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Local

Audit: Over half of Sacramento’s pot shops changed hands, despite ordinance to prevent it

 

More than half of Sacramento’s storefront pot dispensaries have changed ownership since 2009, despite a city ordinance intended to prevent the shops from changing hands, a new city audit has found.

Mayor Darrell Steinberg requested the audit as a result of a Sacramento Bee investigation that revealed one group of business partners had gained ownership of nearly a third of the city’s shops. One of those shops was co-owned by Andrey Kukushkin, who last year was indicted on campaign finance charges along with two close associates of Rudy Giuliani. Kukushkin is no longer an owner of the shop, but the other five men — in some cases individually and in some cases as a group — still own nine shops, the audit said.

The audit also revealed that at least 18 of the city’s 30 shops have changed ownership since opening in 2009 — for the first time quantifying the scope of the problem beyond the five business partners. The audit’s authors urge city leaders to take further action to address the problem.

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“If the City wants to have better control and oversight regarding who is granted the privilege of operating one of the coveted cannabis dispensaries, the City will need to better define what constitutes a transfer and memorialize the kinds of transfers that are permissible,” the 161-page audit reads.

After the Bee report was published in October 2019, the council added language to the city code that said each person can only own one dispensary. But that rule does not apply to the people who already own multiple dispensaries, and could actually harm the city’s efforts to improve equity in its retail pot market, the audit found.

“New City Code provisions may create equity issues,” the audit reads. “Dispensaries that have consolidated ownership ... can continue to own multiple dispensaries. However, an individual seeking to invest in the City’s cannabis market anew, will only be permitted an ownership stake in one business.”

The council recently voted to allow 10 new pot shops to open in the city, to be owned exclusively by residents most impacted by the War on Drugs. But those new owners will only be allowed to own one dispensary each, while those that own multiple shops will continue to be able to do so.

Councilwoman Angelique Ashby has said she wants the city to consider revoking some of the original permits, then redistribute them to those impacted by anti-drug campaigns. Malaki Amen of the California Urban Partnership has agreed, saying none of the city’s pot shops are owned by Black men or women.

However, it’s unclear if the city can legally revoke permits for that reason.

“Should the Council wish to explore this matter further, the City Attorney’s Office would research and conduct a legal analysis to advise on the options,” city spokesman Tim Swanson said in an email.

Following the Bee report, Steinberg also called for a new full-time employee to be hired in the city auditor’s office to monitor the city’s cannabis operations on an ongoing basis. That employee was hired in February, Swanson said.

The council also put in place a moratorium on dispensary ownership changes, but it expired in March, the audit said. Now, city staff are requesting another year-long moratorium while they “fully study the issue, including comparing Sacramento’s code and practices with other jurisdictions, conferring with the City Attorney’s Office, and creating options for Council consideration,” wrote cannabis manager Davina Smith in a response to the audit. Smith took over as the city’s cannabis manager in January.

The council will discuss the audit and next steps at its 2 p.m. meeting Tuesday. It will be livestreamed on the city website.

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