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Recreational cannabis
Oceanside city code currently does not allow for storefront cannabis dispensaries, only delivery services. File photo
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Oceanside opens recreational market to cannabis businesses

OCEANSIDE — The city is moving forward with allowing cannabis manufacturing, distribution and delivery businesses access to the adult-use “recreational” cannabis market.

The city’s current law only allows for commercial medical cannabis uses and medical cannabis facilities only with the exception of cultivation purposes, which the city opened to adult-use last year. Adult use is another term for recreational cannabis.

Council voted 4-1 during its March 24 meeting directing staff to modify the city’s ordinance to allow adult-use for cannabis manufacturers, distributors and non-storefront, delivery-only dispensaries.

“Whether you or I personally agree with the cannabis industry or not, it is a legal product to be manufactured, distributed and sold in California and I think we should offer our businesses a level playing field,” said Councilmember Peter Weiss.

The team at MedLeaf Delivery, the city’s only legal cannabis retail business at this time, has been pushing for access to the adult-use market for the last several months. So far growth has been slow for the business largely in part due to the city’s medical use only restriction, according to Gracie Morgan, director of operations and business development.

“Being medicinal means we can only deliver to California residents 18 years or older with a medical card,” Morgan said. “Having adult use would offer us the opportunity to serve all non-California residents, so Oceanside’s tourism community that’s coming to our beach resorts, and those who are 21 and up.”

More importantly than that, she said, adult-use would allow MedLeaf to fairly compete and push back against the illicit “black” and “grey” market cannabis delivery businesses that exist within the city.

While the black market cannabis businesses are those operating without licenses and against city code, “grey” market cannabis businesses are businesses with state licenses based outside of Oceanside — as far away as Orange County beyond — that deliver to Oceanside residents.

According to Police Chief Fred Armijo, the police department only has the resources to respond to complaint-driven investigations into these illegal cannabis businesses.

“We really don’t have the capacity to be proactive,” Armijo said.

Mayor Esther Sanchez was the only councilmember to vote against moving forward with allowing adult-use at this time.

“We have not had the opportunity to review any of these businesses because they really are not up and running yet,” Sanchez said.

Sanchez also took issue with the city’s current tax rates on cannabis businesses, which she said were “extraordinarily low” compared to other cities.

“We could be actually generating revenue for the city of Oceanside but we are not,” she said.

City Council approved the tax rates for cannabis businesses back in December 2020, which went into effect at the beginning of the new year. For retailers like MedLeaf, the tax rate is currently set at 5%.

Because MedLeaf is the only open cannabis business in the city at this time, it’s also the only cannabis business generating any tax revenue for the city. Cannabis cultivator and nursery ZenLeaf, LLC is expected to open soon, and manufacturer Left Coast, LLC has already had its building permit issued.

“I couldn’t be more proud to see our council members and city staff align themselves with the bigger vision we have for the positive impact of legal cannabis in Oceanside,” Morgan told The Coast News. “Adult use offers a way to increase the number of people we are able to serve which directly correlates to the tax dollars we can contribute to the city.”

Oceanside code currently does not allow for storefront dispensaries, only delivery services like MedLeaf.

City Manager Deanna Lorson noted that the city has collected a “very minimal” amount of tax revenue from its cannabis businesses as they only just began collection. Once there is a more steady flow, staff will recommend city priorities where the revenue could be used.

“With an increase in tax dollars to the city, we will directly be able to impact education programs similar to the alcohol education programs that are available for our youth, and also, our tax dollars will provide the necessary funding to OPD for task forces to proactively eliminate the black market,” Morgan said.

At the same meeting, Council also adopted a resolution establishing inspection fees for commercial cannabis facilities along with an amendment to a contract with Hinderliter De Llamas (HdL) and Associates for licensing services and oversight of cannabis facilities within the city.

Cannabis businesses are subject to on-going compliance inspections and audits but the city had yet to establish a fee to recover staff costs for these oversight processes.

With the fees approved, it will cost cannabis facilities with single licenses approximately $10,340 annually. Staff anticipates commercial cannabis facilities will be physically inspected twice per year, which will cost $1,490 per inspection, then the remaining $6,120 will go towards an annual audit and $1,240 for an annual review of a business’s local license.

According to HdL, fees generally range from $10,000 to $30,00 for cannabis businesses with an average of about $20,000.

“With all due respect this cannot be a one size fits all fee schedule,” Morgan said regarding the fees. “Though MedLeaf only holds one license, we stand in unity with other Oceanside cannabis businesses and I do hope to see considerations made for operators with multiple licenses as well.”

Council also adopted an amendment to the city’s code regarding odor control and the local license status for cannabis businesses.

The amendment adds clear language on the need to provide and maintain odor control devices and techniques for all cannabis businesses, including language stating that odor is not allowed outside of the facility, adjacent properties, public rights-of-way or on the exterior or interior common walkways.

The new language also states that a site inspection will be conducted on a business if the city receives a complaint about odor. The city will then work with the facility to fix the odor issue.

The change also added language clarifying that a local license is required and needs to be in good standing during the conditional use permit review in order for a cannabis business to receive that permit.