The craft breweries of cannabis? Microbusiness talks heat up at Lake Tahoe
April 9, 2018
SOUTH LAKE TAHOE, Calif. — Cannabis industry workers — and those who hope to get in on the budding market — are urging City Council to allow "microbusinesses" in South Lake Tahoe, a model some are equating to the "craft breweries of cannabis."
"There's no reason to have the Walmarts of the industry put one of their 18 stores up here," said South Shore resident Craig Ziegler, founder of CannaBlue, who hopes to open a microbusiness in a building he's located near the "Y" in South Lake Tahoe.
A state microbusiness license authorizes operators for a minimum of three cannabis related activities — like manufacturing, retail and cultivation — under one permit. All aspects of the business must also be housed on one property, and the cultivation is limited to less than 10,000 square feet.
"What we wanted to do is create a license that allowed smaller operators who wanted to do a number of different activities to do so with one license so they aren't having to pay the licensing fees associated with four different licenses," said Alex Traverso, spokesman for California's Bureau of Cannabis Control (BCC).
The annual microbusiness license fee is tiered based on sales. A microbusiness that does up to $500,000 in sales pays $5,000 for the permit, while one that tallies more than $4.5 million pays $120,000. By comparison, just retail licenses for these two businesses would cost $4,000 and $72,000, respectively.
South Lake Tahoe's lone medical marijuana dispensary, Tahoe Wellness Cooperative, just secured a temporary microbusiness license for medical marijuana from the BCC on March 29 after the city of South Lake Tahoe consented to give local authorization.
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The temporary permit lasts 120 days, and once again allows the dispensary to do business with other state-licensed companies that manufacture non-smokable and medicinal products, which TWC does not produce in-house. TWC does grow cannabis and employ non-volatile extraction on premise, as permitted through the existing South Lake Tahoe code on medical marijuana operations.
"As far as how the city is going to deal with our business and our existing use, the city council has not answered that question," said TWC executive director Cody Bass.
A working group comprised of 15 city and county residents on both sides of the issue has recommended to City Council that South Lake Tahoe not allow microbusinesses to start off with. They also suggested that manufacturing be limited to not allow for non-volatile extraction for now (volatile was completely off the table).
It's not a decision they came to lightly, according to two members of the working group.
"We changed our vote several times on microbusiness," said South Lake Tahoe resident and working group member Devin Middlebrook.
The working group included members who were in favor of the unfettered growth of the cannabis industry, and others — including representatives from the Lake Tahoe Boys & Girls Club and the South Tahoe Drug Free Coalition — who wanted more restrictions.
Ultimately the group recommended a pilot program that would allow up to three cannabis retailers to open under approved development agreements. The agreements would stipulate a percentage of revenue sharing until residents vote on a tax measure.
The group also suggested City Council permit delivery from storefronts only, ban outdoor cultivation, allow on-site consumption, and limit the size of greenhouses to 5,000 square feet.
"Manufacturing and cultivation were a big part of the microbusiness conversation," said working group member Christina Wilson. "Allowing extraction, the police chief and fire department said this would require a whole other regulatory structure. And our goal was to take it slow."
It's an activity that the working group suggested City Council reconsider if the future. If not allowed, cultivators would have to send their product down the hill to manufacturers, most likely in Sacramento, where extraction is permitted.
Oliver Starr, the head grower of a licensed medical marijuana cultivator in South Lake Tahoe, takes issue with creating this gap in the industry.
"If they don't enable all of the license types required to have a functioning business, all of that product has to move up and down the hill and that is a much bigger problem from an enforcement standpoint than if you have four to six microbusinesses with internal track and trace," said Starr. "A microbusiness was intended for small towns like this."
South Lake Tahoe Police Chief Brian Uhler, however, has concerns about the regulation of a microbusiness. He fears the vertically integrated business could result in the increased possibility of product diversion to the black market.
"My overarching concern is with the possibility that the community will go too far too fast. Once many marijuana businesses of all types are established, it will be very difficult to reduce," said Uhler. "Just look at the struggles we've had in the [vacation home rental] arena as an example."
Where to put microbusinesses — which are required to be housed under one roof — is another question.
Due to existing zoning restrictions, it can be difficult to find a location that allows for all of the uses, including retail, cultivation, manufacturing and distribution, while adhering to the buffers from churches and schools.
CannaBlue's Ziegler disagrees.
"Don't say that there should not be a license based on the grounds that there is no place to put that business," said Ziegler. "I've challenged that, and I plan to show the city that there are mixed-use parcels not on Highway 50 that would work. There aren't tons of spots, but there are some."
The industrial district, while it would allow for cultivation, manufacturing and distribution, is limited in the type of retail sales permitted, according to South Lake Tahoe City Attorney Nira Doherty.
Kevin Schmidt is a partner at California Strategies, a public strategy firm with 10 offices around the state, and worked on Proposition 64. He has been following South Lake Tahoe City Council's discussion over the cannabis ordinance from his office in Sacramento.
"When we're talking about Tahoe, the concern I have about a microbusiness license is that your real estate market is restricted," said Schmidt.
Schmidt noted that the microbusiness license was created in response to concerns from growers in much smaller towns in Northern California who wanted the ability to quickly get their product to market.
He estimates that South Lake Tahoe's market for cannabis will total over $20 million due to the influx of visitors. With just three retail operators proposed at this time, he says sales would likely surpass the $4.5 million threshold, making it more cost-effective to stack licenses versus secure the microbusiness license.
"When we look at cities like South Lake Tahoe, we're not creating a disadvantage to anybody interested in multiple license categories by making them site it at different places in the city," said Schmidt.
"In fact we're giving the city more flexibility to utilize their assets in their retail corridor appropriately and potentially use underutilized industrial space for cultivation, which I think is a better way of planning for South Lake Tahoe."
At this time, City Council is split on microbusiness. Mayor Wendy David and councilmembers Brooke Laine and Jason Collin appear to be against allowing them to start, while councilmember Austin Sass and Mayor Pro-Tem Tom Davis are in favor.
Sass has been staunch in his support of microbusinesses and non-volatile extraction.
"You're not dependent on Sacramento or someplace else to ship in the extraction to make these other products. I think it's a good business move, it's good for Tahoe, and it will create jobs," said Sass.
"We always talk about diversifying our economy in town. Well, maybe no one ever envisioned cannabis diversifying our economy, but what's wrong with more jobs and taking advantage of an empty warehouse to produce a product that is now legal?"
City staff has been chipping away at a draft cannabis ordinance based on council direction thus far, but there are still gaps in consensus for major items like zoning, on-site consumption, extraction — and, most notably, microbusinesses.