After trying for years to open a cannabis business in San Francisco, Ray Connolly and his husband, Desmond Morgan, will open the doors of their first dispensary, in the city’s Castro District.

“We’re two married gay men opening up a dispensary in the heart of the gay neighborhood, so the mapping of it is really perfect,” Connolly says.

Eureka Sky, which opens Jan. 25 at 3989 17^th Street, received the first equity cannabis business permit issued by San Francisco’s Office of Cannabis. The roughly 2,300-square-foot dispensary storefront is owned by Connolly, Morgan and equity partner Chris Callaway. Equity partners and owners in San Francisco have been negatively impacted by cannabis prohibition or meet other criteria that allows them to receive government support as they enter the cannabis industry.

With plans to be open from 10 a.m. to 10 p.m., seven days a week, Connolly says Eureka Sky will sell flower, edibles, pre-rolls, concentrates and CBD pet products. The company has hired a chief technology officer, Steve Delavan, as well as a buyer, and plans to soon hire a staff of budtenders.

Connolly’s and Morgan’s decision to open a dispensary has roots stretching back decades. Both their fathers and Morgan’s stepfather died of cancer when they were young. These members of the older generation didn’t consume cannabis, and Morgan notes it wasn’t legally made available to them. But more recent medical studies stating the benefits of cannabis, including for cancer patients, helped prompt Connolly’s and Morgan’s decision to join the industry.

“I'm a longtime cannabis supporter and user, but it was one of the compelling events when the results started to come on just around the medicinal use, that we decided to get into the cannabis industry,” says Connolly, who worked as a software executive for 23 years.

Morgan, who was employed in the pharmaceuticals and biotech space for about 20 years, learned about the endocannabinoid system more than a decade ago while employed at a company that worked on a diet pill.

“I think cannabis has got such a bad rap for the longest time, because it was just clumped together as being a drug,” Morgan says. “Yet a lot of people don't realize the medicinal benefits of cannabis and that our bodies have our own mechanisms [for receiving it] in terms of the endocannabinoid system — it's all natural.”

Photo courtesy of Ray Connolly

In addition to Eureka Sky, Connolly and Morgan plan to open a second dispensary, called Sea Weed, in Fisherman’s Wharf. They and equity partner John Wood are still building out the space but plan to open in March.

Pending the receipt of a permanent permit, Connolly and Morgan aim to open Sea Weed at 2627 Taylor Street. It’s the same address where they tried to set up a medical dispensary in 2015, prior to the passage of Proposition 64, but, Connolly says, were driven out by surrounding businesspeople who opposed a cannabis shop in the neighborhood.

“At that time, the merchants of Fisherman's Wharf literally rented a Greyhound bus, and they had their employees and the owners and managers all go down to city hall and fight it,” Connolly says.

In the intervening years, San Francisco examined the economy of Fisherman’s Wharf and learned that having one or multiple dispensaries to serve tourists and residents could be beneficial for the neighborhood, Connolly says. “When I went back to them the second time, they had a different point of view of opening up a cannabis dispensary,” he says.

Equity in San Francisco’s cannabis program

In San Francisco, permits are currently only being issued to equity applicants, equity incubators and operating cannabis businesses.

To apply for a permit, equity applicants must first be verified with the Office of Cannabis. And to be verified, prospective applicants must meet the following criteria:

The verification process for prospective equity applicants opened in March 2018, and the Office of Cannabis began accepting applications in May of that year, according to a spokesman from the office. As of Jan. 23, 325 equity applicants have been verified, the spokesman says.

Once they are verified, applicants will then take steps such as work with San Francisco Planning to find a location, register with the city and state, consent to a background check and disclose ownership materials, according to the Office of Cannabis website. Furthermore, they must follow multiple security steps, and apply for and receive city permits from departments such as Planning and Building Inspection.

Three permanent equity permits have been issued, to Eureka Sky, Berner’s on Haight and the California Street Cannabis Company, according to the Office of Cannabis’ website.

More information about equity applications, including about equity goals and setting up compassion programs, can be accessed at the Office of Cannabis’ website.

In Connolly’s and Morgan’s situation, equity partners Callaway and Wood approached them about working together, Morgan says. Callaway was arrested in 2000 for cultivating cannabis for the terminally ill, according to hoodline.com. Wood also had previous ties to cannabis; he was good friends with renowned cannabis activist Dennis Peron, Connolly says. (Both Callaway and Wood were unavailable for interviews before Cannabis Dispensary’s deadline for this story.)

As more municipalities legalize cannabis, Connolly says San Francisco’s equity program can provide a model for helping the people who played a role in creating the industry when it was still a black market.

“There are individuals who have been impacted by things that had transpired in their lives because of cannabis, that may have found themselves not being able to get jobs or not being able to keep jobs,” Connolly says. “So, this is a program where business owners like Desmond and I can actually help the individuals that helped build the cannabis industry.”

Software for San Francisco’s equity applications

To streamline the review and processing of equity applications, the City and County of San Francisco has teamed up with government technology company CityBase. San Francisco already used CityBase’s management and payment tools, so it asked the company to see if they could be used for cannabis permitting.

The system’s software gives applicants unique identifiers and allows to fill out documents without having to continually repeat steps, says Josh Goldstein, CityBase chief product officer. At the same time, various city departments involved in the application and permitting process, such as Planning, Fire and Police, can log in and access pertinent information.

Having a simple and reliable system for processing applications and issuing licenses and permits helps San Francisco address equity in the cannabis space, Goldstein says.

“Part of it, I think, is just really just making the user interface simpler, I think is a step toward equity in and of itself, because you're inherently penalizing businesses that have less resources — smaller businesses,” he says. “The more regulatory barriers you have up, the more you're discriminating against those, in my opinion.”

Replacing outdated or manual systems can allow governments to provide more equity to businesses and residents, says Liz Fischer, CityBase chief customer officer, adding that her company’s work with San Francisco on cannabis applications, permitting and licensing is an explicit example.

“What's interesting to me, as someone who works with local government clients and tries to solve the access and equity equation from a lot of different perspectives, is these problems are relevant to every person doing business with local government,” Fischer says. “But because cannabis is newly legalized and is therefore a new business industry … the government side has a chance to consider these things from the ground up, like the entire permitting process, licensing process and the steps in that process that either aid or prohibit someone from participating.”

Kentucky Agriculture Commissioner Dr. Ryan Quarles announced this week that his state will not submit draft hemp regulations to the U.S. Department of Agriculture, opting instead to remain under the auspices of the 2014 Farm Bill’s pilot program provisions through 2020.

The move will allow Kentucky hemp farmers a bit of breathing room, a chance to regroup and watch the federally legalized hemp marketplace settle into itself a bit. And the wariness is not unfounded. Quarles said that he landed on this decision “after much discussion with industry stakeholders in Kentucky.”

He said that his office fears a degree of overreach on the part of the USDA. And this comes more than a year after Quarles eagerly submitted his state’s original plan to the USDA, before President Trump’s signature had even dried on the 2018 Farm Bill. (A federal government shutdown that same week immediately stalled Kentucky’s plans. Here we are now.)

Earlier this month, the Kentucky Hemp Industries Association published an open letter that urged Quarles to run with this idea.

“The Kentucky Hemp Industries Association is very close to our membership, with boots on the ground all over the state,” KYHIA President Mitchell “Tate” Hall said in the public statement.  “Everyone broadly supports the Kentucky Hemp Pilot Program and the efforts of the KDA, as we attempt to build hemp as a predictable, new industry.”

The U.S. Department of Agriculture released its interim final rule back in October 2019, and the public comment period is still open (through Jan. 29). But the sprawling regulatory guidance has been met with raised eyebrows and palpable concern across the hemp industry. Maureen West, former Colorado Industrial Hemp Program Manager, wrote for Hemp Grower that the draft framework isn’t really working for anyone right now. Challenges are inevitable this year—for farmers and regulators.

The core issues are the USDA’s revised plan for THC testing and the 15-day period between test-sampling and harvest. With untold acres of hemp plants destroyed in late 2019 due to excessive THC levels, the new, more restrictive guidelines are cause for concern. To work around the 0.3% THC limit, industry experts have suggested the cautious approach of importing certified seed stock from Canada, where approved cultivars may be more reliable in the long run. But apart from that, on the newly legal domestic side on the hemp industry, the Kentucky Hemp Industries Association cites access to clean genetics as another problem the USDA regulations aren’t solving just yet.

Minnesota, Wisconsin and South Carolina officials have come out recent and issued similar statements.

Quarles said that his office will take the year to observe the industry and draft a state plan for 2021, which he will submit to the USDA when ready.

“Kentucky hemp producers have learned a lot since the beginning of the 2014 pilot program as they explore the crop’s potential, and we have the nation’s best Agriculture Commissioner in Ryan Quarles leading the way. By maintaining the pilot program for another growing season, Commissioner Quarles is protecting Kentucky’s farmers, processors and manufacturers while the U.S. Department of Agriculture continues developing its final rule,” U.S. Senate Majority Leader Mitch McConnell said in a public statement.