The Long Beach City Council voted unanimously on Tuesday, July 6 to allow multiple cannabis businesses to manufacture products in one space.
“This license type offers lower barriers to entry than other traditional manufacturing types offered by the City,” said Emily Armstrong, manager of Long Beach’s Cannabis Social Equity Program. “Whereas a traditional manufacturing facility could take a million dollars or more to get up and running, starting a business in a shared use facility could cost less than a tenth of those costs.”
Shared-use manufacturing spaces are owned by one business, known as the principal licensee, that rents out the space to other businesses, known as operator licensees.
“In addition to lower start-up costs, the shared-use model can allow for access to marketing, branding, or other assistance that may be offered by the principal licensee for the operators of the facility, helping them be more successful in bringing their products to market,” Armstrong said.
Shared-use manufacturing licenses would allow cannabis businesses to share the same facilities, but at different times, to infuse cannabis concentrates directly into a product, package and label cannabis products, or use butter or food grade oil to extract essential oils from cannabis plants.
The ordinance did not place a cap on how many businesses could share one facility.
Instead, any businesses sharing a space must come up with a schedule to ensure no two businesses are working there at the same time.
Shared-use cannabis facilities must have an occupancy schedule posted at all times, according to Armstrong.
Cannabis equity applicants prioritized for permits
The City’s new ordinance prioritizes potential business owners applying for assistance through it’s Cannabis Social Equity Program.
The City of Long Beach’s Cannabis Social Equity Program aims to compensate for the damage done by the War on Drugs by helping individuals from impacted communities enter the legal cannabis industry.
“As a City we have declared our commitment to strengthening the cannabis equity program,” Councilmember Mary Zendejas said, “and particularly to ensure that communities that have been most impacted by the federal War on Drugs’ policies can receive the opportunity to benefit from this growing business.”
So far, the Cannabis Social Equity Program program has been glaringly ineffective in creating equity ownership.
As of June 24, only one out of 117 social equity applicants had opened a cannabis business, according to the Office of Cannabis Oversight.
The City will give shared-use cannabis manufacturing licenses only to qualified social equity applicants for the first year, or until the first 15 licenses are given out, whichever comes first.
After that, licenses will open up for all qualified applicants.
The City did not put a cap on the total number of shared-use cannabis manufacturing licenses that can be issued.
Industry stakeholders ask council to enhance equity program
Armstrong told the council that if shared-use licenses were permanently restricted to only social equity applicants, it is likely that these applicants would be preyed on and taken advantage of by investors who only want to use them to obtain a license.
“One example of these practices is investors partnering with equity applicants to obtain the license and then basically diluting the shares so that that equity applicant really doesn’t own that business anymore,” Armstrong said during a virtual town hall meeting on June 16. “They have a very low share of the business.”
To combat predatory investing practices, the Long Beach Collective Association (LBCA)—a group composed of individuals and businesses in the local cannabis industry—has asked the City to compile a list of trustworthy investors for social equity applicants.
The LBCA has also recommended that the City allow multiple social equity applicants to combine the money they receive from the City in order to go into business together without the need for large investors.
During public comment, stakeholders in the local cannabis industry said that opening up shared-use manufacturing licenses isn’t enough to help social equity applicants find success.
Elliot Lewis, owner of Catalyst Cannabis Co., insisted that the City should open up additional licenses for retail dispensaries.
“We need to press brick and mortar now. It’s really simple. We need brick and mortar in the city of Long Beach,” Lewis said. “Yes, the build-outs are more expensive, but those are the lowest barriers of entry.”
Lewis said that it would be harder for social equity applicants to start their own brand, which would compete in a heavily saturated market than to open a storefront that customers can walk into.
The LBCA has said that even if the City approves new cannabis business licenses specifically for social equity applicants, it won’t fix the root of the problem—a lack of funding and guidance for applicants.
The LBCA has recommended that the Cannabis Social Equity Program itself needs to be overhauled so that social equity applicants aren’t reliant on big investors.
“While adding social-equity only cannabis licenses in Shared-License types, delivery, and store-front retail will create space for social-equity licenses, the additional licenses do not create a robust path for ownership,” the LBCA recommendation states.
Tamika Boyce, a social equity cannabis business owner, said that although more work was needed to assist applicants, allowing shared-use manufacturing was a step in the right direction.
She told the council that when she was beginning her business, the majority of the funding went to securing a location.
“Out of the first $145,000 of the direct grant funding that I received, $116,000 went to the landlord alone,” Boyce said. “That was just to hold the building while I navigated through the process without being able to get up and operate.”
These challenges would be lessened if new cannabis businesses are allowed to rent space from an already established cannabis business, she said, rather than having to convince landlords to take a chance on them.
“I’m not saying that the shared-use manufacturing license is the end all be all and it’ll solve all the problems of the social equity program,” Boyce said. “But it will allow others to come in behind me and enter into the industry and begin operating—saving a lot of time, a lot of costs, and, you know, start helping to generate additional tax revenue for the city.”
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