Hopeful cannabis licensees in limbo
L.A. entrepreneurs complain social equity program’s slow rollout is hurting people it was supposed to help.
When Los Angeles politicians promised that those hit hardest by the war on drugs would profit from legal marijuana, Whitney Beatty saw a chance to realize her dream.
She rented a South L.A. storefront and applied for a license under L.A.’s social equity program, which was supposed to give eligible entrepreneurs a boost in the cannabis industry. She imagined a shop that would cater to women of color, named after Josephine Baker and Billie Holiday.
More than a year later, Beatty is spending money on an empty space with no guarantee of when she will open. Her initial investors have gone out of business, she said. And Beatty said there has been little help from the city.
“I’m doing the best I can to keep this dream alive,” said Beatty, a single mother who also has a business selling humidors to store cannabis. “But it’s draining applicants who are the least financially able to handle these costs.”
Los Angeles has long since granted licenses to some long-standing cannabis shops that met city requirements, but new retailers — those in its social equity program — have been slower to get approval. The program targets entrepreneurs with marijuana arrests, those with low incomes and people who have lived in areas disproportionately affected by cannabis arrests.
When the program was first imagined, cannabis ad
vocates praised it as a kind of reparation for the war on drugs. Now cannabis entrepreneurs complain that the sluggish rollout of the program is hurting people it was supposed to help.
The wait has been costly for applicants, some of whom have been paying for empty storefronts for years. To compete in this round of licensing, applicants were required by the city to have a lease or deed for a store; some snapped up spots even earlier amid concerns about competition for eligible sites. And the promised assistance for such applicants has been limited so far.
It’s “ludicrous” to even call it a social equity program, said Rusty Savage, a social equity applicant seeking to open a marijuana business in South Los Angeles. “It’s not built for a guy who got arrested, who lives in the hood and ain’t making no bread.”
Hundreds of people rushed to turn in applications in September 2019, spurring a prolonged battle over whether the competition for licenses was fair. Months after releasing an audit and reaching a legal settlement, Los Angeles is now poised to grant approval to 200 new shops — all of them eligible under the equity program.
But there has been no guarantee of when that will happen. The city’s Department of Cannabis Regulation says the process has been slowed down by the financial strain of the COVID-19 crisis, which has restricted city hiring and contracting and hindered departmental services, as well as the earlier disputes over applications.
The department’s executive director, Cat Packer, said that “we are doing everything that we can” to approve businesses and launch assistance programs but added that “there’s a lot of bureaucracy that goes into standing up these programs for the first time.”
The department says it has only nine staffers assigned to review hundreds of applications. And changes to the approval process, made after the initial deluge of applications, also led to delays, officials said.
The halting rollout of the program has been especially galling to applicants at a time when L.A. is facing demands to reinvest in communities of color. More legal cannabis shops could also help dampen L.A.’s budget problems, with tax revenue from marijuana businesses expected to jump 79% this fiscal year.
At a recent meeting, Cannabis Regulation Commission Vice President Thryeris Mason asked why “one of the few revenue-generating departments in the city” couldn’t get needed staffing, especially amid city talk about social justice.
“Bottom line, it’s disrespectful,” Mason said.
Savage, who once operated a marijuana dispensary in Little Ethiopia, said he has dipped into his savings and day-to-day income to stay af loat as he forks over rent. He declined to specify how much he was paying for his vacant site but said he has survived only because he has been “blessed.”
“I haven’t seen one single dime on my return. It doesn’t seem like it’s coming soon,” Savage said. “How is a person who has a cap on their income, who lives in an economically depressed area and is supposed to have been unduly affected by the police, supposed to come up with that?”
Beatty said that since her investors went out of business, she has tried to find new ones but has repeatedly been offered “ridiculous” and unfair deals.
“They don’t want to partner. They want to utilize the license and get you out of the way,” she said. “It’s disheartening for me because that’s not what the promise of this program was.”
Another entrepreneur, Timothy McDaniel Jr., complained about cannabis investors behaving like “sharks,” trying to sideline him as a social equity applicant. McDaniel said it would have helped if L.A. had arranged earlier for legal assistance; instead, the Watts resident said he had to hire a string of companies to help him navigate business offers and contracts.
Municipal cannabis consultant Yvette McDowell lamented that L.A. had failed to set up the needed “infrastructure” — including programs to help social equity applicants vet legal agreements — before cannabis entrepreneurs had to sign deals with investors.
L.A. did impose rules about the minimum share of the business that must be held by a social equity applicant. But in some cases, McDowell said, “they had to sign agreements and had no clue what they were signing.”
The city had “more than enough time to have built the infrastructure,” she said. “That, to me, is so unacceptable. If this was private industry, people would have been fired a long time ago.”
Robert Ahn, president of L.A.’s Cannabis Regulation Commission, said the department has worked “extremely hard” with limited resources to launch the biggest market for legal cannabis in the world.
It’s “the textbook case of driving and building the car at the same time,” Ahn said of the challenge. But for people paying rent on empty shops, “that’s no consolation to them.”
Last fiscal year, the Department of Cannabis Regulation was granted $5 million by the city for its social equity program, including $3 million for business, licensing and compliance assistance. But the department said it was still setting up curriculum and training for that assistance program.
Cannabis department officials said another expected benefit for social equity applicants — partnering with manufacturers and growers who were approved ahead of them — has not happened yet.
The department has gotten $7.8 million from the state, the bulk of which it plans to use for a grant program for social equity applicants. That, too, has yet to launch; department officials hope to do so in April. An additional $2 million in state funds is now on the way.
The cannabis department recently announced it was launching a program with the L.A. County Bar Assn. that provides social equity applicants with free guidance from attorneys. City officials also pointed to other efforts to assist soon-to-be-licensed pot shops, including new tools to crack down on illegal retailers that undercut their business.
But Councilman Mark Ridley-Thomas said the social equity program “has not yet proven itself effective.”
“The city does not have a lot to show for progress in this area,” he said. “At some point the question will have to be asked, ‘Is it conceptually sound?’ ”
Department officials point out that although cannabis entrepreneurs first applied more than a year ago to open new shops, that was just the first step in a longer process.
Once they are initially deemed eligible, applicants still have to turn in more documents, undergo inspections and get a state license to secure city approval.
As of mid-March, only 60 of the 200 eligible businesses had uploaded any of the needed documents for review, according to the department. Part of the holdup has been that any changes from an original application, such as switching to a new site, need to first be vetted by the department.
Jumane Redway-Upshur, another social equity applicant, said that because the city has taken so long, he ended up needing a new location: A school opened near his planned site in the San Fernando Valley, rendering it ineligible as a cannabis shop, he said.
“Now I’m sort of in a holding pattern,” Redway-Upshur said.
Some critics have complained that the once-ballyhooed program seemed to have lost urgency at City Hall. Council President Nury Martinez said in a statement that the council remains dedicated to its goals.
“All departments have been hit by this financial crisis, but it is our expectation that the Department of Cannabis Regulation will continue working diligently and urgently on the social equity program the council approved,” Martinez said in the statement. “This program works to right the wrongs of victimizing Black and Brown communities which is long overdue.”
Aja Allen, another social equity applicant, said that when the program was first launched, she was excited to see that “the city wants to right the wrongs.”
“It doesn’t feel like that anymore,” Allen said. “It feels like they’re digging us into a really deep hole so that we’ll never be able to get out.”
‘It’s not built for a guy who got arrested, who lives in the hood and ain’t making no bread.’
— Rusty Savage, social equity applicant seeking to open a marijuana business in South Los Angeles