More than 110 companies are vying to become the first legal retail marijuana dealers in the city of Fresno.
But navigating the process and regulations can be “very complicated” one applicant said.
“It does make it more costly and difficult to operate than if you like to just be open to some other type of retail business,” said Lauren Fontein, founder of The Artist Tree. The company operates cannabis stores and delivery services in Los Angeles and is looking to expand.
The application period to operate cannabis businesses has closed. The city — through its Office of Cannabis Oversight — will now engage in a months-long process to award up to 14 applicants the right to open shop, something that California voters permitted in 2016.
Fresno officials estimate that the earliest retail and commercial cannabis businesses can open would be Aug. 16, 2021.
An Applicant’s Experience
The Artist Tree filed two applications in Fresno — one for a Tower District location in the former Full Circle Olympic bar location on Van Ness Avenue and another at the former Mariner’s Furniture store at Palm and Nees avenues. The group signed leases contingent on receiving licenses.
The retailer operates three cannabis stores in Los Angeles, with several others pending in other California cities. Their business model includes offering art for sale in the store, with proceeds going to the artist.
Fontein praised the way Fresno has handled its licensing process, especially its requirement to hire 30% of employees from groups identified as disadvantaged.
“This is really a great opportunity for us to align our business practices with the city,” Fontein said. “We try to highlight our employment opportunities to people from those groups and target them when we’re promoting job openings.”
The Artist Tree plans to ask the Fresno Economic Opportunities Commission for help finding employees.
Retail Spots Reserved for Equity Applicants
Based on criteria approved this year, two retail locations can open in each of the city’s seven council districts, within specifically zoned areas.
Of those 14 available licenses, between 2-4 are reserved for what are termed ‘equity’ applicants.
“The purpose of the social equity program is to address the historical impact of federal and state drug enforcement policies on low-income communities,” according to the city’s cannabis oversight office webpage.
The social equity criteria include income, past conviction for a cannabis crime and living in a environmentally unfriendly area (as determined by state data).
An equity applicant must be a majority owner.
The city received 83 standard marijuana retail applications and 30 more in the social equity category. It provided location details only for standard applications.
Downtown Fresno appears to be an area prospective businesses are targeting. District 3, which includes downtown and a portion of the Tower District received 25 applications — the most of any district.
The two north Fresno districts — 2 (northwest) and 6 (northeast) — have the fewest applicants, at 7 and 5 respectively. River Park, The Marketplace at El Paseo, and other major shopping centers are located in those districts.
The cost to apply is at least $7,920, with many additional fees. The fee for equity applications is waived.
A conditional use permit, also required to open a store, will cost $13,391.
A Difficult Business to Operate
Fontein estimates her current stores’ profit margin is 30%.
Courtney Caron, who serves as The Artist Tree’s attorney and spokeswoman, says federal law is not friendly to cannabis businesses.
“Until cannabis is decriminalized on the federal level, the 280e tax laws make it very difficult to operate as you would a normal retail business. There are so many things that you are unable to write off because of 280e that a normal business would be able to write off,” Caron said.
Caron hopes things may change under the Biden administration.
Applicants are no longer allowed to contact city councilmembers to lobby.
Caron, a Fresno State and San Joaquin College of Law graduate, says she’s reached out such groups as the Tower District Marketing Committee, Fresno Arts Council, schools and police.
“Not a Cutthroat Industry”
Even with the regulatory difficulties and the number of applicants for 14 potential locations, The Artist Tree says their group favors collaboration rather than competition.
“People that work in the industry, in general, are very communal. You get together, we partner and we try and help the other companies,” Fontein said. “It’s not a cutthroat industry.”
Fontein hopes to form a retailer’s association to improve the cannabis industry.
However, Caron would not be surprised if a company that does not receive a license pursues litigation. She hopes there are no loopholes in Fresno’s policy.
“Fresno did something really different than a lot of the cities. They took their time,” Caron said. “All I can hope is that those who do not receive a license are unable to find that loophole in the ordinance or are just willing to move on to what’s next.”
Taxes and the Black Market
For cannabis retailers, the state charges a 15% excise tax. This is on top of regular state and local sales taxes — a combined 7.98% in the city of Fresno — and an additional 4% cannabis tax the city will impose.
“Taxation is another thing that is an unfortunate aspect of this industry,” Fontein said. “It makes it harder on the customers because they’re paying a lot more for the product.”
Even with nearly 27% in taxes, Fontein says it is still worth it to buy from a retailer rather than the black market. Retail stores provide quality and safety in product and variety.
She also says The Artist Tree provides an “experience.”
“We make our shopping really fun and interactive and we have artwork that’s on display that changes all the time. We have this very open layout, which feels like an art gallery,” Fontein said.
Ten Percent Set Aside for Social Benefit
In 2018, Fresno voters approved establishing the tax on cannabis businesses.
Of an expected $10 million in annual city revenue from cannabis, 10% would go to a community benefit fund. The City Council and mayor have the power to appoint a nine-member board to set spending goals for the fund, though they have yet done so.
Caron says they support such measures, even if it hurts the bottom line.
“They do feel that it’s an important thing to do in the community, even while other retail businesses are not given this requirement. Cannabis businesses do, even though it does oftentimes set them back,” Caron said.
More Apply for Commercial Spots
The city has other categories for cannabis businesses on the commercial end — including cultivation, manufacturing, distribution and testing.
Those businesses will be allowed in different locations than retail shops, mainly along parts of the Highway 99 or Highway 180 corridors. The city received 17 applications from the social equity category and 10 standard applications.
Fresno will award up to 16 commercial licenses in total, with 2-4 reserved for equity applicants.