HomeMy WebLinkAboutItem 6d. Annual Cannabis Program Update Item 6d
Department: Community Development
Cost Center: 4001
For Agenda of: 7/21/2026
Placement: Consent
Estimated Time: N/A
FROM: Timmi Tway, Community Development Director
Prepared By: Ivana Gomez, Cannabis Business Coordinator
SUBJECT: ANNUAL CANNABIS BUSINESS PROGRAM UPDATE.
RECOMMENDATION
Receive an update on the City’s Cannabis Business Program.
POLICY CONTEXT
In January 2019, the City Council directed staff to provide annual updates regarding
implementation of the Cannabis Business Program. Consistent with that direction, staff
returns annually with information regarding cannabis operators in the City, cannabis tax
and permit fee revenue, and relevant state and federal regulatory activity.
REPORT-IN-BRIEF
The Annual Cannabis Business Program Update provides an opportunity for staff to
update the City Council on the overall status and implementation of the Cann abis
Business Program and to identify potential policy or regulatory changes to improve
administrative and operational processes.
At the time of the last update on May 6, 2025, staff presented the annual update and also
included a proposed ordinance clarifying amendments to the cannabis regulations
(SLOMC § 17.86.080)1. This year, staff has not identified any amendments that are
necessary to administration of the program. Accordingly, this report provides: 1) an
update on cannabis operators in the City; 2) cannabis tax and permit fee revenue forecast
updates; and 3) a brief overview of state and federal cannabis regulatory activity.
DISCUSSION
Cannabis Operators
The City currently has two operating cannabis retail storefronts—Megan’s Organic Market
(280 Higuera St) and SLOCAL Roots (3535 S Higuera St). On June 5, 2025, Megan’s
Organic Market applied for an amendment to their Conditional Use Permit to allow
1 Item 7a. Annual Cannabis Business Program Update and Introduction of Ordinance for Zoning Code
Amendments
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delivery services from their existing retail storefront location at 280 Higuera Street. The
Planning Commission reviewed the request at a regular public hearing on August 27,
2025, and voted 4-0 to approve the amendment which allows Megan’s to offer delivery
services to their existing operation2. Megan’s initiated their delivery operations in April of
2026. Under state and local law, Megan’s may deliver to any jurisdiction provided they
comply with applicable state and local regulations including tax remittance requirements
imposed by other jurisdictions.
SLOCAL Roots, located at 3535 South Higuera Street, has continued construction
activities associated with the previously approved phased development of the site. The
approved project included retail operations initially occurring within a smaller building on
site while the larger primary retail building was completed. Construction of the primary
retail building is now substantially complete, and the transition is anticipated to occur in
summer of 2026, subject to final inspections and certificate of occupancy issuance. Upon
completion of the transition, the smaller building will support administrative functions.
As part of SLOCAL Roots’ transition to its larger retail building, City staff, including the
Cannabis Business Coordinator, Police Department, and Code Enforcement, conducted
a site visit at SLOCAL Roots on June 3, 2026 to verify implementation of the approved
security measures. No changes to approved operational requirements or hours of
operation are associated with the transition.
Application Period
From July 1 through July 31, 2025, the City opened the application process and accepted
applications for both competitive permit types (retail storefronts) and non -competitive
permit types (all other cannabis business permit types). The application period followed
the voluntary withdrawal of a previously issued contingent retail storefront operator permit
and associated Conditional Use Permit approved during the prior application cycle,
resulting in one retail storefront permit becoming available3.
The City received two retail storefront applications during the application period, which
were evaluated using the Cannabis Business Operator Permit Scoring Guidelines and
City Council-adopted merit criteria. Because the Municipal Code limits the number of retail
storefront permits citywide to three (SLOMC § 17.86.080(E)(10)(b)(ii)), the highest-
scoring applicant, Stiiizy SLO, was awarded a contingent operator permit on December
18, 2025, for the approved location at 2400 Broad Street. As of the date of this report, the
applicant has not yet submitted a Conditional Use Permit application. Prior to
commencing operations, the applicant must obtain a Conditional Use Permit, state
license, and any required building permits associated with the project. The applicant must
also demonstrate the legal right to occupy and use the proposed location for the approved
cannabis use prior to issuance of a Final Operator Permit. Pursuant to SLOMC §
9.10.070(D), the operator permit must be activated within twenty-four months of issuance,
2 PC-1108-25 (MOD-0424-2025 -- 280 Higuera St.)
3 Embarc SLO was previously awarded a contingent operator permit and CUP to operate at 2400 Broad
Street. Embarc SLO withdrew both applications on May 21, 2025. A new application period opened from
July 1, 2025, through July 31, 2025.
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or by December 18, 2027. Under the Municipal Code, activation occurs upon issuance of
all required approvals and licenses and the commencement of commercial cannabis
operations at the approved location.
Cannabis Tax and Permit Fee Revenue
Revenue generated from the City's Cannabis Business Program supports a variety of
core municipal services that benefit residents of San Luis Obispo. This revenue is
generated from cannabis business taxes, application and licensing fees, and other
regulatory fees associated with commercial cannabis operations. These funds are
allocated to the City’s General Fund, supporting essential community services as well as
the continued administration of the cannabis program.
Cannabis Tax Revenue
Figure 1 (below) illustrates actual and budgeted cannabis tax revenue for Fiscal Years
(FY) 2021-22 through 2025-26, with estimated full year results for FY 2025-26 as actuals
are not yet available. Cannabis tax revenue decreased significantly in FY 2024-25 and
continued to decrease modestly in FY 2025-26.
Figure 1: Cannabis Tax Revenue FY 2021-22 through FY 2025-26 (estimate)
The table above includes an estimate for FY 2025-26 actuals. Based on year-to-date
results and typically observed seasonality, it is anticipated that full year revenue will be
below budget and future budgets have been adjusted accordingly. The decline in
cannabis tax revenue is generally consistent with broader market trends affecting
California's regulated cannabis industry. The City continues to monitor cannabis tax
compliance through independent audits conducted by a licensed certified public
FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26
Actual $998,874 $1,127,744 $1,116,495 $814,502 $742,771
Budgeted $1,000,000 $1,100,000 $1,100,000 $1,100,000 $1,000,000
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Actual Budgeted
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accounting firm. The most recent audits found both licensed operators to be in compliance
with the City's cannabis tax requirements.
Cannabis Permit Fee Revenue
In addition to tax revenue, the City collects business fees to recover the costs of
administering the Cannabis Business Program. These include application fees for new
commercial cannabis operator permits, annual renewal fees for existing operators, and
ownership transfer fees, which are less common4. Fee revenue projections are based on
the anticipated number of applications, annual permit renewals, and potential ownership
transfer requests. The City has budgeted $104,000 in cannabis-related permit fee
revenue for the upcoming fiscal year, assuming only the renewal fees of the two existing
operators.
Figure 2 provides an overview of actual and budgeted cannabis permit fee revenue for
FY 2021-22 through FY 2025-26, with estimated results for FY 2025-26 as actuals are
not yet available.
Figure 2: Cannabis Permit Fee Revenue FY 2021-22 through FY 2025-26
The table above shows the volatility in this revenue stream as operators have entered
and exited the local market. Results for FY 2025-26 are estimated assuming renewal fees
4 Transfer of Ownership: In accordance with Section 9.10.120 of the San Luis Obispo Municipal Code,
transfers of Commercial Cannabis Operator Permits are allowed only if they meet specific criteria,
including compliance with the original application and Community Benefit Agreement. A fixed fee of
$14,836.46 is required for all transfer requests.
FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26
Actual $127,380 $147,295 $149,990 $220,078 $100,000
Budget $157,000 $177,000 $171,000 $232,600 $100,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
Actual Budget
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from the two existing operators as revenue has not been booked yet. Future budgets
assume renewals from the same two existing operators only.
State Law and Federal Law
During the reporting period, the California Department of Cannabis Control adopted
several regulatory updates related to state cannabis licensing, cultiva tion operations,
sanitation standards, and product regulations, and is currently considering additional
rulemaking related to cultivation tracking, track-and-trace requirements, pesticide testing,
and product standards. These actions are primarily administrative and operational in
nature and do not affect local land use authority or require amendments to the City's
Cannabis Business Program at this time.
At the federal level, cannabis remains regulated under the Controlled Substances Act.
During the reporting period, federal agencies continued to evaluate cannabis policy and
regulatory frameworks, including actions related to certain state -licensed medical
cannabis activities. In April 2026, the federal government reclassified certain state -
licensed medical cannabis products from Schedule I to Schedule III and established a
pathway for eligible medical cannabis operators to pursue federal registration. While
these changes may affect aspects of state licensing and business operations for retailers
holding both adult-use and medicinal license designations, they do not affect local
permitting requirements, and adult-use cannabis remains federally prohibited. Staff has
not identified any state or federal regulatory changes that necessitate amendments to the
City's Cannabis Business Program at this time.
ENVIRONMENTAL REVIEW
The California Environmental Quality Act (CEQA) does not apply to the recommended
action in this report, as the action does not constitute a “Project” under CEQA Guidelines
Section 15378.
FISCAL IMPACT
Budgeted: Yes Budget Year: 2026-27
Funding Identified: N/A
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $N/A
State
Federal
Fees
Other:
Total $N/A
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This item has no fiscal impact, as it does not propose any changes to the adopted budget
or result in new expenditures or revenues. The update is informational in nature and
reflects existing operations and fee structures previously approved by the City Council as
part of the 2025–27 Financial Plan.
ALTERNATIVES
1. Direct staff to return with proposed amendments to the Cannabis Business Program
or Municipal Code if the City Council determines that policy or regulatory changes
warrant further consideration.
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