New cannabis business owners who want to apply for grants through the Long Beach Cannabis Social Equity Program are faced with a dilemma—before they receive grants, they must find the funding to pay for a business location.
“We’re kind of on our own to go out and find a property and negotiate with that landlord […],” said Bryant Ezeji, founder of Good Peeple, a cannabis business seeking a license through the Cannabis Social Equity Program. “For the most part, most of the landlords are predatory. They’ll charge hundreds of thousands of dollars that we don’t have, just to get a letter of intent to commit to that building.”
Ponying up hundreds of thousands of dollars to secure a business space is an impossible burden for many applicants to the Cannabis Social Equity Program.
Applicants to the program have to have a net worth under $250,000 to qualify for funding through the program.
And if they do find a location, and are then given funding through the program, they can be stuck paying rent for years before they’re allowed to start operating their business.
“Even if you do find the building you might end up paying rent for years, while you’re going through the whole licensing process and that’s something I didn’t know,” said Samantha Carillo, co-founder of cannabis business Melons Co.
Rent alone can eat up the majority of the grant funding business owners receive through the Cannabis Social Equity Program.
During a city council meeting on Tuesday, July 6, the first business owner to be given a business license through the Cannabis Social Equity Program, Tamika Boyce, said that the majority of the initial funding she received through the program went towards rent.
This was before she received her license. Her business wasn’t bringing in any profits yet.
“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.”
“This is actually where you see a lot of applicants come to a dead end because they ended up using all their grant money on rent,” Carillo said.
Adam Spiker of the Southern California Coalition told the Signal Tribune that this problem isn’t limited to Long Beach’s Cannabis Social Equity Program and that similar issues exist within Los Angeles’ program.
“You can look at L.A. They did a first round of social equity for retail Sept. 3, 2019. The vast majority of them are still not open,” Spiker said.
Morgan Fox of the National Cannabis Industry Association said requiring businesses to pay rent for months or years before they are allowed to operate puts small cannabis business owners at an unfair disadvantage.
“That’s definitely a huge barrier to entry particularly for small businesses who don’t really have access to capital at nearly the rate that larger businesses do,” Fox told the Signal Tribune on July 28.
Why it’s expensive to find a cannabis business space
The reasons that landlords in some cases charge high rates to cannabis businesses have evolved over time, Fox said.
According to Fox, before the federal Department of Justice took a hands-off approach to state cannabis legalization, landlords feared criminal liability or asset forfeiture if a cannabis business they rented to was prosecuted by the federal government.
After the Cole Memo, in which the federal government said it would entrust states with the power to regulate local cannabis laws, landlords’ motivations for charging high prices to cannabis businesses shifted, according to Fox.
“Competition for these spaces is increasing massively,” Fox said.
The old rule of supply and demand then went into effect—there were limited spaces that could legally hold cannabis businesses, and so landlords who owned them could charge higher prices.
In Long Beach, cannabis businesses can only operate out of areas zoned for commercial use, industrial use, and in one planned development district in the downtown area, PD-30.
“There’s a limited number of options that actually meet those requirements and so they can afford to price their rent competitively because there are a lot of businesses that are vying for spaces like that,” Fox said.
Fox also said that landlords fear that a cannabis business will attract crime to their property.
“Retailers tend to have a lot of cash on hand and cultivators have a lot of valuable products on the premises, and that can make them targets for crime,” Fox said.
This puts applicants in the Cannabis Social Equity Program at a marked disadvantage when competing with large cannabis corporations.
While a large corporation may be able to shoulder the cost of rent for years without taking in any profit, that would quickly drain a small business owner’s bank account.
The Long Beach Collective Association, a group of individuals and businesses in the local cannabis industry, has asked the City to no longer require cannabis business owners to already have a space lined up to apply for the Cannabis Social Equity Program.
“Having that approved business application would give us leverage when trying to negotiate and secure a property with building owners,” Carillo said.
Spiker told the Signal Tribune that business owners shouldn’t be required to have a location before they can apply to cannabis social equity programs.
“In my opinion, I don’t believe it should be for social equity,” Spiker said. “I believe many jurisdictions get social equity wrong. I know they’re all trying to do it well and they’re very well-intended but I don’t believe it should be a prerequisite.”
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