Sioux Falls will ban marijuana grow businesses and cap dispensaries at 5

Medical marijuana retail licenses will be a hot commodity in Sioux Falls.

The Sioux Falls City Council Tuesday night signed off on a proposal coming from Mayor Paul TenHaken's office that will cap the number of retail stores that can operate in the city at five. And though councilors halved the $100,000 license fee that City Hall wanted, another late change allowing the sale of the licenses on the secondary market is expected to drive the value of a license up even hirer.

"The Sioux Falls City Council, by making a license worth $50,000 and transferrable, has just made dispensary licenses into liquor licenses," said Drew Duncan, a Sioux Falls attorney and lobbyist for clients in South Dakota's gambling and alcohol industry, via social media following the 7-1 vote.

TenHaken and supporters of his provision barring the transfer of dispensary licenses worry that allowing them to be sold on the secondary market will give them an artificial value, just like has happened with liquor licenses. But Councilor Janet Brekke and the rest of the Council decided without allowing a license to be owned outright, the city's medical marijuana rules would unduly restrict a cannabis retailer's ability to grow their business.

TenHaken's proposal underwent a series of other changes before earning final passage as well.

Since unveiling the proposal in August, the first-term mayor has taken criticism both publicly and behind the scenes for pushing for what pro-business and pro-cannabis advocates have characterized as a "de facto ban" on medical marijuana due to high cost of a license and zoning rules that make the majority of the city and its commercial districts off limits to marijuana retail.

he five license cap was also not popular among members of the public who testified during meetings where the proposed ordinance was discussed in recent weeks. 

While the bulk of the dissatisfaction councilors heard Tuesday night stemmed from the five-license cap  and the zoning map that will guide where marijuana business can operate, City Hall's push to entirely prohibit testing and cultivation facilities also generated strong pushback. But after hearing from the public and some disgruntled city councilors last month, TenHaken conceded to allow an unlimited number of testing facilities in the city. Cultivation facilities remain barred in the city of Sioux Falls.

Still, he wanted the license fee for a testing facility set at $100,000, just like dispensary licenses. But Councilor Rick Kiley Tuesday night convinced his colleagues to amend that down to $5,000. And he also successfully got changed the fee amount for renewals.

In the final ordinance, the cost of renewing a dispensary license each year was set at $25,000 and $1,500 for a testing facility license.

All the power is in the mayor' 

And the city finance officer would have been the appellate officer if the business were to object.

In the end, the Council amended the ordinance to allow City Hall to make only recommendations for revocation of a license, while leaving the final determination in the hands of the City Council, similar to the process undertaken when a liquor license is taken away.

Following more than two hours of testimony and deliberation that ended with the 7-1 vote (Pat Starr voted no), TenHaken lauded the Council and the city attorney's office for vetting marijuana policy in other jurisdictions before putting forward an ordinance that he says is best suited for Sioux Falls.

"We've spent a lot of time researching this issue so to ever imply that we haven't talked to other cities or communities in researching this is simply not true," he said. "There's been hundreds of hours that our office has spent on this to make sure we've done this right."