Eight new dispensary licenses expected to be awarded on merit-based lottery, would bring total cannabis retail equity ownership to 20% citywide
Long Beach will consider adding eight more cannabis retail licenses reserved for cannabis equity applicants, but the move may come at a cost for taxpayers and cannabis businesses.
In order to pay for $230,00 in annual staffing costs associated with the program and $325,000 in one-time costs to get the program off the ground, the City will consider increasing its cannabis tax by 0.25%.
The move would bring the City’s cannabis tax up to 10.5%, on top of the 15% excise tax imposed by the State.
The tax increase would apply to the gross receipts of all cannabis businesses, including delivery, dispensary, lab testing, manufacturing and distribution, according to City Manager Tom Modica.
City staff expect the tax to bring in an additional $609,000 annually, which will pay for new licensing software, technical assistance and stakeholder engagement.
If the City does not increase the tax, it will have to find another way to pay for the program or cut its budget elsewhere. (The City is expecting a deficit upwards of $36 million in the following fiscal year, according to Modica.)
Cannabis equity program has failed to jumpstart substantial equity ownership
There are currently 32 cannabis dispensaries in Long Beach, none of which are owned by people of color.
At the Tuesday, Oct. 12 city council meeting, Cannabis Program Manager Emily Armstrong said that, because the equity program did not exist when the licenses were first awarded, “equity applicants have been completely shut out of the cannabis retail market.”
The City’s cannabis equity program, which has been in place since 2018, has only helped one out of 117 applicants, according to an email from the Office of Cannabis Oversight on June 24, 2021.
The program is targeted towards people of color who were directly impacted by the War on Drugs, which disproportionately criminalized people of color.
The equity program has garnered criticism for its failure to succeed in increasing equity ownership in the city. As of June, equity applicants have been allowed to open shared-use manufacturing facilities, but not cannabis delivery or retail facilities.
Storefront retail is considered one of the cannabis industry’s most lucrative business models, but a lack of licenses, hefty start-up costs and a lack of real estate have prevented equity applicants from entering the retail industry.
On average, it costs a dispensary over $500,000 to become licensed and fully operational, according to Armstrong, but applicants must have a net worth below $250,000 to qualify for the program. The program offers up to $216,000 towards applicants’ business costs.
Licenses to be awarded in merit-based lottery, licenses would bring citywide retail equity ownership to 20%
If Long Beach awards an additional eight licenses, 20% of the City’s retail cannabis businesses would be equity-owned.
The percentage received pushback during the feedback process. Armstrong said that some requested a 50-50 ratio for cannabis licenses, an addition of 32 additional licenses.
“It is unclear if the market would sustain that many dispensaries,” Armstrong said. “There were concerns from the industry that that many additional dispensaries might impede on the success of all the dispensaries in Long Beach.”
Councilmember Al Austin said that adding eight dispensaries could give the industry a “manageable starting point” to adjust.
“But that doesn’t mean it’s capped, that it will be over with,” Austin said. “Because we can always look at doing more.”
The City plans to award the licenses on a lottery basis.
Verified equity applicants would submit their proposals to the City, where they would then undergo a merit-based review by a panel of individuals with experience in business development and social equity who are not affiliated with the Long Beach cannabis industry.
Those that make it past this first review would then be interviewed to assess their potential for success. Those that make it past this round would then enter the lottery for one of the eight licenses.
Council members and residents expressed concern with the lottery program, given that some equity applicants have waited years for the opportunity to open a retail location.
“My only concern is that folks that had been on the ground level then get left out of that process,” Mayor Robert Garcia said.
The City has not yet created criteria for evaluating the proposals, which could include extra points for things like longtime involvement in the cannabis equity program and impacts on the applicant during the War on Drugs.
City staff are expected to report back on the ordinance in approximately three months, Armstrong said. After designing the application process, dispensary applications would open in May 2022, with applicants selected in November 2022.
