Los Angeles might be losing its luster – for marijuana entrepreneurs, that is.
Long considered the largest cannabis market in the world, and with a customer base that would be the envy of any business owner, L.A. on Tuesday opened its latest marijuana business licensing window.
The application process is open to social equity applicants that want delivery permits and to any comer who’s interested in distribution, nonvolatile manufacturing, or testing lab licenses.
But the number of applications filed in the first 24 hours – fewer than 100, according to the city’s Department of Cannabis Regulation (DCR) – reinforced what several industry insiders said is a lack of enthusiasm for the L.A. market.
“The main thing is there’s just not a lot of excitement for the licenses that are being given out,” said Avis Bulbulyan, CEO of L.A.-based consultancy Siva Enterprises.
That’s because the L.A. market, despite all its draws, has been plagued by numerous delays, high barriers to entry and narrow profit margins for those who’ve managed to obtain permits.
And while there is anticipation around the delivery licenses – and, to a lesser degree, the manufacturing permits – industry experts said there’s not much interest in the distribution or testing lab licenses.
Both sectors already have a number of established operators in Southern California.
To underscore that point, the DCR doesn’t have a cap on the number of business licenses it will award during the current round, or a cutoff time for when the licensing window will end.
A ‘consolation prize’
Bulbulyan likened the new licensing round to a “consolation prize” and said many entrepreneurs looking to get into the market “have kind of moved past L.A.” in favor of other California cities that have had more success in rolling out their local cannabis industries.
“There isn’t the level of ‘green rush’ eagerness we’ve seen in the past,” attorney Ariel Clark said, noting her clients’ interest in marijuana licenses has waned.
The relative lack of interest stands in stark contrast to the city’s previous permitting round, in September 2019, which resulted in more than 800 applications.
But that round was riddled with technical glitches that triggered accusations of corruption and, eventually, a lawsuit.
The Los Angeles mayor’s office even stepped in to order an audit, which wasn’t completed until March and culminated in July in several changes to the ordinance governing the industry and the city’s permitting process.
One of the changes stipulated that all delivery licenses would be reserved for social equity applicants until 2025.
But even that overhaul led to another lawsuit, filed Monday by two trade associations and a legacy delivery operator who argue it’s unfair to devote all delivery permits to only social equity applicants when there are businesses that have been waiting for years to apply for a license.
Now that the city is accepting more applications, not many are rushing to take advantage of the opportunity.
Stakeholders still frustrated
The only constant over the past three years in L.A.’s market has been frustration from stakeholders over the licensing process.
“As a whole, it’s an (expletive) show,” Kika Keith, one of 200 social equity applicants who won a retail license, said of the L.A. marijuana market rollout.
Keith, a Black woman, said her shop might be able to open in spring 2021 if all goes well, but that as far as she knows, none of the 200 social equity retailers have been able to open for business.
And Keith said that, while she’s well-positioned to succeed, she counts herself as an exception to the rule, particularly for the hundreds of social equity entrepreneurs who have been hoping to enter the industry.
“Most people that I know that are applying in this upcoming round are people who have been waiting all along and didn’t get any licenses,” Keith said. “My days are spent, 90% of the time, trying to help” other social equity applicants navigate the system and obtain business permits.
Keith is also concerned that there’s been no consideration of potential licensing-fee deferrals during the coronavirus pandemic, adding that social equity fees are inexplicably costlier than they are for general applicants.
To date, the DCR has issued 849 business licenses, including:
213 nonvolatile manufacturers.
12 testing labs.
The total could easily double, depending on how many applications are ultimately received in the current round, which is one of the concerns voiced by two stakeholders.
“There’s a lot of buzz and excitement around (the current licensing round), but it’s a false sense of security, if you ask me,” said Virgil Grant, who runs three licensed cannabis shops in L.A. and co-founded the California Minority Alliance and the Southern California Coalition.
Grant said he knows many entrepreneurs who are excited to get delivery licenses, but that’s what worries him.
Because there’s no cap on the number of delivery permits or on how many a single company can obtain, he said, well-capitalized companies could consolidate as many licenses as they can afford and then dominate the competition through volume.
“How do you think those social equity retailers will be affected by the delivery licenses being opened up? Because Amazon killed a lot of retailers,” Grant said. “I don’t see 100 delivery licenses surviving.”
He added that any delivery licensee will be able offer services anywhere in the state, as many already do, which would give a major advantage to players with the most money for fleets of vehicles.
The Los Angeles-based United Cannabis Business Association (UCBA) and the Cannabis Equity Retailer Association cited similar reasoning in a letter to the City Council in early October and urged officials to reconsider capping the number of delivery permits.
“This is a miscue,” said UCBA President Jerred Kiloh, who predicted that it’ll allow the delivery market to be dominated by “large conglomerates.”