Cannabis retailers upgrading stores in fight for competitive Santa Rosa market

The shopping experience for cannabis customers is getting a whole lot better for Santa Rosa residents.

The coronavirus pandemic forced those retailers to quickly pivot to more online ordering, curbside pickup and delivery. But with widespread vaccinations and the threat of the delta variant easing, licensed dispensaries are now focusing on customers who are returning to brick-and-mortar locations to discover a greater array of products than even a year ago — from flower to edibles to drinks and lotions.

And forget the notion that dispensaries might resemble the old head shops of the 1970s that are shoehorned into an industrial space. The shopping experience more closely resembles what you might find at a modern Apple Store, with clean interior design, minimal clutter, bright lighting and cheerful, enthusiastic customer service.

A new entrant, Jane Dispensary, opened a month ago on Armory Drive and aims to provide a bespoke experience in a modern setting that more resembles a sleek merchandiser. Longtime retailer SPARC has remodeled its Santa Rosa store. And early next year, Solful, which has garnered up to 3,000 customers a month from its Sebastopol location, will open a second and bigger location on Farmers Lane.

Cannabis customers expect more when they enter a dispensary, said Erich Pearson, chief executive officer and chairman of SPARC, which also is building a new store in Sonoma to open by March to go with an upgrade to its Sebastopol location.

Pearson rattled off a list of customer expectations: How does a store look? Is parking available? Do the employees have a good knowledge of the products? How are you treated by security?

“There is a lot to it,” Pearson said. “And all that stuff really has to fire (on all cylinders) for a business to be successful in a highly competitive market like Santa Rosa,” where opening a new store can cost as much as $1 million.

The activity comes as there has been an uptick to 12 licensed retailers approved by the city and state to operate within Santa Rosa, up from three in 2018 in the aftermath Proposition 64, which legalized adult recreational use, said Kevin King, spokesman for the city. The total does not include B Kind, which prevailed from opposition from a Santa Rosa charter school down the street, nor Solful, which will open in the first quarter right across from Montgomery Village.

The city’s coffers have benefited from the retail growth as sales tax revenue from the businesses has increased from $163,729 at the end of fiscal 2018 to $1.1 million in the last fiscal year, King said. That would equal $36 million in overall recreational sales on a yearly basis as the city taxes cannabis products at 3% for adult use but exempts levies for those who have a medical usage card.

Santa Rosa can serve as a good test case on how big the retail market could get as the cannabis industry is still experiencing growing pains coming out of the Proposition 64 passage in 2016, especially since cannabis remains illegal at the federal level. Despite having the largest population, California has lagged other states in the number dispensaries with 774 compared to smaller states such as Colorado with 825 and Oregon with 756, according to Canix, an industry software provider.

Local governments hold great sway over regulating dispensaries and those in both Napa and Marin counties have been reluctant to approve stores for adult usage, which puts pressure in those residents to venture to Sonoma County to obtain their products.

Not all cities in Sonoma County are on board either. Petaluma, which has no licensed retailers, may take the issue up next year.

The Santa Rosa sector, meanwhile, has grown given the relative acceptance by local leaders and residents compared to other jurisdictions and by being conveniently located along the Highway 101 corridor to help businesses reach beyond the city’s approximately 180,000 residents.

“It’s definitely increased in popularity,” said Trevor Finley, manager of the Mighty Quinn Smoke Shop in Santa Rosa, which provides accessories for smoking and vaping of cannabis. “It has become more mutually accepted across various classes.”

The demand led to Eli Melrod, the 26-year-old chief executive officer and co-founder of Solful, to open the new store in Santa Rosa. The Sebastopol store had a 20% increase in sales from 2019 to 2020 and will be on double-digit pace for this year, Melrod said, declining to reveal a specific dollar amount. The number of products it carries has increased from 500 when it opened in 2017 to now about 750 in layout akin to that of a Trader Joe’s. Those items include new sparkling drinks Gem+Jane, which is especially marketed to women, to different types of gummy candy that are popular for a sleep aid.

“Our customer base expects that we're keeping it fresh. We’re bringing new things in, and that's been a big differentiator for us,” Melrod said. “That is why we're really excited on the new store. We have created a lot more kind of space for new products and storytelling that highlights for all of that. And frankly more shelf space.”

While product category is a key, the retail clerks and consultants are just as vital. That’s the case for Howard Kalmer, a Sonoma County resident who is a Solful customer and uses cannabis edibles to relive aches and pains in his back. He started going to the store once it opened and said the retailer checks all the boxes, but he especially appreciates the employees who can help guide him through the products and the dosage that would work for him after giving up vaping.

“It’s not just a product,” Kalmer said. “It’s the service. We are all idiosyncratic on what we need.”

The new Jane Dispensary wants to focus on that as well, said Leigh Anne Baker, director of operations, who has experience working at HopMonk Tavern and Amy’s Kitchen. The company is owned a local investor group that is led by businessman Mario Tamo, according to city of Santa Rosa records. There is also a sister location in the St. Louis area.

“We’re trying to focus on and fill the void of having it be more of the experience rather than coming in and just getting a product,” Baker said. “We are very, very focused on education and medicinal uses of the plant.”

Over at SPARC, Pearson said he expanded the space, added more parking and included a new express pickup line that carried over from the pandemic when retailers were deemed an essential business by the state and were allowed to do curbside pickup. He will remodel the company’s Sebastopol location next and has a San Francisco store under construction.

“It’s very much like when you order your Starbucks coffee and pick up when it’s made,” said Pearson, who has been in the cannabis business since 1998. “For a long time, our customers wanted when you can click an order online and walk in and pick it up.”

Those stores that don’t adapt to new products, easier online ordering and a greater focus on customer service will be put at a distinct disadvantage, Melrod and Pearson agreed.

“It’s competitive. That’s why we have to keep innovating and getting better,” Melrod said. “I think it’s great for consumers because they are going to get better experiences.”

Pearson noted that new more mom-and-pop entrants may not realize how difficult it is to operate in a heavily regulated and taxed market such as California as larger investors have realized. His company has been able to adapt better than others given that it has vertical synergies, from doing its own cultivation to production and distribution beyond retailing.

“Ultimately, we will have quite a few entrepreneurs that will fail and that’s unfortunate,” Pearson said.

You can reach Staff Writer Bill Swindell at 707-521-5233 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.