Santee ponders cannabis business prospects

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The Santee City Council on Aug. 11 held the second of three public hearings regarding possible cannabis businesses in the small city of about 58,000 residents. The hearing yielded two unique questions: how many businesses already exist in the cannabis industry within San Diego county and what would happen if leaders wait longer to establish a cannabis business policy?

Santee Finance Director and City Treasurer Tim McDermott reiterated what leaders in small cities across San Diego county have said in recent months: they are worried they need to enact local cannabis business policies before the State of California potentially legislates measures for them.

“Threat to local control is a real issue. There’s been proposed State legislation over the past several years that would mandate that local jurisdictions allow cannabis businesses to operate in their jurisdictions,” McDermott said, as well as a second threat from voter or citizen initiatives.

“The result of those initiatives is typically a loss of best management practices. You end up with language submitted by citizens, not crafted as you would have if you’d done it yourself,” McDermott said.

City Manager Marlene Best later said the cities of Lemon Grove, Chula Vista and La Mesa were all crafted through a citizen’s initiative.

McDermott summed up different cannabis-related business categories for leaders to consider. In addition to cannabis lounges, McDermott said city officials can consider cultivation, manufacturing, testing laboratories, distribution and retail stores. Leaders could also consider microbusinesses that combine several different services, he said. There are currently six microbusinesses in the county.

Cultivation, he said, is actually considered saturated in California— 8.5 million pounds of marijuana are produced each year but only 2.5 million are consumed.

“Statewide, as of May this year, there are 4,783 cultivation licenses with just eight in San Diego county, all of which are indoors as well as four that are authorized for cultivation,” McDermott said.

Additionally, he said there are already 911 manufacturing businesses statewide, including those that produce or package products like edibles, topicals, extracts, cartridges, flowers, pre-rolls or concentrates. Twenty-two of those businesses are in San Diego county.

Currently, he said, there are 25 licensed cannabis distributors in San Diego county and six businesses that also provide cannabis delivery as part of their services. He noted those are part of a larger supply chain and not to be confused with personal cannabis delivery services from non-storefront retailers, stores that only sell to customers through delivery.

Out of 1,058 licensed cannabis retailers in California, he said, 56 are in San Diego county.

“Testing laboratories are prohibited by law from having any economic interest in any other cannabis business activity,” McDermott said. He estimated there are just 48 laboratories across the state.

“Community values would definitely be considered with any of these businesses, including the public health and safety, environmental protection issues, land use issues and of course youth access,” McDermott said.

Currently, there are no cannabis lounges in San Diego county, although National City recently approved verbiage changes to their general plan that would allow for lounges within the small city. Similarly, any approval in Santee would require local ordinance changes.

McDermott said Santee could support up to three cannabis retail establishments that would generate an average of $105,000 in sales taxes and potentially $420,000 to $630,000 in business taxes, assuming a 4-6% tax was imposed on them. The three-business measurement is based on population metrics.

City Council members Rob McNelis and Dustin Trotter later questioned whether that state-generated metric is based on all residents, or those who are over the age of 21 and legally able to access any lounge that might be built, but the point appeared to be dropped as moot, given the larger topic of cannabis businesses themselves.

Strong pushback against cannabis lounges emerged during time for public comments, with several speakers insisting the financial gain would not outweigh other negative effects on the city and that even a potential tax would subsequently be eaten up by the need to fund more emergency services.

Resident Jean Duffy, who introduced herself as the mother of three young adults and wife of a middle school principal, said she has worked professionally with youth through project SAFE, a before and after-school program for Santee children.

“I’ve seen the effect of marijuana on our young people and I understand that preventing youth access to drugs is the first step to reducing use and stopping the cycle of addiction that has become such a problem in our county.. Show me a fentanyl addict who didn’t first start with marijuana. If you allow marijuana cultivation, distribution and retail sales to infiltrate our city, we will see many negative outcomes,” Duffy said.

She also said that Santee, surrounded by cities that have banned dispensaries, will become “East County’s drug destination” and that any tax revenue received by the city will be outweighed by the costs of crime and increased law enforcement services.

Her son, Shane Duffy, also addressed city council members.

“I’m a local college student, resident of the area for the past 22 years. It’s easy to talk about passing policy but when you see it first hand, how it affects your friends and peers it changes things. I’ve seen it in schools, I’ve seen it get worse. I’ve seen it affect parks and community centers and worst of all, I’ve seen it ruin the lives of people in my generation. As one of the youngest people in the room, if not the youngest, I think I can speak for my generation and say this is not something we want. You’re putting thousands of people at risk and I cannot imagine a dollar amount that would be worth that,” Duffy said.

Santee School District Superintendent Kristin Baranski had two requests for city council: to reconsider whether the threat of impending State legislation is a currently valid concern with no active legislation in place, and to include the school district as a partner when the time comes to establish a local policy.

Vice Mayor Laura Koval reminded attendees that County officials initially issued COVID vaccines to marijuana dispensaries before law enforcement. She compared possible future cannabis legislation to “a school board having limited discretion with state mandates.”

City Council member Ronn Hall, however, said “there’s nothing forcing this issue” and that if forced to include cannabis businesses in Santee, he thought the city should “stick it to them with a 10% tax so we can pay for those extra sheriffs,” essentially make it financially unwelcoming for cannabis businesses.

City Council member Dustin Trotter said a testing lab sounded like it might be an opportunity.

“These are white coat, educated people with professional degrees who would be coming here,” Trotter said.

Mayor John Minto agreed and said he liked the idea of putting a lab in Santee, possibly growing a biotech niche.

Ultimately, City Council asked staff to move forward with researching testing, retail and microbusinesses; cultivation, manufacturing, distribution and cannabis lounges were all deemed non-starters.

Santee ponders cannabis business prospects