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Pot entrepreneurs are running out of patience and money while waiting on L.A. permits

Pot entrepreneurs are running out of patience and money while waiting on L.A. permits
Kika Keith sits is an empty room where she wants to open up a shop that sells cannabis-infused beverages, tinctures and salves. (Wally Skalij / Los Angeles Times)

For Kika Keith, a dream deferred looks like a bare, brightly illuminated room in South Los Angeles.

After California legalized recreational cannabis, Los Angeles leaders had vowed that entrepreneurs such as her — with roots in communities hit hardest by the war on drugs — would get an upper hand in L.A.’s potentially lucrative marijuana market. Keith, a single mother of three, snapped up a lease on a Leimert Park storefront and lined up an investor.

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This empty room was supposed to hold her dream — a shop that would sell beverages, tinctures and salves infused with cannabis, and reinvest a share of the profits in community groups.

But more than a year after sales of cannabis became legal in Los Angeles and other California cities and counties that have allowed it, Keith still cannot apply for a local license as a retailer. And L.A. officials cannot tell her exactly when that will change.

The slow rollout in a city that could become the biggest market for legal cannabis in the country has frustrated would-be entrepreneurs. Critics complain the delays have taken an especially heavy toll on people who L.A. leaders said they wanted to help with a “social equity” program.

That program, one of several struggling to get going in cities across California, is designed for people whose communities bore the brunt of marijuana arrests and convictions to benefit financially from the drug’s legalization.

In L.A., for instance, black residents were much more likely to be arrested in marijuana crimes during the drug war, despite studies showing that they are no more likely to use or sell the drug. Many neighborhoods with high numbers of cannabis arrests also were poorer and had a higher-than-average percentage of people of color, an analysis conducted for the city found.

L.A. leaders said that to address those past injustices, they would give an edge to cannabis entrepreneurs who are low-income and had been arrested in or convicted of marijuana crimes, or who had lived in neighborhoods disproportionately affected by such arrests, providing them advantages and assistance in the licensing process.

The problem facing many entrepreneurs now — whether they are eligible for the equity program or not — is that they decided to spring for storefronts, knowing that there would be limited real estate available for cannabis businesses. When Los Angeles passed its regulations on cannabis businesses, it set caps on the number of retail shops in each neighborhood and banned them from opening near schools, public parks and other marijuana shops. Cannabis growers and manufacturers also face restrictions on where they can operate.

At first, the city said that all cannabis business applicants needed to have a location before they applied for a license. That changed in July, when the city decided to loosen that requirement for people in its equity program. But by then, many of those entrepreneurs had already signed leases, expecting that they would soon be able to get a license.

For many hopefuls, that hasn’t happened. By February, L.A. had granted temporary approval to roughly 180 shops, which had already been operating under an earlier set of city regulations for medical marijuana dispensaries and got first dibs on recreational licenses under the new regulations.

Next in line have been hundreds of existing growers and manufacturers that supplied those medical marijuana dispensaries. This second phase of licensing had initially been expected to wrap up last April, but the process didn’t start until August.

Dozens of growers and manufacturers have gotten temporary approval from the city since then, while many more are still being processed.

The third and final step will be to throw the doors open to license new operators, including many entrepreneurs who are eligible for the city’s social equity program. But for more than a year, L.A.’s Department of Cannabis Regulation could not say when that would happen.

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“They just keep saying, ‘We don’t know,’” said Benjamin Brayfield, who shut down his cannabis collective more than a year ago, trying to stay in line with the law while L.A. started its licensing process. In January, he abandoned his Mid-Wilshire location and has been working with a company in Palm Springs instead.

This month, the department said it hopes to begin the last phase of local licensing this spring or summer. At a meeting on Friday, both City Council President Herb Wesson and Cat Packer, executive director of the Department of Cannabis Regulation, said L.A. needs to proceed thoughtfully, not rush.

“People wanted their licenses yesterday,” Packer acknowledged. “But the truth of the matter is that we are just getting started.”

L.A. officials blamed the longer-than-anticipated timeline on slow hiring at the newly formed Department of Cannabis Regulation, a deluge of applications from existing businesses that took priority over newcomers, and the daunting work of creating the infrastructure for a new agency, including setting up offices and an online licensing system.

The city also has had to grapple with issues such as how to prevent equity applicants from being exploited by other operators in the licensing process.

“Bringing cannabis above ground is an incredibly complex process, and L.A. is doing it on an unprecedented scale,” Alex Comisar, a spokesman for Mayor Eric Garcetti, said in a statement. “Our goal is to do this the right way, not the quick way or the easy way — and we’ve always been very clear about that.”

Some argue that the city should have provided more help to the fledgling Department of Cannabis Regulation, which began with only an executive director and has grown slowly to 13 employees, as of February. More positions have been funded but haven’t been filled yet, the result of a lengthy process for city hiring.

“The mayor didn’t put any priority on anything,” said Donnie Anderson, president and co-founder of the California Minority Alliance, which supports the participation of people of color in the cannabis industry.

Others had other gripes: Cannabis consultant Sergio Ingstrom complained in an email last May that L.A. was driving away businesses by “spending too much time on the idealization of social equity instead of the implementation of it” and raised concerns about the demands on firms that partner with equity applicants.

When someone forwarded that email to Andrew Westall, a top aide to Wesson, Westall was unfazed, emails obtained by The Times show. “I have no time for folks that want to go somewhere else. Let ’em,” he replied.

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Westall, one of the top figures at City Hall on cannabis issues, declined to be quoted for this article. Emails show that in May, he was confident that licensing for new operators would begin soon, assuring someone assisting a cannabis applicant that it would start by the end of summer.

Instead, as months have passed, industry groups and consultants have complained that many cannabis entrepreneurs are stuck paying steep prices for multiyear leases, after landlords hiked prices on eligible storefronts.

“You had a lot of people who followed the city’s guidance and signed leases,” paying upwards of $10,000 a month in rent, said Larry Mondragon, vice president of zoning and entitlements for Craig Fry & Associates, a consulting firm helping cannabis businesses. “People are holding onto leases, paying exorbitant checks, not even knowing when they’re able to turn in applications” to the city.

By February, Keith said she had been renting out the vacant storefront in Leimert Park for eight months.

At one point, she worried that her dream could be squelched when another cannabis shop that already had city approval moved in a few doors away — a move that could make her site ineligible for cannabis sales.

Keith was relieved when that shop eventually closed and the city tightened its rules about such relocations. But in December, her rent doubled — an agreement that Keith had struck when she believed she would be in business by that time. She feared that her investors, who she said had been paying her a small salary, might pull out in frustration.

“What kind of business-minded investor is going to continue to shell out money with that much uncertainty?” Keith asked.

A Sacramento-based cannabis investment firm, MWG Holdings, ultimately decided to keep supporting her dream. But the firm backed away from plans to fund another social equity applicant in L.A.

“It’s tough,” said David Spradlin, chief executive of MWG Holdings. “A lot of our investors didn’t invest to be activists. They invested to make a return.”

Another investment group has shifted its attention from L.A. to the Bay Area. “We decided we couldn’t wait,” said Good Tree founder Rashaan Everett, who runs a fund that invests in equity applicants. “San Francisco and Oakland had made so much more progress.”

Anderson, of the California Minority Alliance, said that although such delays have aggravated all cannabis entrepreneurs, they could be especially hazardous for the social equity applicants that L.A. set out to help.

Under the equity program, the city must review applications from two shops run by eligible applicants for every application it vets from another cannabis retailer. Because the city has already approved scores of licenses for shops that had already been operating, L.A. will likely hand out the licenses still available for new storefront retailers to equity applicants, according to city officials.

And to even be eligible for the second phase of licenses, marijuana growers and manufacturers had to be part of the equity program — either as an applicant disproportionately affected by the war on drugs or a business that agrees to help them.

Equity applicants are supposed to get a helping hand from the city through “business, licensing and compliance assistance.” But more than a year after recreational cannabis sales became legal, there are no city programs providing such aid.

So far, the only funding the city has approved for social equity is $250,000 for a fee deferral program. Department officials say they now are seeking more than $4 million for the program, hoping to roll out support services, such as business development training, no sooner than July.

Some advocates argue that, in the absence of those services and an abundance of illegal cannabis businesses still competing for customers, it is a blessing in disguise that many equity applicants have not been able to start the licensing process.

“They need the support system,” said Dani Shaker, one of the co-founders of Think and Grow Lab, which assists equity applicants with funding and training. “It’s not just getting priority in licensing — how do they stay viable and successful?”

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