National City Struggles With Cannabis Market Five Years After Legalization

Five years after National City legalized recreational cannabis sales, the program has fallen well short of the expectations set by city leaders. Officials once predicted that legal sales would address past harms of drug enforcement, place the city at the forefront of the industry and eventually bring in as much as $6 million a year in tax revenue.

That outlook has not materialized. In the last fiscal year, according to city figures, National City collected $492,205 from its 5 percent tax on cannabis sales. Economic Development Manager Pedro Garcia said this week that the sector will likely never reach what he called the initial "honeymoon period" revenue estimates. He added that the current figure matches what the city projected for the early years, but said, "I don't know if it will grow as we had hoped."

On Tuesday, the City Council rejected a staff request to consider allowing more cannabis businesses and permitting dispensaries in additional neighborhoods. A staff report noted that the Council's limits on where shops can open have clustered them in a small, out-of-the-way part of the city and blocked "investment in other commercial corridors." Councilmembers also declined to consider filling two vacant sales licenses, saying the city should support its existing businesses first.

The tone of the discussion differed sharply from 2021. Councilmember Ditas Yamane called the situation "very disappointing," stressing that she was not on the Council when cannabis sales were approved. Councilmember Jose Rodriguez, who strongly backed legalization at the time and sought looser rules to help operators, conceded: "We did not receive as much revenue as anticipated." Mayor Ron Morrison, the only member to vote against legalization in 2021, said the city is at a saturation point and warned that expanding could bring a new wave of lawsuits.

The city's difficulties include legal trouble. Two cannabis companies sued, alleging improper evaluation of license applications. A local hairdresser also alleged she was tricked into helping an out-of-town applicant pose as a locally owned business to improve its ranking. Garcia said judges ruled for the city in both lawsuits and that the city admitted no wrongdoing. He said the city revoked the license of the company named in the hairdresser's claim, Element 7, after it missed deadlines and tried to sell the license before opening a storefront. Business filings show the company later went into receivership.

Industry voices described a difficult market. Alex Ayon, CEO of Sessions by the Bay, a cannabis lounge that opened last year, said the business is not yet profitable. "Consumer spending is down. People are prioritizing groceries and gas," he said, adding that the black market and delivery services pose challenges. He urged the Council to ease license renewal requirements rather than add businesses. Laura Wilkinson-Sinton, co-owner of one of the companies that sued, said the city was "so difficult to work with" and noted that Vista, which approved sales by ballot measure and allows stores citywide, has collected close to $7 million annually.

The program was contentious from the start. The Council overruled an initial planning commission denial in 2021 despite resident opposition, and a slight majority of National City voters opposed the 2016 statewide legalization measure. To appease residents, the Council confined operators to light industrial zones, which places all dispensaries on the industrial west side, far from most commercial corridors. Residents still raised complaints Tuesday about litter near existing businesses.

Garcia said there have been no public safety incidents at the four open dispensaries and that relations with owners have been professional. "I'm proud of how our program is running," he said, adding that the goal is to stabilize the sector and help it grow.