California’s Legal Cannabis Market Is Broken
By Chris Beals, CEO at Weedmaps
November 9 marks the third year anniversary that Californians voted to legalize adult-use cannabis. To commemorate this civic anniversary, I’d suggest that elected officials and government leaders throughout the state reflect on their commitment to actualize the will of the people regarding legal cannabis. For many of them, it’s going to be a muddied reflection.
When they overwhelmingly passed Proposition 64 in 2016, voters made their intentions clear. Among other things, they wanted safe access to legal cannabis; good jobs for Californians working in the industry; and tax revenue that would help fund critical state programs. Since the measure passed, public support for cannabis has grown substantially. According to a recent UC Berkeley Institute of Governmental Studies poll, 68% of Californians think legalization has been a good thing. But even more telling: 63% of Californians don’t just want legal cannabis available in the state . . . they specifically want it available in their local communities, too.
The desire for cannabis retail in their local community is supported in every corner of the state, including nearly 70% in Los Angeles County. Even the areas with the lowest levels of support, Riverside and San Bernardino counties, came in at majority levels, at nearly 55%.
But if every jurisdiction in the Golden State wants cannabis retailers in their communities, why do only a paltry 24% allow it?
Local officials aren’t listening to the people they represent. Across the state, legal cannabis retail (storefront dispensaries or delivery services) is banned in about 76% of our cities and counties — And that includes cities like Fresno, Burbank and Anaheim, where an overwhelming majority of voters supported Proposition 64. To add insult to injury, the cities that have implemented licensed cannabis retail operations impose such restrictive policies that only a few high net worth individuals get a license. As a result, local small businesses, Prop 215 medical providers, community residents and entrepreneurs of color — the very people that cannabis legalization was supposed to support — are shut out. This bizarre obstinance by local politicians doesn’t just fly in the face of their constituents, it also ensures that California’s licensed cannabis market will continue to struggle at generating jobs, tax revenue and safe medical access.
Ironically, a provision within Proposition 64 created this problem. Language included in the measure enables city leaders and county executives to indiscriminately decide cannabis licenses within their jurisdiction. The thinking was that local leaders would follow the will of the people and issue licenses proportionately to how their constituents voted for Proposition 64. Obviously, that didn’t happen.
Here’s another irony: A decade ago, California far led the way when it came to advancing the cause of medical cannabis. But today, the state significantly lags behind others in providing basic access to medical cannabis. In conservative Oklahoma, for example, where medical cannabis was legalized just 16 months ago, more than 2,200 medical cannabis dispensaries have been licensed for the state’s four million residents. And the illicit market is practically non existent. California’s population is ten times larger than Oklahoma’s. But it has 1,400 fewer licensed cannabis retailers.
Other issues are impeding legalized adult-use cannabis from taking its rightful place in California’s economy and culture. Again, local politicians and policymakers have formed the blockade.
One of Proposition 64’s greatest social promises was ensuring people convicted of cannabis crimes along with communities impacted by the failed “war on drugs” would participate in the new, legal industry. They were promised licenses through social equity programs that would be implemented by local jurisdictions. To date, these efforts — which are few and far between- have failed to issue an adequate number of licenses. Stories from some of the largest California cities show just how disappointing, ill-conceived and frustrating social equity programs have been.
Earlier this summer when Los Angeles opened the application process for 100 social equity licenses, they received more than 800 applications within the first day. Yet in all this time, they have yet to issue a single social equity license. The city is now facing more delays, questionable ethics charges and possible lawsuits over its bungled rollout. If and when social equity licenses are awarded, those businesses will start operations with a huge disadvantage: monopoly competition that had a multi-year headstart on cornering the market and large stockpiles of capital.
Sacramento recently launched a social equity program, but has not created any pathways for its graduates to obtain retail licenses. This has resulted in a third of the artificially-capped 30 licenses being held by friends of Rudy Guiliani. The FBI is now investigating and the city is scrambling to issue 5 additional licenses to social equity applicants.
And San Francisco has announced that they are implementing a social equity program later this year. One can hope that they issue social equity licenses with more urgency give the fact we are 3 years past Prop. 64 passing.
In a case of the quintessential “cart before the horse,” California’s social equity programs are funded by cannabis retail revenue — which doesn’t start until after legalization rolls out. This sets equity applicants up to fail by giving traditional licensees a head start building market share. Other states looking to legalize cannabis are exploring ways to finance social equity programs out of general fund budgets. This would allow equity applicants to enter the marketplace at the same time as all other licensees. The general fund would then be replenished by revenue from cannabis sales.
Medical and adult-use cannabis demand has increased substantially since Proposition 64 went into effect. Unfortunately, legal access has decreased substantially. Artificial licensing caps and the general unwillingness of local municipalities to issue licenses have brought the cannabis market in California to one of its ugliest points.
Disproportionate and arbitrary caps on licenses have enabled monopolies and retail consolidations in the industry. As a result, those who had the capital to obtain a coveted license now have a stranglehold on the local market and deep pockets to lobby officials. And they will stop at nothing to maintain it, go so far lobbying against increased licensing caps, even for equity applicants. In Los Angeles, for example, a group of monopolistic operators put money and muscle in 2016’s Measure N. If passed, the number of dispensaries in the city would have been significantly capped, and individuals with previously arrested for cannabis crimes would be disqualified from entering the industry. These same groups have also lobbied against delivery access to cities that don’t have cannabis licensing and provided heavy input into Los Angeles’ struggling social equity program.
Many of these groups, working with closed minded local officials repeatedly call for increased law enforcement action against illicit shops, the majority of whom are fighting to obtain a license. To conduct SWAT team-like raids on well meaning business owners is not only morally incomprehensible, but is an affront to the spirit of legalization.
And finally, these politicians and government officials are leaving money on the table. It was projected that more than $600 million in cannabis tax revenue would be generated in California this year. But due to a lack of licensing, the state fell short by almost $300 million. That money would have funded much needed public health and environmental protection efforts in communities throughout the state.
California’s mayors, city council members, county executives and supervisors — and even police chiefs — who have advocated and implemented cannabis business licensing bans and caps must take responsibility for their inactions. By not opening the market in their communities, they are denying jobs and livelihoods to thousands. They are ensuring that their citizens must turn to the illegal market for medical cannabis. They are rebuffing the potential and possibilities of an entirely new industry. By maintaining the status quo, they are closing the door of opportunity to people of color and minority entrepreneurs to enter the middle class, and individuals who were put in jail for cannabis crimes to actually, fairly profit from a cannabis business. And they are adding to rising crime, public health emergencies, environmental disasters, crumbling infrastructure and inadequate education within their communities by stifling tax revenue that would be used to address these issues.
If local leaders in California won’t take action, do their job and implement the will of the people, the Governor and the state legislature should. Californians are watching closely. And based on their enthusiasm, engagement and activism for Proposition 64 in 2016, you can bet voters will remember next November.