5 years of legal weed in CA: Barriers to entry, social equity challenges, booming illicit market

Written by Amy Ta and Steve Chiotakis, produced by Jenna Kagel and Christian Bordal

A customer and budtender interact at Catalyst Cannabis Co. in El Monte. Photo by Nathan Avila/Catalyst Cannabis Co.

Cannabis has now been legal for recreational use in California for five years. There were high hopes when California adopted The Adult Use of Marijuana Act (Prop 64) in 2016. The idea was to bring in money from taxes, reel back the impacts of the years-long war on drugs, expunge marijuana misdemeanors, and legalize the state’s illicit cultivators and sellers.

What has actually happened in the years since? Not all of the state’s dreams have come true, including in LA. 

Greater LA looks at how far we’ve come, what LA is doing right and wrong, and why the illegal market continues to boom. We hear from: 

- Mary Carreon, freelance journalist specializing in California cannabis, and former editor in chief of Merry Jane, which is Snoop Dogg’s cannabis publication.

- Hilary Bricken, an attorney specializing in regulation and the business of cannabis.

- Kika Keith, owner of the Leimert Park-based dispensary called Gorilla Rx Wellness, and co-founder of the Social Equity Workers And Owners Association (SEOWA).

- Elliot Lewis, founder and CEO of Catalyst Cannabis Co., which has eight dispensaries around Southern California, with more slated to open later this year. 

KCRW: Has LA done a good job of implementing Prop 64?

Hilary Bricken: I would say to its credit, it's probably done way more for the operators than the state has done for licensees. ... It's obviously had some breakdowns, including in social equity, with rolling out those licenses. But California's main problem … is that the biggest barrier to entry is securing local approval. It's a lot of inside baseball, it's a tremendous amount of red tape, and licensees still have to be prepared for a massive capital outlay [money that most people don’t have] and a really lengthy timeline in order to even get their doors open. And unfortunately, LA is in that crowd.


“California's main problem … is that the biggest barrier to entry is securing local approval. It's a lot of inside baseball, it's a tremendous amount of red tape, and licensees still have to be prepared for a massive capital outlay and a really lengthy timeline in order to even get their doors open,” says attorney Hilary Bricken. Photo by Lindsey Boice. 

Elliot Lewis, how did you get your business off the ground? You started with one shop, have eight now, and will probably have more later. 

Elliot Lewis: We’re unique, we were able to kind of get a stack of licenses in Long Beach. So we sold a couple off. That kind of helped fund the larger operation. We've always been underfunded. We did get a tiny bit of institutional money. … We just have really low corporate overhead. I've never taken a salary. Most our staff that’s corporate is really, really slimmed down. We’re not making a whole lot more than the bud tenders. Ultimately, [it’s a] very hard business to run. 

... I think [LA’s] done a horrible job in a lot of regards, but that's emblematic of the larger system, and it's just a total abject failure. 

California, generally, politically, LA, and in Sacramento … they say they're for social equity. They say they're for good-paying jobs. They say they're for legal cannabis. … There's a lot of good people in the illicit trade, but there's abuses of women's rights, workers’ rights. Meanwhile, they have the boot on our throat, and there's nobody really that's thriving. Our business model is just to survive until hopefully, there's some major reforms at the state level. But we're far from thriving. And I don't think there's going to be a strong legal cannabis market until there is large statewide reforms, as well as city-wide reforms. 

Three-quarters of the market remains illicit. Even in the legally grown market, three-quarters of that is getting backdoored, traded on the illicit market. 

So my position is yeah, it's here, it's a little better than it was. But it was never supposed to be about a money grab, especially at the state level. If the cities need money, fine, we're okay to pay a little bit of tax. But the states turned it into a money grab, and they just redistributed to their friends. So it's been frustrating to watch.


“We've always been underfunded. We did get a tiny bit of institutional money. … We just have really low corporate overhead. I've never taken a salary. Most our staff that’s corporate is really, really slimmed down. We’re not making a whole lot more than the bud tenders. Ultimately, [it’s a] very hard business to run,” says Elliot Lewis, founder and CEO of Catalyst Cannabis Co. Photo by Nathan Avila/Catalyst Cannabis Co.

Kika Keith, explain how you got your shop in the marijuana business, and how you're doing now? Do you agree with Elliot?

Kika Keith: Elliot is on point. And I think you'll hear the truth when you talk to the operators and those that are going through the application process. And there's two different worlds that we're living in, especially when you talk about the difference between the existing medical licensees, or the general applicants, versus social equity. And in the State of California and the City of LA, where social equity was supposed to be a means to give an advantage to those that were most harmed by the War on Drugs, we have the highest fees, we've had the most delays, we've missed any first-mover advantage. And we've had no protections from sharecropper agreements and predatory investors, let alone the city itself that failed in its application submission process.

I had to co-found the Social Equity Owners and Workers Association. I came in this industry to be an entrepreneur. I'm a single mother. And I looked at this as a means of self-sufficiency, and [I didn’t think] I'd have to be a lobbyist and organize my community and mobilize to fight to say, ‘Listen, we are justly due a place in this industry, it was voted on by the voters.’ And instead, the system was rigged, and that was shown by the early entrants in the City of LA, it was first-come-first-served, quite like buying a pair of Nikes or Beyonce tickets, you had to get in right at 10 o'clock. And over 200 people got in early. And so we collectively organized  folks in the community, we filed a lawsuit against the City of Los Angeles, and not only was able for myself to get licensed, but 99 others. And that was very impactful in the system, where they really did not intend for folks that were harmed by the War on Drugs to bring equity into this industry.


“I came in this industry to be an entrepreneur. I'm a single mother. And I looked at this as a means of self-sufficiency, and [I didn’t think] I'd have to be a lobbyist and organize my community and mobilize to fight to say, ‘Listen, we are justly due a place in this industry, it was voted on by the voters,’” says Kika Keith, co-founder of Social Equity Owners and Workers Association. Photo by Antonio Javiniar.

They said they wanted to ensure that the people who were harmed got into the legal market. But you didn't get in the first time around because it was all online. And it was just a few seconds where everybody signed up very quickly, right?

Kika Keith: Yeah and not just myself, but a lot more of my brothers and sisters who were incarcerated didn't didn't get in, who were arrested, who weren't able to keep their businesses open, didn't get in. And when you look at historically in Black and Brown communities, we have incredibly slow internet, so then [we] even have to compete … with folks that are in high-rise buildings with high-speed internet. … It wasn't set up for us to win...

The multi-state operators and those that are well-resourced don't give a damn about the people that were harmed by the War on Drugs, don't give a damn about the social impact, but are focused on capitalism.

And cannabis that comes from the earth … before it was regulated had so much heart and [was] community-based. … It's a miscarriage of justice, the way that things have unfolded. 

Mary Carreon, we've heard during the past year and a half of the pandemic that consumers were buying more alcohol, and they were smoking and eating more cannabis. Will that continue? Or are you seeing that leveling off?

Mary Carreon: I think that people are gonna continue to buy cannabis more now than ever before. … It's going to even outsell alcohol. … Through the pandemic, we watched a lot of people reach for something, they needed something … that was going to relax their nerves. … A lot of people really turned a corner, realizing that cannabis is that. 


“I think that people are gonna continue to buy cannabis more now than ever before,” says Mary Carreon, freelance journalist specializing in California cannabis. Photo by Spencer Strayer.

Hilary Bricken, are they buying it legally or illegally?

Hilary Bricken: (Laughs) It's probably a mixture of both. I think California has tremendous enforcement issues for one reason or another because the theme here is that the state has really lacked in getting its act together around multiple issues in the industry, one of which is enforcement. And I'm not sure that they can possibly even wrap their hands around that without looping in the locals. And it doesn't seem like either the competence or the desire is there to crack down on some of these illicit practices.

... But I still think California is a place where most people are going to get their cannabis from their friend, or outside of the licensed chain of stores. Because they're not necessarily buying into the psychology of legalization. And I think all states have these issues. But in California, it's acute because there's so many people here, and cannabis has been normalized basically since 1996.

Elliot Lewis, how does the illegal market affect your business?

Elliot Lewis: The issue is just the taxes. … There's a 40% tariff, essentially, against the legal market. People are always going to buy in the illicit market. If they remove the taxes dramatically … through economies of scale and more access, the illicit market would go away. 

So yes, 75-80% of the purchases are illegal. But that's because it's 40% cheaper and a lot of people are price-sensitive. They're never going to be able to outsmart the illicit market. And we're trying to get away from incarcerating people, especially communities of color and communities that have been impacted on the War on Drugs. So there is no way to enforce your way out of this. The only way to make it so that it's a thriving legal cannabis market is to lower barriers of entry. And the main thing right now that’s just glaring is the tax rate.


Products are displayed at Catalyst Cannabis Co. in Bellflower. Photo by Nathan Avila/Catalyst Cannabis Co.

Mary Carreon, if these exorbitant taxes were suddenly lowered a lot, would that magically increase the number of people getting involved in the legal cannabis market?

Mary Carreon: I think it would definitely open the market up to them. I think right now, it is completely unattainable to so many people. And that is what is causing a lot of people who were once in the legal industry … [and] people who want to be in the legal industry — to not be able to sustain that type of taxation anymore.

... I think that one of the ways to cause a dent in the illegal market would be to make licenses and licensure in general and regulatory costs ... lower and much more attainable by more people, absolutely.

Kika Keith, you had to obtain a property and pay rent while meeting all of LA's Department of Cannabis Regulation (DCR) requirements, making sure that the business partners were social equity applicants. You own and operate your own company. But there is a lot of room in that process for someone to be taken advantage of, right? Is the DCR addressing that and issues at the local level with the licensing process?

Kika Keith: The DCR is just addressing this three years later. There's literally a motion on the table that's being heard in the planning and land-use committee meeting. And the DCR has recommendations or have very comprehensive reform. 

But we're talking about three years that people like myself are paying $12,000 a month on an empty property. And we didn't have timelines, and the timelines moved. … There was no oversight. The difference between a social equity application and a general application are the operating agreements and the equity share agreements that they make with their investor. 

Well, there was no oversight, there was nothing in their process for them to review these documents until over two and a half years later. And to this date, they still haven't begun that process. And so you have so many of the 200 that are prey to these predatory practices of these investors that are coming in and not doing what is the intent of the social equity program: to provide business licensing, compliance assistance, to incubate, to mentor that applicant, and to create an enterprise and partner. Instead, they've come to rape and pillage the community. And it has been a shame that there has not been a legal construct to actually have oversight of that. 

And yet, in 2017, in the social equity analysis that we waited months to get, that the city spent over $100,000 to get, it gave a very clear-cut [guidance] that every city should look at, of how to implement a successful social equity program. And the City of LA did not follow one of those recommendations. 

You have cities like Oakland that actually have social equity tax rebates and incentives, even for the brands and the manufacturers, not just even at the retail level with the excise tax. But you're also seeing tax breaks for those stores that will carry social equity retail brands.

... We have existing industries that we can take great cues from … federal programs [and] business development programs that we can take cues from. … Cities just are not taking the time to not only create the laws, but create the policies and procedures in order to implement successful programs.


“You have cities like Oakland that actually have social equity tax rebates and incentives. … We have existing industries that we can take great cues from … federal programs [and] business development programs that we can take cues from,” says Kika Keith, co-founder of Social Equity Owners and Workers Association. Photo by David Camerana. 

KCRW: Hilary Bricken, what are some of the upsides of where we are five years into cannabis legalization/recreational cannabis? Is there something we can look at and say, ‘This is something that California did right?’

Hilary Bricken: These democratic experiments are incredibly important to the ultimate golden ring, which is Federal legalization... 

What California did right … was that they met their initial licensing deadline of January 1, 2018. There have been states where the initial rollout itself has taken years with no licensing that's been implemented whatsoever. I also think, at the end of the day, to have such an intense program with over 20 license types that are available to operators is incredibly difficult to implement. 

It's not going to be perfect, maybe even in a decade. And what I'd like to see, as far as improvement goes, is more policy study of borrowing the positive things from other programs across other states...

All of the states should really be cooperative because they're drivers of policy. And they're in the driver's seat compared to the feds. Because when the federal cloak falls, if certain local barriers to entry and protectionist measures are not in place, competition is going to get very intense very quickly. And I also think that the states need to keep an eye on that. They don't need to kill off operators with cost prohibition and arbitrary red tape. But they do need to keep some of these barriers to entry to protect people in the future, ironically, for when federal legalization comes.

Credits

Guests:

  • Hilary Bricken - Harris Bricken / Canna Law Group - @CannaBizLawyer
  • Elliot Lewis - Founder and CEO, Catalyst Cannabis Co.
  • Kika Keith - Owner, Gorilla Rx Wellness; co-founder, Social Equity Workers And Owners Association (SEOWA)
  • Mary Carreon - Freelance journalist focusing on California cannabis and other drugs; former editor in chief, Merry Jane