Who's Winning the Great Santa Ana Pot War: Licensed Dispensaries or Rogue Shops?

Who's Winning the Great Santa Ana Pot War: Licensed Dispensaries or Rogue Shops?
Luke McGarry

At around 8 a.m. on Jan. 26, a group of officers from the Santa Ana Police Department (SAPD) lined the shopping center at the intersection of Jefferson Place and 17th Street with yellow caution tape. That same morning, a separate group of officers broke down the door of Sky High Holistic Collective and began to raid the dispensary.

Over the next several hours, law enforcement from Santa Ana's drug division confiscated all the cannabis products in the store, seized the computers and removed the safe. The police also raided another dispensary in the same shopping center. By 9:45 a.m., empty display cases from both dispensaries were sitting on the sidewalk, waiting to be dollied into a city-operated moving truck, then placed in storage.

Unlike the infamous Sky High raid of May 2015—for which SAPD didn't have a search warrant and were caught on camera throwing darts, abusing a paraplegic, and looking and acting suspiciously guilty of eating pot edibles—this cop invasion took place before the store's operating hours. As the clock inched closer to the collective's opening time of 10 a.m., a woman wearing an oxygen mask arrived with her caretaker. A broken expression fell across her face when she realized what was happening to her go-to clinic. She wasn't the only one disappointed; more patients who were members of the collective arrived, only to realize they wouldn't be getting their meds from Sky High that day.

As word about January's raid of Sky High spread, employees from surrounding collectives flooded the area like vultures circling for prey. Groups of people representing different dispensaries—from both the licensed and unlicensed shops—stood in different parts of Sky High's shopping center, an area that borders Santa Ana's Floral Park. They waited for patients to show up to the closed collective so they could hand them flyers advertising their dispensaries.

Some stood at the entrances of the parking lot, while others waited closer to the boarded-up dispensary. They waved down people in cars who drove into the parking lot, approached people who looked like they might be walking toward Sky High and stood on the street corners to catch patients from a different angle.

"Hey, you should check out our collective," said a smiling man who approached a woman as she got out of her car. He handed her a flyer with several emoji faces and the word "LOL" on it—the name of another unlicensed shop in Santa Ana. "We're about 10 minutes away from here."

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Pappas: “They could have served [the suit], and they never did”
Pappas: “They could have served [the suit], and they never did”
John Gilhooley

Matthew Pappas, an Orange County cannabis attorney who represents Sky High and a handful of other unlicensed shops, released a statement shortly after the January raid saying the operation took place approximately 10 days after he filed suit against the city, seeking $650,000 in damages for three prior raids. The reason the city hadn't returned or paid the requested amount of money, according to the suit, is because Santa Ana PD "lost, destroyed or otherwise converted the property taken" from the raids. Among the property, according to Pappas, were display cases, cannabis, computers and patient records—the same items that were taken in the January raid.

Less than 12 hours after SAPD boarded up Sky High, a statement was released announcing that a Los Angeles cannabis attorney named David Welch would represent the members of the Santa Ana Cannabis Association—a coalition of the Measure BB-compliant dispensaries in the city—in a civil suit filed against 14 unlicensed shops in town. The Santa Ana Cannabis Association's mission is to help ensure medical-marijuana businesses are in compliance with the laws, as well as to facilitate safe access to legal medical cannabis for the citizens of Santa Ana.

"Measure BB was established to provide guidelines for the operation of a medical-marijuana dispensary, including the requirements for obtaining a license to operate such a business," Welch says in the statement. Aside from not obtaining a license, he argued, those facilities don't pay city taxes; provide proper onsite ventilation, which negatively affects the air quality of surrounding communities; or perform background checks on their employees.

Pappas immediately released a response saying he and his team at McGrath, Pappas and Pinchiff Law would represent the 14 unlicensed dispensaries. "These lawyers are suing dispensaries who did not engage in bribery and corrupt actions, unlike those who were involved in the corrupt lottery system," Pappas said. "The actions taken by Welch and his partners to protect the profits of their clients who obtained licenses through political contributions and anti-competitive methods are not only improper, but [also] designed to harm the patients for whom medical cannabis was provided by the voters. Those patients who have been harmed by Santa Ana will fight back to stop the corruption."

Taft: “No one is winning here”
Taft: “No one is winning here”
John Gilhooley

Fast-forward six months, however, and the suit has yet to be served. "I think the point of that lawsuit was a publicity stunt," says Pappas. "I'm fairly certain that the raid of Sky High was meant to be coordinated with the filing of that lawsuit for the press because they did a press release of the raid, which you just normally don't do, and then Santa Ana PD went into Sky High early in the morning before the dispensary was open, and they took absolutely everything."

 

The Weekly scheduled a phone interview with Welch, but he ended up being unavailable and unable to reschedule. According to Pappas, he and Welch used to work together. "They know my address. They could have served [the suit], and they never did," he says. "There's a chance it's even been dismissed by now."

This low-level war between rogue shops and licensed dispensaries in Santa Ana began in November 2014, when Measure BB beat Measure CC, a grassroots-backed and more expansive legalization initiative, in a special election. Although Measure BB allowed medical-marijuana dispensaries to operate in Santa Ana, the city's measure capped the number of licenses at 20—a number much less than CC aimed for. That's when the city held its infamous lottery to determine who'd get ownership of those storefronts.

Santa Ana's pot lottery is now the stuff of cannabis folklore. From the eyewitness reports of shady people showing up at City Hall with bags of cash to purchase 100 to 150 lottery balls at $1,490 apiece to allegations that Mayor Miguel Pulido's personal lawyer was going into dispensaries and offering his private consulting services, evidence that the process wasn't exactly fair quickly piled up, leaving many would-be dispensary operators frustrated. Nearly three years later, both licensed and unlicensed shops exist in Santa Ana. Although the amount of rogue shops has substantially declined since 2014, perhaps the most fundamental reason the Measure BB-compliant owners want the rogue shops shut down is because the legal shops lose a lot of business to their unlicensed competitors.

"No one is winning here," says Robert Taft, CEO of 420 Central, a Measure BB dispensary in Santa Ana. "Not a single store is winning—they're all only surviving. And there are some that aren't surviving. For example, the Reserve OC has changed hands several times. . . . Then there's Hand n' Hand, which changed owners and is now Cookies OC. These stores aren't surviving, and they are being sold, which technically isn't allowed either."

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Longwith: Wants safe access for patients
Longwith: Wants safe access for patients
Jennifer Fedrizzi

One problem is that the rogue and Measure BB shops sell exactly the same products. "They have all the same edibles, vapes, everything—they sell the same things we do," says Justin Shivley, the CEO of New Generation, a Measure BB dispensary. "And the reality is that they're also clean. I know they're clean because we require batch numbers and test results for every product—which are the same products they sell, too—that comes into the shop. . . . We get everything from the exact same vendors."

Additionally, the rogue dispensaries sell the products for much less. Cannabis goes for as low as $25 per eighth of an ounce instead of the usual rogue price of $30 to $35. On the flip side, however, there are licensed shops selling eighths for nearly $80, a colossal ripoff. Shivley says he has received a lot of heat from the BB community for selling the lowest-priced eighths in town among the legal stores: $35. According to Shivley, that's the lowest he can go without jeopardizing the livelihoods of his staff, still being able to afford New Generation's rent—which is upward of 300 times the amount per square foot rogue shops have to pay because of zoning, taxes and overhead expenses.

Meanwhile, rogue operators are quick to accuse BB shops of using city permits to justify high prices that exploit patients. "Have you seen the cars some of those BB guys drive?" asks Kevin (not his real name), a member of a board of supervisors for several rogue shops in Santa Ana over the past decade, including one the city shut down in February. "Some of them own Ferraris, Aston Martins—what is that? I mean, yes, a lot of patients come in who are recreational users. But the majority are patients who are genuinely sick—and you're telling me all those cars have all been paid off via recreational patients? Bullshit."

Kevin says the real difference between the rogue and licensed shops is that the rogues are giving patients—people who are genuinely ill—their meds for what they actually cost. "More sick patients go to rogue shops than licensed shops because of cost, especially in an area like Santa Ana because it's low income. The BB stores are taking away from people who are sick and don't have money because it's all been spent on their various forms of treatment," he says. "It's fucked-up shit."

New Generation's Shivley, for his part, agrees that some of the legal shops are severely gouging patients. "I'm not here to rip people off," he says. "I understand that [patients] all work hard for their money. I'm not here to charge them $13 a gram or $50 an eighth. I don't want to name any names, but there are definitely some other licensed shops in Santa Ana that are ripping people off."

 

The BB shop owners also argue that the rogue dispensaries don't pay taxes on anything, whereas licensed shops have to pay taxes on everything. "The BB shops are being taxed on everything from a business-license tax to a city tax to a state tax, and we pay taxes on all the money we make in a year, as well as legal taxes," Taft says. But when it comes to rent, he says, the rogues' rent is cheaper for a reason—and that's on the city. "That's what happens when you do a regulatory scheme: The properties in the zoning areas double in price."

Pappas, however, argues that all of his rogue clients pay business taxes—and not because they're required to like the BB stores, but rather because they're taking it on themselves to be as compliant as possible. "All my clients are unlicensed, but they're all in compliance with state law," he says. "Otherwise, I wouldn't represent them. They all pay state sales taxes, which is required by state law. But in regards to cities like Santa Ana or Long Beach who charge 10 percent to 15 percent or 20 percent tax on medical marijuana, it's beyond outlandish."

Pappas contends that when someone goes to the pharmacy to get Oxycontin—a pharmaceutical opiate that's killing more people in this country than any other drug, legal or illegal—patients don't have to pay any sales tax because pharmacies are exempt from charging taxes. The same should apply for medical cannabis. But the rogue shops do pay state sales tax.

"When the cities say that my clients aren't paying city taxes, even though they're paying state taxes, I have to say: But what about CVS and Walgreens?" he says. "They don't pay taxes either, and they're handing out drugs that kill people. My clients aren't paying a 10 percent to 20 percent surtax that's put on top of medical marijuana."

Hawes-Lopez: Felt spied on by Weedmaps
Hawes-Lopez: Felt spied on by Weedmaps
Shane Lopes

Another major reason the Measure BB dispensaries are losing business to rogue shops is because the licensed shops are, as Taft puts it, "handcuffed." According to the Measure BB ordinance, the shops are only allowed to legally operate between 10 a.m. and 8 p.m.—a time frame in which 90 percent of people are at work. The rogue shops, on the other hand, are open anywhere from 8 a.m. to 2 a.m., seven days per week. Although every rogue shop has different hours of operation, they're all open after 8 p.m.

"Most of the BB stores are failing," says Kevin, who is now on the board of directors of a spiritual church in Orange County that uses cannabis as a sacrament. "If you close your doors at 8 p.m., you're losing 65 percent to 70 percent of your traffic. . . . So, literally, after 8 p.m., people have no choice but to go to rogue shops if they want to get their meds."

The hours of operation have been a hot topic at the past several Santa Ana City Council meetings. After allowing the rogue shops to dominate the market after-hours for years, the City Council has finally decided to allow for the extension of Measure BB dispensary hours. Although this should help one aspect of the licensed shops' problems, the BB owners are still scrambling to not let their shops go under. "Everyone thinks that if you're a BB shop owner, you're rich," Shivley says, then laughs and rolls his eyes. "No, not even close. I'm struggling right now compared to when I had my rogue shops. But as soon as regulations kick in, I think it will get better."

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Shivley: Shut down his rogue shops as soon as he got a license
Shivley: Shut down his rogue shops as soon as he got a license
Rockography

One crucial issue the City Council has yet to address is cultivation, which under Measure BB is currently illegal. Thus, the licensed and rogue shops get their supplies from the same place. Taft explains that, in essence, the best thing that happened to the black market was the approval of Measure BB. First, it opened up a larger demand for black-market growers. Second, it gave these growers the opportunity to sell their product at higher prices to the BB shops—another way these legal shops feel that they're being gouged. "Unless we have cultivation in Santa Ana, we'll continue to feed that same black market," says Taft. "I understand the council gave us extended hours, but what that does is give us more hours to sell black-market cannabis."

Randall Longwith, a cannabis attorney who represents several Measure BB dispensaries, including 420 Central and New Generation, believes that dispensaries should be treated like any other business, in that licensed businesses should stay open and illegal unlicensed shops should not. That same concept, he believes, is applicable to cultivation. "The way to contain and allow a dispensary to maintain safety protocol is to cultivate or at least allow cultivation, just like what Long Beach is now doing," says Longwith. "I think that's what Santa Ana should be doing. The problem with Santa Ana not allowing cultivation is that they're not committing to safety. . . . We've said from the beginning that we want safe access—this is part of that safe access, which is to allow us to cultivate and mandate that it be tested and safe."

 

The city of Santa Ana prohibits cultivation because it believes growing legal cannabis will negatively impact the community rather than benefit it. "There are several health and safety concerns regarding indoor cultivation, including the use of chemicals, mold, faulty electrical work, and a susceptibility to burglary and robbery," a city spokesperson said. "Indoor cultivation requires significant space. Commercial cultivation requires the use of large, industrial/commercial structures to grow marijuana. Legalizing cultivation would most likely impact the cost of rent at these structures and may have the unintended effect of driving other legitimate businesses out of the city. . . . The city may be better served by waiting until January prior to considering whether to permit commercial cultivation."

Although cultivation is a big issue, perhaps the larger obstacle the licensed and unlicensed shops face is related to Weedmaps. Known as the "Yelp for weed," the Irvine-based advertising company provides ads for both the BB and rogue dispensaries. This not only contributes to the licensed shops losing business to the rogue stores, but it also essentially keeps the unlicensed shops open. "I've used most of my savings on getting [New Generation] built; that's why I don't spend $10,000 on a billboard and pay Weedmaps $30,000 in advertising," says Shivley. "I give them $420 a month because I literally have to in order for us to stay on the map, but I won't give them any more than that. It's wrong what they're doing. They're promoting all these other rogue guys at insanely low costs—way lower than what they offer [the licensed shops]. . . . It's bullshit."

Of course, Yelp, Google, Leafly, the Yellow Pages and even the Weekly also offer dispensary listings for licensed and unlicensed shops. That said, when your business is backed by millions (and millions) of dollars—like Weedmaps—your platform automatically becomes the most effective of the lot.

Longwith asserts that Weedmaps shouldn't advertise rogue shops in cities such as Santa Ana that have opened up their borders to licensed shops. "Advertise all you want with regard to dispensaries in cities that do not have ordinances on their books to allow for licensed dispensaries," says Longwith. "But with regard to those cities that do have ordinances, they should respect that and not advertise for businesses that don't have licenses. . . . Weedmaps has an obligation to respect cities that have allowed dispensaries to operate legally."

Those on the rogue side who participated in the lottery feel backstabbed by Weedmaps. Kandice Hawes-Lopez, an Orange County cannabis activist and founder of the Orange County chapter of the National Organization for the Reform of Marijuana Laws (NORML) told the Weekly last year that when NORML started working on an initiative to get a measure passed, they initially failed. So Hawes-Lopez and the NORML team talked to the dispensaries—all of which were rogue at the time—and got a group together to approach Weedmaps. They asked them if they wanted to be a part of the group, but Weedmaps said no because they didn't want to get political.

Not long after, Weedmaps allowed OC NORML to hold its meetings at the company's office, saying it supported the initiative Hawes-Lopez and NORML were driving. But several months later, Hawes-Lopez discovered that Weedmaps had actually contributed cash to gather support for the rival, city-supported initiative, Measure BB. "Weedmaps paid $30,000 to the city's campaign instead of ours, which was shocking because we thought they were supporting us the whole time when, in fact, they jumped ship and went behind our backs, on top of still letting us have meetings there," she says. "We felt spied on."

That experience soured many medical-marijuana activists about Weedmaps, Hawes-Lopez explains. "I think that's what first ignited the passion and distrust that revolves around Weedmaps and why groups of people in the medical-marijuana industry and community believe that it's all some kind of conspiracy."

But things have changed a lot for Hawes-Lopez in the past year. As an activist who fought alongside the rogue dispensaries, she's now doing community outreach for Bud and Bloom, a Measure BB dispensary. As an activist, her goal is to begin mending the broken community. "I kind of have an interesting perspective because I fought the fight for years and donated thousands of hours of time," she says. "But these legal shops are the reality of what we have, and we're going to have state licensing, too, before we know it—like, in a blink of an eye. I think people need to start worrying about that and getting together to try to open up other cities."

 

Although Pappas and Taft are on opposing sides of the divide, both allege that Weedmaps has been and still is involved with the Santa Ana City Council. "Everybody knows that Weedmaps campaigns and lobbies at the city of Santa Ana," says Taft. "It's not a secret. . . . If you don't know, it's because you're not paying attention."

(A request to Weedmaps for comment on their role in Measure BB, lobbying and their stance on rogue shops in the city wasn't returned by press time.)

Pappas explains that the reason he supports the rogue shops and their patients is because he ethically can't support a scheme he knows is rooted in corruption. "I'm just not going comply with a system with laws that were enacted by the city council and mayor who were in cahoots with one another and Weedmaps to create a system so that people could bribe their way into a license."

Then there are those few Measure BB shop owners who operate both compliant and rogue shops. They not only take away business from the licensed shops, but they also contribute to the corruption by double dipping, raking in heaps of cash. "How can you say they aren't out for money?" asks Kevin.

"I don't own rogue shops anymore," says Shivley. "I shut them down as soon as I got a license. It's not even a question—it's what needed to be done. If I want to stand for something and believe in something, I have to be a part of the example. And I'm struggling now. But I'd rather struggle than be a hypocrite."


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