Stifling the ‘green rush’

In the five months since the state started approving commercial cannabis cultivation, Sacramento has emerged as an unlikely leader, only eclipsed in total licenses by communities with long traditions of growing marijuana, or other types of farming that made them attractive to Big Weed.

In Sacramento, all legal weed is grown indoors, and no place in California is licensed to grow more indoor cannabis than Sacramento. That’s good for Sacramento growers because customers increasingly want an aesthetically pleasing bud that’s easier to produce indoors.

Why, then, is the city of Sacramento putting the brakes on cannabis cultivation?

The City Council voted in mid-May to limit cultivation in the southeast industrial area and plans to consider restrictions in other parts of town. Cannabis can only be grown in industrial areas, generally limiting it to the southeast and northern parts of the city. While council members say the limits are needed to protect other businesses from collateral impacts, the decision is also shaping up as yet another example of the hardships faced by cannabis entrepreneurs in the state’s new and unsettled market.

Responding to concerns from a business association, the Power Inn Alliance, the council voted to declare an “undue concentration” when cannabis cultivation takes up 2.5 million square feet of the area’s industrial space. The city has already received applications for 2.8 million square feet and approved 1.2 million. That means some applicants are likely to get turned down by the city.

According to the Power Inn Alliance, Sacramento’s “Green Rush” has caused havoc in the area’s industrial real estate: higher rents and fewer vacancies are creating hardships for other industries.

Danny Dean, the owner of a furniture company, told the council that cannabis cultivation led his landlord to raise rents, forcing him to relocate. He said he won’t be able to stay in Sacramento, meaning the loss of 60 local jobs.

City Councilman Eric Guerra, who represents the area, said that pattern will continue if cannabis cultivation is allowed to continue unchecked. “The speculation of the Green Rush has caused harm,” he said.

But entrepreneurs say they didn’t invest in Sacramento based on speculation. They said they made a decision based, in part, on a city ordinance that didn’t limit the number of growers.

“This would change the rules of the game after the game is started,” Jay Rifkin told the City Council prior to approving the Power Inn cap. Rifkin has a cultivation application for the area.

Another businessman planning to grow in the Power Inn area said he was similarly distressed by the city’s shifting direction on cultivation. Alex Reyter said he chose Sacramento over other cities for his business because he thought leaders respected the “rule of law,” and because residents are “hardworking.”

He plans to employ 85 people at his facility.

“Why are you singling out this industry?” he asked the City Council. “This is the highest-growth industry in California.”

Other critics of the policy said a number of factors are driving up industrial rents, not just cannabis. They also called the city’s conclusion that 10 percent of industrial space is an “undue concentration” an arbitrary figure.

The decision marks more bad news for cannabis entrepreneurs in California. Even under the best of circumstances, establishing a cannabis business in the state’s new market would be a difficult proposition. The system to deliver cannabis from growers to retailers is still being set up, and it is governed by regulations that critics say makes marijuana seem like plutonium. Statewide, revenue for the first three months of the year was well below projections.

The difficulties have been compounded in places with changing regulations. In the most extreme example, politicians in Calaveras County encouraged growers to locate there, only to decide months later that they were going to ban cultivation. The county is facing lawsuits as a result.

Growers in Sacramento are also talking about legal challenges to the city’s policy in the Power Inn area. The city has not set a timeline for establishing a cultivation cap in other parts of the city. Ω