UPDATE: The City Council deferred the discussion about its medical marijuana ordinance to next week.

Frustrated by what they call unworkable regulations, activists have revived an effort to replace San Jose’s pot ordinance with a voter initiative.

The Sensible San Jose measure headed for the June 2016 ballot would require dispensaries to register with the city, pay taxes and follow a new set of operational requirements. Oakland-based attorney James Anthony, who’s spearheading the effort, will hold a campaign kickoff Tuesday at City Hall.

Later that same day, the City Council will iron out some kinks in its year-and-a-half-old ordinance and vote on creating a Division of Medical Marijuana Control. But Anthony says there’s no point to it now that lawmakers approved a statewide regulatory scheme at odds with San Jose’s rules.

“Their proposed minor adjustments are just rearranging the deck chairs on the Titanic,” Anthony said in a statement. “It’s time to give up on the city and go to the voters.”

Eighteen months after enacting its cannabis laws, San Jose has yet to fully register a single collective. Meanwhile, new marijuana “speakeasies” and unauthorized delivery services continue to operate throughout the city. Of the four-score-or-so pot clubs open in 2014, only 19 remain on track to come up to city code. Several disqualified collectives have sued the city, some taking issue with local provisions that conflict with state rules. The city’s sales tax has been cited as the largest source of frustration, with collectives arguing that paying it would put them out of compliance with California’s previously approved pot laws.

One of the biggest obstacles to moving things above ground, pot proponents say, is the city’s insistence on vertical integration—that is, keeping the supply chain, “from seed to sale,” within the same company. Typically, collectives rely on statewide membership to grow the plant or manufacture tinctures, edibles, lozenges, lotions, concentrates and the like. To comply with San Jose’s rules, clubs have to grow and make all marijuana and attendant products on site.

The Medical Marijuana Regulation and Safety Act—a trio of bills signed by Gov. Jerry Brown in October—prohibits vertical integration with some exceptions. Essentially, closed-loop collectives will be allowed to continue as such if they operate in jurisdictions that permitted them before July 1 this year.

“[N]ot all of the collectives currently operating in the city’s registration process were cultivating, manufacturing and dispensing medical marijuana on July 1, 2015,” Angelique Gaeta, assistant to the city manager, wrote in a memo the week after the state passed its new marijuana laws. “[However], the governor’s office has indicated that it will work with the city to amend the date by which the collectives will need to have been engaging in said activities to allow these collectives to … remain compliant with the city’s program.”

She urged collectives to “stay the course,” as the state will prioritize licensure to those that abide by city rules. But the state won’t start reviewing applications for licensure until 2018. On a related note: the state is accepting applications for a “weed czar” to lead its new marijuana bureaucracy.

Still, none of the San Jose collectives in the running for compliance have become vertically integrated. Unable to meet the original deadline this past summer, the city pushed it back to Dec. 18. Only a few collectives have cultivation sites, none have extraction sites and all have an inventory of third-party products they have to sell off before seeing the first yield from their own crops.

Since May, the city has met with collectives and their lobbyists to talk about some of the challenges of complying with the closed-loop model. Lobbyists Susan Landry, Richard De La Rosa, Sean Kali-Rai, Jerry Strangis and Joe Guerra have expressed concern that requiring vertical integration will prevent collectives from producing enough to meet the demands of their patients. They asked for permission to buy marijuana and related products from other licensed cultivators and manufacturers throughout the state.

While San Jose allowed collectives to acquire marijuana grown in contiguous counties, those jurisdictions have since passed cultivation bans. Meanwhile, Santa Clara County banned all but personal grows for patients and caregivers.

“Ms. Gaeta’s regulations were supposed to be implemented within a year, by last July,” Anthony says in his Sensible San Jose announcement. “When that proved impossible, the deadline was extended five months. Now the deadline is looming again, and it is still impossible to meet the city’s demand that each dispensary must grow and manufacture all of its own marijuana and marijuana products in one location.”

Under Sensible San Jose’s plan, vertical integration would be optional, not mandatory. At this point, however, San Jose’s surviving collectives have a vested interest in becoming closed-loop operators because they’ve already shelled out so much money on expanding. The 2014 ordinance zoned collectives out of 99 percent of the city, creating a land rush that forced dispensaries to pay double or triple the market value for properties.

By the middle of next month, collectives will have to complete a plan review with the city, pay all application and permit fees, come current on the local 10 percent marijuana business tax and have all employees fingerprinted and background-checked.

This past week was the deadline to complete a preliminary inspection as well as pay the annual operating fee to the city, submit a release of liability and obtain a notice of registration from the City Manager’s office.

Because cultivation takes up to three months, the city will allow collectives up to five months from the date they register to dispense all products obtained from third-party sources.

Other changes being considered include requiring collective operators to wear ID badges issued by the San Jose Police Department. The city will also clarify provisions in its ordinance banning marijuana delivery, unless it’s from one licensed collective to another. Beyond that, the city will look at ways to limit backyard grows. The idea, per city staff, is to make sure none of the products get diverted to the black market.

According to Anthony’s projections, however, the city’s regulations have pushed at least $10 million in sales to the black market. The city lost revenue from its 10 percent marijuana business tax, which fell from $6 million in 2013-14 to $5 million this past fiscal year.

“Did those patients just stop buying medicine in San Jose?” Anthony says. “Of course not. When staff started shutting down dispensaries last year with their impossible ordinance, 20 percent of patients shifted to the underground market—so far.”

More from the San Jose City Council agenda for December 1, 2015:

• As part of an effort to get more people to commute by bicycle, the city will expand its bike-share network. Expansion will bring 100 new stations with a collective 1,000 bicycles, mostly in downtown.

• The city will vote on a three-year, $285,000 contract to have San Jose State University run the Hammer Theatre Center, which went dark last year with closure of the San Jose Rep.

• To clear the streets for the Super Bowl, which touches down in Santa Clara early next year, San Jose will create a “special events zone.” For a specified time in this designated zone, the city will withhold permits for outdoor vendors and events while banning drone use.
• San Jose should find land for a sanctioned homeless camp, council members Don Rocha, Chappie Jones, Magdalena Carrasco and Tam Nguyen urge in a joint memo. The city may also declare a “state of emergency” under state code, which would allow the use of public property, nonprofits and churches as immediate shelters.
• Only 10 percent of San Jose police officers, sergeants and lieutenants are women, while there are no women in the ranks of captain or above. Councilman Tam Nguyen wants the city to ramp up recruiting and promotions for women and other minorities. “San Jose is proud to be a great city of diversity and the trend is increasing,” Nguyen wrote in a policy memo. “Yet we are behind in adjusting to this reality and identifying and serving this diversity in a meaningful way. When asked, ‘How many Vietnamese/Chinese-Americans are in the force?’ the answer is, ‘We don't know.’ This issue has never been addressed. All Asians, with the exception of Filipino, are lumped under the broad term ‘Asian/Pacific Islander.’ Knowing who we are would be a good start towards working out a solution.”

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260