San Francisco's cannabis retailers, facing a rash of burglaries and smash-and-grab robberies even as they struggle to recover from the pandemic, got a break from City Hall Tuesday as the Board of Supervisors voted to delay implementation of a new cannabis sales tax to the end of 2022.
Originally approved by voters in 2018, the tax was previously postponed to the end of 2021, and has now been extended again to Dec. 31, 2022. The levy would hit cannabis businesses with gross receipts over $500,000 at rates between 1% and 5%.
The tax was delayed because of the negative impact of Covid-19 on cannabis business, pressures which have been exacerbated by a crime wave specifically targeting the industry. Dozens of dispensaries across the Bay Area were affected by the large-scale organized burglaries that swept through the region in recent weeks.
“The industry is not ripe enough currently to support a gross receipts tax,” said Ali Jamalian, the owner of San Francisco cannabis company Sunset Connect. “When you’re being squeezed by the state and the local government and you receive no protection from law enforcement, it’s the last thing you need.”
While much of the attention of the recent robbery spree has centered on high-end luxury retailers in Union Square like Louis Vuitton and Bloomingdale’s, a number of cannabis businesses were targeted in the attacks. Business owners say the crime wave threatens their ability to survive.
Among the businesses affected in San Francisco were Mission Organic at 5258 Mission St., ConnectedSF at 5234 Mission St., The Green Cross at 4218 Mission St. and BASA Collective at 1326 Grove St.
Oakland and other parts of the East Bay were also hit by what the police described as “roving caravans” of vehicles that traveled the city burglarizing cannabis dispensaries, distribution operations and other businesses.
At a press conference on Monday organized by cannabis nonprofit Supernova Women in front of Oakland City Hall, a number of dispensary owners and members of the cannabis industry called for reducing state taxes and repealing local tax measures.
"We don't want to get shot. We don't want to get killed. Over cannabis? It's more dangerous now than before it was legal,” Supernova Women co-founder Amber Senter said at the press conference. “We need more funds and resources to improve security so that we can protect ourselves.”
Kevin Reed, founder and president of The Green Cross, said he has operated his cannabis dispensary in the Outer Mission for nearly two decades without a major break-in or robbery attempt.
But that changed last summer when a retail crime spree hit the city amid the George Floyd protests. A group of people broke into the store and made off with tens of thousands in merchandise, Reed said.
Over the next few days, he estimated that his store was subject to more than a dozen further burglary attempts, leading him to invest some $250,000 in additional security, including reinforced glass windows and new AI-enabled camera systems. Even the flower beds that decorate the sidewalk in front of the storefront are now reinforced to stop any vehicle from driving through the front door.
Earlier this month, five suspects tried to enter Reed's store again, but only managed to break the windows before being warded off by his renewed security measures. The cost for repairs will be around $18,000, but Reed’s first-hand experience showed it could have been much worse.
“It just felt like going through everything we went through last year all over again, it's like let’s start fucking putting your boards up, securing your building and upgrading your security,” Reed told me in an interview.
Video footage viewed by the SF Standard showed around a half dozen cars pulling up to ConnectedSF and more than a dozen people attempting to enter the business before police arrived and arrested three of the perpetrators.
On Nov. 23, the San Francisco District Attorney’s office announced federal charges against Raymond Phillips, Edward Jones Jr. and Michael Ray in connection with the cannabis burglaries.
Kevin Ahaesy, the CEO of Oakland-based ECO Cannabis estimates he spends $500,000 to $1 million annually on security technology and services for his operations, which includes a campus with grow and distribution facilities as well as a retail outlet.
Even that upfront investment wasn’t enough to successfully guard his business, which was broken into twice in the span of a week earlier this month. The first burglary broke in through the back door using crowbars and a plasma cutter, and cleared out some $200,000 in product.
While criminal activity may be part of the cost of doing business in an industry still working toward mainstream acceptance, Aheasy says crime poses an existential threat.
Aheasy had boarded up the back door and stationed an armed guard to protect his business, but when burglars returned they showed up armed and drove a car through his storefront window to break in.
“We’re taxed at many multiples of what other businesses are taxed in the city,” Aheasy said. “Plus we have to pay for our own repairs, downtime and security when we’re broken into. Something’s gotta give. Now that we’re forced to double our security forces I don’t see how businesses are going to survive. Everybody that isn’t closed is hanging on for dear life.”
The cannabis industry’s evolution from prohibition into a regulated legal market has come with growing pains, not the least of which has come from the fact that the merchants are largely locked out of the traditional banking industry.
“One of the biggest risks that jumps off the page when I think about cannabis businesses is the cash heaviness, particularly with the lack of banking,” said Chris Eggers, a former San Francisco and Oakland police officer who now runs Cannabis Compliant Security Solutions.
That could change with federal lawmakers debating the SAFE Banking Act, legislation that would allow state-licensed cannabis businesses to access banking services despite federal prohibition. However, while versions of the bill have passed the House of Representatives multiple times, efforts have stalled in the Senate.
Locally, an effort to create a city-run bank to serve cannabis industry has gained momentum with the passage of an ordinance in June that established a working group to develop a business plan for the organization. Supporters of the proposal have positioned the theoretical bank as a way to help finance and support legalized cannabis businesses.
Still, whether that would have an impact in tamping down criminal activity against cannabis business is an open question. Reed said he believes the move would help in some respects, like changing the industry’s perception as a cash business, but would do little to address the other issues weighing on cannabis retailers, including burdensome regulatory requirements and high taxes.
Jamalian said two factors that pushed him to enter the regulated market was the ability to call law enforcement for protection and have a bank account for his business’ finances.
“Neither has come true yet,” he said. “You have very valuable inventory and you have lack of access to banking so if you break into a dispensary you'll either get cash or inventory. It’s not hit or miss.”
He pointed to a recent example of a surveillance video that showed San Francisco police officers responding to a dispensary robbery and simply watching as suspects exit the store and leave in getaway vehicles.
“What really bothers me about this is a lot of the requirements that are overlaid on us is to prevent diversion into the illegal market, now you have cops watching as these products are stolen and eventually put into the illicit market,” Jamalian said. “It defies the complete purpose of the regulated market.”
The other risk past the initial physical danger of a criminal attack, according to Eggers, is what happens after a burglary, meaning wading through insurance requirements, new compliance standards and the risk of civil litigation if, for example, an armed guard injures a suspect or creates collateral damage.
Reed said after his business was hit last year, his insurance premiums doubled and he was forced to pay three separate deductibles for the three successful break-ins of his businesses.
He also has received a Private Patrol Operator license to run his own security organization staffed with trusted employees.
Reed, who spoke to the SF Standard outside his business where black plywood boards covered up the damage caused by a recent burglary attempt and an employee was hard at work installing a new high-definition video camera, shrugged when asked about whether he sees the tide turning anytime soon.
“No one wants to think that this is the new normal, we just want to think that this is the temporary normal and we do have to be vigilant of that,” Reed said.