If there were a Mr. Cannabis pageant in San Francisco, you’d be hard-pressed to find a better candidate than Al Shawa.
The Palestinian immigrant has called the Bay Area his home for more than four decades, but became a key figurehead for the cannabis industry when he sued the federal government to keep the doors of his dispensary in the Mission open.
After more than two years of litigation and constant fears of raids or arrest, Shawa emerged victorious, becoming the first San Francisco dispensary owner to take on the federal government and win. So it would stand to reason there are few bigger cheerleaders for the industry’s prospects.
But when asked what he would tell a version of himself in 2016 eager for adult-use cannabis legalization, his answer was the equivalent of a verbal headshake.
“I would have gotten out of the business right there and then, just sold off what I have,” Shawa said. “If I knew it was going to be like this, I would not have put up a fight with the feds, I would have simply walked away.”
Shawa said the industry is in “survival mode,” a characterization sources across the legal cannabis trade agreed with. The industry is beset with a number of problems like the massive black market, a rash of burglaries and a lack of tourists, who used to make up more than 40% of his customer base.
There’s growing momentum among San Francisco retailers for increased controls on how many cannabis operators are allowed to set up shop in the city. That is coming alongside strong pushback from some activist groups opposed to new cannabis storefronts in their neighborhoods.
Supervisor Catherine Stefani has floated the idea of capping retail licenses or increasing the buffer zones, as well as ensuring that the buffer zones apply to preschools and child care centers. Legislation is likely to be introduced in the coming weeks.
According to recently released data from the state’s taxation office, San Francisco’s total taxable cannabis sales for 2022 sat at $228.8 million, a 14% decline from the year prior.
The early pandemic pot boom is clearly in the rearview mirror, and the downward pressure from excess competition among growers and producers means plummeting prices and sales for retailers. What’s more, continuing inflation has squeezed the disposable income of customers creating more cost-conscious smokers with smaller basket sizes for retailers.
“All of a sudden our revenue has slid to half, but our overhead is staying the same, or continuing to increase,” Shawa said. “There’s so much surplus of the same product it’s really overkill.”
Shawa said his average purchase has gone from $70 a person to $44 a person. Prices for cartridges or edibles are less than half of what they were when they were introduced, he said.
Kevin Reed, owner of the Green Cross dispensary in the Mission, said compared with pre-pandemic numbers, revenues are down by 54%, orders by 50% and new customers are down by 70%
“We believe that the decreasing San Francisco population, as well as more dispensaries opening in the surrounding areas, have had a strong effect,” Reed said.
During a committee meeting where the Board of Supervisors were weighing a delay of a local cannabis tax for the third time, Supervisor Rafael Mandelman said the city was “currently facing an existential issue for the legalization project.”
The competitive gauntlet has already led to the pullback of major cannabis brands from California that had previously invested millions to make their mark in the country’s largest marijuana market.
Flow Kana, which previously ranked as one of Mendocino County’s largest employers, has essentially collapsed. Curaleaf announced that it was closing all its dispensaries and production facilities in California. Somewhat ironically, the Garcia Hand Picked brand, started by the family of the deceased Grateful Dead frontman Jerry Garcia, has also pulled out of the state.
Most industry observers suspect this is only the beginning of a coming bloodbath, with some prognosticators estimating that 80% of cannabis businesses may close. That’s due in part to the enormous debt load many businesses have to take on to overcome the regulatory burden to open their doors.
The decline of California’s market has had knock-on effects on the cannabis business ecosystem. For example, Weedmaps, which helps maps out local cannabis dispensaries and delivery services, said in its last earnings call that due in part to declining in sales in California a growing number of dispensaries were going out of business and falling off its platform.
Angela Yip, a spokesperson for the city administrator, said there are currently 68 equity applications for storefront retail permits and a majority have been referred to the SF Planning Department. The San Francisco Office of Cannabis site lists a total of 123 proposed retail licenses for the city.
“Moratorium is a bit of an ugly word,” Shawa said. “But at some point we have to save the people we have. I’m supportive of adding more shops, but not setting them up for failure.”
Reed added that due to oversaturation in the market, he believes there should be a temporary cap on retail cannabis to provide a little breathing room while the industry and the economy recovers.
Ali Jamalian, longtime San Francisco cannabis advocate and founder of Sunset Connect, said it's concerning to see sales plateau and fall just four years after prohibition ended. He’s redoubled his efforts on his $5 joints and pulled back on manufacturing edibles and topicals to meet the demand for low-cost options.
Jamalian said his priority is helping to address building and planning codes to stem the exodus of longtime local growers that he’s seen leave or close their businesses.
“Every single grow operation is for sale right now,” Jamalian said. “We’re really trying to stop an extinction event.”
As for Shawa? He’s still forging ahead based on his thesis that in order to survive as a cannabis retailer you have to be different. Outside of his Mission Cannabis Club location, Shawa plans to open a lounge at his new Russian Hill location later this month and has another store coming to tony Cow Hollow in April.
“The city needs to fulfill its obligations to make itself more inviting,” Shawa said. “People are not going to stop smoking, but we need to allow the market to stabilize itself and calm down from the severe competition between companies that are hurting everyone.”
Kevin Truong can be reached at [email protected]