LA market’s road to recovery

Plant-touching Angelenos often refer to the city as the world’s biggest weed market. But no one says governing it would be easy. LA’s booming illegal markets and big city politics all but ensured a difficult time for Cat Packer, the first head of the city’s Department of Cannabis Regulation (DCR), who stepped down last month.

• Packer’s five year tenure is best remembered for a contested first-come, first-served application submission system for equity retail licenses in September 2019. An audit of the submission software and litigation followed delaying the licensing process.
• Today only about one quarter of the cleared 209 applicants have received temporary approval to open, according to DCR.

This is often cited as exhibit A for insiders who say the LA market has failed. But Packer’s former deputy Michelle Garakian, who now leads the department on an interim basis, also sees a lot that’s working in the city market.

• Despite the city’s well-publicized setbacks for equity license hopefuls, Garakian said LA now has more operational social equity businesses than any other jurisdiction in the country.
• The city has also dedicated $6M to its social equity grant program (SEED.

Going forward, Garakian says social equity will remain her top priority.

• In coming weeks the city is starting eligibility verification for the next round of retail equity licenses (known as Phase 3, Round 2) which can award 125 storefronts and an unlimited number of delivery licenses. These will be the only retail licenses awarded by the city until January, 2025.
• Cultivation licenses will also be limited to social equity applicants through January 2025.
• The new licenses will be determined in a lottery for verified candidates.
• The process also drops the requirement that applicants hold a property during the application process, which led to applicants hemorrhaging money on spaces they couldn’t use.
• The new phase begins in May with eligibility verification and aims to select the licensees next year.

Before DCR, Garakian served as Mayor Eric Garcetti’s director of business development, and she sees DCR’s role largely as advocating for businesses.

• “They need the extra help, it’s not just the social equity applicants,” she said.

However, whether newly licensed businesses can thrive is largely beyond DCR’s control.

• On top of the challenges familiar to all California operators, LA operators have to compete against delivery services based in nearby cities that charge well-below LA’s 10% sales tax.
• The city also already has a relatively high legal dispensary density for California and a vibrant illegal market.

Garakian compared suppressing illegal operators it to “Whack-a-mole,” and said it would remain a continuous effort.

• Adam Spiker, a cannabis lobbyist and sharp critic of the city program’s progress, pointed out that LA’s voter-passed cannabis ordinance empowers the City Attorney to enforce a $20,000/day fine on unlicensed cannabis operators, as well as landlords and other abettors.
• But Spiker said city attorney Mike Feuer isn’t pursuing enforcement as aggressively as is needed. “If he couldn’t administer it, why did he write it?” Spiker asked.
• Feuer’s office didn’t respond to requests for comment.

Taxes are the industry’s main complaint throughout California, and DCR isn’t in a position to help there either.

• Some activists have begun circulating drafts of new proposals that would lower taxes in the city and make additional changes desired by the industry. These changes would generally require passage by the City Council or a ballot initiative for voters.