Hopeful L.A. cannabis market entrants bleed money as they wait again – this time for licensing audit

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The Los Angeles marijuana market is enduring more licensing delays. This time, it’s for a government-ordered audit of the city’s cannabis regulators. 

It means more uncertainty for marijuana firms. And, perhaps most excruciating, it means more money down the drain.

That’s the ongoing narrative surrounding the L.A. marijuana market, where hundreds of entrepreneurs have waited months to learn if they can launch legal cannabis companies.

Some, in fact, have reported losing tens of thousands of dollars paying rent on would-be licensed marijuana shops that have gone unused, and that doesn’t include the money they also may have spent on application fees or down payments on potential remodels and build-outs.

All the while, illegal shops continue to flourish in Los Angeles.

That same tune will play for the foreseeable future, since the city’s mayor earlier in November decided a third-party audit of the L.A. Department of Cannabis Regulation is needed before any more permits can be issued.

The audit is the latest cause for stakeholder frustration – and could even lead to many businesses quitting the L.A. market altogether, several insiders said.

That’s because prospective business owners may not be able to afford to wait, or they may decide the return on investment doesn’t add up.

Why a licensing audit?

The audit, which will focus on the city’s Department of Cannabis Regulation (DCR), is still shrouded in mystery even though it was officially announced by L.A. Mayor Eric Garcetti’s office on Nov. 6.

The audit is a result of the following factors:

  • Social equity candidates expressed outrage over the latest MJ licensing round and alleged the process was “corrupt” because at least two applicants were able to access the system early.
  • L.A. City Council President Herb Wesson requested the DCR throw out its own licensing results and redo the entire process.
  • The mayor took a middle road, and decided to order an audit, but declined to force the DCR to redo the latest licensing round.

“After receiving feedback from the cannabis community and City Council offices, we have asked the city administrative officer to initiate a third-party independent review of the (DCR’s) Phase 3 implementation of the social equity program’s application process,” Garcetti’s press secretary, Andrea Garcia, wrote in an email to Marijuana Business Daily.

“The (DCR) will continue to invoice applicants, but the final licensing process will not begin until after completion of the audit.”

Business impacts of licensing delays

Those were the only details Garcia could offer last week, and no new information was available about who would conduct the audit, how long it may take or even what it would entail.

Other questions remain, including whether the audit will cover the entire licensing process to date or only the latest round. The latter is the most controversial and began Sept. 3 for 100 marijuana retail licenses given to social equity entrepreneurs.

A spokesman for Council President Herb Wesson wrote in an email to MJBizDaily that Wesson is hopeful the audit will be completed by next month. The spokesman couldn’t offer any solid timeline, however.

DCR Executive Director Cat Packer said after an appearance at the State of Cannabis conference in Long Beach on Nov. 16 that she was so far unaware of the scope of the audit, how long it may take or other details.

Other stakeholders expressed concern that more delays could put some marijuana entrepreneurs in peril of losing their businesses altogether.

“There’s nothing to report on who’s doing it and when, let alone what the results are going to be,” said Adam Spiker, executive director of the Southern California Coalition (SCC), an L.A.-based marijuana trade group.

That means even the 100 retail license winners from September – at least 59 of which have already received invoices from the DCR for their retail permit fees – have no idea when they can open shop, or if the audit may lead to the redo that Wesson and other stakeholders requested.

“Any delay is going to literally put people out of business, one by one, the longer it drags on,” said Jillian Goldsmith, spokeswoman for the newly formed Social Equity Alliance in L.A., which represents many of the latest retail license winners.

Spiker said that whatever’s going to happen must occur quickly to avoid further business impacts.

“We’re right around the corner from Dec. 1, and I keep getting calls from folks, and their question to me is … ‘Do I pay another rent payment? Do I put in 30 days’ notice?'” Spiker said.

Angry stakeholders

Donnie Anderson, co-founder of the California Minority Alliance (CMA) in L.A. and a vocal critic of the DCR’s licensing process, predicted “pandemonium in south central L.A.” over the licensing process.

He also said communities are in an “uproar.”

“We don’t trust the mayor, we don’t trust … the departments up there. None of them have been forthcoming,” Anderson said.

The CMA is already planning a lawsuit against the city on behalf of 44 social equity business license applicants, Anderson said, and he expects the action will be filed once the audit is completed.

“We’re going to burn it all the way down,” Anderson said. “We want the governor and his office to come and get involved.

“This isn’t what social equity was for … This is the most corrupt city next to Chicago. L.A. is so corrupt.”

Spiker said the L.A. City Council still has options ranging from:

  • Increasing the number of available licenses.
  • Ordering the DCR to fully process all 802 applications received in September.
  • Staying the original course.

But, he added, there appears almost no political will to tackle the licensing problem.

Even in the simplest scenario – where the audit finds DCR did nothing wrong and the licensing process moves forward as originally planned – then the soonest the 100 license winners could open up shop would probably be early 2020.

Spiker said he hopes the Council will at least adopt a regulatory change allowing applicants to get out of pricey leases on properties they haven’t been able to obtain permits for – since having a shop location locked down was a prerequisite for the latest licensing round.

“Enough is enough. You can’t expect these people to keep paying through the nose for properties in perpetuity, just to wait for a chance at a license,” he said.

John Schroyer can be reached at johns@mjbizdaily.com