Marijuana companies are fleeing Los Angeles, a setback for what is arguably the biggest cannabis market in the world.
Industry executives blame city officials and their inability to approve business licenses in a timely manner.
Just ask Kenny Morrison. A decade after founding his cannabis edibles business and finding success in the iconic Venice Beach area of Los Angeles, Morrison recently moved his VCC Brands to Northern California.
He quit the City of Angels at the start of 2018, he told Marijuana Business Daily, for the same reason “dozens” of other edibles makers, growers and other cannabis businesses have fled: They haven’t been able to get municipal licenses to operate in the fully legal California market.
“To stay alive. To stay in the game,” Morrison responded via email when asked why he left Los Angeles.
Morrison, who started his business as the Venice Cookie Company in 2008, is a prime example of the many problems facing the marijuana industry in California’s largest municipality.
The city has been struggling for over a year to establish industry regulations and to bring thousands of existing operators into the legal – and taxed – business world.
‘New gray area’
As of the last week of April, only 139 companies had received business licenses from Los Angeles. Any cannabis companies without permits that are still doing business are technically illegal and risking the wrath of both city and state regulators.
“There’s not a lot of operators in L.A. that are flush and doing well right now, whether licensed or unlicensed,” said Adam Spiker, the executive director of the Los Angeles-based Southern California Coalition, which has been working with city officials for months to craft regulations.
“You could call it the new gray area. The gray area before was operating under (the state’s previous medical marijuana law) but against local policy. But now, the new gray area is operating in the transition to regulation. I mean, that’s what this really is.”
The businesses that have been licensed are all longstanding dispensaries that qualified for priority licensing under a complicated set of rules approved last year, first by voters and then the city council.
Many of those are vertically integrated businesses that also have cultivation or manufacturing licenses – as well as retail permits – from the state.
According to the California Department of Public Health, for instance, 31 companies have obtained cannabis manufacturing permits within Los Angeles.
And even those that are licensed “aren’t doing well” in terms of sales, Spiker said, based on what he’s hearing through the industry grapevine.
“I hear a lot of different spectrums, some down 15%, some down 40%, since the switch flipped Jan. 1,” Spiker added.
He predicted that if the licensing process doesn’t accelerate soon, many companies could go out of business or sell to out-of-state interests.
“If they’re bled dry now, you’re just going to see a bunch of outside money come in and they’re going to buy these (businesses) for 20 cents on the dollar,” Spiker said.
“And then you have a bunch of outside money controlling big chunks of L.A. And I don’t think that’s good for anyone.”
Unclear timeline
Suppliers – including freestanding growers and edibles makers that don’t have retail divisions – have not yet even been able to apply for business permits in Los Angeles during the second phase of licensing.
That process was supposed to begin earlier this year and end April 1 – after the first round of licensing for priority dispensaries was completed – but it hasn’t happened yet.
Questions abound about how the rest of the licensing process will play out, and there hasn’t been any word from the Los Angeles Department of Cannabis Regulation (DCR) on when the next phase of permitting will start.
Following suppliers in the licensing process are social equity applicants – minorities and those in L.A.’s cannabis sector who were affected by the war on drugs – and, finally, other companies that want to get a piece of the city’s marijuana industry.
But that could be months away, based on how long it’s taken the city to issue priority licenses.
The DCR and mayor’s office did not respond to requests for comment on this story.
But the lag could stem from the cannabis agency having only four employees, as the Los Angeles Times recently reported. The DCR’s staff is slated to be beefed up to 28, the Times reported, but that’s still in the works.
Such uncertainty is the impetus for operators like Morrison to relocate, said Ariel Clark, the chairwoman of the Los Angeles Cannabis Task Force, another industry group.
“It’s all for naught if you can’t get locally licensed,” she said, “and in a lot of these jurisdictions, the entire process is incredibly complex and expensive.
“I look at next year as crunch time. So, if seven or eight months from now we’re in the same place, this is a massive problem.”
Clark emphasized that the city’s marijuana regulations aren’t completely finished.
She also acknowledged that, because the social equity program hasn’t been finalized, a lot of uncertainty remains as to how many companies may ultimately receive business permits in Los Angeles.
“These are big questions that we still don’t know about,” Clark said.
John Schroyer can be reached at johns@mjbizdaily.com
