Slow Pace at Pharmacy Opening Leaves Fresno, CA. with a budget gap

The slow pace of retail cannabis dispensary openings in Fresno, California has resulted in a budget shortfall of more than $3 million for 2023, prompting city leaders to consider changes to speed up the process and get the business running.

California voters legalized adult-use cannabis in 2016 with the passage of Proposition 64, a ballot measure passed by more than 57% of the vote. Two years later, Fresno voters approved an ordinance taxing retail sales of recreational marijuana, setting the stage for the opening of adult-use cannabis dispensaries in the city.

In 2019, the Fresno City Council amended the civic ordinances to regulate recreational cannabis, and in 2021 the city began issuing the first of 19 provisional retail cannabis dispensary licenses issued to date. But more than a year later, only two recreational marijuana retailers have opened in Fresno, a pace that’s wreaking havoc on the city’s budget forecasts.

The approved 2023 city budget projected that cannabis taxes and fees would generate $5.37 million in revenue for the city treasury. But with only two dispensaries open for operations so far, the city now forecasts cannabis tax revenue to be $2,113,100, for a deficit of more than $3 million. Councilor Nelson Esparza said the situation was “insane”.

“We continue to overstate cannabis every fiscal year,” Esparza said.

Only two pharmacies have opened in Fresno so far

The dispensaries, which opened in Fresno, Embarc and The Artist Tree, began serving recreational marijuana customers on the same day in July 2022. The remaining 17 companies that have been granted provisional licenses have submitted their applications for conditional use permits (CUPs), which must be approved before building permits can be issued and construction or renovation of the site can begin. So far, 13 of the 17 pending CPU applications have been approved and new pharmacies could open as early as May this year.

Sontaya Rose, Fresno’s communications director, noted that the schedule for building and opening the dispensaries is controlled by the business owners, not the city.

“So we can’t say for sure,” Rose said in an email to The Fresno Bee.

“Overall, the opening of the locations is taking longer than originally expected.”

City leaders and business owners in the cannabis industry cite several reasons for the slow pace of dispensary openings. Several of the upcoming pharmacies will be in old buildings that will need major renovations before they can open and serve customers, the city said. Others have had to create accommodations for their landlords, including waiting for current tenants to vacate the building so renovations can begin on the site.

Lauren Carpenter, CEO of Embarq, which has received preliminary approval for two dispensaries in Fresno, says her company has experienced delays at both locations. The company “is moving quickly to open our second location later this year,” Carpenter said.

“A variety of factors influenced the timing” of the first and second locations, she added, “including site conditions, the travel time of the expansion, and the speed at which tenants were able to vacate the premises.”

“Fortunately, our first location gives us the opportunity to serve Fresnans while also training our team to become leaders at our second,” said Carpenter.

Lauren Fontein, founder of The Artist Tree, said that the state of California’s regulated cannabis industry also influences the opening of new businesses. Wholesale cannabis prices have plummeted in the state, depressing profit margins throughout the supply chain. High taxes and royalties for cannabis companies are also lagging behind. Many companies are struggling, and some have had to lay off employees to stay afloat.

“There’s a lot less appetite for investing in the cannabis industry,” Fontein said. “It’s not that kind of cash cow deal that people were thinking for.”

Citizen leaders in Fresno have been exploring possible solutions in multiple jurisdictions and are considering several options to expedite the opening of additional adult-use cannabis retail outlets in the city. In West Hollywood, the City Council amended its cannabis ordinance to allow more licenses to be issued, while Riverside conducted an additional licensing round to expand the city’s list of cannabis dispensaries. Fontein said Fresno is considering adding deadlines to its regulation to encourage faster opening of new pharmacies.

“The city just needs to get practical at this point,” she said.

But the city has few options. While businesses are given a year to submit CUP applications, the city ordinance has no provisions setting a timeline for dispensaries to open.

Rose wrote in an email to the Fresno Bee that the city manager’s office is working with prosecutors “to determine options for setting additional deadlines for applicants to make progress toward opening.” But she was unable to offer a timeline to get the deals up and running.

Until then, Fresno will continue to experience a lack of projected cannabis tax revenue, which could impact the city’s ability to provide services.