Slow Pace of Dispensary Openings Leaves Fresno, CA. with Budget Shortfall
The slow pace of retail cannabis dispensary openings in Fresno, California has led to a budget shortfall of more than $3 million for 2023, prompting city leaders to consider changes to expedite the process to get the businesses up and running.
California voters legalized cannabis for adults in 2016 with the passage of Proposition 64, a ballot measure that passed with more than 57% of the vote. Two years later, Fresno voters approved an ordinance to tax retail sales of recreational marijuana, setting the stage for adult-use cannabis dispensaries to open in the city.
In 2019, the Fresno City Council amended civic ordinances to regulate recreational cannabis, and in 2021 the city began awarding the first of 19 preliminary retail cannabis dispensary licenses issued to date. But more than a year later, only two recreational marijuana retailers have opened in Fresno, a pace that is wreaking havoc with the city’s budget projections.
The city budget approved for 2023 projected that cannabis taxes and fees would generate $5.37 million in revenue for the city’s coffers. But with only two dispensaries open for business so far, the city is now projecting the cannabis tax revenue to be $2,113,100, a deficit of more than $3 million. Councilmember Nelson Esparza said that the situation is “insanity.”
“We keep over-projecting cannabis every fiscal year,” Esparza said.
Only Two Dispensaries Open So Far in Fresno
The dispensaries that have opened in Fresno, Embarc and The Artist Tree, began serving recreational marijuana customers on the same day in July 2022. The remaining 17 businesses awarded preliminary licenses have submitted their applications for conditional use permits (CUPs), which must be approved before building permits are issued and construction or renovations of the site can begin. So far, 13 of the 17 pending CPU applications have been approved, and new dispensaries could open as soon as May of this year.
Sontaya Rose, Fresno’s director of communications, noted that the timeline for construction and opening the dispensaries is controlled by the business owners, not the city.
“So, we can’t say for sure,” Rose said in an email to The Fresno Bee.
“Overall, it is taking longer for the sites to open than was originally anticipated.”
City leaders and business owners in the cannabis industry cite several reasons for the slow pace of dispensary openings. Several of the coming dispensaries will be located in old buildings that require extensive renovations before they can open and begin serving customers, according to the city. Others have had to make accommodations for their landlords, including waiting for current tenants to vacate the building so renovations on the site can begin.
Lauren Carpenter, the CEO of Embarq, which has received preliminary approval for two cannabis dispensaries in Fresno, says that her company has experienced delays at both of the locations. The company is “working expeditiously to open our second location later this year,” Carpenter said.
“A variety of factors influenced the timing” of the first and second location, she added, “including site conditions, driving duration of build out and the speed in which tenants were able to vacate the premises.”
“Fortunately, our first location affords us the ability to serve Fresnans while training our team to become leaders in our second,” said Carpenter.
Lauren Fontein, founder of The Artist Tree, said that the state of California’s regulated cannabis industry is also influencing the opening of new businesses. Wholesale prices for cannabis have plummeted in the state, squeezing profit margins throughout the supply chain. High taxes and licensing fees for cannabis businesses also take a hefty bite out of the bottom. Many companies are struggling, and some have had to lay off workers to stay afloat.
“There’s much less an appetite for investing in the cannabis industry,” Fontein said. “It’s not this kind of cash cow business that people thought it was.”
Civic leaders in Fresno have looked to several jurisdictions for possible solutions and are considering several options to expedite the opening of additional adult-use cannabis retailers in the city. In West Hollywood, the city council amended its cannabis ordinance so more licenses could be issued, while Riverside conducted an additional round of licensing to add to the city’s roster of cannabis dispensaries. Fontein said that Fresno is considering adding deadlines to its ordinance to encourage a quicker opening of new dispensaries.
“The city just kind of needs to get practical at this point,” she said.
But the city has few options. While businesses are given a one-year deadline to submit CUP applications, the city ordinance does not have provisions that set a timeline for dispensaries to open for business.
Rose wrote in an email to the Fresno Bee that the city manager’s office is working with the staff at the city attorney’s office “to determine options for establishing additional deadlines for applicants to make progress towards opening.” But she was unable to offer a timeline to get the businesses up and running.
Until that happens, Fresno will continue to see a shortfall in projected cannabis tax revenues that could impact the city’s ability to provide services.