Long Beach prepares to allow more cannabis dispensaries—but with higher taxes

Long Beach could soon have more cannabis dispensaries if the City Council moves forward with a recommendation to allow up to eight new storefronts that would be reserved for applicants who were penalized by former laws against the drug, are low-income or come from underserved parts of the city.

A successful ballot measure to legalize cannabis sales in 2016  capped the number of dispensary licenses at 32, all of which have been claimed.

The City Council is considering creating new opportunities for “equity” applicants who meet certain criteria.

On Tuesday leaders may vote to have the City Attorney draw up a new law that would allow additional adult-use dispensaries to operate in the city, which could include changes to buffers from parks and beaches, and an increase to the cannabis tax rate.

The recommendations the council will consider were contained in a feasibility report that was recently published on the city’s website.

It called for a multitude of changes, including strengthening the city’s municipal code to help protect equity applicants from predatory business partners and increasing the cannabis tax rate by .25% to help pay for additional staffing to support equity applicants throughout their business operations.

The report suggested using a hybrid approval process that would vet applications with a merit-based approach to determine which applicants were most likely to be successful and then put those applicants through a lottery to determine who gets one of the eight licenses.

Councilman Al Austin, who asked for a feasibility report in March to see if the city could create new licenses, said he was encouraged by the report. While he’d like to see things move as quickly as possible, he said he wants to make sure the city gets it right.

“I think we’ve learned a lot about cannabis,” Austin said. “It’s an evolving topic of public policy and we’re striving as a city to get better and more equitable, like others, everyday.”

Edgar Cruz, who plans to apply to become one of the eight equity dispensary owners, largely lauded the city for its efforts to create these licenses even though he and others had pushed for more.

“We really need to understand the real definition of equity,” Cruz said. “There’s 32 shops operating and there are no shops for Black or Brown people and now they’re adding eight. That’s still not equity.”

Cruz said he and others would continue to push for additional dispensary ownership opportunities for equity applicants in the future but added that he’s excited for Tuesday’s vote.

“We didn’t have the opportunity to have dispensaries out here so to see it moving forward, it’s a big step, even with all the cons in it,” Cruz said.

One of the cons pointed out by Cruz and existing dispensary owners was the proposed tax increase, something that the industry has fought to lower for years because of the ongoing competition with the illegal market that can charge lower prices because they don’t pay taxes.

Elliot Lewis, who owns multiple dispensaries in the city, including the one that was recently approved on Pine Avenue, said that existing operators have either have mounting debt or underpay employees to balance out the leakage of sales to the black market.

“One things for sure, the legal market is not working under its current structure,” Lewis said. “Raising taxes is against any social equity concept.”

Maps showing the city’s current buffers (left) and what the prosper changes could free up (right) if buffers for schools, beaches and parks are reduced. Maps courtesy City of Long Beach.

Lewis said increased taxes could raise the possibility that equity dispensary owners end up failing because owners like him, who have better purchasing power and can get certain brands generally not available to smaller operations, will have a greater ability to reduce prices to offset the tax increase.

Lewis was complimentary of the city’s efforts to develop and expand the equity program and for taking the time to listen and incorporate input from the industry and community, but called the proposed increase a “tax grenade.”

Adam Hijazi, president of the Long Beach Collective Association, agreed that raising taxes would be a negative for the industry, adding that it would create prices issues for both retailers and customers.

LBCA members are more concerned about taxes than they are over new dispensaries potentially reducing their market share, Hijazi said.

“It’s already tough, and that’s not because of eight more, 10 more or five more dispensary licenses, it’s because of current market conditions that exist,” Hijazi said.

Emily Armstrong, the city’s cannabis program manager, said staff believes the tax increase shouldn’t make too much of a dent in the industry but the revenue it will generate could support new positions that are intended to make sure that equity business owners thrive.

“The concern from us is it’s one thing to try and get them through the application process but the licensing process could take years,” Armstrong said. “After they get a licensed and become operational we still work with them and support them.”

She said she’s hopeful that the proposed reduction for buffers to expand the city’s “Green Zone,” the areas where dispensaries can legally operate, can remove some of the leverage that property owners currently have over applicants looking for a location to open a dispensary who Armstrong said cited high rents and lack of availability as one of the biggest hurdles to entering the market.

“They’re kind of these golden areas where they [owners] can pretty much do what they want,” Armstrong said.

Hijazi’s Green Room on Seventh Street was the first cannabis dispensary license issued by the city after sales were legalized in 2016. He said he’s supportive of the report’s suggestions but said there are two things he would like to see added that could help equity owners once they open their doors.

He said he’d like to see the buffers between dispensaries increased from 1,000 feet to 1,500 feet to avoid over-saturating any given neighborhood, and for the new equity licenses to eventually be able to sell medicinal cannabis.

Because medicinal sales were approved through a ballot measure, the City Council only has the power to authorize additional adult-use licenses.

A city memo said that adult-use sales make up about 95% of sales in the city, but Hijazi pointed out that medical cannabis is taxed at a lower rate—6% compared to 8% for adult-use—and that it provides greater access to people who need more potent products to help with chronic illnesses.

Allowing these new operators to sell medicinal cannabis would likely require voter approval but Hijazi said that it could be beneficial to the new owners.

“Whether it’s 5% or 10% of sales, when you’re running a business that can add up,” Hijazi said.

With Long Beach dispensaries built out City Council could expand cannabis storefronts for equity owners

Report says Long Beach could create more dispensary licenses but it might require zoning, tax rate changes

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Jason Ruiz covers City Hall and politics for the Long Beach Post.
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