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KPBS Midday Edition

Seed To Sale: How Will San Diego Treat The Cannabis 'Supply Chain?'

A pile of dried cannabis buds is seen here, Aug. 31, 2017.
Andrew Bowen
A pile of dried cannabis buds is seen here, Aug. 31, 2017.

Browsing the inventory at Apothekare in Kearny Mesa, there is a lot to choose from. The permitted medical marijuana dispensary, sandwiched between an Italian car dealership and a sex shop, has dozens of cannabis strains and cannabis-infused products, including beverages, cookies, candies, honey, topical creams and tinctures.

The supply comes from across the state of California, from the far north in Humboldt County to industrial sites near the Mexican border, said Chris Boudreau, chairman of the San Diego Cannabis Industry Association. Boudreau also owns a marijuana distribution company, Sunstone Distribution, which pairs dispensaries like Apothekare with cultivators and manufacturers to stock their shelves.

Seed To Sale: How Will San Diego Treat The Cannabis 'Supply Chain?'
Marijuana Supply Chain Report
San Diego city staffers propose options for regulating non-retail marijuana businesses.
To view PDF files, download Acrobat Reader.

On Monday, the San Diego City Council is scheduled to vote on how — or whether — to permit nonretail cannabis businesses. City staffers are proposing two options: The first would ban all businesses but testing facilities. The second would allow cultivation, manufacturing, distribution and testing, but cap the number of businesses at two per council district. Both proposals would limit the businesses to industrial-zoned areas, away from homes, schools and other sensitive land uses.

RELATED: Councilman Chris Cate Releases Proposed Marijuana Regulations For San Diego

Boudreau said the stricter of the two proposals would choke off the permitted marijuana dispensaries, potentially giving away market share to more unscrupulous players in the black market.

"It's like building half of a building," he said. "You need to have the intelligent structure all the way around."

Council members already rejected an all-out ban on the so-called marijuana supply chain in January, instructing city staff to come back with alternative proposals later in the year. The proposals were ready in July, but Council President Myrtle Cole delayed them to Sept. 11.

Cannabis-infused beverages are laid out in a refrigerated display case at Apothekare, a medical marijuana dispensary, Aug. 31, 2017.
Matthew Bowler
Cannabis-infused beverages are laid out in a refrigerated display case at Apothekare, a medical marijuana dispensary, Aug. 31, 2017.

Councilman Chris Ward, who has emerged as one of the most pro-legalization voices on the council, said having a local, regulated supply chain would help mitigate public safety concerns.

"You're transporting long distances a product that is sensitive, that might be ripe for ambush or for theft," Ward said. "Being able to keep that in closer proximity to the point of sale, where additional security measures are a little more fixed, is important."

Ward also said two nonretail cannabis businesses per council district was likely not enough to create a functional local supply chain.

"If you did not design a very controlled way that we can have facilities and supply exist here in the city of San Diego, then we're not able to really capture the entirety of the demand and of the market that's out there," he said. "If we do that responsibly, we're able to maximize the economic impact for the city."

Economic impact could be the biggest incentive for city officials to allow the local, legal cannabis industry to prosper. A complete ban on cultivation and manufacturing could make San Diego ineligible for cannabis tax dollars collected by the state under Proposition 64, which set the stage for legal sales of recreational cannabis next year.

San Diego voters last year also passed a local cannabis business tax, Measure N, which applies to cultivators, manufacturers and distributors. That could provide millions of dollars in new revenue to the city's cash-strapped general fund, which pays for everything from infrastructure to police salaries.

Seed To Sale: How Will San Diego Treat The Cannabis ‘Supply Chain?’
Seed To Sale: How Will San Diego Treat The Cannabis 'Supply Chain?' GUEST:Kimberly R. Simms, attorney, Law Offices of Kimberly R. Simms

This is KPBS Midday Edition. I am Maureen Cavanaugh. San Diego has permitted over a dozen medical marijuana dispensaries. Some businesses could sell recreational marijuana as well. Where does that marijuana come from? How does it get on the shelf? The city Council will consider regulations for the so-called marijuana supply chain. That is cultivation, manufacturer, testing, and distribution. Andrew Bowen says millions of dollars are at stake. This is one of the most possible -- popular stores. Chris is showing me around a dispensary sandwiched between an Italian car dealership and a sex shop. This place sells a lot more than just plain marijuana. There is pre-rolls and joints, dummies and honey. And then over here, you have more of a traditional medicine creams and topicals. This is the chairman of the cannabis business Association. He owns a distribution company that connects dispensaries like Apothekare with the marijuana products sold on shelves. Local dispensaries should be able to stock shelves with products made here locally and local authorities should be able to regulate that supply-chain. We want these stores but we do not want a permit the ability for intentional laded -- intelligent control and carefully managed facilitation of that. What are they doing? They need to accommodate them. You need to have intelligent structure all the way around. The city Council members will vote on how or whether to permit cannabis businesses that are not directly involved with retail sales. They would be permitted in industrial zoned areas celebrated for homes, schools and other sensitive land uses. The local supply Chain makes sense. To truck it down from LA, and then if they did not pick up something, take it back with traffic, it is more difficult. It makes sense to have a facility in San Diego as the industry grows. Do behind it on distribution facilities that are elsewhere in the state, that withholds our ability to control our own kind of project. This is a counsel member. He largely agrees that San Diego needs its own permitted regulated supply chain. Trucking from afar and that increases the Increasing public safety concerns and product that is sensitive and it might be right for an ambush or theft and being able to keep that closer to proximity to the point of sale where additional security measures isn't fixed is important. One proposal would limit non retail or want to businesses to two per city Council district. That is probably not enough. If you do not design a controlled way that we can have facilities and supply exist here in the Sandy -- city of San Diego, we cannot capture the entirety of that demand that is out there. If we do that responsibly, we can maximize the economic impact for the city but also have a better handle on the public health aspects of this issue. The keyword, economic impact. At ban on the supply Chain could make San Diego eligible for tax dollars collected by the state. Voters approved a local tax on marijuana businesses, including cultivators, manufacturers and distributors. That is potentially audience of dollars coming into the general fund. A city is struggling to pay from everything from infrastructure to police seller's, money could be the new incentive. Andrew Bowen, KPBS news. Joining me is Kimberly. Thank you for having. What is the major concern about allowing so-called control chain businesses. They do not sell marijuana to the public. They manufacture it for sale and tested and distributed to retail stores. What concern where there be about allowing them to operate ? I think there is a large misconception about how these businesses operate. There is a great concern about public safety. We still hear a lot of the rhetoric about youth and minors accessing the facilities but these are not stores. These are facilities that would be closed to the public and would not have the same public safety or neighborhood concerns that dispensaries have expect has the state come out on the supply and -- supply chain businesses ? Basically, this past April, the state released hundreds and hundreds of regulations for each license type we will see, online in January 2018. The past June, the government signed SP 94 which harmonizes the medical and the adult system into one regulatory remark. The medical regulations are rescinded and now we await our final regulations for a wonderful comprehensive system. We should see those any day now. I am waiting anxiously. What do you think about the idea of eliminating the supply chain businesses to two per city Council district and that is 18 in the city as a whole. Is that enough ? Absolutely not for the reason. In the proposed ordinance, we see the same type of distance requirements from sensitive uses. 1000 feet from churches and libraries and parks and so on and so forth. We know that history has taught us that we will not see nonretail facilities in every district. Beyond that, we have licensed types that we need to accommodate. And we want to have a fully functioning supply chain within our city. I do not feel confident that less than 18 will make that happen. I am also concerned that we may not see enough distributors and that could create a bottleneck in our supply-chain. Everything has to pass through the distributor to make sure that testing occurs. The distributor is an important role and we need a number those. Andrew mentions that there is an approval on tax of businesses along the supply chain. If the city Council does not approve allowing businesses to operate in the city, does that mean the city does lose out on that revenue? If we have product trucked in from somewhere else, can the city have any kind of tax on that particular distribution? There would be the tax at the retail level which would go up to the state and 5%. The failure to allow the supply chain is a missed opportunity in terms of tax revenue. Chris Kate has developed a proposal for requirements for supply side marijuana business. The proposal is detailed at it is heavy on requirements for security. Have you seen the proposals? I have seen the proposals. By a large, I applaud them. I think they are a wonderful balance of public safety concern. What Frank -- what we have seen are things that are required at the state level. There are a few that I take somewhat of an issue with but the proposals are wonderful and I do not think the industry will not have a problem adhering to those. How do -- how soon do you think the city needs to make this decision to get a supply chain in place for the start of the retail sale of marijuana ? We are a little bit behind. However, that should not deter us from moving forward. We know that starting in January 2018, the state will issue licenses. What remains unclear is when a full transition into having everything move through the regulated supply chain will occur. It is unlikely that it will be January 1, 2018. That is not possible. We have to license the cultivator and it is down here in San Diego and that can create issues. There will be a transitional period throughout 2018. Many businesses are existing in San Diego. It is important to me that we see those people have the building to get the state licenses. I have been speaking with Kimberly Simms . She is an attorney and thank you. Thank you so much.