Dispensaries are moving, vertically integrating or facing stiff new fines of up to $50,000 for keeping open their doors

he City of San Jose,
which once housed more than 100 dispensaries, might have perhaps 60 left as the
shake-out continues from a historic, new package of regulations. This November,
most shops are busy preparing to move, and/or radically altering operations.
All San Jose dispensaries had until October 17 to turn in proof they are—or
would soon be—operating in the tiny sliver of the city newly zoned for
dispensaries.

Real estate prices
jumped 100-400 percent in this “green zone.” Landlords sold letters of intent
to lease space for $20,000 to desperate dispensary operators. The pressure to
find space became “colossal,” said Bay Area attorney and dispensary expert
James Anthony. The vast majority of San Jose’s clubs did not meet the October
deadline. Perhaps six to 10 dispensaries passed zoning, out of 47 who applied,
reports indicate. Now, 20 have been denied and 20 more were designated “under
review.” The next major deadline would be in July, 2015. But in the coming
months, Anthony said the city could send threatening letters to non-compliant
nuisance clubs.

The city can easily
compare its list of valid clubs with public lists and send out warning letters
threatening up to $50,000 in new fines. Some reports indicate one third of
clubs have voluntarily closed. Some might try to sue, but the city could also
go to court to close a club. “It will be like an eviction,” Anthony said. “It’s
not cops arresting people for marijuana. It’s the sheriff evicting people with
a court order and padlocking the door.” The remaining clubs that pass the
zoning test have until July 2015 to comply with the second, more onerous, operational
requirements of San Lose law.

All San Jose clubs
must grow their own supplies, instead of buying it from patient-cultivators. A
year from now, the San Jose medical cannabis scene will be radically altered. Anywhere
from five to 25 dispensaries could be situated in the north of the city of
about one million people. Anthony said quality and supplies will go down and
prices will go up at the legal outlets. Half of San Jose’s estimated $50
million in gross medical cannabis revenues might submerge back into the black
market, along with $1.25-$2.5 million in MMJ tax revenue, he said. Massive
delivery services “will be all the rage.”

Major dispensary
Elemental Wellness is trying to be optimistic. General Manager Neil Ruditsky
said the collective has spent $800,000-$900,000 securing a new location. Forced
to move and grow their own, they’re in the process of changing everything, down
to the type of opaque plastic pouches buds must come packaged in.

“Patients are coming
in concerned about access to different types of medications. We are going to be
here. The ink’s got to dry, but we did find a home,” he said. Edibles kitchens
and other vendors stand to take a huge hit. Award-winning brands like Kiva and
Kind Caps appear to be shut out of vertically integrated dispensaries. “Vendors
are very upset,” he said. Ruditsky said the transition will be painful, but
it’s the price of mainstream legitimacy.

“[By this time next
year], San Jose will have a reduced amount of collectives operating in a
confined area. That, hopefully, will boost the image of those areas and add a
better tax base to continue to employ first responders. Collectives will
perform a facelift on the community in [the green zone] and provide quality,
educated medical consultations to the community.”

“We’re very excited
to do it out in the open,” he said. “We’re excited about standardizing an
industry. It means we are on the way to legitimacy.”