Los Angeles Cannabis Rule Changes Aim to Level Playing Field for Entrepreneurs

Two years after throwing the doors open on what was set to be one of the most lucrative legal cannabis markets in the nation, Los Angeles hit the reset button Wednesday on its rules and who can get a business license.

In 2017, LA laid out its framework for a legal cannabis industry including a component that would give business licenses to people from communities targeted by aggressive policing during an era many say was failed war on drugs.

That era, from the 1970s through the 1990s, hurt communities of color in LA. The city sought to give those residents the chance to jump into the legal cannabis market by giving them priority with business licenses.

In the initial phase, medical dispensaries could apply for licenses, followed by nonretail, legal businesses and those eligible under a social equity program.

Then there was a fumble in September 2019, when some applicants were given early access to an online application portal. The city’s Department of Cannabis Regulation inadvertently gave early access in a first-come, first-serve process, according to a city audit. The first 100 applicants could potentially see temporary approval to operate their businesses.

That misstep is at the center of a lawsuit that challenges the city’s licensing process and who gets to participate in the social equity program.

On Wednesday, the city approved changes to streamline its application process and the temporary approval for business applicants if they meet certain benchmarks. That also includes weeding out investors who take advantage of social equity applicants and making sure that an investor cannot be forced out of their business.

According to cannabis nonprofit California Minority Alliance co-founder Virgil Grant, he proposed the concept of a social equity program to LA leaders several years ago. But the program running today is “watered down” and does not benefit those impacted by the war on drugs, Grant said in an interview.

Grant operates medical marijuana dispensaries and also transitioned his business to include adult recreational use, with locations in South Central LA, Boyle Heights and Hollywood. Grant said cannabis businesses are overtaxed by the state and city and have to deal with the illegal cannabis market, which is still alive and well and taking a big chunk of their profit.

This could have been a lucrative industry, Grant said, but with so many missteps — including some investors using social equity applicants to game the system — it’s unlikely many of those budding entrepreneurs will survive.

“I feel sorry for them. For anyone who doesn’t have 10 to 15 years’ experience in the retail market it’s going to be near impossible for them to survive. For many, this is their first time legally selling cannabis,” said Grant. “This wasn’t supposed to be a program for political play for politicians or jockeying rich white investors who wanted to take advantage of people of color.”

The Los Angeles Times reported one company has partnered with 32 social equity applicants, employing aggressive language in contract agreements that gives the company leverage to buy out social equity applicants over minor disputes. Other cannabis entrepreneurs say the company also partnered with the top 13 of the first 100 applicants and gives the applicants it works with an unfair advantage over the process and cannabis market.

The next round of applications will be determined by a lottery system for those who have been arrested or convicted on a cannabis charge while living in a community impacted by the war on drugs or a low-income neighborhood.

Adam Spiker with the cannabis trade group Southern California Coalition said LA “overpromised and underdelivered” on how businesses could get licenses, including delivery services.

“It doesn’t mean we give up,” said Spiker. “Forget that my job title with the coalition is executive director. Because my main job title is being a psychologist for our trade group’s members who have had to put up with LA’s bureaucracy.”

Many of the rule changes for LA will go into effect immediately while others will roll out in the next few years. The final rules await Mayor Eric Garcetti’s final approval.

First posted in Courthouse News Service