Inside San Diego’s Budding Cannabis Supply Chain
Friday, September 28, 2018
Photo by Andrew Bowen
The Kearny Mesa office park that is home to Vista Prime Management is entirely unremarkable from the outside. Inside, however, a crew of employees work diligently to produce, package and distribute cannabis and cannabis-infused products to stores from San Diego to Sacramento.
The brands include Therapy Tonics — cannabis-infused coffee and tea drinks with flavors like vanilla caramel and Mexican mocha — and Platinum Vape, cartridges filled with high-potency cannabis concentrate.
CEO George Sadler built his business over the past several years in a time of legal ambiguity, when San Diego permitted medical marijuana retail stores but had no ordinance on the books that explicitly allowed the plant's production. Now, as state and local regulators clarify the rules and the industry works to comply with them, he says things are getting better.
"Everything that we're hoping for is coming true," Sadler said in an interview in his office. "It's just a very hard road to get to this point."
One year after San Diego City Council members approved an ordinance to permit and regulate the cannabis supply chain, the industry has gotten off to a slow but steady start. City officials have issued 11 conditional use permits for "marijuana production facilities" — which can do cultivation, manufacturing and distribution under a single permit.
Hearings to permit four more such facilities are scheduled for next week. State regulators have also licensed three laboratories in San Diego to test cannabis and its byproducts for safety and potency.
Vista Prime is one of a handful of existing cannabis businesses granted a two-year grace period to comply with the city's new regulations. That is because the companies held a business tax certificate from the city at the time of last year's ordinance.
Sadler said he expects to get a hearing for his more permanent city permit in early November. If the permit is granted, he has contractors at the ready to completely renovate the interior space and expand it more than fivefold.
The potential for growth is high, but Sadler said between insurance, permitting, consulting and legal fees, plus the day-to-day overhead costs associated with any business, the cannabis industry is far from easy money.
"Honestly if I look back at what it's taken to get here, I don't know that I could do it again," he said.
San Diego's ordinance on marijuana production facilities allows up to 40 permits to be issued. They are only allowed in industrial zones and must be at least 1,000 feet from a "sensitive use" such as a park or school.
Kimberly Simms, an attorney who represents cannabis businesses, said the application process has been fair and orderly. She said San Diego was smart to allow the local supply chain to exist, rather than forcing dispensaries to stock their shelves with products trucked in from far away.
"That doesn't mean that we're not going to have products coming from Northern California or the desert cities, but I think it's really wonderful that we can continue to build our cannabis industry right here," she said.
Simms added that the local cannabis industry was a "healthy mix" of longtime cannabis businesses working toward compliance and new entrepreneurs.
One of those entrepreneurs is Marcia Sarnow, who owns a wholesale bakery in Mira Mesa. She could have stayed out of the cannabis industry — her bakery is doing just fine selling muffins and pastries to local hotels for their continental breakfasts. She also does contract baking for a number of affiliated brands.
But when she discovered her building met the land use requirements for a marijuana production facility, she and her husband decided to go for it.
"One of the most important factors in business, in general, is paying attention to opportunity, and then acting on it," she said of their decision.
Sarnow was granted her conditional use permit earlier this month — the culmination of nearly a year of back-and-forth with the city's Development Services Department. Officials would send her a list of questions, which she and her land use consultant would respond to in about a week. Then the city would come back with more questions three to four weeks later, she said.
"So you're talking about months of this going on, and holidays in between," she said. "It was a big process. Expensive."
Between fees and consultants, Sarnow estimates her conditional use permit cost her about $100,000. And that is on the low end: Sarnow owns her building, but many applicants have to sign leases up front and pay above-market rent on empty space while they wait for a permit they may not ever get.
The high capital costs of opening a legal cannabis business mean some smaller brands are at risk of being put out of business. Sarnow said she hopes some will be able to survive by contracting with a compliant manufacturer like hers.
Sarnow's immediate task at hand is finding a new space to relocate her existing bakery business. Given her relative inexperience with cannabis edibles, she may hire an expert to advise on their production. In any case, she said she is up for the challenge.
"I'm not really sure what we're going to be doing over the next few months and how we're going to be transitioning," she said. "But I think that the opportunity is pretty extraordinary. I'm just really excited about it."
One year after San Diego decided to permit and regulate cannabis cultivation, manufacturing and distribution, the industry has gotten a slow and steady start. Observers say it's a high stakes industry with huge potential for growth.
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