Jul. 16—After three years of falling short of expectations, Atwater leaders are rethinking the city’s cannabis policies.
The City Council this week was shown a list of sweeping reforms suggested by a consultant. The analysis, performed by HdL Companies, was previously requested by the council with the hope that updating the cannabis program will help local businesses, while also bringing more revenue into city coffers.
“The request was made with the overarching concern that our cannabis businesses were not performing, or they were not being all that they could be, so to speak,” Atwater Community Development Director Greg Thompson said at the meeting.
The report detailed suggestions intended to make Atwater’s cannabis businesses’ success more closely align with the expectations held when local leaders welcomed the industry into the city.
Residents at the meeting recalled with frustration how city officials had marketed bringing the cannabis business to Atwater as an opportunity to beckon in millions of dollars to the city. The reality, so far, has numbered in the hundreds of thousands.
Proposed policy reforms ranged from decreasing tax rates to expanding the areas where marijuana shops are permitted to open their doors. Currently, the product may only be sold in Atwater’s outskirts in industrial and business park zones.
Atwater has seven active cannabis licensees currently, including four retailers, one distributor, one microbusiness and one manufacturer. Only four of those are presently operating, however.
No official policy changes were voted on by the City Council, but staff are expected to return with potential cannabis program updates for the Council’s direction during a future meeting.
Debate over morality vs. business-friendliness
Thompson said he believed the consultant’s proposals held several valuable recommendations. Although the City Council appeared to generally agree, some members and Atwater residents voiced frustration and disapproval toward the local cannabis industry.
Debates over the cannabis business in Atwater have served in recent years as a lightening rod for the community’s generally conservative attitudes to clash with many residents’ pro-business sentiments.
Talks about overhauling Atwater’s cannabis program date back to early last year. Public sentiment seemed to have changed little in the year-and-a-half since, with City Council and community members each expressing chilliness toward the idea of expanding marijuana sales to the city’s more commercial zones.
“There’s already enough vices in this world,” resident Richard Williams said in opposition of permitting cannabis products in Atwater’s retail and commercial areas.
Williams said he especially didn’t want young children to see such businesses around town. Several other residents echoed his sentiments.
Few people spoke with enthusiastic support toward the marijuana industry during the meeting. But others stated that the city should do what it can to maximize profits, since cannabis is a legitimate business in California regardless of one’s personal philosophy toward the product.
“It’s a legitimate business these days, whether I agree with usage or not,” Councilmember Brian Raymond said, noting that the product cannot be marketed to kids.
Raymond said the city should bring its weed industry “out of the shadows” of Atwater so higher profits can be put to good use. All the cannabis business revenue generated should go to public safety, he said.
Atwater Police Chief Michael Salvador said his department has had no problems with illicit activity at the city’s cannabis retail shops. “Our dispensaries are not illegal hangouts, they’re not crime ridden,” he said.
Illegal cannabis operations, however, are still a problem, the chief said. Cannabis businesses in Atwater and across the state struggling to turn a profit and pay required dues to the jurisdiction they operate within have often cited black market competition leading to low sales.
Amounting to an estimated 80% of all cannabis sales in California, the market is saturated with low-cost illicit product. Cannabis cultivators are often unable to compete with the black market, shattering the once-held myth that legalizing the product would eradicate the illegal industry.
Recommendations for Atwater cannabis reforms
Atwater’s marijuana industry is currently operating under a pilot program established in 2019. Half of the four cannabis businesses open are struggling to meet their financial obligations to the city, according to the analysis by HdL Companies.
Those issues stem as far back as when Atwater’s first cannabis retail store opened in September of 2019. Just a couple months into operating, the dispensary’s owner asked the City Council to reconsider its public benefit fee paid to the city. Black market competition was largely blamed at the time.
Development agreements negotiated between the city and local cannabis companies require the businesses to pay Atwater a public benefit fee of either 5% of gross monthly sales or $15,000 — whichever is greater.
The time and expense of negotiating development agreements are one of the compounding barriers preventing businesses from reaching their potential, HdL Companies Senior Policy Advisor Mark Lovelace told the City Council at this week’s meeting.
The cost of negotiating agreements is a burden particularly for smaller, independent operations that are less well financed than large chains, he said.
Atwater leaders were advised to replace development agreements with a consistent, more competitive and less burdensome cannabis tax that’s comparable to others around the state.
Recommended tax rates ranged from the low 1-3% range for cannabis cultivation, nursery, testing and distribution businesses. Manufacturing and retail were suggested to be in the 2.5-6% range.
Another impediment for Atwater’s marijuana industry is encroachment from nearby legal and illegal businesses in conjunction with retail being restricted to industrial and business park zones, Lovelace said.
“That makes it very difficult for any kind of retailer to attract new customers or grow a business,” Lovelace said. “Basically, they’re just far away from where the customer base actually lives in the city, which makes it much less convenient.”
The inconvenience of crossing barriers like railroad tracks and Highway 99 can deter consumers from traveling to where Atwater’s more industrial areas are located, Lovelace said, which can encourage consumers to buy from potentially more convenient illegal businesses.
Some residents disputed this, stating that other businesses seem to do just fine attracting customers in Atwater’s industrial zones. The onus should be on retailers to better market their products, critics said.
Atwater officials were advised to make these changes while converting the pilot program into a permanent one that is overall more business-friendly.
Multiple City Council members, including Raymond, voiced agreement with many of HdL Companies’ suggestions.
The City Council member said the policy changes should be made for the sake of the city and its businesses. “It’s not that we’re just pro-dope up here,” Raymond said.
This story was originally published July 16, 2022 5:00 AM.
(c)2022 the Merced Sun-Star (Merced, Calif.) Distributed by Tribune Content Agency, LLC.
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