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Black-owned businesses feel the squeeze

By Alex Halperin
Jul 29, 2022
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Chris Ball, CEO of Ball Family Farms (Courtesy: Ball Family Farms)

In June, the chair of Oakland’s Cannabis Regulatory Commission sounded the alarm: California’s social equity businesses couldn’t survive in the current business climate. Amid heavy taxes and competition with the illegal market, Chaney Turner told lawmakers in Sacramento, “Only large operators with expendable capital can afford to operate ‘in the red’ long enough for many of their competitors to fail.”

“Why are Black & Brown cannabis equity retailers being ignored?” Turner asked. As Turner noted, two recent relief efforts had overlooked the urban dispensaries and delivery services which comprise most minority-owned cannabis businesses.

  • The cannabis tax cut signed this month by Governor Newsom zeroed out the hated cultivation tax of more than $161/pound. But while there’s hope of benefits rippling across the supply chain, the immediate benefit goes to growers.
  • Additionally, late last year the state Department of Cannabis Control (DCC) announced a license fee waiver program for equity businesses. But data obtained by WeedWeek and published here for the first time show that more than 70% of the 629 waivers awarded so far have gone to businesses in overwhelmingly rural counties. (More than 400 went to the Emerald Triangle.)

“There are no known errors, however, this information is outdated,” a spokesperson for the Department wrote.

  • As defined in legislation “The Department has issued a significant number of licenses in rural areas, and rural areas have not been immune from impacts associated with the War on Drugs,” a department spokesperson wrote in an email. (Eligibility requirements for equity fee waivers can also be found on the DCC website..)

“Zero benefit to us”

There’s been “zero benefit to us,” said Rashaan Everett, president of Good Tree, a SoCal-based delivery service that’s the biggest equity business I’m aware of anywhere.

The problem of cannabis equity tends to focus on getting fledgling businesses off the ground, but has little to offer businesses that already have traction.

  • Good Tree has more than $10M in annual revenue, which Everett expects to go up by about 50% this year, and about 150 employees, including drivers.
  • It operates out of Montebello (Los Angeles County), Oakland and Sacramento.

With the state market in crisis, and equity funding at a standstill, Everett says Good Tree has to borrow money at far higher rates than larger companies, while being subject to far more nickel and diming on various costs.

While Good Tree can’t enjoy the benefits of scale, it’s too big to qualify for the DCC’s equity fee waiver, which is restricted to companies below $5M in revenue. This isn’t the only equity policy, in California or elsewhere, that seems to punish or inhibit growth.

  • Meanwhile, everyone else in the industry sees scale as essential to survival.

Equity companies “Continue to go out of business,” said Amber Senter, Oakland entrepreneur and executive director of non-profit Supernova Women which advocates for people of color in the industry. “People are really fed up, they feel like there’s no hope.”

Gorilla RX
Gorilla RX dispensary in Crenshaw (Courtesy: Gorilla RX)

Strength in numbers

Kika Keith, who owns equity dispensary Gorilla RX in LA’s Crenshaw neighborhood said that as the neighborhood’s first Black-woman owned dispensary the store has benefitted from its high profile and community outreach — it’s building a career training center. But she’s still paying 52% in taxes. For most of her peers who have won or applied for licenses, she says equity programs “have done nothing but sold hope and delivered dismay.”

This week in her role as President of the Social Equity Owners & Workers Association (SEOWA) Keith sent a letter to the City Council with two asks:

  1. Assist 150 LA social equity dispensary applicants looking for compliant locations;
  2. Allow equity applicants “to aggregate their ownership shares” to hold the majority of a licensed business. SEOWA believes this would promote “cooperative economics…giving applicants an option to pool resources within the community and not just rely on large corporate and/or predatory investors.” 

(SEOWA previously successfully sued the city of Los Angeles to create 100 more equity licenses. The process for awarding them is underway.)

In the meantime companies are stretched:

  • Chris Ball, CEO of Ball Family Farms, a SoCal indoor flower brand said he had to cut his team from about 27 to 17.
  • Raeven Duckett-Robinson co-founder at Community Gardens, a state-licensed manufacturing, distribution and delivery company in Oakland said they have had to cut back to only offer scheduled rather than on-demand delivery and says they’re barely keeping afloat despite Oakland’s loan and grant program and a partnership with edibles company Kiva that pays their rent and offers other benefits. “It’s really pretty grim now,” she said “But we’re so deep in this it’s really not time to walk away. It’s tough.”

A push for scale

Everett says Good Tree in interested in pursuing the same strategy as the rest of the industry: consolidation. “Is there any way to do a roll up of the smaller equity businesses?” he asked. “Can we be stronger together?”

A merger between equity companies might involve fewer dollars than a deal between MSOs, but it comes with its own difficulties. “There are historical challenges to get people from our community to accept reduced roles,” he said. The cannabis equity movement has also been deeply rooted in business ownership, and remains so, even as the programs designed to support it have few success stories to show for their work.

For now Everett is focused on raising up to $5M through a crowdfunding campaign, with a $200 minimum  buy in. “We’re trying to position ourself as an equity success story,” he said. “Woe is me’ hasn’t moved the needle.”

Correction: This article previously misspelled Gorilla RX.