said she expects a black market resurgence, as some businesses that have operated in the gray for years are unable to get legal permits. Some of those illegal businesses are run by people who will never follow the rules, but many are run by people who have been operating with unclear rules for years.

It will be up to local and state regulations to make sure that unpermitted businesses can’t operate as successfully as a legal one. That will ultimately come down to two things: whether local policies allow for legal businesses to operate successfully, meeting market demand for marijuana products, and how they enforce the rules.

Both have been major issues in San Diego County.

There have been iterations of medical marijuana laws at the state level since Proposition 215 passed in 1996.

That means some businesses were simultaneously following state law and breaking local laws, in parts of the state where local jurisdictions didn’t want marijuana businesses in their cities and counties.

In 2013, a court decision in Riverside determined that cities could enforce marijuana regulations through their zoning and land use codes. That allowed cities to start prosecuting illegal dispensaries for violating zoning codes.

In the city of San Diego, the rule change played out this way: After overturning a temporary suspension on the city’s crackdown on illegal dispensaries in 2013, the city attorney’s office began going after illegal dispensaries in earnest. In 2014, the City Council decided to start permitting medical marijuana dispensaries.

The city decided that businesses would have the opportunity to operate legally as long as they weren’t currently running an unpermitted dispensary.

Multiple legal dispensary owners were once working in the gray area, where their businesses seemed to be legal under state law, but local jurisdictions disagreed.

Alex Scherer, founder of the legal medical marijuana dispensary Southwest Patient Group, found himself in that position. The San Diego city attorney went after his business, I and I Rootz Collective in 2011.

“We had different interpretations of the zoning code,” Scherer said. “We felt it allowed us to legally operate as long as we followed state rules and did our best to comply with local safety codes. But, unfortunately, those situations are kind of what it takes to force municipalities to deal with the industry. It’s nice to have rules to follow now.”

That business closed down, and when San Diego started accepting applications for legal dispensaries, Scherer was granted a permit.

Lemon Grove has taken a hardline on people who used to have illegal dispensaries. If the city knows that a person applying for a permit is tied to an illegal dispensary, it will deny the permit. La Mesa, on the other hand, is handling things the way San Diego did, and giving people a chance to work above ground.

While there are still lots of unpermitted dispensaries in San Diego, permitting some businesses has helped bring down that number.

Simms says the market demand for marijuana products exists – no matter how cities choose to deal with it – and regulations that would allow legal businesses to succeed is ultimately what will allow cities to deal with any bad actors.

In 2018, it will become abundantly clear which businesses are legal and which aren’t, because state and local permitting will be in sync. In order to get a state permit for any marijuana business, businesses first need to prove they have local permission to operate.

“It’s a total atmosphere change,” Scherer said. “Now there’s clarity to the law and clarity to the rules. Before these rules, it was just fought out in courts. Now it’s clear who is legal and who isn’t and how to comply.”

The expected synchronicity between state and local laws means businesses operating without licenses will be illegal under all circumstances. Romero said that means cities would have the option of pursuing criminal cases against illegal operators, which was difficult before.

“With the state rules, I think a lot of those shenanigans will go away,” she said.

Romero also said she’s hopeful that having a legal industry will lead to some self-policing within Lemon Grove’s new cannabis industry, so the legal businesses will help the city keep the illegal ones in check.

That has happened in San Diego, said Simms.

“Licensed dispensaries are frustrated that there are so many unpermitted stores and delivery services,” she said.

Scherer and Simms also said that legalizing the industry will change things from the consumer’s side.

As the industry becomes more mainstream, consumers will be able to discern differences between products and go to the legal dispensaries that offer higher quality.

“There’s a big education that’s coming,” Scherer said. “What is a legal dispensary? What are the testing requirements? The consumer demand only gets sophisticated as time goes on, so they’ll want more reassurances and more products.”

Right now, illegal businesses are fine with operating for just a few months and then being shut down, said Simms. They make enough money in those months and don’t have as many costs as the legal businesses, like permits, security and testing. Many consumers opt for those businesses simply for the price difference.

Regulating the industry and permitting legal actors will also bring down the cost for the legal industry, making it more competitive with the black market.

“A lot of the price has been the risk associated with it as with any commodity,” Scherer said. “But as it’s regulated, even with tax rates, the price will drop, so people can look forward to that and it will make it too cost prohibitive for black/gray market situations.”

Simms and Cynara Velasquez, political director of the Association of Cannabis Professionals and one of the authors of the medical marijuana ballot measure in Lemon Grove, warned against the way Lemon Grove seemed to be doing business with legal dispensaries.

The city began accepting applications for permits on March 20 and already have complaints.

On Wednesday, several representatives of the cannabis industry appeared before Lemon Grove’s City Council to complain about how difficult the city was making the process.

For example, some of the speakers said, the city didn’t give a comprehensive list to applicants of the types of facilities dispensaries couldn’t be close to – for example, schools and churches. Other jurisdictions, they said, had given applicants such a list.

“I’ve been watching the process closely here in Lemon Grove and we are a little concerned with how the initiative is being implemented and the additional conditions staff has put on the permits,” said Velasquez.

If legal businesses don’t feel welcome, Simms said, they won’t come to Lemon Grove. It might mean that the city will continue to play whack-a-mole with illegal operators.

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