In the two years since five cannabis businesses opened in Redwood City, the shops have generated nearly $1 million a year in local tax revenue – roughly in line with the city’s early projections.

That performance is notable in an industry where statewide sales have declined, falling from a peak of  $1.5 billion in the second quarter of 2021 to about $1.2 billion four years later, according to data from the state Department of Tax and Fee Administration. 

Redwood City’s cannabis cluster is also unique on the Peninsula, as the city’s five storefronts make up the only brick-and-mortar cannabis retailers between San Bruno in San Mateo County and San Jose, though many nearby cities allow delivery.

Business climate and city relations

Facing high state and local taxes, steep start-up costs and competition with the illicit market that undercuts prices, some cannabis businesses in cities like Los Angeles and San Francisco have struggled to remain financially viable.  

In Redwood City, management from two separate cannabis businesses expressed a mixed picture of how business is going and the outlook of the industry, yet both said they have a strong working relationship with the city. City officials also said the businesses have met expectations. 

“Our businesses are really good operators,” said Amanda Anthony, the city’s economic development manager. “We specifically had very high standards for who we wanted our operators to be.”

In 2020, the Redwood City Council authorized the city manager to issue up to six cannabis business permits. The businesses were expected to bring additional revenue for Redwood City, which is facing a budget deficit of $6 million in the 2029-2030 fiscal year and around $13 million annually in the years after. 

In 2021, 28 businesses applied for the city’s cannabis permits, according to the city’s website. The applications, which had a fee of $22,604 to compensate city staff and consultants for their time, required applicants to describe plans for their business strategy, safety, security and equity.  

After the approval process, two stores, Embarc and Juva, opened in early 2023, followed by  Airfield Supply Company and MMD later that year. Flor opened in August 2024. A sixth operator, Element 7, had its permit revoked after it failed to open within two years, even after receiving a several-month extension, Anthony said. The city does not expect to issue a license for a sixth permit to replace it citing the length of the competitive selection process and the struggling state of the industry, according to Anthony.

Support for retail cannabis had been solid from the beginning. In 2020, 61% of respondents to a city survey indicated their support for allowing cannabis retailers to open shops in the city, according to a staff report.  Still, during public comment on the issue and after cannabis stores initially  opened, some community members raised concerns about safety.  But Redwood City Police Chief Kristina Bell said the department has not observed any increase in drug related crime or overall criminal activity near the cannabis businesses since permits were issued in 2020. 

“Our data and observations indicate that these businesses have operated responsibly without generating any notable increase in police calls, complaints or incidents compared to other commercial areas in the city,” Bell said in an email. 

Despite some initial trepidation, Embarc CEO and co-founder Lauren Carpenter said the business has been largely well-received. Embarc is a California-based cannabis dispensary with 17 stores around the state, and Carpenter said sales at the Redwood City store have met expectations. She also said the business works closely with city officials to ensure it complies with the city and the state’s cannabis regulations. 

“Generally speaking, in Redwood City, we enjoy a strong working relationship with local government there,” Carpenter said. “I think the city has been a partner in wanting to see these businesses be successful and the city’s been communicative.” 

Hudson Moore, the general manager of Airfield Supply Company, also said the relationship with the city has been “very positive,” though he said sales had not performed as well as they had hoped amid an overall market downturn. 

Complicating the picture is the financial situation of Juva Life Inc., the parent company of Juva. The company is in receivership – a legal mechanism in which a third party takes control of a business to avoid bankruptcy. The receivership does not affect the operations of the storefront, which remains open and is “doing fine in Redwood City,” Anthony said. A visit to the shop on a Wednesday afternoon appeared to support that description, with several customers waiting in line to make purchases. Juva could not be reached for comment by press time. 

Tax revenue meets projections

The five Redwood City businesses are subject to Redwood City’s local 4% cannabis tax, which goes directly into the city’s general fund and can be used for city services. In addition, the state levies a 15% cannabis business tax — a rate that was set to increase to 19% until Gov. Gavin Newsom signed a bill in September delaying  the tax hike until 2028. 

In fiscal year 2024-2025, the five cannabis businesses generated $970,513 in tax revenue, on par with the $1.06 million that the city had forecast in its budget for that year and with the $960,000 projection a city consultant made in 2020. Revenue is expected to remain roughly level – at  $1,059,500 – for the current fiscal year, 2025-2026, and revenue is projected to grow by a “modest 3% per year,” said Finance Director Beth Goldberg.

Even so, the revenue generated by the local cannabis tax accounts for a small portion of the city’s budget. In June, the Redwood City Council approved a $201 million spending plan for the 2025-2026 fiscal year and anticipates $206.9 million in revenue.

“On a microscopic level, if cannabis businesses perform better than projected, that certainly would help,” said Goldberg, discussing the city’s budget and projected deficit. “But it’s a very small piece of our total revenue picture. Cannabis performance, in and of itself, is not going to swing it hugely one way or another.” 

Redwood City 4% cannabis tax is on the lower end of city cannabis taxes. San Francisco’s local cannabis retail tax ranges from 2.5% to 5%, depending on business revenue. Belmont, which recently approved permits for two cannabis dispensaries, will tax businesses at 6%. Los Angeles, San Diego and San Jose have the highest local cannabis tax in the state, at 10%.  Cannabis retailers in Redwood City generated $7.2 million in gross sales in the second quarter of this year, almost half of San Mateo County’s $16.6 million in sales.

Carpenter said she sees that Redwood City’s 4% local tax reflects an effort to balance public benefit without overburdening operators.  Still, Carpenter and Moore said that high taxes and tariffs are among the many headwinds the industry faces. 

Carpenter said she sees that Redwood City’s 4% local tax reflects an effort to balance public benefit without overburdening operators. Still, Carpenter and Moore said that high taxes and tariffs are among the many headwinds the industry faces. 

“It’s impacted the industry’s ability to function at a cheaper level…and so then the cost of products end up going up,” Moore said.  “Any cost savings we can get, we try to pass on to our customers, knowing that they are taxed higher than any other industry. Beer, liquor, wine, tobacco doesn’t tax anywhere near as high as cannabis does.” 

Beau Whitney, chief economist of a cannabis data analysis and consulting firm called Whitney Economics, said operating a cannabis business is risky with typically thin profit margins. Because cannabis is considered illegal by the federal government, businesses often lack access to traditional forms of financing such as bank loans, meaning that businesses must raise money from friends and family or find alternative funding sources through mechanisms such as equity financing.

Oversupply and evolving public perception

Another challenge for cannabis businesses in California is a patchwork regulatory system that gives cities and counties broad authority to regulate them and decide whether cannabis deliveries are allowed and where storefronts are located. The result, Whitney said, is a phenomenon that some stakeholders call “prohibition through legalization.” 

“What that means is they may say, ‘Yes, we’re open for business,’ but they set up these zoning laws that are so restrictive that no cannabis operator could operate in those jurisdictions,” said Whitney. 

With many cities along the Peninsula banning retail sales, some advocates have referred to the Peninsula as a “cannabis desert.” In San Mateo County, Pacifica, Daly City, San Bruno, Belmont and Redwood City allow storefront retail sales and many cities allow cannabis deliveries. Belmont approved two dispensary permits in April, though neither has opened as of October, Belmont’s City Manager Kathy Kleinbaum confirmed. 

The cannabis industry is also facing a significant oversupply problem. Whitney’s analysis indicates that demand for cannabis across the United States is roughly 50 million pounds, while cannabis supply from legal and illegal growers is roughly 150 million pounds. The imbalance has driven prices down, posing profitability challenges for businesses trying to compete in the legal market. 

Additionally, both Carpenter and Moore noted that cannabis continues to face stigma from some community members. Their customers run the gamut from older adults and athletes seeking pain relief, to insomniacs looking for sleep aids, to those who simply want to experience the relaxation or euphoria of being high.

“I think a typical misunderstanding is that we are not professional,” said Moore, who noted there are thousands of products in the store.  “Our staff have to know how to help you through your journey. If you have Parkinson’s or if you have diabetes or high blood pressure, we have to know what we’re giving you for that. And so education is everything.” 

Despite the hurdles that their businesses face, Carpenter said that Redwood City is an example of a community that has successfully integrated cannabis into its economy. 

“There’s a case study here of a community that has not faced adverse public health and safety impacts, that has seen meaningful revenue generation, that has seen thoughtful and responsible integration of its cannabis businesses into its broader business community,” Carpenter said. “This is a community that’s found balance, and in that balance has found success.”