Oakland’s Cannabis Permitting is Uniquely Uncertain

Wendel Rosen LLP
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Oakland City Hall

The City of Oakland recently finalized cannabis permitting regulations that are unique in California because they focus on “equity,” making entry into the cannabis industry easier for low-income individuals of color who generally have suffered much higher incarceration rates for marijuana crimes.

Unfortunately, along with giving needed assistance to equity cannabis permit applicants, Oakland attempted to protect those same applicants from competition by practicing a different form of discrimination, including delaying permits for non-equity applicants.

Oakland’s cannabis regulations were nearly far worse. In March, the City Council approved an unconstitutional prohibition on cannabis permits for anyone who did not reside in Oakland. Under pressure from Wendel Rosen [letter: Cannabis Permitting Amendments are Unconstitutional] and many others, the Council removed the residency rule, but the permit process remains fraught with likely delays and other questions as the January 2018 deadline for State licenses looms.

Local cannabis operators need both a local permit and State license to conduct business. Oakland announced that, aside from storefront dispensaries, all cannabis applications would be available “some time” in May. There is no date for the dispensaries. Adding to the unknowns is a requirement that 50 percent of all permits must be issued to equity applicants for an indefinite period of time. Given the narrow equity criteria (including (a) low income, (b) residence of specific Oakland neighborhoods, or (c) conviction of a cannabis crime in Oakland) a permitting bottleneck is expected as the equity applications trickle in compared to the general applications.

The “50%” phase ends when the City accumulates $3.4 million in tax revenue from cannabis businesses to fund an Equity Assistance Program, which will include no-interest business startup loans, fee waivers, and technical assistance.

The City explained the need for the 50% phase as follows:  “If the City initiates an unrestricted permitting process before an Equity Assistance Program is in place, well-positioned operators will only move further ahead as historically marginalized operators fall further behind due to lack of capital and real estate.”

There are several fundamental flaws with the City’s rationale:  1) It assumes that Oakland is a closed market and that local equity operators will not be competing against others in cities across the state; 2) It is self-defeating because it constrains revenue available to the Equity Assistance Program by stalling permits for business that would otherwise pay taxes; and 3) It ignores the fact that businesses wanting a local permit so they can get a State license in January 2018 may go elsewhere, further reducing revenue.

There’s more. Oakland has a solution for some general permit applicants:  A general applicant can move up in the permit application line by serving as an “Equity Incubator,” which consists of providing three-years of free real estate or rent to an equity permit holder.

This is where the City tries to undo racial and social discrimination by employing economic discrimination. Clearly the only general applicants who can serve as incubators have more resources than those who don’t. In exchange for those resources, incubator sponsors receive preferential City treatment.

Equally hypocritical is the fact that the City has never taken responsibility for contributing to disproportionate focus of marijuana law enforcement on lower-income communities of color. Remember, the City Council approved legislation in 2004 legalizing dispensaries in commercial and industrial areas of the City. The Oakland Police Department did not arrest cannabis users on their way out of dispensaries. Instead, they targeted street sales.

For a variety of reasons, many cannabis businesses will decide to stick with Oakland. They include the fact that some operators already are locked into leases; Oakland is one of a handful of cities that permits volatile manufacturing; and the City is situated in the middle of transportation corridor, making it a good distribution location.

It’s also important to remember that big parts of Oakland’s Equity Assistance Program will likely serve as models for other areas of the State, where there has been a lot of talk about making the cannabis industry inclusive, but little action. Oakland’s equity applicants will have financial and technical assistance unavailable elsewhere in California. Going forward, hopefully the City can find ways to advance equity while not also hobbling its own cannabis industry.

Photo credit: “Oakland City Hall” by Sanfranman59 via Wikimedia Commons (CC BY-SA 3.0)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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