Opening a retail cannabis storefront can cost hundreds of thousands of dollars, and that was before all the retail business licenses were claimed in Long Beach, but on Tuesday the City Council will consider adding additional dispensaries for lower-income owners.
Councilman Al Austin is asking the council to add up to eight new storefronts to the city’s roster which already has 32 retail dispensaries that were approved as part of a ballot measure in November 2016.
The spots would be set aside for applicants who qualify under the city’s cannabis equity program who have at least 51% ownership in the business.
Austin said that these applicants are being left out of the most significant revenue source in the industry; retail storefronts.
Last year cannabis tax revenue generated nearly $6.5 million over what city budget officials projected. However, nearly all of that money was generated by non-equity business owners.
“This is an issue that is long overdue,” Austin said. “If we’re not giving this direction now, then when?”
Austin said he wants city staff to explore the best possibilities for ensuring that equity applicants can get into ownership positions. The request for more storefronts comes after a bitter decade full of cannabis dispensary raids, marathon public meetings and a historic vote by Long Beach to legalize cannabis in the city.
“Certainly our viewpoints as a city and community on cannabis have shifted,” Austin said, referring to the city’s past abolitionist stance on cannabis. “Clearly it is a profitable industry.”
The council approved a cannabis equity program in July 2018 that sought to create more opportunities and diversity in the industry by promoting equity ownership and employees.
The city defined “equity” applicants as people with net worths of less than $250,000, a family income less than 80% of the area median income—$77,300 for a family of four in Los Angeles County—and meeting one of three markers including having past criminal convictions for cannabis or being an unemployed Long Beach resident.
The equity program required retailers to develop plans to give back to communities that have been most affected by the war on drugs through funding violence prevention, youth development, economic inclusion or re-entry programs.
It also required equity hires to work 40% of the work hours in adult-use dispensaries, but getting equity candidates into ownership positions has been a struggle.
“If we’re going to be serious about equity we have to create spots in the industry for those owners to have access to the positions with the biggest margins,” said Councilwoman Stacy Mungo Flanigan, who signed on in support of the item.
But merely creating spaces for equity owners may not solve the problem, said Adam Hijazi, president of the Long Beach Collective Association, and he said the issue is not unique to Long Beach.
“There isn’t one equity program that’s actually working in the state,” Hijazi said.
Hijazi said that the city has been working on fine-tuning its equity program and he’s hopeful that the result can be something that makes Long Beach stand out as a model for cannabis equity. But the city still has work to do in the area of vetting investors with whom equity owners would likely have to partner, he said.
Hijazi explained predatory investing has been an issue in the industry throughout the state with some turning to lawsuits to rid themselves of the equity owner once the business breaks ground and other owners having their growth limited by their investors who they might rely on for capital.
The city does offer direct grants to qualifying equity applicants that can total $235,000. It’s a significant amount of grant funding but the cost of opening up a new storefront can easily eclipse half a million dollars, and that doesn’t include the minimum amount of inventory a person would need to operate.
“If you’re trying to pick yourself up by your bootstraps you’re going to need $100,000-$150,000 minimum to start,” Hijazi said, adding that many shops carry two to three times that amount. “But you’re in the game. You’ll still have a ladder to climb, but you’re in it.”
While he said the association supports the idea of adding new storefronts for equity owners he said that other more accessible businesses like adult-use delivery and shared manufacturing, which have significantly less start-up costs for equity owners, could be an alternative in the short term.
He also believes that the council should push for a higher threshold of ownership to help ensure that there’s a road to success for equity applicants once they become retail owners.
“That’s what every business owner wants, right? Hijazi said. “To own their own business.”