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The Struggle to Enter California’s Cannabis Market: ‘So Much Heartache, So Much Pain’

Back CalMatters Jul 8, 2020 By Laurence Du Sault

Linda Grant sold weed in the streets of East Oakland for 35 years before California legalized marijuana in 2016. She’s been “going through hell” trying to open a licensed business ever since.

Five years and two frustrating partnerships later, Grant still has to get a loan to pay for a business storefront before she can even apply for a license to operate. “It’s just ridiculous,” Grant said. “So much heartache, so much pain.”

The process is daunting: business plans, tax returns, seed money. Even with state programs designed to close the gap, experts and advocates say the cost of entry and long list of requirements are still keeping people of color and low-income applicants from entering the state’s lucrative legal market.

“We allowed people who already have money and position to jump on this new business opportunity,” said Dr. FloJaune Cofer, senior director of policy for the nonprofit Public Health Advocates. “And the people who were underground are still underground.”

To reduce the barriers to entry, California’s cannabis law, Prop. 64, created equity programs to give licensing priority to members of low-income and minority communities disproportionately affected by the war on drugs. The programs receive 20 percent of state tax revenues from marijuana sales.

In Oakland, Black people were 25 times more likely to get arrested than whites, according to a report analyzing California marijuana arrest data from 1996-2016 by Public Health Advocates. That’s despite Blacks making up less than 15 percent of illegal drug users. The city had the third-highest disparity rate in the state, the report found, after Sacramento and Palo Alto.

“It was terror in East Oakland,” recalled Grant, 51, who was briefly incarcerated for possession in the 90s, a conviction since dismissed.

But equity programs are administered locally, and experts say their degree of success varies greatly from city to city, depending mostly on community activism. A handful of success stories, such as the Black-owned dispensary Farmacy Berkeley, arose from Bay Area equity programs, but state officials say it’s too early to tell whether the programs have helped shape the racial makeup of the legal industry.

Even through an equity program, breaking in isn’t easy. A license can cost between $5,000 and $100,000 a year, and that’s after start-up costs and investments.

“A middle-income person, someone making $60,000 a year today, with no financial backing? No way on Earth,” said Dr. William Armaline, assistant professor of sociology and the director of the Human Rights Program at San José State University.

Marc Matulich, founder of Airfield Supply, California’s self-proclaimed largest single-site dispensary that boasts a fleet of delivery Teslas, said that even with a business degree, the framework to operate legally is intimidating. “If you don’t have an attorney helping you, if you don’t have the funds to hire the right resources to get you started, it’ll be very difficult,” said Matulich, who is white and wasn’t part of an equity program.

Sean Kali-Rai, lobbyist and founder of the trade organization Silicon Valley Cannabis Alliance, said Matulich invested nearly $3 million before he could open.

Today, opening a cannabis retail shop is virtually impossible in San Jose. In 2016, applicants were given a short window during which they had to secure a retail space in specifically-designated zones. Only 16 firms succeeded in getting a retail license. Few, if any, are majority-Black-owned, but it’s hard to tell since the state does not gather data on the race of its cannabis licensees.

The City of Oakland took a different route. It amended its medical cannabis regulations so half the permits issued by the city would go to equity program applicants. Grant qualified because she’d lived for more than 10 of the past 20 years in one of the neighborhoods with the most disproportionate number of marijuana arrests. Applicants could either start their own business, partner with larger companies, or both. Grant, who didn’t have the money for her own license, paired up with two incubator companies who reached out to her through the program.

“When wealthy people found out about the equity program, it was like a wave of vultures came into Oakland,” said Grant.

Linda Grant, 51, still hopes to get her own license to legally enter California’s cannabis market. She’s been trying for years. Photo by Jose Carlos Fajardo, Bay Area News Group

The deal was simple: Grant’s name would be on the business licenses as a co-signee. That way, investors could open without having to compete for limited non-equity licenses. In exchange, she would receive monthly payments and mentoring to open her own dispensary.

Four years later, Grant said she has barely set foot in the businesses whose licenses bear her name, although the monthly payments help her get by. And she still hasn’t secured her own license, a task she says the incubators didn’t help nearly enough with. One declined to comment; the other is no longer operating.

“She’s not just a poor person on a piece of paper. She’s an asset,” said Laura Herrera, an independent cannabis consultant and researcher at the UC Berkeley Cannabis Research Center who’s helped many applicants obtain licenses. Herrera says Grant isn’t the only one struggling. Although she believes Oakland’s equity program is among the best in the state, Herrera said few feel they’ve gotten the help needed to successfully start their own business.

Now, those operating without licenses have one more thing to worry about: the Bureau of Cannabis Control’s new enforcement unit.

Last week, Gov. Gavin Newsom’s budget was approved, and with it, a proposal allocating $9.6 million to a new 87-officer police force under the jurisdiction of the Bureau of Cannabis Control. Its mandate: cracking down on California’s $8.3 billion underground market. The enforcement unit includes 75 sworn officers. Although most are being shifted from the Department of Consumer Affairs, 29 positions will be brand new.

Alex Traverso, spokesman for the state’s cannabis bureau, said that complaints by licensed retailers against their underground competitors are the main driver behind the new force. “Those folks want them gone,” Traverso said.

Until now, he said, unlicensed sellers had been treated rather diplomatically — with a warning letter. But with that “grace period” over, the bureau will be responding to calls for tighter enforcement. Traverso said it is unlikely applicants like Grant will be targeted, but specific policies have yet to be laid out.

“We don’t need more oversight,” said Cofer. “What we need is to make sure that we’ve removed all the barriers for those folks who are underground operators to become part of the legal economy.”

Grant hasn’t given up but she’s decided she can’t count solely on a career in weed. So she’s also applied for a food truck license. She hopes breaking into that business won’t burn nearly as much time.

Laurence Du Sault is a reporter with The Mercury News. This article is part of The California Divide, a collaboration among newsrooms examining income inequity and economic survival in California.

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