It’s April and everyone knows how cannabis, aka marijuana, aficionados love their unofficial “4/20” holiday, which happens to fall on the 111th day of 2024, a “holy” day for cannabis consumers. Tokers all around the nation will light one up and puff in herbal solidarity. Even in Fresno, where cannabis has historically been suppressed but is now slowly—and legally—making a presence throughout the city.
Currently, there are only seven open and active cannabis retail sites within the city. There should be many more.
The City of Fresno has sanctioned 21 cannabis retail business permits; 12 dispensaries have been preliminarily approved since 2021, and there are two unnamed TBD permits listed at this time. It’s a slow process for a full approval of cannabis retail commerce in the city.
Part of the problem is all the costs for the construction and renovation of cannabis retail spots; the City has specific requirements for cannabis retailers. For example, the City requires that a special air filtration system be installed in each shop to keep the cannabis smell from escaping. Premises are also required to have a security lobby/trap room to separate incoming customers from the main store.
There are mandatory million dollar insurance policies, security costs for real-time alarm monitoring, mandatory costs for secured vaults and vault systems to store the cannabis and more costs for a “fully functional color digital video camera system” that is recording 24/7—not to mention extra mandatory costs for an armed guard while the shop is open.
The application and permit fees, conditional-use permit fees and all the other associated fees involved in winning one of the 21 coveted cannabis retail spots (for which there were more than 100 competitive applicants that the City graded on a total score percentage rubric) amount to tens of thousands of dollars, but the de facto cost of a cannabis business in Fresno is in the hundreds of thousands of dollars.
Deputy City Manager Jennifer Ruiz said of the program: “Cannabis is a very highly regulated industry in the state and city. It’s a competitive process. The application process is extensive.” And expensive.
Moreover, when we follow the money and look at how retail cannabis dispensaries are taxed, it’s a wonder any dispensary successfully stays open in California. To start, each city or county has its own cannabis business tax rate.
In the city of Fresno, it’s actually rather reasonable, a 4% cannabis retail tax. Compare that to Coalinga, the first city in Fresno County to allow retail cannabis dispensaries. Its cannabis tax is 10%. Then there is the mandatory state of California 15% excise tax imposed on all gross cannabis sales (including the local taxes).
After that is the city sales tax. In Fresno, that’s 8.35% (in Coalinga, 8.975%). Sum all this up and a four-gram baggie of weed (about an eighth of an ounce) that retails at $10/gram in Fresno now costs $40 + $1.60 + $6.24 + $3.99 = $51.83. In Coalinga, the same amount of cannabis would cost $40 + $4.00 + $6.60 + $4.54 = $55.14.
Four grams of cannabis makes about eight cigarettes. This equates to $6.48 per cigarette in Fresno and $6.89 in Coalinga, which means the total tax comes to $1.48 per cigarette in Fresno and $1.89 in Coalinga. The state tax alone is $0.78 and $0.825 per cigarette, respectively. In comparison, for tobacco, the state tax is only $0.1435 per cigarette ($2.87 per 20 pack).
Clearly, the cannabis consumer is overly taxed, which is why it is no surprise that the cannabis black market is flourishing. Fresnans can regularly find “illegal weed” for sale at local smoke shops and this is a problem for the city.
“It is shocking that smoke shops continue to operate illegally knowing that the City of Fresno has taken such an aggressive posture regarding illegal and unregulated cannabis sales,” Fresno City Attorney Andrew Janz said of this challenge.
“Again, our intent is to assist legal cannabis dispensaries [that] have followed rigorous rules and regulations to open their sanctioned and legitimate businesses.”
With the combination of heavy expenses to open and operate a legitimate and legal retail cannabis business alongside high taxes for the product, Fresno has had a difficult start in its city cannabis commerce.
Projected cannabis tax revenue for this year is off by millions, again. This, in turn, affects the General Fund, as City Council Member Nelson Esparza has acknowledged, “For several years, we have come up short. The City’s come up short in terms of the projections of cannabis revenue that we receive.”
In 2021, for example, the City had forecast $4 million in cannabis revenue for the next fiscal year; it didn’t pull in a single dollar.
It’s certain that there is a growing market demand for legal weed in Fresno, but the mechanisms that such a free market needs to thrive have to be unfettered from government tentacles for it to really grow. After all, 90% of City cannabis tax revenue is set to go to the General Fund.
Moreover, unsanctioned, illegal cannabis is negatively affecting legal sales in Fresno. But part of the problem is availability.
When only 21 dispensaries are allowed in a city of 500,000 residents, and of those 21, only seven are currently open—after three years of winning a competitive preliminary approval—there is a lack of suppliers. To remedy this, the City should think of ways to help already-approved retail dispensaries get on their feet so that legal cannabis can be made easily available for purchase.
That way, everyone can safely (and legally) enjoy their 4/20.
