The cannabis industry in the city of Sacramento has become the ninth largest employer with nearly 8,000 workers four years after recreational marijuana was legalized, shows a report commissioned by city officials.
“It’s a remarkable turn of events” said David Zehnder, a managing principal with consulting firm Economics & Planning Systems and the study’s lead researcher.
In a city dominated by the state government and its 25,000 workers, Zehnder said legalized cannabis has created a growing stream of companies and employees.
The 7,970 employees employed in the cannabis industry was only surpassed by other government sectors, such as school and college employees, social service workers, transportation workers, along with temporary workers, hospital workers and full-service and fast-food restaurant workers.
In addition to creating jobs, the report asserts three other significant findings:
▪ Gross annual receipts have more than tripled since 2018, the first full year of legal sales.
▪ The industry has not created a spike in crime.
▪ Home values have not decreased overall in areas in close proximity to cannabis businesses.
Sacramento Mayor Darrell Steinberg said the report confirms that Sacramento made the right decision in embracing the cannabis business after voters approved proposition 64 legalizing recreational marijuana in 2016.
“The city made a conscious decision to enter the cannabis business, the legal cannabis business, “ he said. “We’re generating around $20 million of tax revenue a year. And, yes, creating a lot of jobs. And I’m glad we did.”
Zehnder said in an interview that legalized cannabis has had a much greater effect on Sacramento in creating a major new employment sector than other larger California cities.
He said in cities such as San Francisco, Los Angeles and San Diego, with more diversified, larger economies, new jobs would not have as much of an overall economic consequence as it did in Sacramento.
Statewide, legalizing marijuana has resulted in 83,000 jobs, notes cannabis news and education website Leafly said in 2022 jobs report. It’s a relatively small number given that state statistics show more than 17 million workers in California.
A larger impact in Sacramento
But in mid-sized Sacramento, the numbers stand out.
Zehnder noted that decisions of other neighboring communities ’in Central California not to allow cannabis businesses has helped build Sacramento’s jobs and its position as a regional cannabis center.
While Sacramento has become a magnet for legalized marijuana jobs, the report does not deal with the pay level of most of the jobs created. except to note that dispensaries are staffed heavily by “modestly paid and trained “budtenders”and management personnel.”
The report does document that dozens of new businesses have been created. It found that the number of cannabis businesses in Sacramento has grown to 257 at the end of 2021 from 47 when marijuana became legal for recreational use in 2018.
Gross receipts from the businesses increased to more than $820.4 million in 2021, more than 3.5 times the income of the industry during the first full year of legalization in 2018, the report said The figure was calculated based on the amount of the four percent tax paid to the city by cannabis business, which netted the city Sacramento more than $20 million in 2021.
The 30 existing cannabis dispensaries, which were in business before recreational legalization as medical marijuana dispensaries, may be the most visible sign to Sacramento area residents of the cannabis business locally.
Cultivation is king
But the EPS study found that cannabis cultivation is the largest local employer in the marijuana sector, a business area that did not exist in Sacramento before the 2018 marijuana legalization.
Cultivation has 4,224 workers in 2021, followed by distribution,1,363, marijuana delivery, 1,216, retail dispensaries, 709, and manufacturing, 457.
Retail dispensaries were the largest source of gross receipts at $295.8 million, followed by cultivation at $195.5 million, distribution at $173.3 million, delivery services at $102 million and manufacturing at $41 million.
Cannabis testing companies added another $9 million in gross receipts to the mix and microbusinesses $3.8 million.
Cultivation’s gross receipts in Sacramento last year were particularly striking because It had amounted to only $15.8 million in the year recreational marijuana was legalized in California in 2018.
Distribution also had a smaller share of gross receipts in 2018 of $6.7 million while dispensaries saw gross receipts of $138.8 million. One sector that slightly shrunk in terms of gross receipts was manufacturing which saw $49.2 million in gross receipts in 2018 compared to the $41 million in gross receipts in 2018.
The only cannabis sector that existed in Sacramento prior to 2018 were dispensaries, which could only sell marijuana after an individual presented a doctor’s prescription.
Even then, gross receipts were much smaller. City dispensaries only had $35.9 million in gross receipts in 2013, the first year the report examined, rising to $129.9 million in 2017, the year before recreational marijuana became legal.
The affect on crime and property values
The report also looked beyond the economic impact of the industry in Sacramento.
The report’s authors looked at property data in Sacramento from 2015 to 2021 to determine if proximity to a marijuana bushiness affected property values. Homes within a quarter mile of dispensaries and other marijuana businesses did not have less appreciation per square foot than homes further away.
In fact, in some cases, the report found that homes nearest marijuana businesses were selling at a higher rate per square foot than those that were not.
There was one exception in 2021 for homes closest to dispensaries. They sold for $13 less per square foot than homes a bigger distance away.
The report said the house prices need to be monitored in the future to determine if the 2021 data was a fluke or a downtrend trend for houses close to dispensaries.
On crime, the report said burglaries and robberies at legal marijuana businesses in Sacramento were minimal between 2018 and 2021, making up less than one percent of those overall crime categories. It said robberies and burglaries ranged between 30 and 84 per year.
The report also examined industrial rents in the city noting that while marijuana business created a spike in rents in 2018, it has since moderated.
The report highlighted one of Sacramento’s largest cultivators, noting that vertically integrated Sacramento cannabis company Natura has erected multiple new greenhouses as part of their master plan expansion.
A Natura spokeswoman said the facility employed 200 persons but did not offer any other details.
The report also mentioned another vertically integrated company, Nug, noting it recently signed a memorandum of understanding to acquire a Sacramento cannabis cultivation facility spanning more than 15,600 square feet.
The report said the facility had the potential to accommodate an estimated 500 grow lights.
“It is estimated to produce 2 to 3 pounds of premium exotic cannabis flower per light per harvest across an estimated 5.75 harvests per year,” the report said, “suggesting an upside potential of more than 7,000 pounds of premium cannabis.”
Nug officials did not respond to an email and the company’s voicemail was full.
Sacramento only allows indoor cultivation, which includes greenhouses.
Future challenges and opportunities
However, despite Sacramento’s growth in marijuana cultivation, “long term trends point toward extensive indoor grow operations in California’s coastal regions,” the report said.
“Cultivation will ultimately go to areas in the state, such as coastal valleys and in various parts of the state that are really perfect as far as climate goes,” Zehnder said in The Bee interview.
He said the better climate allows for more economical energy costs because air conditioning systems, for example, are not as necessary in coastal greenhouses as in the hot, Sacramento weather during the summer.
Another issue affecting cultivation in Sacramento and throughout the state is an oversupply of marijuana that has sent cultivation prices collapsing.
“Multiple sources report that California cultivators are growing three times as much cannabis as can be consumed in the State,” the report said, “which is both flooding the market and feeding product to the illicit market.”
On the other hand, the report noted that Sacramento’s central location near a network of major highways and roads puts it in a good position as a continued distribution center.
Part of the report also details the city’s efforts to allow 10 more cannabis dispensaries to open under a social equity framework.
The city in October 2020 approved 10 new dispensary applications to be run by people the city deemed were victims of the war on drugs, such as those who were arrested for selling marijuana or who had lived in low-income areas.
The city has since selected 10 applicants but none of the dispensaries have yet to open.
Those selected to open a dispensary are allowed to sell 49% of their interest to other business partners and some of those selected have already signed agreements with larger corporations.
Many of the selected equity applicants have been pushing for reductions in the city’s 4% tax on cannabis businesses and other economic incentives to give them a better chance of surviving.
Sacramento can “provide real opportunities for social equity applicants to gain market share and generate wealth,” the report said while noting that calibrated tax rates and reduced barriers to entry may be needed to help the businesses.
“However, the best opportunity for the industry to fund targeted programs may be reliant on the inevitable advent of big business,” the report said.
While this may appear to contradict several public policy objectives, the report said big business can provide the revenue to fund alternative entrepreneurial and restitutive programs.
This story was originally published June 6, 2022 5:00 AM.