Investor Rush Follows California Town’s Cannabis Vote

After prohibiting medical marijuana for more than two decades, the Southern California town of La Mesa has recently become the site of an unexpected cannabis boom.

In November, the San Diego suburb passed a ballot initiative, Measure U, allowing medical marijuana dispensaries, cultivation centers, and manufacturing sites within city limits. In doing so, it lifted a ban that had been in place since the passage of California’s first statewide medical cannabis law in 1996. La Mesa (pop. 57,065) became the third city in San Diego County to welcome cannabis businesses. (Well, technically it tied for second—Lemon Grove, La Mesa’s neighbor to the south, also legalized dispensaries on Nov. 8.)

The scramble for dispensary storefronts has sparked tensions between cannabis speculators and some La Mesa residents.

The change unleashed a green rush, and the ensuing scramble has sparked tensions between cannabis speculators and some La Mesa residents.

Although California was the first state to legalize medical marijuana, the state has never really regulated the plant. For decades, state lawmakers left it to local governments to set their own licensing regulations and zoning rules on grow sites and dispensaries.

Many cities chose simply to ban them, but those ordinances often backfired. Dispensaries simply operated without licenses, sapping law enforcement resources and giving local governments zero regulatory oversight—and no tax revenue.

But state law has since changed. In 2015, lawmakers in Sacramento passed the Medical Cannabis Regulation and Safety Act (MCRSA) to set state standards for medical marijuana. Last November, voters approved Proposition 64, legalizing cannabis for adult use. The new systems mean California will have a fully regulated medical and adult-use cannabis market by 2018. Together with Measure U, the changes have turned the tables in La Mesa. Instead of being seen as a hostile host to cannabis, the city is now viewed as a premier investment opportunity.

It’s also become an unlikely flashpoint in the fight over the future of California cannabis.

Real Estate Speculation Boom

Since the vote last November, real estate values in La Mesa have reportedly tripled as investors hustle to secure footholds in the city. At least 16 applicants are seeking medical marijuana licenses, and investors are arriving from as far away as Morocco.

The epicenter of this green rush is near Center Street, a small industrial loop on the city’s north side. The area currently has five properties with pending medical marijuana applications. Who are the would-be dispensary owners? Few outside of City Hall know. Measure U requires La Mesa town officials to keep the names of applicants confidential, for safety reasons.

At least 16 applicants are seeking medical marijuana licenses, and investors are arriving from as far away as Morocco.

Amid the frenzy to get into the new licensing scheme, it’s safe to assume that some would-be businesses are trying to push each other out. Measure U requires each licensed cannabis businesses to be at least 1,000 feet away from the nearest cannabis business, the idea being to avoid concentrating cannabis operations in certain neighborhoods. Yet some of the properties with pending applications are just down the street from one another, or even right next door. As soon as one applicant receives a license, that company’s location will likely disqualify nearby applicants.

A Walk Down Center Street

I visited Center Street recently to see how local businesses were handling the boom. The anticipation is palpable. According to business owners and city officials close to the process, some cannabis investors have put money in escrow accounts, with the intention of buying a property only if it secures a medical cannabis permit.

By and large, most business owners and customers I met on Center Street approached the controversy with amused curiosity. Permits will be doled out on a first-come, first-served basis. Only one or two of the properties will ever get approved due to the distance rule, but no one seemed worried about evictions or lost renters just yet.

Linda McWilliams, owner of San Pasqual Winery, was working on a 2016 merlot when I walked into her warehouse. “Supposedly it’s going to happen,” she said, when asked if her property would become a dispensary or other medical marijuana business. “It hasn’t happened yet.” McWilliams, who rents the warehouse, had heard that the property owner was in talks with a medical marijuana investor who’s interested in purchasing the property.

A winery employee, Darrell Grant, was also nonchalant. “I’m used to change,” he said.

Because McWilliams still has a couple years left on the lease of her wine production center, she isn’t worried about relocating just yet. She isn’t sure who wants to buy the property, she said, or whether the sale will go through. She’s still paying rent to the same landlord.

She offered a sample of wine. “The rents are going to be so inflated that no one else will be able to be here,” she said. And the medical cannabis permits themselves could be so valuable, she joked, that “some of the neighbors were talking about getting [a conditional use permit for medical marijuana] and then not doing anything with it.” Presumably it’d give a bump to their property values, or be worth millions to a secondary license purchaser.

Even the Tire Shop Guy is Making Deals

Up the street, the building currently occupied by Preston’s Tire and Wheel also has an application for a marijuana business. An employee at the front desk, who declined to give his full name, said he’d seen people measuring the distance between various properties in the neighborhood. In the technical terms of Measure U, this is called a “path of travel exhibit.”

‘Remember, 50% of people voted for Measure U,’ one business owner said. ‘That means 50% didn’t.’

Like McWilliams, the employee seemed unfazed that a cannabis shop could soon be moving in, possibly even replacing the auto shop at which he worked. “Having a bar would be way more detrimental” than cannabis stores, he said. “People don’t leave a dispensary at 3 a.m., shit-faced drunk.”

But not everyone is so subdued about the changes. While in La Mesa, I visited a specialty service business—the owner asked that I not use his name—where the address has a pending cannabis permit.

The owner said he had been in talks to sell his property to medical marijuana investors. But the deal fell through, and he estimates he lost around 20% of his customers in the ensuing controversy. “Please don’t mention me,” he said after I asked about Measure U. “It has already hurt my business enough.” His decades-old family company, he said, is still recovering from the fallout. “You’ve got to remember, 50% of people voted for [Measure U],” he explained. “That means 50% didn’t.”

Unlicensed Dispensaries Already Exist

Dispensary licensing may be creating a stir in La Mesa’s north end, where many of the permit applications are concentrated. But across town you’ll find a thriving market of unlicensed dispensaries already in operation. Customers stream in and out of buildings festooned with green crosses and advertisements for cannabis products.

I asked a budtender if the dispensary was unlicensed. ‘They’re all unlicensed,’ he said.

It’s like this across San Diego County—and indeed, much of Southern California. Many smaller cities that adopted all-out bans on dispensaries, including El Cajon, Chula Vista and, until recently, La Mesa, have nonetheless become hot spots for unlicensed ones.

While in La Mesa, I visited some unlicensed dispensaries with a friend who’s a medical marijuana patient.

I approached one dispensary employee who was smoking a cigarette outside. I asked the man, who gave his name as Jeremy, whether he worked at an unlicensed dispensary.

“They’re all unlicensed,” he replied.

Over time, the city has taken varying stances towards these dispensaries. At a public meeting in January, Carol Dick, the city’s community development director, said La Mesa would shift its focus to permitting legal dispensaries rather than shutting down illegal ones.

But then in February, city officials sent cease-and-desist letters to some unlicensed shops. “Some [of the dispensaries] are going to court,” Dick said. “They’re all in different stages of enforcement.”

Guy McWhirter, a City Council member who publicly opposed Measure U, said shutting down the shops hasn’t been easy. “Even though they’re illegal, we can’t just shut them down,” he told Leafly over the phone. “We have to give them due process.”

Courts haven’t seen these enforcement actions as high-priority changes, McWhirter said. And even when La Mesa does manage to shut down an unlicensed dispensary, he said, a new one just pops up elsewhere.

“It’s a waste of time,” he added. “We know they won’t be prosecuted.”

Bans Create a Black Market

Michael Cindrich, a San Diego lawyer who publicly supported Measure U, argues that legal dispensaries could help solve this problem. “By creating a legal market, the goal is to drive sales to legal, regulated locations,” he said. “Any time a city or county bans these activities, they are absolutely creating a black market problem.”

Once a dispensary has invested the time and money to become licensed, it has an incentive to help the city crack down on unlicensed dispensaries, Cindrich said. It’s a phenomenon seen in other California cities, like San Jose, that initially flirted with a dispensary ban but settled on a limited licensing scheme instead.

Measure U’s passage forced La Mesa’s mayor to implement a law he opposed.

When Measure U went on the ballot in La Mesa, both the current and former mayors came out against it. The official ballot argument against the measure, to which Mayor Mark Arapostathis added his name, reads: “Here we are again with the special interest marijuana lobby imposing on La Mesa’s limited budget for another vote!”

City voters had already rejected a 2014 bid to legalize medical marijuana businesses. A year later, La Mesa extended the ban to halt delivery services operating there. But in November 2016, Measure U passed by a 53–47 margin—putting the mayor in the unenviable position of enforcing a law he’d publicly opposed.

Arapostathis declined to be interviewed for this story. A spokesperson sent a brief statement via email. “Mayor Arapostathis publicly endorsed a position that opposed the passing of the Measure,” it read. “Now that it has passed, the City has no choice but to implement it.”

Can Unlicensed Dispensaries Get Licensed?

As applications for medical-marijuana permits flow in, one of the most hotly contested questions is whether the owners of existing, illegal dispensaries will be able to get medical marijuana licenses in La Mesa and step out of the regulatory shadows.

The city says no. La Mesa “will not accept or process an application for illegal dispensaries that are in operation,” according to the city’s official FAQ page on Measure U. But in the official ballot argument against the initiative, critics claimed that “nothing in Measure U prevents existing illegal marijuana shops from getting a permit.”

On this front, critics may be right. To apply for a license, the property owner and applicant both have to sign something called a “Statement of No Operation of Illegal Marijuana Dispensary.” But the statement only asks about the address for which the applicants are seeking a permit. That means unlicensed dispensaries could theoretically apply for a license simply by using a different address.

Jeremy, the dispensary employee, said some applicants were doing just that—although none of the dispensary owners I spoke with would confirm or deny it. When I spoke to Jeremy later, over the phone, he said his bosses would have to consult their lawyers before making a comment, citing an ongoing court case.