Small firms left out of Oakland pot permits

Brian Edwards moved his baking equipment into a storage unit last weekend. His business, Higher Veda Medicinals, a manufacturer of cannabis edibles, closed its doors because the company, formerly known as Swerve Confections, didn’t have a permit to operate in Oakland on Jan. 1, the day adult-use marijuana sales became legal in California.

Higher Veda, which produced edibles such as Buzz Bar, an energy snack, is one of the first of what could be dozens of casualties of Oakland’s equity program. The program reserves permits for people who were convicted of a marijuana-related offense in Oakland; earn an income that’s less than 80 percent of the city’s average median income (the average median income is $68,200 for one person in 2017); or have lived for 10 of the past 20 years in an East or West Oakland neighborhood that saw a disproportionately high number of cannabis arrests.

Because of delays in local permitting efforts, the state Bureau of Cannabis Control allowed businesses waiting for local permits to apply for temporary state licenses — if the businesses could obtain a letter of authorization from the local government. In Oakland, preference for authorization was given to equity applicants or general applicants who incubate an equity applicant. A general applicant would have to provide 1,000 square feet of

free business space to an equity applicant to qualify as an incubator.

That rule put small operators like HigherVeda at a huge disadvantage.

Edwards, a resident of San Leandro, operated out of a 600-square-foot kitchen in East Oakland for two years. He didn’t have the capacity, or funds, to provide 1,000 square feet of free space for anyone.

Edwards — and others like him who have not received authorization letters from Oakland — are being squeezed out of business. Without the ability to operate and earn revenue, they cannot survive. They can’t afford to wait at the back of the line for a letter of authorization that may never come.

This is happening despite the fact that for two years Edwards followed the city’s rules, paying the 5 percent tax on gross receipts of his medical marijuana sales.

It’s happening despite the fact that Oakland was the first city in the U.S. to issue a permit for a medical cannabis dispensary in 2004, drawing wellintentioned operators like Edwards to the city.

“If you’re just not ready to write fat checks and money doesn’t matter, it’s kind of like, ‘Get out of the game,’ ” Edwards said. “I’m prepared to sell a big chunk of my business or I’m prepared to license off something and take some losses. Every day, I get farther away from where I used to be. A month ago, I was a business owner.”

Now Edwards and other small businesses like his are the odd man out because they don’t have the resources to incubate.

“The city created a structure that left out the little guy because the city decided not to take financial responsibility for its direct role in discriminatory policing in lowincome communities of color,” said Robert Selna, an Oakland land-use attorney who represents marijuana businesses. “Recall that it was the Oakland Police Department that allowed customers to walk freely out of dispensaries carrying marijuana, yet arrested those buying or selling cannabis on the street.

“The city has decided that big business will foot the bill for a problem the city created. In turn, the city has grossly tilted the playing field in favor of big business at the expense of small operators.”

Edwards, 24, set up shop in Oakland because the city provided protection to operate.

“They took 5 percent of my gross and they would give me a tax certificate, and when no one wanted to pay the 5 percent of gross because it wasn’t legal, they were happy to take it from me,” he said. “But now that it’s legal and everyone wants to pay them 5 percent gross, they don’t want me to keep doing it.”

I’ve supported the general idea of Oakland’s push for equity, but I’ve written before that it shouldn’t be done through discriminatory business practices. And as the legal era unfolds, I’ve begun to question the authenticity of Oakland’s equity program: Will it really provide an avenue for the people who have been disproportionately affected by the failed war on drugs to get a slice of the pie, or will it squeeze out smaller operations so the big, established companies can get an ever larger share of the pie?

I doubt the lasting effectiveness of the equity program, because there are no guidelines. The only requirement is that equity applicants are guaranteed 1,000 square feet of space — an empty room — for three years. If equity applicants aren’t connected with a general applicant that provides guidance and knowledge about regulations and compliance, the equity applicant is more likely than not to fail.

Edwards attempted to get the city to expand the equity program, proposing that small businesses without the resources to incubate be allowed to serve as equity business consultants, supplying the mentorship the program lacks.

“I don’t understand why I can’t be involved in the program in some other capacity and still get my permit,” Edwards said. “I don’t know how my little edibles business is undermining to the equity program.”

Oakland City Councilwoman Rebecca Kaplan, who along with Councilwoman Desley Brooks pushed for the rule change that put applicants like Edwards at the back of the line, said the city should look at the effects.

“I don’t want us to end up with a market of only the largest ones being able to succeed,” she said.

Brooks could not be reached for comment.

Edwards considered moving HigherVeda’s operations into a permitted shared commercial kitchen, but it was too expensive. He would have had to pay $5,000 per month for 200 square feet. He was paying $1,800 per month for three times the space.

The company has told its four employees to look for other jobs as Edwards considers his next move, which includes folding HigherVeda into another company so he can still make edibles.

Will Edwards leave Oakland?

“I don’t have a business right now, so it doesn’t matter,” he said.