Sluggish social equity programs, booming illegal market have left Black entrepreneurs in the cannabis business disappointedMatt KrupnickThu 4 Nov 2021 06.00 EDT
Half a million dollars and nearly four years into his Los Angeles-based cannabis venture, Donnie Anderson had no shop, no prospects and a mountain of debt.
With financial help from family and friends, Anderson rented a $6,000-a-month space in January 2018 for his new cannabis retail shop. He kept paying the rent as the city’s permitting process dragged on. He bought cabinets and other equipment as he waited. And waited.
Sick of waiting, he’s selling all that equipment and giving up his lease. Inaction by the city is forcing him to give up his dream, he says.
“It’s killing business owners,” Anderson says. “All the air has been let out of me.”
In November 2016, Californians voted to legalize recreational cannabis. But nearly five years later, the state and many of its cities and counties are still figuring out how exactly to regulate the industry. The challenge has been particularly frustrating for Black entrepreneurs like Anderson, who were promised a leg-up getting started, but have seen little movement in that regard.
Following regulation, several cities and counties in California created social equity programs to help entrepreneurs in communities most harmed by the war on drugs. Black people have borne the brunt of marijuana criminalization in the US over the past 20 years. They’re nearly four times as likely as white people to be arrested for pot violations, according to the American Civil Liberties Union, even though the two groups use marijuana at roughly the same rate.
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The equity programs were supposed to help people of color and those formerly incarcerated for cannabis crimes get licensed to run all types of cannabis businesses: cultivation, manufacturing, delivery, retail. The programs created big expectations, but implementation has been much trickier.
“Many people got totally burnt,” said Christine De La Rosa, co-founder and CEO of cannabis company The People’s Ecosystem, who planned to apply for a social equity license in Los Angeles but didn’t win the city’s lottery for a chance. “I can’t think of one [program] that has been good for women or for people of color. It has been a failure.”
The main problem, De La Rosa said, is that social equity programs don’t help enough with the financial side of business ownership. Without federal cannabis legalization, big banks won’t provide loans, and people of color have more trouble getting venture capital, she said.
I can’t think of one [program] that has been good for women or for people of color. It has been a failure
Christine De La Rosa
“This has been the farce of social equity”, she said. “You tell a bunch of formerly incarcerated people of color, ‘we’re going to give you a license.’ So now you have the license but you don’t have the money.”Advertisement‘Barbarians’: Russian troops leave grisly mark on townof Trostianetshttps://imasdk.googleapis.com/js/core/bridge3.509.0_en.html#goog_400169377https://imasdk.googleapis.com/js/core/bridge3.509.0_en.html#goog_239790512https://imasdk.googleapis.com/js/core/bridge3.509.0_en.html#goog_1696282571
The lack of capital has doomed many Black cannabis entrepreneurs, said Virgil Grant, who opened his first dispensary in Compton in 2004 and owns three in the Los Angeles area. He helped design the Los Angeles social equity program, but admits red tape and financial challenges have made it nearly impossible for Black owners to open cannabis businesses.
Black owners face obstacles other entrepreneurs don’t understand, Grant said. “You have a bunch of white guys who fall into money”, he said. “They turn a corner and money is there, waiting for them. We have to bleed working for it.”
Without deep pockets to fall back on, Black entrepreneurs are less likely to weather other challenges the budding legal industry has faced.
Legalization took effect in 2018, but businesses are competing with a fierce black market. The vast majority of California’s cannabis business is still unregulated due in part to the local jurisdictions, two-thirds of which don’t allow cannabis companies. Three-quarters of marijuana commerce is illegal, agricultural economist Daniel Sumner estimates.
White guys turn a corner and money is there, waiting for them. We have to bleed working for it
Virgil Grant
Licensed businesses face taxes as high as 40% and have complained about unscrupulous landlords who triple rents or demand a share of a tenant’s business. Some cities had already hit their limit for cannabis businesses by the time their social equity programs took effect, leaving owners to either wait years for approval or rely on unlicensed sales. All of that inflates prices for legal cannabis, which in turn drives consumers to the black market.
State and local officials have had trouble figuring out how to shut down unlicensed businesses. They know the black market hurts legal business owners, but they have few resources to deal with the overwhelming problem and fines are woefully inadequate, they said.Advertisementhttps://7baf049ebdd1c82e169618f22c469b5c.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
“We certainly are aware of the underground market,” said Davina Smith, who leads Sacramento’s cannabis program. “It’s a tough nut to crack. The penalties aren’t there. There’s not much of an incentive for pursuing them.”
Meanwhile, funding and worker shortages have slowed down the licensing process. Many jurisdictions have been inundated with applications, but outdated computer systems have prevented progress, said city officials up and down the state.
In Los Angeles, for instance, slowdowns caused by complicated cannabis regulations have been compounded by environmental reviews required of all new businesses, said Cat Packer, executive director of the city’s cannabis regulation department. And several cities cited funding shortfalls as the reason they haven’t been able to make more progress.
The pandemic hasn’t helped, said Roz McCarthy, founder and CEO of Minorities for Medical Marijuana, a nonprofit advocacy and education organization. Every city’s bureaucracy has slowed to a crawl as offices have shut down and in-person work has fallen behind, she said.
Seven cities and counties have equity programs: Oakland, Los Angeles, San Francisco, Sacramento, Long Beach, Humboldt county and Mendocino county. Nine other California jurisdictions are developing them.
Oakland and San Francisco have found some success with theirs – Oakland provides grants and no-interest loans to equity applicants, while San Francisco has streamlined the permit process, allowing shops to open across the city, rather than be limited to just a handful of neighborhoods.Advertisementhttps://7baf049ebdd1c82e169618f22c469b5c.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
In Oakland, 240 equity applicants have been fully permitted, while 400 others are being processed. But anecdotal evidence suggests several cannabis businesses there either never opened or quickly shut down.
Thinking a little more thoughtfully about how to resource the effort from the get-go is hopefully something local jurisdictions are working on
Nicole Elliott
“Most of the people who started with the first round of social equity licensing no longer exist,” said De La Rosa of The People’s Ecosystem. “They couldn’t get access to the capital.”
The city of Oakland does not track whether licensees are still operational but is researching ways to help businesses survive, said Gregory Minor, who directs the equity program.
“We said from the beginning it’s difficult to come up with something new and get it right out of the gate,” he said. “We’ve tried to make adjustments all along, but we’re also looking at coming up with a package of recommendations for the city council.”
In Los Angeles, just one of every 10 social equity license applicants has been approved, all of them in the past few months, said Packer. In Long Beach and Sacramento, limits on the number of dispensaries have prevented the cities from issuing new equity licenses since the first round of openings immediately after legalization.
Similar programs outside California have faced issues as well, and none have been especially effective, said Morgan Fox, a spokesman for the National Cannabis Industry Association. Programs nationwide often don’t have enough resources and pit equity applicants against each other, he said. Bureaucratic delays in issuing licenses allow non-equity businesses to snap up prime real estate and funding.
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Minority-owned cannabis businesses will need to find innovative ways to find funding, said McCarthy of Minorities for Medical Marijuana. Among the solutions she thinks could help: co-ops of owners with different types of licenses, such as retail, cultivation and delivery; crowdfunding to build capital; and incubators where established businesses help new owners build their companies.
California officials have said they would like to see more of a commitment from local regulators.
“They really embrace the concept of equity but need to do more to put their money where their mouth is,” said Nicole Elliott, director of California’s cannabis department. “Thinking a little more thoughtfully about how to resource the effort from the get-go is hopefully something local jurisdictions are working on.”
But Donnie Anderson, who kept his empty storefront ready for four years, is out of patience.
“I’m giving up the lease right now,” he said. “I’m just ready to sue.”