Later this year, Long Beach’s cannabis equity applicants may be able to enter one of the industry’s most lucrative cannabis business models—storefront retail.
The Long Beach City Council directed city staff on Tuesday to study the feasibility of adding eight more storefront retail licenses reserved exclusively for cannabis equity applicants.
In addition to requiring equity applicants to have a 51% stake in their company, the City will also reinvest 100% of all tax revenues from new dispensaries back into the community.
“I see this work as critically important to restorative justice,” Councilmember Al Austin said. “Expanding retail cannabis licenses can create wealth and hundreds of good-paying jobs for communities that have been impacted by the over-policing and criminalization of cannabis, which is now legal and a very profitable industry.”
Cannabis is a billion dollar industry in California, racking in nearly $4.4 billion in sales in 2020, according to Marijuana Business Daily, up from $2.8 billion in 2019. That number is expected to increase in the coming years.
Currently, 32 cannabis storefronts exist in Long Beach. None are Black-owned, despite the fact that this group was disproportionately impacted by the War on Drugs and prior criminalization of cannabis.
According to an analysis by the American Civil Liberties Union, marijuana arrests account for over half of all drug arrests in the United States. Of the 8.2 million marijuana arrests between 2001 and 2010, 88% were for possession.
Nationwide, Black people are 3.73 times more likely than white people to be arrested for marijuana possession, despite similar levels in usage.
“Imagine opening a lucrative store or brand in which you’ve worked hard to build, and then now you’ve been targeted by mass incarceration, and your family has been destroyed beyond reconcile or repair,” James Marks said during public comment.
“That same product that we used as a survival mechanism is now a legal, flourishing enterprise in your community,” Marks said. “For over 10 years, we have been denied not only ownership, but also an opportunity of ownership.”
What is the Cannabis Social Equity Program?
The City’s Cannabis Social Equity program began in 2018 as part of a larger adult-use cannabis business ordinance in an attempt to “recognize and address the long-term impact that federal and state cannabis enforcement policies have had on low income communities in the City of Long Beach,” the program’s website states.
To qualify for the program, applicants must have an annual household income below 80% of the Area Median Income and have a net worth below $250,000.
In addition, they must either live in a predominately low-income community in Long Beach for at least three years or have been previously affected by the prior criminalization of cannabis through arrest or conviction of a cannabis-related crime.
When residents get accepted to the program, they receive a myriad of resources— application workshops, application fee waivers, direct grants, plan check fee waivers and incubation support.
But the program’s eligibility requirements also create barriers for starting a cannabis business.
The startup costs for a cannabis manufacturing facility can reach well over $700,000, over double the required net worth of an equity candidate. A brick-and-mortar location can cost upwards of $1 million.
As of Dec. 1, only one of 79 residents who qualified for the program was issued a license.
“While it’s easiest to move forward with delivery opportunities and such, the wealth building opportunities are just not the same,” Councilmember Stacy Mungo said.
In January, the council authorized both shared-use manufacturing and delivery-only cannabis licenses to “provide an immediate opportunity to facilitate access to equity ownership,” Deputy City Attorney Kevin Jackson said.
Compared to dispensaries, both shared-use manufacturing and delivery-only operations have lower start-up costs and less regulatory restrictions. But retail licenses are “the crown jewel,” according to Councilmember Cindy Allen.
“[By excluding storefront retail licenses], we’re saying that if you’re a social equity candidate, that you’re going to make less profit, and you’re going to be in less profitable areas of the cannabis industries,” Austin said. “That’s the wrong message to send.”
Equity applicants in other cities have faced predatory practices
Other cities across California have created equity programs, but Jackson said that “there has not been a lot of success in maintaining those equity applicants, once they actually get a license.”
He pointed to predatory investors, who use equity applicants as an entry point to receive highly sought-after and scarce cannabis licenses.
The City’s feasibility study will look for solutions to this problem. The report is expected to come back to the council later this year.
“I’m telling you, it’s really hard for us,” equity applicant Jillian Xavier said. “Some people are just here for just a lunch meal. But we’re here for the long haul to just create this generational wealth.”
The next Long Beach City Council meeting will take place on Tuesday, March 23 at 5 p.m. via teleconference.