The Compliance Business; Long Beach City Council Approves Recreational Cannabis Ordinance; Some are pleased, some not so much

Author: Joe Brizzolara / July 1, 2018

Legal sales of recreational cannabis in Long Beach could begin as early as August of 2018. On June 19th, the Long Beach City Council voted in favor of passing the ordinance after city staff presented their findings in a public hearing. On July 10th a second vote will take place and if passed (which is expected) the ordinance will be formally implemented.

The vote was 7-1 in favor, with Councilmember Stacy Mungo being the lone dissenter.

“Everyone has to pass it tonight,” Mungo remarked, showing frustration. “I’ve heard that at least 40 times in a week.”

She wanted more time to work on language of the ordinance, possibly placing guarantees that dispensaries hire residents of the districts that the dispensaries are operating in.

“My goal would be that we have adult-use available in the city September 1st.”

Currently, only medical marijuana sales are legal in the city of Long Beach. In order to make a purchase, a customer must have a letter of recommendation from a doctor advising that they would benefit from medicinal cannabis.

Stefan Borst-Censullo is an activist and attorney that represents cannabis businesses in Long Beach.

“I’m known to be one of the more critical people of the city in general but this ordinance appears to be pretty well crafted. I was happy to see it pass”

“A far cry from even a couple of years ago. You can really see the progress on this issue.”

Recreational cannabis will be available to all those 21 years or older. Dispensaries (retail shops) can be open until 9 pm and Delivery Services can operate until 10 pm.

Adam Hijazi is co-owner of The Long Beach Green Room, a local dispensary, and a founding member of the Long Beach Collective Association, a trade association consisting of cannabis business owners.

“We were pleased with the vote. We were happy.”

He has some concerns about the ordinance — including a provision that gives the City access to financial records and security footage without a warrant or notice — but ultimately believes that this is a needed step forward.

Hijazi says that the current medical only policy is creating a nuisance. He claims street dealers often loiter outside of his shop, eager to pick up on customers he is forced turn away because they don’t have letters of recommendation.

He thinks that once cannabis sales become more normalized in the city, regulations will ease up.

“We’re not moving nuclear waste from one place to another. But that’s how it’s being treated.”

For some, the future doesn’t seem so bright…

Zoning Out

This ordinance will add a designation in the zoning code for adult-use cannabis businesses.  Properties will receive land use designations of similar businesses. For instance, dispensaries will be allowed to locate in commercial areas and cultivators and manufacturers will be allowed to locate in industrial areas. Existing medical marijuana businesses will be allowed 180 days to apply for adult-use licenses regardless of new zoning restrictions.

Businesses will be required to receive a health permit from the City’s Health Office before beginning operation. They will also be required to attend training offered by the Department of Health and Human Services which covers topics such as prevention of underage use, risks of driving under the influence of cannabis, and safe storage methods.

State law prohibits cannabis businesses from placing billboards within 1,000 feet of schools, daycare centers, playgrounds, and youth centers. This ordinance removes youth centers and playgrounds from the list but adds public parks.

The ordinance grants the City authority to enforce the ordinance through various means including civil and criminal penalties, declarations of public nuisance, and holds on cannabis products.

Buffer zones will be created which restrict cannabis businesses from operating in certain parts of the city. These are the same buffer zones currently being enforced for medical marijuana businesses. Cannabis businesses cannot operate within a 1,000 feet of the beach or a school. They also cannot operate within 600 feet of a library, park, or daycare center.

that green (the other kind)

An 8% tax would be charged on all recreational sales.

Staff predicts an increase of $4,447,748 in revenue from cannabis for the 2019 Fiscal Year.

But the City’s Cannabis Program Manager, Ajay Kolluri, cautioned the council to not count their chickens before they’ve hatched. With the state’s revenue expectations for cannabis falling short, staff warned the council that the city might also see less than expected revenue.

“Cannabis tax revenues are incredibly difficult to predict.”

It’s possible that the new regulatory costs of cannabis sales might result in a net loss for the city in the 2018 fiscal year.

“For [this fiscal year], our costs for the cannabis program will exceed the revenue we take in,” says Kolluri.

New fees may be proposed to offset these costs.

“For next fiscal year (2019) we’re expecting to break even.”

Medical sales in Long Beach are producing significantly less revenue in 2018 than was expected. The city predicted they’d get about 5.2 million in new revenue but is expecting to only get around 2 million by the end of the year. Staff says this has to do with a slower rate of business creation and licensing than predicted. It is also likely a result of cannabis consumers not being able to purchase in the city without a medical card when there are nearby options where only an I.D. is required.

Hijazi: “The city’s not making the tax money and the legal dispensaries are not able to compete.”

Equity Hire

The Equity Hire program is a new social justice motivated model that seeks to mitigate the ravaging effects the war on drugs has had on low-income communities. These communities have experienced the highest rates of low level arrests for possession and use of marijuana. First developed in Oakland (though they’ve been hitting a snag as of late), the program offers both mandates and incentives with the goal of hiring from low-income communities as well as individuals who have marijuana convictions on their backgrounds. These convictions often prevent them from gaining employment in other fields.

Long Beach’s program was devised by the offices of Equity and Cannabis Management. To qualify, an individual must come from a family whose annual income is less than 80% of the median income in the area; have a net worth below 250,000; and have either a marijuana conviction in Long Beach before November 8, 2016 that would now be considered a misdemeanor or infraction under current law or lived in a census tract for the past 3 years where at least 51% of the population lives  at 80% or below of the area median income.

A requirement is being proposed which would require cannabis businesses to guarantee that 40% of work hours are performed by individuals who meet this criteria. A “good faith” effort to meet this requirement must be proved by employers otherwise warning and citations may be given by the city. If an employer can prove that there is insufficient numbers of people in their labor pool that meet this criteria, delays and lessening of requirements may be issued.

For those who meet the criteria and want to start their own cannabis business, fee waivers, tax deferrals, expedited plan checks and application reviews, and application workshops will be provided.

The Equity Hire fee is expected to be around $2,000 per cannabis business. The initial cost of the program will be $266,000. The program will be administered by Pacific Gateway, an employment agency, who will be contracted by the City.

Peace, Labor, and Understanding

Continuing a standard already put in place by the medical marijuana ordinance, Cannabis businesses will be required to sign a labor peace agreement upon approval of their application. The agreement prohibits cannabis businesses from interfering in employees unionizing. Matt Bell, Executive Vice President of UFCW Local 324 which represents a little over 100 cannabis employees in Long Beach, spoke at the City Council meeting:

“[Around] 70% of the people that go into the dispensaries today think it’s recreational and therefore leave. And so, without passing this tonight, it really is a death sentence for these businesses and for good union jobs in the city. Some of these young folks in these shops have actually turned to us and said, ‘I’m so excited, I can go home and I have the same benefits [as other union workers]. I have a great living wage. I can tell my parents. I can move out. I can have insurance. I have a pension. I have all the things that a good job requires.'”

Attorney Borst-Censullo says that the UFCW was instrumental in getting adult-use passed in Long Beach.

“There would be no legal weed in this city without UFCW. UFCW kept this issue alive when no one thought the advocates had a chance in hell.”

First come first delivered?  

While licensed cannabis businesses are enthused about their new customer base, some feel excluded, even going so far as to say that the city has just given a monopoly to the companies already established in Long Beach.

This stems from a controversial aspect of the new ordinance which states that in order to open a recreational cannabis shop, the business must co-locate with an existing medical cannabis business. This means that all recreational shops will be owned by medical dispensaries.

Measure MM is the Long Beach voter initiative the removed a city council ban on medical marijuana sales. It passed in 2016 (the same day as a state-wide legalization proposition) and was drafted by the Long Beach Collective Association. It limits the number of medical cannabis dispensaries that can operate in the city to 32. No new recreational shops will be created unless the city decides to alter the ordinance and allow recreational shops to open without also being licensed medical shops.

This restriction only applies to retail shops. New cultivation centers and manufacturers will be allowed to open in long beach after their application has been approved.

Medical marijuana licenses were distributed through a lottery system that required a thorough application process in order to be entered, along with substantial fees and background checks.

John (not his real name) owns a delivery service in Long Beach. He says that he would have greatly appreciated the opportunity to go legitimate. According to Kolluri, “dozens” of unlicensed delivery services are currently operating in Long Beach. Weedmaps, an app used by consumers to find nearby shops and other services, shows quite a few. None of the licensed storefront currently have delivery services registered with the City.

Kolluri: “[Measure MM] allows for storefront dispensaries to deliver, so a delivery service would have needed to go through that process. They didn’t actually have to operate in the storefront, they could have chosen to be delivery only, but because the medical initiative had a hard cap of 32, and the city as well as the state considers delivery services to be dispensaries, they fall under that cap of 32.”

“It’s windfall [for existing medical businesses], they’re the only only ones who are legally going to be allowed make money,” says John.

“I would, right now, go down to City [Hall], get licensed, and start paying taxes,” John laments. “But they’re not even giving us the opportunity.”

He believes that a small group of businesses have successfully lobbied the city to give them exclusive control over an extremely lucrative and expanding industry. The narrative that small businesses would get new opportunities is not being honored by this ordinance.

Licenses issued to particular businesses may in fact be sold to other businesses without a new application.

“There’s not really an administrative process. As far as we’re concerned, it’s a change of ownership process,” Kolluri explains. “They would have to complete a form with the city. We would need to run background checks on the new owners.”

A new application would not be necessary and the business could continue to operate while the city processes the change of ownership.

Currently Show Grow, a cannabis company with dispensaries in Orange County and Las Vegas, owns 6 of the 32 licenses according Kolluri. Is it possible that 1 or 2 businesses will buy all the cannabis licenses in the city a few years down the line?

“Hypothetically, yes that’s possible,” says Kolluri.

Borst-Censullo represents businesses in the Long Beach Collective Association. He believes that licensed businesses are being rightfully rewarded for years of stake holding in long beach, uncertain that Long Beach would ever get behind legal cannabis. He also points out that a delivery service operating in Long Beach is doing so illegally, and to criticize the new ordinance without ever having demonstrated a willingness to comply with existing law is faulty.

“[The ordinance] is specifically designed to exclude people that have no interest in complying with the law.”

“People who have been holding on to property for 4 to 5 years, paying rent on it, with no income in order to establish the good faith with the city and get the medical license process going.”

“32 businesses for the size of the city we’re in… that’s pretty diverse,” Borst-Censullo argues. “I can understand [illegal operators’] frustrations, but they would be better suited to try and open up in a new area. Long Beach is not the [only option].”

He also points out that the 32 cap was approved by the voters through Measure MM.

“This wasn’t a smoke-filled back-room deal. This was brought out transparently for years.”

Kolluri did clarify that it is not necessary for cannabis businesses to have held on to their original properties for their licenses to still be honored.

“[If a dispensary was a previous lottery winner and] they were identified in the ordinance as one of those that would be given priority to obtain a dispensary license, they would be able to locate at the location they were at previously, but if they couldn’t or didn’t want to locate at the previous location, they could have located anywhere in the city.”

Kolluri also points out though that those medical dispensaries who stayed at their original location were given first priority in the most recent licensing.

Greg Gamet is the Chief Cannabis Officer for GF Distribution LLC, a business that will be opening a dispensary on P.C.H. in the coming months. They won their license in the most recent lottery that took place last year. He is a firm believer in playing by the book but also sympathizes with illegal operators.

“I’ve been in the cannabis business a long time. I was that guy (John). I feel for them. I encourage them, especially if they’re on the up and up, to reach out to businesses like me and see if somehow we can bring them on for being our delivery service when we’re up and running.”

“I don’t want to say anything bad about [illegal operators] because the industry is built on the backs of guys like them and I respect them tremendously,” says Gamet. “At the same time there’s a set of rules and regulations”

He has a counter-intuitive description of his industry:

“We’re not in the marijuana business, we’re in the compliance business.”

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