SoCal Still Faces Many Hurdles in Legalizing Marijuana

SoCal Still Faces Many Hurdles in Legalizing Marijuana
Paolo Beghini

Ever since the approval of Proposition 215—the Compassionate Use Act, which permits the use of medical cannabis in California—activists, advocates and users have collectively fantasized about a day when procuring herbal refreshments was as easy as picking up produce from the market or allergy meds from CVS. But cannabis is far more perplexing than that. Sure, it's therapeutic, makes most people feel good and puts the simple things into perspective. But from differing laws on local, state and federal levels to harsh consequences for possession (especially for those of color) to pesticide-ridden products on the shelves of dispensaries in the guise of "medical marijuana," we have made cannabis complicated.

A perfect example involves California's recreational-marijuana law, which is set to be implemented on Jan. 1, 2018. While most people assume this is the day California will be officially released from the chains of cannabis prohibition, it's not that simple. Local ordinances regulating marijuana dispensaries such as Santa Ana's Measure BB must be rewritten or amended to allow existing and new cannabis entities to operate legally under the new law. State officials estimate it will take at least six months (though a closer estimate is up to two years) for them to hand out new licenses. Cities have until the end of the year to finalize their ordinances spelling out to the state how cannabis businesses are complying with the new regulations.

Additionally, despite the looming legalization of marijuana, the majority of Orange County's conservative municipalities have chosen to keep prohibition in place. But the cities surrounding our orange bubble are proving to be significantly less restrictive. Here's a handy guide to Southern California's rapidly growing, yet still dizzyingly messy cannabis industry—and what's likely to happen in the months to come.

SoCal Still Faces Many Hurdles in Legalizing Marijuana
Paolo Beghini

SANTA ANA
If you were into pot and living in Orange County in 2014, you likely remember how unbelievably messy Santa Ana's dispensary lottery was. The endless allegations of bribery, thugs, limousine rides and massive campaign donations to the mayor have become the fabric of Orange County cannabis folklore. What became of the chaos, however, isn't just 17 legally operating medical cannabis dispensaries, but also Measure BB, Orange County's first legitimate (and functional) cannabis ordinance.

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Measure BB was far from perfect. So, last June, the city amended the new law to allow the delivery of cannabis from storefront dispensaries to qualified patients, caregivers, and testing and research facilities, whereas before, deliveries were explicitly prohibited. The city also changed the daily hours of operation from 10 a.m. until 8 p.m. to 7 a.m. until 11 p.m. These two ordinance changes were of grave importance to the well-being of Measure BB businesses because unlicensed dispensaries still exist within the city. Although the number of rogue shops has drastically diminished thanks to increased enforcement and receiverships, the non-Measure BB collectives don't abide by the same stringent rules the licensed storefronts do.

So by the time the legal shops were opening their doors at 10 or 11 a.m., most of the rogue dispensaries had already been operating for three hours. When the legal stores were required to close for the day, their unlicensed competitors stayed open at least four more hours—some as many as seven hours. And many of them maximized revenue by offering cannabis delivery to people all over the county. The licensed shops were not only losing business, but some were also going out of business.

The Santa Ana Collective Association (SACA), a coalition consisting of all but two of the legal storefronts, and Orange County cannabis attorney Chris Glew were the leaders in getting Measure BB amended. According to Rob Taft, the CEO of Measure BB dispensary 420 Central in Santa Ana, prior to the ordinance changes, he felt the laws "handcuffed" the licensed collectives. But since this June, 420 Central and other Measure BB dispensaries have expanded their hours and started delivering their products to patients around Orange County.

Perhaps the biggest news for Santa Ana is that the city has decided to move forward with an adult-use (recreational) cannabis ordinance to operate alongside Measure BB. Santa Ana city officials held a City Council committee meeting on Oct. 2 regarding a new cannabis ordinance that would go into effect by Jan. 2, 2018. The proposed canna-regulations would allow 23 recreational- and 20 medical-cannabis dispensaries, 20 indoor cultivation and manufacturing sites, five distribution businesses, and an unlimited number of testing facilities to operate citywide. The proposed adult-use ordinance will not only make Santa Ana the greenest city in Orange County, but it'll also make it one of three cities in Southern California to implement recreational regulations.

The city's 20 licensed medical-cannabis shops, of which only 17 are currently open for business, would also have the ability to be cooperational, meaning they can be both medical and recreational. What's crucial about the new ordinance, however, is the authorization of cultivation because it'll finally create a legal market for cannabis agronomy. Currently, cultivating cannabis is illegal in Orange County (aside from your six personal plants, of course), so the flower you see in jars at the licensed dispensaries is technically purchased from the black market—the same place every licensed and unlicensed collective in OC gets their herb from. By legalizing cultivation, Santa Ana is removing a major black market revenue stream and taking responsibility for the product being sold in the city.

 

Chris Glew
Chris Glew
John Gilhooley

Each business is also allowed to obtain more than one license. Tamara Bogosian, Santa Ana's assistant city attorney, predicts that most licensed dispensaries will attempt to cater to both recreational and medicinal customers. "When we spoke to representatives from the cannabis industry, they indicated that it was important for retail businesses to also be able to do some cultivation and manufacturing," she said. "So one business may carry four, even five licenses."

But unlike the mayhem of Measure BB, the city says it will issue licenses based on a merit, or point, system instead of a lottery. The process is divided into two phases: the registration application and the regulatory safety-permit application. The city manager will determine who gets through phase one based on whether the applicants meet specific criteria, including whether the application was submitted within the proper timeframe, if it meets the proper zoning criteria and if all applicants pass a Live Scan (background) screening. The same process goes for phase two, except that a comprehensive background check, formal zoning compliance and official building inspection approval are required.

Although the ordinance seems to represent progress, holes still exist. Santa Ana must deem the dispensaries that are already open and the future cannabis businesses that will apply before the end of the year as "operational" in order for the state to give them a provisional license. Obtaining a temporary permit is mandatory for all such businesses to operate legally while the state gets organized and issues its official licenses, which may take up to two years. If Santa Ana doesn't tell the state which businesses are operational before Jan. 1, those businesses will be forced to shut down until they get their state licenses. "The revenue chart that you have in the handout is going to be zeros across the board for all of 2018 if the state doesn't give Santa Ana an operational status," said Glew, who represents SACA, at the October committee meeting. "If applicants can't get operational and start the application process, there's a very big chance the state will prohibit use until 2019." Santa Ana has yet to define what "operational" is, though they're coming up with that definition now. The criteria will likely involve submitting an application and/or showing proof of a current business license or retail sales permit, according to Glew.

Glew also argued in favor of the city treating cannabis storefronts as "micro-businesses," entities that are licensed to cultivate, manufacture and distribute cannabis. This would allow the city to issue multiple permits per location, thus bringing the city even more revenue in taxes and fees. "Five licenses is actually a very small number," Glew told the committee. "The expansion of the micro-business category will allow for people to have a retail location with a small grow in the back. . . . You can have essentially 20 new cultivation sites that are all 22,000 square feet, and you can still have additional grows under the micro-businesses, too."

Glew's argument illuminates both the opportunity and challenges facing Santa Ana before it can rake in the $9.1 million in annual revenue that adult-use cannabis is expected to bring.

"I'm really happy with the way this is going and what this means for Santa Ana," said Jason Lilly, a member of SACA whose medical dispensary will open in the next couple of months. "It sounds like the staff is looking to create that path for us to be operational before the end of the year."

Nichole West
Nichole West
Fiorella Alvarez

LONG BEACH
It seems logical that any city whose chief cultural cornerstones include Sublime and Snoop Dogg should have long ago legalized cannabis. But as of now, the city only has one legal dispensary. In 2010, the Long Beach City Council crafted a medical-cannabis ordinance that proposed to allow an unlimited number of applicants to compete for 22 cannabis licenses.

"[The city] had a lottery machine, but the machine wouldn't fit the balls through the hole because they used Dymo Label Tape on the balls. . . [so] they wouldn't fly right," said Nichole West, former vice president of Sweet Leaf in Colorado who recently moved back to Long Beach to pursue her cannabis career. "So they ended up pulling the balls out of a trashcan. People's livelihoods and futures went from a lottery machine to a recycling bin in a matter of minutes."

 

Twenty-two winners were picked, and many of them quickly opened shops. Long Beach was on the way to becoming coastal California's crown jewel of cannabis—until August 2012, when the City Council reversed its position and issued a ban on all dispensaries, eventually forcing all of them to close. License holders—who, in some cases, spent hundreds of thousands of dollars on construction projects to meet various city codes—lost homes, cars and went bankrupt.

"There were lawsuits against the city because of the ordinance and lots of different issues at the time," says Adam Hijazi, one of the original winners and who is currently on the Board of Directors of the Long Beach Collective Association (LBCA). "There was a lot more uncertainty during those days because the state didn't regulate yet, so the city took a leadership roll in terms of crafting an ordinance during that time."

Thus the LBCA was born. It used the closed dispensaries as campaigning centers to get people in the city to register to vote. A cannabis task-force was then created, and Hijazi and another member of the LBCA were appointed to it by the city. The LBCA and task force drafted yet another ordinance that the city considered but in 2014 denied, as it fell short by 18 signatures. The city did, however, put on that ballot a marijuana tax measure that passed. "It was the city's way of saying that if they ever do allow legal cannabis, this is what the tax rate will be," Hijazi says. "It's a horse-before-the-cart kind of thing."

Just because collectives were banned, however, didn't mean they ceased to exist in Long Beach. Plenty of storefronts continued to operate illegally. But with unlicensed shops inevitably come raids. The Long Beach Police Department conducted numerous dispensary invasions, some of them devastating, while others were downright shady—such as when cops faked a medical-cannabis recommendation to take down One Love, a family-run clinic.

In late 2015, proponents of the Regulation of Medical Marijuana Businesses (Measure MM) gathered nearly 40,000 signatures to earn a spot on the November 2016 election ballot. MM establishes a regulatory framework allowing 32 storefronts to operate under strict geographic regulations. Of the 32 permitted dispensaries, however, the 22 lottery winners from 2010 get priority to open their shops again—meaning MM really only allows 10 new applicants to open up storefronts. MM also permits cultivation, distribution, manufacturing, and testing and research businesses to operate within the city. Another mini-lottery was held in late September to determine who got those licenses, and this time, the lottery machine worked.

But the city wrote another ordinance (perhaps the most confusing piece of regulation in history) to also go on the ballot: Measure MA, or the Long Beach Marijuana Taxation Measure. It seems like a competing measure—but it's not, as MA could only pass if MM passed. MA only changes the tax section of MM, which doesn't address the tax rates of adult-use, if it's implemented in Long Beach. It also revises the previous tax measure implemented by the city. Officials estimate MA will bring in $13 million in revenue, which would go toward hiring police and firemen and repairing infrastructure.

Despite the confusing ballot measures, 60 percent of voters approved both MM and MA. Since Jan. 1, the original lottery winners have been applying to get their state licenses, building out their dispensaries and working on becoming compliant. Hijazi's collective, LB Green Room, Long Beach's first licensed dispensary, had its grand opening on Sept. 23, signifying a major feat for the cannabis community in the LBC.

Although it's uncertain if Long Beach will adopt an adult-use ordinance, the Long Beach cannabis community has persevered through a tumultuous regulatory history. "Our goal is to ensure that we don't set these businesses up for failure," says Ajay Kolluri, who works in the city manager's office and is a key figure in the medical-cannabis program. "It's a much different legal landscape now with the state and has become a citywide effort to make this happen."

Workers, mostly veterans, tour a THC Design grow room
Workers, mostly veterans, tour a THC Design grow room
Courtesy THC Design

LOS ANGELES
Of all the cities in Southern California seeking to benefit from legalized medical marijuana, LA has made the most mistakes—even more than Long Beach, which at least has learned from its past errors. Perhaps it has something to do with the fact Los Angeles is the largest cannabis market in California, or maybe their regulators have a habit of writing skewed ordinances. It's likely a mixture of the two. Either way, Proposition M is the ordinance that's designed to straighten out LA's previous cannabis-ordinance snafu, Proposition D.

Officially implemented in 2014, Prop. D bans all cannabis activity within the city of Los Angeles with the exception of select businesses granted "limited immunity." But the ordinance doesn't necessarily keep these "privileged" businesses safe from being shut down—even if they're Prop. D compliant. Rather, it just gives them an affirmative defense in case that happens. Also, the ordinance doesn't give express authority to distribute or cultivate cannabis in the city; Prop. D merely says the city won't prosecute those shops. So, in essence, Prop. D doesn't actually license medical marijuana at all.

 

But in order for a dispensary (and its cultivation site, if it has one) to qualify for Prop. D's immunity, it must have opened prior to Nov. 13, 2007, and provide evidence of tax certificates from the city. Businesses were also required to register with the city clerk before that date. Doing this qualified them for the city's interim control ordinance (ICO), which semi-regulated the dispensaries before the implemention of Prop. D. Those pre-ICO businesses were then faced with overcoming another set of regulatory hurdles, such as proper zoning, another mandatory registration deadline and obtaining more tax certifications, all while proving their business remained in continuous operation.

Because Prop. D failed to define how the city should enforce dispensaries, it reinforced a massive and successful black market in LA. But what's baffling is that no official list exists of who the Prop. D businesses are or where they're located. At one point, the city released a list called the "134 List," according to Attorney At Law Magazine, but then it quickly retracted and denied any responsibility for it.

"The limited-immunity construct has created mass confusion," wrote Virgil Grant, president and co-founder of the Southern California Coalition (SCC), a cannabis-industry trade organization, in a letter to Niall Huffman, the city's planning assistant. "The city can't designate who is eligible for limited immunity without having the excluded entities sue, which is exactly what happened in 2013 when the city attorney's office posted a list of dispensaries. . . . In the absence of any guidance, such as a list of licensees, law enforcement had to 'guess' who was in compliance and who wasn't."

Late last February, the city revealed a draft of Prop. M, which would replace Prop. D. The new ordinance is far more inclusive, offering full licensure of adult-use cannabis retail, cultivation, manufacturing, testing and distribution businesses within LA. On March 7, 2017, a whopping 80.4 percent of city voters passed Prop. M. Although the new law would supposedly allow for hundreds of dispensaries and cultivation, distribution and testing operations to receive licenses, only the already-licensed Prop. D dispensaries will be able to operate until the state issues new permits.

Considering the city doesn't know who is or isn't a Prop. D dispensary, excluding businesses in such a way forces them to shut down and lose millions of dollars, which could be a catalyst for an industry-wide revolt. Dispensaries rely on cultivators and manufacturers to supply their stores, and if you shut down the supply side of the cannabis industry, those Prop. D stores will have no product to sell. The black market would continue to flourish, and LA would miss out on an estimated $50 million in annual tax revenue.

The sense of panic in the LA cannabis market was obvious on Sept. 25, when hundreds of people rallied on City Hall's steps just before a council meeting. Every seat in the room was filled, as anxious business owners, employees and patients gathered to show their support.

"I strongly hope the city's going to do what they've said they're going to do, and that's protect us," said Ryan Jennemann, one of the owners and cultivators of LA-based cannabis company THC Design who is on SCC's board of directors. THC Design employs dozens of workers and consists of several massive, multiroom grows, in which cannabis grows downstairs and is dried and trimmed upstairs, then delivered to the local dispensaries.

According to Jennemann, LA City Council President Herb Wesson has said his intentions were to create an ordinance that works and will find a way to make sure businesses are protected. "Behind the scenes, we've heard that [the city] is doing everything they can because the last thing they want is product flooding in from other cities," Jennemann said. "They want to keep the product here and keep the tax revenue in their city."

THC Design is one of the hundreds of businesses that would be required to shut down if the verbiage in the ordinance isn't fixed. "We worked very closely with [the city] on Prop. M," Jennemann said. "It passed by 80 percent and gives the city the tools to regulate and enforce upon the industry. It's time to fix what's broken in the city of LA. For them to not give us a pathway to be operational would be absurd."


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