California Controversies Over ‘Social Equity’ Licenses

More localities in California are putting in place “equity license” programs for cannabis dispensaries, prioritizing applicants from those communities that had been most gravely affected by cannabis prohibition and the war on drugs. Such programs are now officially encouraged under state law.

But the continuing conflict over the equity program in Los Angeles casts a harsh light on the challenges of implementation and the social stakes involved.

Last month, prospective cannabis entrepreneurs agreed to drop a lawsuit challenging Los Angeles’s contentious process for granting licenses, after the city government agreed to increase the number of applicants. The suit was brought by the Social Equity Owners & Workers Association (SEOWA), who argued that, even with equity measures officially in place, the process was designed in a way that still effectively excluded the prohibition-impacted communities.

Gaming the System

As the Los Angeles Times reports, principally at issue was the first-come-first-serve aspect of the application process. SEOWA asserted that more than 200 applicants who accessed the online platform before 10 a.m. — the official opening time—got an unfair advantage. Mere seconds could make the difference between getting a license or not. Those with the time and resources could essentially game the system, filling out the application beforehand and hitting “submit” at the precise stroke of 10.

SEOWA, which called on the city to halt new licenses while the suit was pending, contended that “it is fundamental to any fair race that the competitors must start at the same time or, at the very least, be given accurate information about when the race will begin.”

Under the settlement agreement reached July 8, the city agreed to changes in the program, including a prompt review of the next 100 applications that were in line. This could double the number of licenses granted to the current round of applicants. Those changes were voted up by the City Council and received the approval of Mayor Eric Garcetti. 

SEOWA co-founder Kika Keith, called the settlement “a great victory for us.” In her statement, she also said, “Social equity applicants banded together and raised the money for legal fees to fight the injustice of the application process.”

Keith is one of the next 100 applicants in line. But, as the LA Times notes, hundreds more will still be left waiting. Which is why another SEOWA co-founder, Madison Shockley III, characterized the settlement as a compromise. “We made the decision to settle because we don’t see any way to make what happened fair—it’s kind of too late for that,” Shockley said. “So we felt it was for the greater good to accept the settlement that included 200 licenses.”

New Rules for LA Licensing 

The new rules approved by the City Council will also narrow the criteria for applicants who qualify for the equity program, limiting it to those with a cannabis arrest record in the state of California. The new rules also reconfigure the method for identifying areas with disproportionate arrests for cannabis offenses. 

Lynne Lyman, who led the Drug Policy Action campaign for legalization in California, welcomed the changes. According to the LA Times, she commented on the changes at a city meeting where she said, “We all know social equity has been a failure, here in LA and across most jurisdictions. Too many loopholes… This is the first real hope for social equity to succeed.”  
 
The program had previously designated the areas to be prioritized by ZIP codes – but this often meant that wealthier and whiter areas got lumped in with poorer ones that suffered higher levels of cannabis arrests. As the LA Times noted, one of the eligible ZIP codes was 90027, which covers affluent stretches of Los Feliz neighborhood. Under the new system, equity-prioritized areas will correspond to police reporting districts. 

“We agree that this process needs improvement,” admitted Cat Packer, head of the city Department of Cannabis Regulation.  

But plans to replace the first-come-first-serve system with a lottery are raising questions about whether this will really be any more equal. The California Minority Alliance, which also advocates for greater representation by Black and Latino business operators in the cannabis industry, warned that exclusive reliance on a lottery emphasized chance to the exclusion of merit. 
 
SEOWA launched its suit in April, weeks after release of an official audit giving the old system a clean bill of health. It found that although some applicants made it into the system ahead of time, the Department of Cannabis Regulation took “reasonable and appropriate” measures to correct for any unfair advantage.

Unequal Access Means Unequal Arrest Rates

Los Angeles announced its Social Equity Program a year ago, with its stated aim to “decrease disparities in life outcomes for marginalized communities and to address the disproportionate impacts of the War on Drugs.” A California state law passed the previous year, the Cannabis Equity Act, created incentives for such programs.

But those disproportionate impacts persist in Los Angeles. Cannabis arrests continue to disproportionately target Blacks (as in New York City, even after a new policy de-emphasizing pot enforcement). In Los Angeles, arrest figures for Blacks have actually increased in absolute terms since cannabis legalization – certainly a perverse irony. An urban affairs website Crosstown cites the official figures, and they are staggering. In 2017, when adult-use cannabis was still illegal in California, the Los Angeles Police Department arrested 173 Black people for cannabis-related offenses. The next year, after legalization took effect, the LAPD arrested 239 Black people for cannabis offenses. In 2019, the number leapt again, to 261. 

In 2016, Blacks accounted for 32.2% of cannabis arrests in the city. Last year, that share rose to 42.3%, LAPD data indicates. Black folk make up 8.9% of the city’s population. 

And by Crosstown’s analysis, this is due to Blacks basically being forced into the illicit market by the continuing death of dispensaries in their neighborhoods: “Wealthier and predominantly white areas, such as Studio City, North Hollywood, Fairfax and Westwood are home to dozens of dispensaries. Meanwhile, the entire south part of Los Angeles, including areas with larger Black populations, such as Hyde Park and Watts, has fewer than 10 dispensaries registered with the city.”

Equity’s Catch-22 

The neighboring city of Long Beach is grappling with similar dilemmas. According to a recent report in Long Beach Business Journal, since the inception of the city’s Cannabis Equity Program two years ago, just one of 50 qualifying applicants has entered the industry as a business owner. 

Some frustrated aspiring entrepreneurs are protesting that the program has done little more than help with paperwork. “There wasn’t really anything more than showing us how to apply,” said Brian Delahoussaye, 35, who has several years of experience in the cannabis trade. “I’m sure that’s great if you have funds to apply.”

Establishing a cannabis enterprise can cost upward of $1 million for construction, rent, building modifications and equipment. This results in a kind of Catch-22 for equity applicants.

“It’s a strange crux because you’re not supposed to have any money to be in the program, but you need money to make it work,” said Delahoussaye, referring to the income and asset limitations set forth as qualification requirements. 

This contradiction was addressed in an open letter to Mayor Robert Garcia and the Long Beach City Council sent in February by acting City Manager Tom Modica. According to Modica’s letter, the equity program was set up to make “legal cannabis business ownership and employment opportunities more accessible to low-income individuals and communities negatively impacted by the prior criminalization of cannabis.” Yet, “in speaking with prospective applicants, the primary reason for the discrepancy between interest in the program and actual business license applications received, is the substantial amount of capital necessary to start a cannabis business.”

Delahoussaye told the Business Journal that by working in the medical marijuana industry before full adult-use legalization, he had been able to pay for his bachelor’s and master’s degrees. But with full legalization, the costs of licensing, owning or renting property in areas zoned for cannabis jumped (a phenomenon elsewhere described as “cannabis gentrification.”) Delahoussaye said that he and his partners were priced out.  

And, once again, this process disproportionately affected Black entrepreneurs, Delahoussaye said. “We’re locked out of this industry in a major, major way,” he soberly concluded.  

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