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8.A. - Page 4 of 15 customers in the surrounding area. This tax capture would continue for the foreseeable future but would likely decline at some point as other jurisdictions allow cannabis retailers over time. Based on the feedback that staff has received by the community and a few of the current cannabis delivery operators, staff believes that allowing cannabis retail storefront businesses in the City would complement other retail activity and drive additional pedestrian traffic to those retailers. In addition, it would also complement the current cannabis delivery services that are licensed with the City. Question 1: Should the City permit up to six cannabis retail storefront businesses? The City Council will need to determine how many cannabis storefront retailers will be allowed to locate in the City. There are currently six non -storefront cannabis delivery operations permitted in Redwood City. In addition, out-of-town retailers operate in the City and are subject to Redwood City's cannabis tax. Non -storefront cannabis delivery businesses that are located in the City are permitted to locate in the Industrial Restricted, Light Industrial Incubator, Industrial Park, General Industrial, and Commercial Office zoning districts and must be 600 feet from schools, day care centers and recreation centers. The owners of these non -storefront businesses may be interested in obtaining licenses for retail storefront operations. However, staff believes that none of the currently licensed non -storefront delivery services are in locations that would allow them to expand into storefront retail operations. This is because they are smaller in located outside of the retail areas of the city. Thus, storefront retailers would likely be in different locations than non -storefront retailers, even if in some cases they have the same owners. Cannabis retail businesses typically serve the local community, rather than a statewide market. Consequently, the number of retailers is somewhat proportional to the local population. Consumer demand for cannabis is assumed to be constant, regardless of the legality of the business operation or the number of retailers. It is reasonable to conclude that more retailers would mean fewer customers for each business and lower gross receipts. The tax revenue generated by cannabis retailers is generally a function of the size of the market rather than the number of retailers. Providing greater access to retailers could initially result in a shift in cannabis purchases occurring through legal, regulated channels rather than through the illicit market. Eventually though, the local cannabis market will reach saturation, at which point new cannabis retailers will simply cannibalize sales from existing retailers. Essentially, both licensed and unlicensed cannabis retailers all share the same market. In places where no legal access is provided, it can be assumed that the unlicensed market will essentially dominate the market. Where licensed retailers are available, convenient, and competitive, it is likely that sales will steadily shift from the illicit market over time. However, the taxable amount of gross sales will likely plateau at some point regardless of the number of retailers. According to data collected by Marijuana Business Daily, during the early stages of COVID-19, delivery services saw an unprecedented increase in customers, in some cases as high as 220%, but recently data shows that customers are returning to storefront retail stores. The reason for this shift is the benefit a cannabis retail establishment provides the consumer, which is the interaction with a salesperson who is knowledgeable about the products. Page 4 of 11 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 157