The Long Beach Collective Association, a group of individuals and businesses in the local cannabis industry, has asked the City to rethink its Cannabis Social Equity Program.
“I think the public should know that the City is trying to portray this image of change and assistance, but in actuality, it has only helped one applicant,” program applicant Bryant Ezeji said.
Ezeji is the founder of Good Peeple & Co., which is part of both the Cannabis Social Equity Program and the LBCA. Good Peeple is focused on getting both a cannabis delivery and cannabis distribution license in order to operate in Long Beach. In the background, the company is also developing software for dispensaries, according to Ezeji.
But he and almost every other new business owner enrolled in the Cannabis Social Equity Program have been left to fend for themselves in a cut-throat industry, with a lack of protection and guidance crippling their fledgling start-ups.
Cannabis Social Equity Program has less than 1% success rate
Since the program began in 2018, it has only helped one out of 117 applicants open a cannabis business, according to an email from the Office of Cannabis Oversight on June 24, 2021.
The program was created to help people and communities targeted during the War on Drugs benefit from the now-legal cannabis industry.
However, with a less than 1% success rate, the program seems like an empty gesture.
“Whatever atmosphere of change that they’re trying to portray is not true, most of us still aren’t operating at all,” Ezeji told the Signal Tribune.
The LBCA has presented a series of policy recommendations to the City’s Human Relations Commission, focused on providing reliable funding and guidance to potential business owners in the Cannabis Social Equity Program.
“There’s no infrastructure that is built to oversee us as we become equity applicants,” Ezeji said.
The amount of money needed to open a cannabis business can often cost over $1 million—a practically impossible amount of money for social equity applicants to come up with by themselves.
“The City grants get you about halfway there. And the other half, you’re kind of on your own.”
—Bryant Ezeji, member of Long Beach’s Cannabis Social Equity Program
Qualified social equity applicants are required to have a net worth of less than $250,000 and have an annual family income at or less than 80% of the Los Angeles-Long Beach-Glendale Area Median Income—$72,100 per year for a two-person household.
Although business owners can potentially receive $215,000 through the Cannabis Social Equity Program, in most cases it isn’t nearly enough to open a cannabis business.
“The City grants get you about halfway there. And the other half, you’re kind of on your own,” Ezeji said.
Equity cannabis businesses rely on investors to survive
This means most social equity applicants need additional funding to open a cannabis business, usually in the form of investors.
“Because of these requirements for capital, many equity applicants partner with investors to get the capital required to open their business,” Emily Armstrong, manager of Long Beach’s Cannabis Social Equity Program, told the Human Relations Commission on July 7.
This often leaves new business owners vulnerable to shady investors who claim to want to help them, but really just want to take advantage of them.
“From our research, equity businesses often fall trap to these agreements due to the need for resources and capital,” Armstrong said on June 16.
Predatory investors may offer funding to a social equity applicant in order to gain a license that’s been set aside for those in the Cannabis Social Equity Program, and then slowly take over control of the business once it opens.
“Predatory practices involve predatory agreements and unfair business practices by individuals seeking to partner with equity applicants, who would otherwise not qualify for a business license without that partnership,” Armstrong said to the commission on July 7.
Armstrong presented an example of predatory practices: where an equity applicant owns 51% of a business when first partnering with an investor, but then the investor slowly takes control of the shares of the business until the equity applicant owns only a very small percentage.
“At some point, we’re etched out of our own licenses, pretty much,” Ezeji said.
Ezeji said that during his time as an applicant in the Cannabis Social Equity Program, several large corporations have tried to rope him into unfair contracts.
“They’ll come in with these contracts that can be much more beneficial to them, and give no control to the social equity applicant. You know, most of us are running businesses for the first time. And most of us aren’t too business savvy so they’ll come in with contracts that give them most of the control, and then give us most of the liability,” Ezeji said.
LBCA recommends City create a list of trustworthy investors or let candidates combine resources
To help social equity applicants decide which investors to trust when accepting funding to start their businesses, the LBCA is asking the City to create a list of reliable investors.
“I think this would really protect the applicants from those predatory business practices,” said Samantha Carillo, co-founder of Melons Co. alongside social equity applicant Henry Buyekx.
Melons Co. first applied to the Cannabis Social Equity Program in April, and originally wanted to get a cultivation license.
However, it soon became apparent that even with help from the program, a cultivation license would still be out of reach.
“We didn’t know that it would cost so much,” Carillo said. “So even with a grant, we don’t really have capital behind us. So we decided to take a different journey.”
Melons Co. is now waiting to see if the City opens up storefront retail cannabis licenses for social equity applicants.
The LBCA has requested that either the Human Relations Commission create the investor list, or that a new Cannabis-Specific Commission or a Social Equity Commission be formed to do so.
When vetting potential investors, the LBCA recommends that the City look into any past bankruptcies, litigation, criminal records or non-payment of taxes, among other background information.
However, Armstrong told the Human Relations Commission that the Cannabis Social Equity Program currently can’t afford to verify investors to that extent.
“I can say that any process to vet investors or have a more robust vetting process will likely cost additional City resources than what we currently have allocated for the program,” Armstrong told the Human Relations Commission.
Another recommendation by the LBCA could make outside investors unnecessary.
It asks that social equity applicants be allowed to team up and combine the money they receive from the Cannabis Social Equity Program to open a business together.
Under this model, they would all share a business license, “with small or no percentage of outside investors,” according to the LBCA recommendations.
“That would be a great help if we’re allowed to do it with every license type,” Ezeji said.
Enhanced guidance could help equity applicants navigate barriers
Besides helping applicants secure funding, the LBCA recommendations also want the Cannabis Social Equity Program to offer a series of business development and educational opportunities to business owners.
In a list similar to the one proposed for investors, the LBCA wants the City to also vet professional organizations that it can navigate applicants towards for resources such as mentoring, incubation, training and business and law education.
This would guide applicants on how to run a successful business and how to navigate City policies as applicants move through the program.
“I think that’s so important because without the proper knowledge of the industry you will get eaten up,” Carillo said. “And that’s education coming from people who have experienced the industry firsthand.”
The Human Relations Commission will further discuss and vote whether to accept the LBCA’s policy recommendations during their next meeting on Wednesday, August 4.
“I think this program has the potential to change so many lives, including ours, and I’m excited to see the program evolve,” Carillo said.
