3-1 vote moves City a step closer to selling weed

The Wayzata City Council approved a contract with Point Seven Group for a municipal recreational marijuana dispensary business plan and financial model at the Tuesday, March 26th Council meeting.

A staff memo within the agenda packet indicated “The City is exploring operation of a municipal dispensary to diversify and add revenues as a benefit to property taxpayers,” as well as, “The City is also exploring operation of a municipal dispensary to ensure and protect community well-being and safety.”

According to Emily Gellner, Community Development Director any potential retail store would have to sell cannabis exclusively, and that typical dispensaries range in size from approximately 2,000 – 4,000 square feet.

The Council voted 3-1 in favor of the study, with Mayor Mouton, and council members Molly MacDonald and Cathy Iverson voting for the measure.

Council member Alex Plechash voted against the measure. Council member Jeff Parkhill was absent.

The business plan and report from Point Seven will be delivered sometime in June of 2024 for further deliberation by the Council, at which time they will either continue down the path or abandon the endeavor.

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Discussion by Council

After a presentation by Gellner, and some questions from the Council, the group deliberated as they typically do:

Mayor Mouton stated, “I think this is a reasonable investment to make given the scope of what we are asking them to provide. These are critical pieces of information that frankly anybody either private enterprise or a city should be employing, a solid business plan.”

Mouton continued, “We do have a history of running a liquor store, and a bar and grill, so we are pioneers in that [and] I don’t know many communities that do both. We may be the only ones. Some have liquor stores to be certain, but to run both and to run both profitably which is the other criteria, I don’t want to enter into anything that isn’t a profitable endeavor…”

Council member Cathy Iverson stated, “I support this because in order to make a really informed decision, regarding should the City be selling cannabis, because we need to be doing some of this preliminary work… I think we really need to get our heads around what are the costs and risks associated with this… the fact that they are looking at a 5-year PNL is great because we are going to have some front end costs with the buildout…”

Council member Molly MacDonald stated, “I also support this proposal, I think we should move forward, I look forward to having a robust and very thorough plan to review in June, and I hope that will coincide with some answers to the rule making process from the State as well for us to consider and I think that June timeline of us being able to say this looks good or let’s cut our losses, and let the private market have at it, and so I also support this proposal.”

Council member Alex Plechash “It this were only a business or financial consideration I think it makes a lot of sense. What we are looking at as a City is whether or not it makes sense for us to do this. Would we make money? Would we be good at it? That sort of thing. But I look at it a bit differently, it’s not just a business. It’s also social and cultural. I think it’s no secret I disagree with the State in having legalized cannabis, I think that was a very bad policy decision, but it is what it is right now.”

Plechash continued, “I don’t think that the government at any level should be in the business of promoting something we shouldn’t be doing, on the other hand since we are being forced to do this by the State, is it better for us to in control or leave it to somebody in private enterprise? So I am conflicted about that piece of it. The bottom line is, because I don’t believe this is good social and political policy I will be voting against it.”

Whether or not the City decides to operate in the field, it is almost without question that one license will be granted in the City of Wayzata and some entity, either public or private will operate a dispensary within the City limits as allowed by State law.

The fact that one license is likely to be granted regardless of the opinion of the Council is what originally drove the exploration of the City entering the cannabis dispensary market in the first place.

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City owned dispensary idea originated in 2023

The idea for the City to get into the cannabis business originated in an exchange between Council Member Alex Plechash and City Attorney David Schelzel in August of 2023 as Plechash strenuously objected to the City adopting edible cannabinoid regulations after an emergency moratorium had expired.

The exchange went as follows:

Schelzel: “What the state has said has said is that it is legal to sell, in Minnesota.”

Plechash: “Doesn’t say that we have to sell it though.”

Schelzel: “No but we as a City don’t have to sell it at the Muni.”

Plechash: “I’m suggesting we won’t do it there either.”

Schelzel: “That’s a policy decision of council, right?”

Plechash: “I’m pretty adamant about this, if we come to a conclusion as a council that we are going to allow the sale, I disagree with that, but if we feel like we are compelled to do that, then I would suggest we sell it only at the Muni, that no other establishment in the City can sell it, and that the amount that we sell is limited to basically nothing. And we are the only people that can sell it. That’s where I stand on this thing.”

Editor’s note: A comment within the most recent agenda packet from staff indicates that after consulting several attorneys staff does not believe cannabis can be sold at the Muni in it’s current form, instead the dispensary must be in it’s own space.

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Bottle Shop, Bar & Grill profits

The City already operates a municipal bottle shop and the Wayzata Bar & Grill as enterprises and has for decades with the intent that the proceeds lower property taxes for homeowners within the community.

Critics of the Municipal bottle shop and Bar & Grill indicate it doesn’t take into account normal expenses that private enterprises would encounter such as staff time for administration, maintenance, property taxes, etc.

A recent report by the State Auditor indicates the City of Wayzata made $36,000 after all expenses operating the Bottle Shop in 2022, which was confirmed via email by Deputy City Manager Aurora Yeager in December of 2023.

Yeager stated in the email, “First, on an annual basis we budget for the Liquor Store and Bar and Grill to contribute to the General Fund to help keep property taxes lower. On top of those budgeted annual transfers, we also look at what we refer to as excess reserves. We have a set formula to determine the amount of fund balance we need to maintain to ensure it has proper working capital. Anything over that calculation is determined to be excess and can be transferred out to pay for other city capital projects.”

Yeager also indicated that in 2022 the total transfer to General Fund from the Municipal operations were as follows, and provided the attached report:

Wine & Spirits 2022 Annual Transfer to General Fund	$75,000
Bar & Grill 2022 Annual Transfer to General Fund	$100,000
Excess Reserves from 2021 (transferred in 2022)	$427,730
Total Transfers	$602,730

The community will likely consider the current and ongoing profitability of the Muni as it entertains creating another enterprise of a similar nature.

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Is Wayzata a Pioneer in this field?

An in depth article in Rolling Stone magazine highlights the path of the City of North Bonneville, Washington, who like Wayzata hired a consultant out of Colorado as they explored entering the weed business.

It highlights the challenges and threats to a City owned dispensary, the least of which is the natural turnover of Mayors and Council members who have different ideologies, and the impact that may or may not on the dispensary.

Other challenges included a questionable lease at higher than market rates, and borrowing capital for buildout and start-up from private individuals at much higher rates than traditional loans because the product is still illegal on a Federal level.

One of the positives for a government run dispensary noted in the article is that there likely would be less advertising than with a private enterprise.

Several additional reports on the shop from MPR and Minneapolis St. Paul Business Journal indicate the shop is now closed.

Still illegal on a Federal level

The MPR story notes how no other states have enacted a provision within statute for Municipal dispensaries given the Federal law prohibiting the sale of marijauna:

“The idea has been floated and rejected in various states, such as New Mexico and New Hampshire. Lawmakers have done so because cannabis remains illegal (Schedule I) under federal law and they do not wish to enact policies that place state-employees in a position where they are engaging in activity that is in positive conflict with federal law,” said Paul Armentano, deputy director of NORML, a national cannabis advocacy group.

You can read the MPR article here:

As Wayzata progresses, several crucial questions will arise, such as its stance on federal law, considerations regarding location acquisition or leasing requirements, and securing funding for buildout costs.

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Osseo already on the path?

Continuing on the question of whether or not Wayzata is pioneering this effort, the Star Tribune has reported that the City of Osseo is considering opening a municipal dispensary, indicating an ad-hoc committee is doing some initial planning as to where to locate the operation.

That article indicates that community leaders are engaged in conversations about selecting a site and that, “Any site would need to be heavily fortified with security features, including a multitude of cameras, alarms, and possibly license-plate readers. Any site would also need a special entry for trucks delivering product and armored vehicles picking up cash receipts.“

You can read that Star Tribune article here:

CCX Media also did a feature on Osseo, “The city of Osseo is studying the prospect of opening a municipal store for cannabis sales. During a recent work session, Osseo City Council member Mark Schulz said he hopes Osseo could be among the first cities in the state to have a municipal store. ‘Since it’s been legalized, I’ve been absolutely floored how many people I work with on a daily basis are already using for many health problems and other things like that,’ said Schulz. The city is studying if the revenue from a cannabis store could help Osseo reduce the burden on taxpayers.”

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What is the overall Cannabis Market Like in Other States?

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Boulder, Colorado

A report in Boulder Today, the University of Colorado’s newspaper indicates that many of the first adopters who secured licenses to sell weed were made millionaires overnight. It also notes that as the industry has matured it has done so with growing pains.

Also noted within the article is the fact that the The Colorado Marijuana Enforcement Division and the University of Colorado provide a real time dashboard with an incredible amount of real time market data for the State’s licensed marijuana activity:

There is a plethora of information available to review including how many licenses have been issued, renewed, lapsed, as well as total sales, prices for the product, and the like.

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Los Angeles, California

Multiple reports from California indicate that pot shops are collapsing and that the legal cannabis market is smaller than anticipated because consumers are still buying from unauthorized distributors in order to avoid the taxes.

MedMen, a prominent retailer originating from Los Angeles, initially hailed as the “Apple store of weed,” experienced a rapid ascent followed by a notable decline, as highlighted by this piece by the LA Times.

The company yielded to traditional unlicensed dealers offering cheaper prices and faced fierce competition from new entrants in the market.

Notably, the article underscores the ongoing federal illegality of marijuana, necessitating cash transactions due to the inability to accept credit cards.

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San Francisco, California

An article in the San Francisco Chronicle states, “The latest figures show that California’s legal market is significantly smaller than what analysts estimated it would be prior to legalization. The economic fallout in the pot industry isn’t because Californians aren’t buying cannabis; it’s because people are still buying it at illegal stores. Illicit pot shops continue to thrive across the state, enticing customers with cheaper tax-free cannabis and undercutting the legal market in the process.”

Here is a link to the article in the San Francisco Chronicle:

It will be interesting to watch Bay Area news on the subject.

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Detroit, Michigan

A news feature by CBS Detroit on January 17, 2024, indicates that the cannabis industry in Michigan is robust.

The report also indicated that it can be challenging to turn a profit for operators and investors, particularly those that are early adopters.

Dustin Walsh, senior reporter at Crain’s Detroit Business, indicated among other things, “It’s a very difficult industry to make money in. A lot of people rushed in, and a lot of people lost their hat, a lot of investors lost their hat.”

Walsh also indicated that sales had surprisingly passed $3 billion with relative ease, and that the market was continuing to grow but neighbors Ohio and Illinois have recently passed legislation legalizing pot.

The group went on to discuss many factors in the Michigan marijuana market, including the price for pot falling:

“We were at $500 per pound in 2020, we are down to under $100 per pound,” stated Walsh.

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Do the Residents want the City of Wayzata to be engage in this business?

At the end of the day, the real question will come down to this:

Do the residents of Wayzata want the City of Wayzata to utilize public resources to engage in the selling of recreational marijauna and what risks are the public willing to take to do so?

Many residents and former residents have reached out and or commented on the issue both publicly and privately via email, phone, and on social media.

Comments

“Coming from a gal who has lived in California for most of her adult life, A BIG FAT NO. Too many gangs, human trafficking and international drug cartels follow the businesses.” Liz Shaver Berg

“It has led to our increase in homelessness and crime. They literally move here because of legalization. The street dealers have not disappeared they can now simply deal with impunity. Police don’t even bother. In the 1oz bag they slip the hard drugs. The 1st state to legalize recreational weed and decriminalize mushrooms. It is a disaster here.” MD White

“Absolutely no.” Stacy Bogdanovich Carto

“I live in Michigan now. The town I live in has 32,000 people. For reference, I work for the local government, as well. I can tell you there are about 15 dispensaries in this town. Crime has not gone up (and yes, there are gangs here). City revenue and improvements are definitely up. Dispensaries, here, are well maintained buildings, have good security and actually improve areas. I think Wayzata would do well operating one. Keep in mind, they are currently cash only businesses, federal rules prohibit the use of federally insured banks because the product is not legal in except by state legislation.” Gayle Stimler Hubsel

“No. Tackier than $hit and I don’t want to smell it everywhere!” Lucia Delaney

“Last year Maryland passed a law making marijuana legal. There are plenty of dispensaries and they have tight regulations. Lots of people including me use medical THC for sleep, etc.” Nancy Bennett-Karasik

“No way.” Don Vodegel

“Why not? Brand new era.” Ann Marie Smith

“No. Although there are legitimate medical uses, the potential liability should be assumed by regulated licensed commercial businesses and not the citizens of a community.” Hal Widsten

“Let’s not trash it up please.” Jason Gelling

“So would the city monopolize the pot biz in town and be the only store allowed? Kinda like the off sale liquor store.” Jim Wilson

“Would need to know a ton more before commenting it would appear to me that the city while well intended should pay more attention to basics of city services, governance, and resourcing public safety and parks before spending a ton of consulting money with tax payer money. I am not saying no but in my view the city has lost its way a bit in recent years.” Andy Mullin

If you have an opinion on the subject, feel free to email dan@wayzata.com as others have done or leave one in the comment section, and stay tuned to Wayzata.com for more on this developing story.