National City's Cannabis Experiment Falls Short of Promises, Leaving Council Divided

Five years after National City legalized recreational cannabis sales, the program has yet to deliver what city leaders promised. Officials in 2021 predicted that legal sales would help repair the harms of past drug enforcement, put the city at the forefront of the industry and eventually bring in as much as $6 million a year in tax revenue.

Last fiscal year, city figures show, the 5 percent tax on cannabis sales produced $492,205. Pedro Garcia, the city's economic development manager, said this week that sales at the four dispensaries now open are sluggish and that the city will likely never reach the early "honeymoon period" estimates. He said the latest total matches what the city expected for the early years, but added that he does not know whether it will grow as hoped.

On Tuesday, the City Council declined a staff request to consider increasing the number of cannabis businesses and allowing dispensaries in more neighborhoods. A staff report noted that the council's restrictions on where shops may open have clustered them in a small, out-of-the-way area and blocked investment in other commercial corridors. Council members also rejected a request to consider filling two vacant sales licenses, saying the city should first help the businesses it already has.

Mayor Ron Morrison, the only council member to vote against legalization in 2021, said the city has reached a saturation point. Opening the door to more dispensaries, he said, would invite a new round of lawsuits. Council member Ditas Yamane called the situation "very disappointing," noting she was not on the council when sales were approved. Council member Jose Rodriguez, who backed cannabis enthusiastically in 2021 and sought looser rules to help operators, conceded that revenue fell short of expectations.

The licensing process has also drawn legal trouble. Two cannabis companies sued the city three years ago, alleging that their applications were improperly evaluated, and a local hairdresser claimed she was tricked into helping an out-of-town applicant present itself as locally owned to rank higher. Laura Wilkinson-Sinton, co-owner of one of the companies that sued, said both firms settled after the city re-evaluated and again denied their applications. She described the city as difficult to work with and contrasted it with Vista, which she said approved sales by ballot measure, allowed stores citywide and has collected close to $7 million in annual tax revenue.

Garcia pushed back on the bleak portrayal. He said judges ruled for the city in both lawsuits and that the city admitted no wrongdoing. He reported no public safety incidents at the four dispensaries and described relations with owners as professional. On the hairdresser's allegation, he said the city revoked the company's license, Element 7, after it missed deadlines and tried to sell the license before opening a store. Business filings show the company later went into receivership.

The struggles reflect a broader pattern. California voters legalized recreational cannabis in 2016, and sales have trended down since an initial plateau, while illegal operators, including some tied to Mexican drug cartels, have undercut legal shops with lower prices and home delivery. A slight majority of National City voters opposed the 2016 measure, and the council approved sales in 2021 over a planning commission denial and resident opposition, according to meeting minutes.

To ease neighborhood concerns, the council confined shops to light-industrial zones, which put every dispensary in a small stretch of the industrial west side. Residents still raised complaints on Tuesday; Ted Godshalk said he constantly cleans up litter near a dispensary close to his home.

Alex Ayon, CEO of the cannabis lounge Sessions by the Bay, which opened last year after National City became the first county city to permit such venues, urged the council not to add businesses and instead to ease license renewal requirements. He said the lounge is not yet profitable but sees a path there, noting that consumers are prioritizing groceries and gas. Garcia said the goal now is to stabilize the sector and help it grow.