The celebration probably did not compare to Times Square after World War II ended, but citizens across the country let out a collective cheer when the government repealed alcohol prohibition in 1933. Now imagine if, in the midst of this celebration, a lawmaker said, “You know what would be great? We should put all alcohol business in the hands of a few select companies that could manipulates prices and reap all the financial benefits.” If that sounds like a buzzkill, you should know this type of consolidation is already taking place in the Los Angeles cannabis industry.
“Cannabis is a multi-billion dollar industry in California,” says Ariel Clark, a leading industry attorney at Clark Neubert and Chair of the Los Angeles Cannabis Task Force. “Massive economic opportunity exists, and limiting opportunity to a small number of folks is at great cost to others. We are on the precipice of creating a new and lucrative industry. Do we want to do it like so many other industries and keep the accumulation of wealth in the hands of the few?”
We will hash out the specifics later, but in a nutshell, the City of Los Angeles is on track to enforce a 135-company limit on cannabis enterprises, all of which have already been selected. On the industry side, this means the majority of state-legal dispensaries, delivery services, manufacturers and growers must move, close or face criminal prosecution. On the consumer side, a lack of competition could allow businesses to fix prices, decrease quality and reduce services such as deliveries. Massive layoffs will occur throughout the industry, affecting state and city revenue, and individuals seeking a cannabis career might have to relocate. Or start working for Wal-Mart if it decides to buy a license from one of the 135 chosen few. Despite larger issues like fairness and equality for businesses, the consumer will ultimately pay the biggest price, both literally and figuratively.
How did we get here? This is a basic breakdown of the situation.
In October 2015, Governor Jerry Brown signed the Medical Marijuana Regulation and Safety Act (MMRSA) into law, providing a statewide regulatory framework that should come online in 2018. The new law requires businesses to have a local license before they can apply for a state license, but the City of Los Angeles will not issue permits since it banned all cannabis business. Several bills are currently in motion to address issues like these. For example, state legislator Reggie Jones-Sawyer authored AB 2385, which in its current form allows Los Angeles-based dispensaries to operate without a local license if they meet the criteria required by Proposition D.
In 2013, Los Angeles voters approved Prop D, which banned all medical marijuana businesses in the city. However, Prop D did grant immunity for a select 135 businesses that were registered with the city and in operation since September 2007. Why September 2007? An Interim Control Ordinance took effect that month putting a temporary moratorium on new dispensaries, which is why these 135 companies refer to themselves as pre-ICO. Hundreds of post-ICO dispensaries continue to operate in Los Angeles to this day, but the new state law (MMRSA) could crack down on that.
Now let’s tie it all together. The new state law says a cannabis business needs a local permit to get a state permit, but Los Angeles does not grant local permits. AB 2385 allows the 135 Prop D dispensaries to bypass the local license requirement, but all other medical marijuana businesses would be subject to criminal prosecution. As a result, all business (new and old) must fall underneath the umbrella of the 135 Prop D companies, effectively creating an oligopoly (i.e., a small group that, collectively, have a monopoly on a specific product or service).
“It is an understatement to say we need comprehensive regulation and to align Los Angeles with state law for the benefit of California as a whole,” explains Clark. “This is the biggest city in the state and the epicenter of marijuana in the world. By jumping over the local permitting process, AB 2385 ignores all these other business activities provided for under state law.”
Against this backdrop, Clark and other industry leaders formed the Los Angeles Cannabis Task Force. Their goals are to educate and activate the public, protect consumers, assist lawmakers and push back against forces seeking to corrupt the process.
“First, we need to bring the City of Los Angeles in line with the MMRSA, which means having a fair permitting process that provides for the all business types in the new law,” says Clark. “That goes well into the second priority, which is to allow that process to be fair and open on a local level. We want it to reflect the diversity of our city, not just across the different license types, but across race, gender and socio-economics.”
Imagine the huge market for Oreo cookies if, having been available only on the black market, they suddenly became legal. In March, Forbes.com pointed out that Oreo sales currently represent only a fifth of the revenue generated from state-legal cannabis sales. In developing a new regulatory framework for such a massive industry, many lawmakers are naturally overwhelmed and confused, and there are people who wish to exploit the situation for personal gain.
“There are forces who would rather keep all cannabis businesses underneath them in a vertically integrated fashion,” explains Clark. “This is a huge economic boon for these groups, but frankly, I would not think our city wants to sanction monopolies. This creates job displacement for the 95 percent of non-Prop D businesses. This includes dispensaries, delivery services, cultivators, testing facilities and manufacturers who are operating in the city and should have the opportunity to hold local permits. If we don’t fix this, the city will lose revenue and jobs, and small- or medium-sized entrepreneurs will be told, ‘Stop what you're doing and go work for one of these 135 people.’”
Leah Abdenour of Green Shield Patients Cooperative is one such individual who is already being affected. She remarks, "I am a delivery service owner in Los Angeles who legitimately paid the city all required taxes for four years. Now this year they say we are operating illegally and must shut down. What about all my taxes to the city prior? Deliveries serve some of the most terminally ill patients who cannot make it to storefronts. This is about civil rights."
How can you get involved? Start by visiting the Task Force website and signing up for the mailing list. It will update you with information, plans of action and various events like fundraisers and educational town halls. If you can attend any of these events, please do. Likewise, tell your local Assembly member and councilperson that you oppose any bill that limits business to Prop D companies and that you support sensible regulation that reflects the state law. You can email the Task Force via the website to request phone, letter and email scripts for communicating with local representatives.
“We are up against extremely well-funded groups with entrenched lobbyists who have long-standing relationships within the city,” Clark concludes. “On the other side, we are a grassroots organization advocating for a fair and open market that reflects the diversity of the city. We need to get people involved because there is strength in numbers.”
David Jenison (email@example.com) is Editor-in-Chief at PRØHBTD.