Pot equity companies left at disadvantage
It took two years for Bloom Innovations to complete the greenhouses it promised six businesses — companies that had signed up to be “incubated” by a subsidiary of Bloom as part of Oakland’s cannabis equity program. To get the equity program off the ground, the city moved what it calls general applicants — companies like Bloom, a horticulture consulting and management firm that distributes cannabis products under the brand name NUG — to the front of the permit line if they incubated equity applicants. They had to provide
those partners 1,000 square feet of free business space.
Equity applicants had to be city residents earning less than 80% of the average city income. And they had to either live in a specified highcrime zone for at least 10 of the past 20 years or have been convicted of a cannabis crime in Oakland after Nov. 5, 1996.
The goal was to allow people living in parts of the city disproportionately affected by the failed war on drugs to get to the front of the pack of businesses seeking to cash in on legal cannabis.
Bloom agreed to incubate six businesses under its subsidiary NUG. But there were repeated delays with everything from building permits to inspections. Because it’s taken two years to construct greenhouses, NUG’s equity applicants have been stuck at the starting line since adultuse cannabis sales began Jan. 1, 2018.
That’s right, the city that dreamed up this program, which reserved half of cannabis permits for equity applicants, caused six of these very businesses to start behind other cannabis operators. Now, the businesses face an uphill battle to catch up in a market that might not have room for them.
John Oram, Bloom’s CEO, expects the businesses to be fully operational by Jan. 1. Under Oakland’s equity ordinance, general applicants had to provide rentfree space to incubated businesses for three years. NUG signed leases with its six businesses in late 2017.
“So these groups get one year — no, I’m kidding,” Oram said.
He’d noticed that my jaw dropped when we met at his East Oakland warehouse this week.
“That just feels wrong. It wrong, so we’re not doing that,” Oram continued. “We are amending our agreements. They will get three years of operations — three years from the date that they grab the keys.”
Since I began reporting on the cannabis partnerships Oakland engineered through the equity program, I haven’t encountered a general applicant that bought into the program’s intent like NUG.
The six businesses get 1,200 square feet of space — 200 more than required — in automated greenhouses that are equipped with augmented lighting, motorized curtains and an irrigation system on the lot near NUG’s warehouse. The greenhouses cost about $2 million total to build, said Oram, who provided one business with a $10,000 interestfree loan for startup costs.
“We have slowed down other projects of our own, construction projects of our own, and prioritized the funds to building out these equity greenhouses,” Oram said.
Success of the groundbreaking program depended on a head start, but the greenhouses were delayed because the city departments in charge of signing off on construction projects and inspections didn’t prioritize the equity program the same way Oakland’s City Council did.
Alexis Bronson has already moved into his greenhouse. He specializes in clone plants and seeds, and he’s hoping to restore his nursery business to where it was two years ago when he was producing in his garage. To get there, he’s got to reliably produce so dispensaries call for more orders. He told me he’s had fewer than 10 calls since September.
“I’ve got to get going here. (Dispensaries) tend to forget about you after a while,” Bronson said. “I don’t know how I can survive in the nursery and clone business.”
Equity operators like Bronson are finding difficulty getting their product onto dispensary shelves, which is why NUG’s participation in the program is essential: NUG has reserved space for equity applicants at its dispensaries.
Overall, the legal cannabis market in Oakland — and, really, the entire state market — isn’t meeting expectations. Marijuana businesses and consumers pay a bevy of taxes — local, state, sales and more — that have allowed the illicit market to undercut dispensary pricing. Why pay more in a store when you can get what you want cheaper elsewhere?
Even legally permitted companies with deep pockets have been impacted. Bay Areabased companies like Eaze, PAX Labs, Weedmaps and Flow Kana have been forced to reduce staff. And Californiabased MedMen, one of the most highprofile cannabis retailers in the country, laid off 40% of its workforce this year.
NUG laid off nearly 20% in April, Oram told me. It increased staff as revenue went up in the summer and fall, but more cuts are looming with a bleak winter projected. NUG has about 200 employees, many of whom live in Oakland, San Leandro and Richmond — local residents on the verge of losing jobs.
Oakland positioned itself as a leader in the state’s cannabis gold rush, but two years after recreational cannabis went live, businesses are fighting to stay alive. Oakland City Council approved a tiered reduction of its 10% tax on adultuse businesses on Dec. 10, but relief won’t be felt until at least 2021 or 2022, Oram said.
I wonder how many equity businesses will be operating then.