Palm Springs Puts Temporary Hold on New Cannabis Licenses

The Palm Springs City Council voted last week to put a temporary moratorium on issuing new cannabis licenses while civic leaders consider steps to rein in the growth of the regulated weed industry. The council voted 4-0 to issue the 45-day moratorium, with Councilmember Christy Holstege recusing herself from the vote because her husband has business ties to the cannabis industry.

Palm Springs, a city in the southern California desert with nearly 46,000 residents, has issued 33 licenses for cannabis retailers to operate in its jurisdiction, at least 27 of which are operational. The city thus has one dispensary for every 1,700 residents, a saturation of weed shops that is reportedly the highest in the Coachella Valley and one of the highest statewide.

The proliferation of pot dispensaries in Palm Springs has prompted some city leaders and cannabis business owners to call for steps to control the growth of the industry. Prior to Thursday’s meeting, city staff told the council that several policy options were up for discussion. Recommendations to the city council include capping the number of dispensary licenses at 15, although it is unclear how such a limit would affect current license holders. 

City staff also recommended limiting owners to one dispensary in the city, banning the sale or transfer of existing cannabis licenses and cutting the city’s cannabis taxes, which are among the highest in the Coachella Valley. A report provided to the council showed that the city’s cannabis tax revenues declined for the second fiscal year in a row. Average sales per dispensary in the city of Palm Springs have also dropped. Cannabis taxes in other cities in the Coachella Valley have also been declining, according to the report. 

City staff also recommended putting a 45-day moratorium on issuing new dispensary licenses while the council considered the recommendations.  

“I just want everyone to know this isn’t a ban. This is simply a pause,” Veronica Goedhart, the director of special program compliance for Palm Springs, told the council prior to Thursday’s vote. “A pause for us to sit back, take a look at the current regulations, the current market conditions, and try to make it better for the future.”

“We do have an oversaturation of retail businesses in Palm Springs. Our city is not very large, and we have the largest number of dispensaries in the Coachella Valley per capita,” Goedhart added. “The industry is facing a lot of challenges with taxes, and then the competition with the oversaturation. so we really want to revisit what we can do to prevent the industry from collapsing.”

As the city council discussed the recommendations, Councilmembers Jeffrey Bernstein and Lisa Middleton appeared to be in favor of taking steps to limit the number of dispensaries in Palm Springs, according to media reports. Mayor Grace Garner and Councilmember Ron deHarte seemed unsure about the prospect. In addition to declining to vote, Holstege recused herself from the discussion on the issue.

Bernstein said that he supported the cap on dispensaries because of a spike in commercial rents in areas where dispensaries are allowed. This has led longtime business owners to lose their leases, only to see the new pot shop quickly fail because of market oversaturation. Bernstein also said he believes that the city has harmed the nascent regulated cannabis industry by allowing it to grow too quickly.

Middleton also expressed concern about the cannabis industry’s effect on the real estate market in Palm Springs, agreeing that many of the existing weed shops will likely eventually fail. She was not convinced that the city’s pot taxes are too high, saying that oversaturation in the retail market was more likely responsible for its ills.

“What we’re seeing is city after city trying to cut their taxes significantly in order to save an industry that is just simply overpopulated with distribution points,” said Middleton.

The mayor asked city staff to analyze if the number of dispensaries is more than what is needed to serve the number of visitors to Palm Springs.

“I understand we have oversaturation in relation to our population,” said Garner, “but are we oversaturated in terms of the tourist economy we have?”

Garner also said that if the city council does decide to limit the number of cannabis licenses in Palm Springs, it should ensure that the changes allow for a diverse mix of businesses, including onsite consumption lounges. The mayor added that doing so would be necessary to accommodate the tourists who make up much of the local cannabis industry’s clientele.

The council decided only to enact the 45-day pause on new licenses during its meeting on October 26 while the other recommendations are considered. The moratorium currently is scheduled to end on December 10. The city council could extend the end during its next meeting, however, to give city staff more time to return with more data and new recommendations.