After years of legislative delays, license processing and leasing issues, two new cannabis storefronts opened in the Conejo Valley early this month, bringing medical marijuana to the Thousand Oaks area during a turbulent time in the industry.
“It’s kind of a landmark for this community. It’s a conservative community, so that’s why the (Thousand Oaks) City Council was cautious and only allowed medical use right out of the gate,” David MacFarlane, owner of Leaf Dispensary, which opened on Feb. 4, said. “We started this process four or five years ago so it’s a landmark thing we’ve accomplished here and the community deserves to have a cannabis shop that they can come to rather than have to drive out of town for. It’s going to create tax revenue. It’s going to actually slow down the illegal delivery market. And if (the City Council) allows us to sell for recreational use, it’s going to be a benefit all the way around.”
Leaf Dispensary opened on the same day as its only local competitor with a storefront, Legendary Organics, after several years of back-and-forth with the city, county and state to complete licensure and leasing requirements. Both cannabis retailers are currently authorized for medical use only, which requires consumers to have a valid doctor’s recommendation to shop. It costs about $40 to get a recommendation, a service which both stores offer private accommodations to complete on-site through a virtual consultation with a licensed physician.
“We decided early on our mission was basically to create an atmosphere of positivity around a product that has for so long been maligned,” Ned Davis, managing member of Legendary Organics, said. “Not completely without merit, I must say, but it has been misunderstood, because it has been misrepresented.”
The openings come as industry leaders are sounding the alarm about the detrimental impact of high taxes and poor regulations of the retail and delivery industry.
“Our industry is collapsing,” read an open letter sent to legislative leaders in Sacramento and signed by more than two dozen cannabis executives. “We need you to understand that we have been pushed to a breaking point.”
Consumer education
Legendary Organics focuses heavily on consumer education, with stacks of pot-related literature and marijuana facts playing on screen in its well-appointed lobby. Leaf Dispensary has roaming budtenders to guide consumers through product shelves offering drinks, salves and pain creams, edibles and concentrates along with the flower itself. Both locations offer similar products, with unique shopping experiences inside.
Davis, also a member of the Thousand Oaks City Council, co-owns Legendary Organics, which was the first of the two businesses — and the first cannabis storefront in the city — to receive its permit in 2018. In the fall of 2019, the City Council granted a second permit to Leaf, kicking off an unofficial race to open doors which was delayed for both owners for years over leasing issues, the California Environmental Quality Act or CEQA qualifications and COVID-19-related processing delays.
Ultimately, Davis said, the two stores opening on the same day isn’t a concern for him. He believes that selling cannabis is, first and foremost, a hospitality industry and having multiple options for consumers will improve both businesses in the long run, a sentiment MacFarlane echoed when discussing the two stores’ coincidental openings.
“I don’t think of that other group as competitors at all. There’s plenty of business for everyone,” MacFarlane said. “I’ve always had that old-school mentality of medical marijuana, you know, I think everyone that needs it should have access to it, regardless of where they get it.”
Being limited to medical use sales only, however, is already a problem for the stores, despite only having been open a few days. The city’s strict rules on who can purchase weed in stores limits the potential consumer base to a fraction of the possible market, and the storefronts have to turn away shoppers who don’t have the required documents.
“We’re seeing a lot of people that just aren’t really wanting to get their recommendations. They’re coming here thinking we’re recreational and we tell them that we have to get their med card and they just prefer to go somewhere else,” MacFarlane said. “It’s a roadblock and we’re already taking steps to talk to the city about it. … I mean, we’ve spent a great deal of time and money building a very beautiful facility and going through everything that they required me to do and so now we’re asking them to help us out.”
High taxes
Compounding the issue of limited sales is concern around the tax rate, both business owners expressed. In the letter to lawmakers sent by cannabis executives earlier this year, cannabis industry leaders from brands like Kiva, Stiizy and Bloom Farms shared similar concerns, lobbying for tax cuts and regulation reform.
“We have collectively reached a point of intolerable tension and can no longer support a system that undermines public health and safety, maintains excessive taxation, threatens jobs, hinders growth and economic prosperity and perpetuates a regressive war on drugs,” read their statement.
Since marijuana is still a Schedule I drug federally, and high taxes are imposed through the ballot proposition which made sales legal in the first place, many cannabis business operators function on an over 50 percent tax rate as their tax compounds and they are ineligible for payroll write-offs. In addition to high tax rates, each county and city has different requirements for business than the state, increasing barriers to enter the legal marketplace.
“It’s not a get rich quick opportunity. It’s not an ‘if you build it, they will come’ type of thing. You have to take a lot of traditional business fundamentals and apply them to this industry. In fact, you also kind of have to go above and beyond which additional business opportunities would require of you because you have the conflict between state and federal,”Avis Bulbulyan, chief executive of Siva Enterprises, a cannabis consulting firm, said. “(With cannabis) you can have a situation at the end of the year where your effective tax rate can climb upwards of 60 to 70 percent, so you end up going into the red.”
For Legendary Organics and Leaf Dispensary, the high taxes coupled with the limited consumer base for medical-only marijuana products is an urgent issue that could drive either location out of business if the city does not eventually approve recreational sales through their storefronts. Their experiences typify the challenges facing other retailers in the region as currently, only delivery services in the area, or unlicensed sellers, offer products for recreational use.
“I think it’s a dire situation. I think that the cultivators are way overtaxed, which is driving the price of the goods up. The licensing fees are extremely high and then they turn the local jurisdiction loose and let them do whatever they want, whenever they feel fit,” MacFarlane said. “And thank goodness Thousand Oaks has been very reasonable in that, but there are other jurisdictions that I’m in that have been a little more aggressive.”
Both new stores are lobbying with the Thousand Oaks City Council to change their permits to allow both medical and adult recreational use to offset the impacts of the high tax rate. Down the line, both said, they hope the federal legalization and tax rate changes, too.
“So far, I’ve only spent money in this business, so I haven’t made any money. So I can tell you that we’re in the hole. I can tell you that the people who think there’s a lot of money in this, they’re thinking of the illegal market. Because the legal market has so much taxing, that it allows for basically two thirds of the entire market to be illegal. And it’s going to take some time for us, since we’re in medical only, we’re only going to be able to sell about 20 percent of the market as medical only. If we want to sell 100 percent of the market, we need to be adult use and medical,” Davis said. “If California wants a cannabis business to be legitimate, it needs to be thoughtfully taxed, not greedily taxed. Our biggest threat is the taxation.”