As the deadline closed last week, 10 cannabis businesses applied to open up shop in Mountain View, more than half at a location either in downtown or on El Camino Real.
The city's laws only allow four marijuana stores, meaning there will be winners and losers, with applicants set to be weeded out during a lottery next month. Four applicants will be randomly selected to move forward in the planning process, which will ultimately end with a conditional use permit.
And although Mountain View City Council members had a clear preference last year to spread cannabis businesses throughout the city, rather than end with a cluster, using a lottery largely leaves the placement of the businesses up to chance.
In October, the council adopted new zoning laws and ground rules for cannabis businesses in Mountain View, including the lengthy planning process under for applying for permits. The ordinance allows a total of four cannabis businesses, of which two can be retail storefronts and two can be "non-storefront," essentially a warehouse and delivery business that can operate within the city but can't make sales to walk-in customers.
The first leg of that process ended Feb. 1, the deadline by which applicants had to undergo a background check, put together a business plan and -- most importantly -- identify a location for the business with proof of ownership, a signed lease agreement or intent to lease agreement authorizing the cannabis business to occupy the property. A map of the proposed locations can be viewed here.
Despite a zoning map that allows large swaths of the city to be locations for the nascent industry, many of them ended up clustered in or near the Old Mountain View area. Three storefront applications, 275 Castro St., 278 Castro St. and 298 Castro St., are practically next door, with another just a couple blocks away at 660 W. Dana St., according to information from city planners.
Other applicants are seeking to open up at 1411 W. El Camino Real, located between the Shoreline West and St. Francis Acres neighborhoods, and 1970 W. El Camino Real, near the border between Mountain View and Los Altos.
The results of Mountain View's application process differs significantly from what Hayward received, which was a tsunami of prospective cannabis businesses seeking to open retail, manufacturing and delivery companies. The key difference is that Mountain View required businesses to have a plan in place, including proof that they've got a property secured, according to Sean Kali-Rai of the Silicon Valley Cannabis Alliance.
"The way that Mountain View set it up, I think it was good in that they wanted people who are serious, who would go out and do the due diligence and spend some money and that would weed themselves out," Kali-Rai told the Voice.
In some ways, Hayward may end up as a cautionary tale for other cities. While it received tons of applications, none of them had a property staked out ahead of time, Kali-Rai said. The huge majority of those businesses will likely vanish.
"Now they've got an April deadline and I think a lot of them are going to fall out because a lot of them have great ambition and ideas but they can't execute," he said. "If you can't get a property, it's all for nothing."
Members of the cannabis industry told council members during the policy-drafting process that the lottery system of picking applicants was a poor choice, arguing that a "merit based" system would be preferable. It can take into account which companies have a better track record, and adds discretion over where these cannabis retailers will ultimately end up.
Only two non-storefront cannabis businesses applied by the Feb. 1 deadline, meaning there will be no lottery process for those businesses. The eight storefront retail companies will be subject to a lottery to decide the two companies that will move forward.
Although the total number of applications received by Mountain View exceeded expectations among industry insiders, it's a tough business to break into, Kali-Rai said. Prospective companies probably need between $500,000 to $1 million just to get off the ground, and finding an available property -- already a major challenge on the Peninsula -- is made harder because so many property owners are reluctant to lease to a cannabis business.
"If you do find property that's free and clear then you have to see if there's a willing landlord, and often times there isn't," he said. "They don't like it, they don't understand it, they don't want to have that federal illegality that still exists out there. It is extremely tough."
California's overall marijuana sales have lagged behind expectations since the state began handing out licenses. Former Gov. Jerry Brown expected to rake in tax revenue exceeding $550 million for the 2017-18 fiscal year, while Gov. Gavin Newsom -- ratcheting down expectations -- budgeted for $355 million for the 2018-19 fiscal year.
Both appear to be overestimates. The state collected $234.2 million between January and September of last year, according to the California Department of Tax and Fee Administration, which monitors marijuana excise tax, cultivation tax and sales tax revenue. Some state lawmakers are looking to bring down the tax rate in order for more businesses to flourish.
Add up all the state and local taxes, and Kali-Rai estimates that cities like San Jose have a 43 percent effective tax rate on the products, which he believes does more than eat into profits -- it keeps some of the sales on the black market. He said the best guess is that the illegal market still makes up 60 percent of the cannabis market.
More information on the applications were not immediately available.