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Report regarding a study session on potential storefront retail cannabis regulations (Adena Friedman, Chief Planner and Cecelia Mariscal, Associate Planner)
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RECOMMENDATION
Staff recommend that the City Council receive information and provide staff with feedback on preparing an ordinance to allow for storefront retail cannabis uses.
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INTRODUCTION
In the 2026 City Council Priorities Action Plan, the City Council included an item to consider storefront retail cannabis in commercial zoning districts. In response, staff has researched regulations and best practices and developed potential approaches to establishing a retail cannabis program.
At this time, staff is requesting City Council feedback and direction on five components of a retail cannabis program:
• Cannabis Retail Locations;
• Number of Storefronts;
• Application and Permitting Process;
• Performance Standards; and
• Fiscal Approach.
BACKGROUND
In 2018, City Council took actions to amend South San Francisco Municipal Code Title 20 (Zoning) to permit certain cannabis businesses to align with statewide changes that allowed businesses to sell cannabis products for medical use to individuals who are at least 18 and have a valid physician’s recommendation and recreational use for adults 21 and over. The City Council made the decision at that time to exclude storefront retail cannabis, and to permit cannabis manufacturing, testing, distribution, indoor cultivation, and delivery-only retail with a Conditional Use Permit (approved by the Planning Commission, and valid for a five-year term) and an annually renewed Operator’s Permit. Permitted businesses must be located east of Highway 101 and at least 600 feet from schools, preschools, childcare centers, and residences. Please see Attachments 1 and 2 for the Operator’s Permit application, and Zoning Ordinance Section 20.410 for current cannabis regulations. Additionally, in November 2018, South San Francisco voters passed Measure LL establishing a tax on cannabis businesses at various rates up to 5 percent of gross receipts to fund general city purposes.
At Council’s direction, Planning Division staff brought retail cannabis considerations to a City Council study session in November 2023. At that time, City Council provided staff direction to contract with a consultant with expertise in cannabis businesses to gain more information and research about regulating and permitting cannabis retail and related issues. Shortly thereafter, a police officer fatality occurred in another Bay Area city during a burglary at a retail cannabis establishment, contributing to concerns about safety. Following this tragedy, City Council directed staff not to move forward with pursuing retail cannabis at that time. Over the past several years, and most recently in the 2026 City Council Priorities Action Plan, the question of permitting storefront retail cannabis has come up several times as a tool to contribute to the City’s fiscal health, as well to support local business owners.
Based on the direction provided in the 2026 City Council Priorities Action Plan, staff has researched best practices and consulted with local and regional jurisdictions to understand retail cannabis permitting models, storefront locations, licensing caps, application processes, and performance standards (Attachment 3 includes a table of what staff learned from jurisdictions throughout the region). Additionally, staff researched State regulations and market conditions, and met with HealthRight 360, a non-profit organization that the City of Pacifica worked with to identify sensitive uses when developing its cannabis ordinance.
EXISTING CANNABIS REGULATIONS
South San Francisco Municipal Code (SSFMC) Section 20.410 (Regulation on Cannabis Activities) provides land use regulations for all cannabis uses.
Cannabis businesses currently permitted with a Conditional Use Permit (CUP) include:
• Manufacturing;
• Testing;
• Distribution;
• Indoor commercial cultivation; and
• Delivery-only retail businesses.
Cannabis businesses are currently conditionally permitted in certain districts East of 101 (location varies by type of business) and must meet buffer requirements, including being located 600 feet away from existing residential uses, schools, day care centers, and youth centers.
The review process for cannabis businesses is as follows.
• Operator’s Permit issued by the Finance Department with pre-clearance by the Police Department. Must be renewed annually.
• CUP reviewed and approved by the Planning Commission. While CUPs typically run with the land (not with the business), and do not expire, SSFMC Section 20.410 specifies that CUPs for cannabis businesses are specific to the business that applied for it, do not run with the land, and must be renewed every five years.
• All cannabis applications are also subject to review and must adhere to conditions of approval applied by all relevant departments, including Police, Fire, and Public Works (including the Engineering and Water Quality divisions).
All cannabis businesses must also be operated in compliance with State law and are subject to Department of Cannabis Control (DCC) licensing and requirements, and remit business license taxes to South San Francisco. South San Francisco currently has three active commercial cannabis businesses, all delivery-only retail uses located East of 101.
STOREFRONT RETAIL CANNABIS DISCUSSION
The definition of a storefront retail cannabis use is a dispensary, operator, individual, establishment, provider, association, or similar entity that operates out of a fixed location that it is open to the public and offers, dispenses, sells, exchanges, makes available, either individually or in any combination, cannabis or cannabis products to customers, patients, or primary caregivers pursuant to State law.
Cannabis regulations aim to protect community health and safety by implementing zoning rules that ensure neighborhood compatibility, identify potential safety hazards, provide economic opportunities, and improve access to medicinal cannabis. Despite its statewide legal status, cannabis regulations must be developed to meet local needs and concerns, and require a balanced, sensitive approach that considers neighborhood compatibility, economic potential, effective performance standards, and tax-revenue generation capacity. If City Council chooses to permit cannabis storefront retail, this could diversify and expand local business opportunities and help fill vacant commercial spaces.
Staff has developed five key considerations and questions to guide City Council’s discussion and direction, each discussed in detail below.
• Location: Where should storefront retail cannabis uses be allowed to locate?
• Number of Storefronts: How many storefront retail cannabis uses be allowed in South San Francisco?
• Application and Permitting Process: Which decision-making body should approve storefront retail cannabis uses? And what should the application process entail?
• Performance Standards: What standard operational requirements should the City apply to all new storefront retail cannabis uses?
• Fiscal Approach: What tax rate should be imposed on new retail storefront cannabis uses?
Location
There are several approaches to prescribing where storefront retail cannabis uses can be located. These generally fall into two categories:
• Geographic approaches (inclusionary), such as establishing boundaries around specific areas where cannabis is permitted or permitting cannabis in certain zoning districts. This approach can also be used to specifically identify zones or districts where cannabis is not permitted.
• Buffers (exclusionary) create zones or areas surrounding a sensitive use where cannabis would not be permitted.
Currently, South San Francisco uses both approaches. Cannabis businesses in South San Francisco are limited to commercial districts East of 101 and must be located outside a minimum required 600-foot buffer from sensitive uses (K-12 public schools, youth centers, preschools, and childcare centers) and residential uses. Other cities choose to prohibit storefront retail in specific commercial areas or neighborhoods (such as downtowns), and/or mandate a minimum distance between cannabis businesses to prevent overconcentration.
The approach to determining locations varies by jurisdiction and is largely determined by community attitudes toward cannabis, geographic constraints, and market demand. In jurisdictions that established cannabis programs shortly after the passage of California’s Marijuana Legalization Initiative (2016), maximums on storefronts alongside other restrictive measures, such as a minimum-distance requirement between cannabis uses, were more common. These policies likely reflected apprehensions about market oversaturation, which at the time was perceived as a more immediate concern.
Staff Recommendation
Staff recommend continuing with a combined geographic and buffer approach for storefront retail cannabis locations, while expanding commercial districts where this use may be located. (Please see Attachment 4, Proposed Locations Map). Specifically, staff recommend that Council:
• Consider conditionally permitting retail storefront cannabis East of 101, with sensitive use buffers in place. This area is currently zoned for cannabis uses and contains significant amounts of commercial development that could be appropriate for retail storefront cannabis. Sensitive use buffers would remain in the effect, but there are fewer sensitive uses located East of 101, providing more opportunities for a retail cannabis uses. Additionally, existing cannabis uses are already conditionally permitted in this location, and there could be opportunities for co-location of a retail cannabis use with a non-retail use.
• Consider conditionally permitting retail storefront cannabis in select mixed-use and commercial districts along the El Camino Real corridor, with sensitive use buffers in place. This would be a new location for cannabis uses in South San Francisco. Staff recommend the El Camino Real commercial corridor for several reasons:
o The land use patterns in this area include several commercial centers, which could be viable locations for retail cannabis storefronts.
o Commercial centers along this corridor typically include parking areas, and include other retail uses that could be complementary uses.
o Several retail centers in this area have tenant vacancies, and retail cannabis could provide a neighborhood-serving retail use.
o The El Camino Real corridor is an existing centrally located commercial corridor and is also a transit-rich area (more so than the East of 101 area), with continued investment in bicycle and pedestrian infrastructure to help support retail uses.
If retail storefront cannabis uses were to be permitted in the commercial zoning districts along El Camino Real, staff does not recommend requiring a buffer from residential uses. The land use patterns along El Camino Real are such that residential uses are located adjacent to the El Camino Real frontage parcels, and establishing a buffer from residential uses would preclude any retail cannabis uses from being located in this area. It is important to note that strictly residential districts along El Camino Real are not being considered for retail cannabis.
Number of Storefronts
Many jurisdictions choose to set a cap on the number of cannabis storefront retailers to prevent overconcentration and avoid market saturation. All neighboring jurisdictions in San Mateo County that permit retail cannabis storefronts implement a maximum number of allowed businesses, with different approaches and maximum numbers, depending on community characteristics and land use patterns. For example, the City of Daly City established a certain number of zones where retail cannabis was permitted within commercial districts, and established a maximum of one retail use within each zone. The City of San Bruno established a maximum cap of three retail cannabis uses Citywide, and established a merit-based system, where the City Council was able to compare pre-screened applicants side-by-side, and selected businesses to operate. Other jurisdictions, such as the City of Santa Rosa and the City of Santa Cruz, let the market decide, and do not set a maximum number of locations, but instead regulate through zoning, buffers, and performance standards.
Responding to the Market
In terms of demand for retail cannabis, the California Department of Cannabis Control published a 2024 Cannabis Market Outlook Report which indicates that the share of cannabis consumption purchased through the licensed market has remained steady at 40% since 2021. This report also indicates that retail licenses statewide grew through 2024 but began to level off in 2024. The report also provided data that overall retail sales are down in terms of total financial volume, but this is driven by lower prices, rather than a decreased market for licensed retail cannabis.
Staff also consulted with the City’s sales tax and business license tax consultant, HdL, which provides cannabis advisory services to communities throughout California. They shared that there are multiple factors that affect the overall profitability of a cannabis business, including, but not limited to, the number of competing businesses within a given geographic area and the applicable local cannabis tax rate. Further, they noted that South San Francisco is located within a densely populated metropolitan area, a characteristic that tends to support a stronger cannabis retail market. Based on HdL’s experience, they would generally expect approximately one cannabis retailer for every 12,000 to 15,000 residents. Applied to South San Francisco's population, this would support approximately five retail cannabis businesses. HdL noted that these initial thoughts could be supplemented by a more detailed analysis that took cannabis sales tax data and related economic indicators throughout the City and County of San Francisco as well as San Mateo County into account.
Equity Programs
The Department of Cannabis Control (DCC) recognizes the socioeconomic impacts of drug criminalization policies and disenfranchisement, which overwhelmingly impacted communities of color. The legacies of anti-drug policies continue to harm communities of color through barriers to capital, complex regulatory requirements that are difficult to understand and navigate, and stringent limitations on where cannabis businesses can legally be located. In response to this, DCC established a Cannabis Equity program that offers equity relief programs for applicants who have been negatively affected by cannabis criminalization through technical assistance, tax credits, loan programs, as well as resources for jurisdictions to assist with administration of equity programs.
Most cities interviewed did not establish an equity candidate program, citing the staff time needed to design, implement, and monitor the program as outweighing potential interest, given the size of their storefront retail programs. Larger cities in the Bay Area including Oakland and San Francisco do have cannabis equity programs in place, with dedicated staff to administer them.
Staff Recommendation
As storefront retail cannabis would be a new use in South San Francisco, staff recommend setting an initial maximum cap of three cannabis storefront locations, and revisiting this cap after a set time (such as two years after operations commence), allowing for monitoring of market conditions, and community benefits and impacts. Allowing a maximum of three locations would allow for retail cannabis to be located in different areas of the City, and would prevent a complicated and politicized selection process, which would likely occur if the City permitted just one storefront retail cannabis business from opening.
A maximum of three retail cannabis businesses does not necessitate a formal equity candidate program. However, South San Francisco has small-business assistance resources, such as small-business grants, that could help achieve equitable outcomes.
APPLICATION AND PERMITTING PROCESS
The application review and permitting processes for cannabis businesses are important tools for cities to evaluate potential businesses for regulatory compliance, ensure they fit the community where they operate, and ensure the appropriate level of discretionary review and oversight. Jurisdictions implement varying application and permitting processes for retail cannabis uses, largely shaped by factors such as community concerns, staff capacity, and market demand. In reviewing potential approaches, staff reviewed a range of options used by other jurisdictions that permit retail cannabis, ranging from an administrative staff-level review and issuance of a Business License based on completion of a checklist, to a much more detailed merit-based selection and approval of a Conditional Use Permit by the City Council. Other jurisdictions use a process where staff review and recommend approval of a retail business to the City Manager for approval.
Staff Recommendation
Staff recommend applying the City’s current discretionary review and approval process for cannabis businesses to retail storefront cannabis uses. As previously described in this staff report, South San Francisco currently uses a two-phased permitting approach:
1. Initial pre-screening by the Police Department, with review and approval of an annual Operator’s Permit by the Finance Department.
2. Application for a CUP through the Planning Division, with review and approval at a Public Hearing by the Planning Commission. As part of the CUP review process, all relevant divisions review the application for compliance and apply Conditions of Approval.
This process has been successful for the existing cannabis businesses in South San Francisco, and allows for significant staff oversight and review, while providing applicants with a clear path forward towards gaining entitlements.
PERFORMANCE STANDARDS
Performance standards are requirements for certain uses to minimize the effect of these uses and activities on surrounding properties and to protect the health, safety, and welfare of their occupants and of the public. All licensed cannabis uses are subject to performance standards at the State level (established by the DCC), and local jurisdictions can choose to impose additional standards based on the types of cannabis uses they permit and community characteristics.
The City has established the following performance standards for cannabis uses outlined in SSFMC Section 20.410.009 (“Operator Permit Requirements”) that align with the minimum standards set by the DCC to operate the types of cannabis businesses conditionally permitted in South San Francisco.
• Participation in Track and Trace, a State program used to monitor the movement, testing, and sale of commercial cannabis;
• Visibility limitations for cannabis products;
• Odor control;
• On-site quality control personnel;
• Fire safety plan;
• Security plan and surveillance system requirements;
• Vehicle requirements (for delivery businesses);
• Record-keeping requirements; and
• Hazardous materials management plan.
These standards generally apply to all cannabis businesses operating in South San Francisco, with some exceptions for business-specific activities, such as testing facilities that need to dispose of cannabis-related waste. The City’s cannabis ordinance does not currently regulate retail uses that are open to the public, thus additional standards would be needed to mitigate potential concerns and issues that can arise for storefront retail cannabis uses.
Staff Recommendation
Staff recommend maintaining the existing performance standards for cannabis uses, and develop additional standards specifically for retail cannabis, including:
• Require on-site security personnel during business hours (for delivery and store operations) for legal age verification and as an added safety measure for patrons and staff;
• Require site-specific physical safety measures (i.e., bollards);
• Prohibit loitering and require signage specifying this requirement; and
• Prohibit on on-site consumption / cannabis cafe or lounge. Note: a cannabis cafe or lounge is considered a separate use from storefront retail cannabis.
FISCAL APPROACH
Storefront retail cannabis can be a revenue-generating use for local jurisdictions, with the majority of the revenue from a business license tax. The license tax imposed is an excise tax and not a sales and use tax. South San Francisco Municipal Code Section 6.16.037 (License Tax - Cannabis Business) sets a license tax maximum for cannabis businesses. The range for a business license tax for new storefront retail cannabis businesses is limited by Measure LL passed by the voters in 2018 and can be set by Council as high as 5% of gross sales. Any tax rate higher than this would require approval by South San Francisco voters.
Establishing an appropriate local cannabis tax rate also requires balancing competing considerations. A modest tax may generate revenue without significantly affecting consumer behavior, while a rate that is too high could encourage consumers to purchase cannabis in lower-tax jurisdictions or from the unregulated market. Higher taxes may also discourage experienced, well-capitalized operators from entering the market, potentially making it more difficult to attract businesses with the resources to maintain compliance. Comparisons among nearby jurisdictions suggest that tax rates between 4% and 6% should not have a significant negative effect on sales.
While permitting retail cannabis could be a modest revenue generator for the City, discussions with local jurisdictions indicate that recent revenue projections have been overly aggressive. In Fiscal Year 2024-2025, Redwood City took in $970,000 in cannabis taxes across six locations, and were projecting a modest increase for Fiscal Year 2025-2026. In Fiscal Year 2024-2025, Pacifica took in $850,000 across five locations, and was projecting a slight decline in retail cannabis tax revenue for the following fiscal year. Furthermore, there is a statement in San Bruno’s Fiscal Year 2025-2026 budget referring to the “unfulfilled promises of cannabis tax largess by the City’s sole retail cannabis operator”, indicating that revenue has been lower than anticipated. Ultimately, the City must balance potential revenue generation with the goals of supporting a stable and compliant local market, and meeting community needs.
Staff Recommendation
Staff recommend applying the current maximum business license tax rate of 5% on storefront retail cannabis businesses, as this rate is likely a sustainable rate for this type of business, is in line with neighboring jurisdictions, would provide revenue for the City, and would not require voter approval.
NEXT STEPS
Staff recommend that City Council receive this staff report and provide feedback for next steps regarding retail cannabis uses.
If Council wishes to move forward with permitting retail storefront cannabis uses, staff would work on the following steps.
• Develop an ordinance and program for retail cannabis as a joint effort among City departments.
• Planning Commission review of retail cannabis ordinance at a public hearing, with a recommendation to City Council.
• City Council review and consideration of approval of a retail cannabis ordinance at a public hearing.
FISCAL IMPACT
Permitting storefront retail cannabis would require staff time to develop an ordinance and establish an application review process. Staff anticipates that future application fees would cover review costs, and retail storefront cannabis businesses could provide a modest new revenue source for the City.
RELATIONSHIP TO CITY COUNCIL PRIORITIES ACTION PLAN
Permitting storefront retail cannabis would support the Quality of Life major focus area, by supporting a sustainable retail environment.
CONCLUSION
Staff recommend that City Council provide feedback and direction on the next steps for permitting store front retail cannabis.
Attachments
1. Cannabis Business Operator Permit Application
2. Zoning Ordinance Section 20.410, Regulation on Cannabis Activities
3. Jurisdiction Comparison Table
4. Proposed Locations Map