L.A. Lawsuit Highlights Challenges for Social Equity in Cannabis

By Willis Jacobson
Oct 21, 2020

In the same week that Los Angeles reopened its cannabis licensing process – after months of delays – the city was hit with another lawsuit that calls into question the fairness of its social equity regulations for the industry. 

The latest suit comes from a group of delivery operators who allege city regulators violated their rights by limiting delivery licenses only to qualified social equity applicants – which the litigants are not – through Jan. 1, 2025.

The 2025 stipulation took effect this summer as part of a series of changes recommended by the L.A. Department of Cannabis Regulation (DCR) and approved by the City Council. This summer’s overhaul of the city’s licensing system was spurred by since-settled litigation from social equity applicants who felt the initial framework was flawed and set-up against them.

The latest lawsuit, filed Monday, doesn’t threaten to stop the licensing process again, but it highlights what some see as a developing rift between social equity applicants – many of whom are people of color from neighborhoods marked by historically high marijuana arrest rates – and non-social equity applicants competing for a limited number of licenses. 

The legal challenges have also illustrated the difficulties faced by regulators – including those in other jurisdictions, such as Illinois, which has faced a wave of litigation over its social equity program – as they work to establish a brand-new market while also navigating the sensitive issues of race, social justice and economic opportunity.

Adam Spiker, a consultant and co-founder of the Southern California Coalition (SCC), a cannabis trade organization that is among the plaintiffs in the suit filed against the city this week, said he was hopeful everyone could get on the same page and make the regulations as workable as possible for everyone.

After having advised on the development of the city’s regulations over the past few years, though, he acknowledged that might be easier said than done.

“We walked into a game of chess, not with a blank playing field, but with pieces strewn all over the place that we have to figure out on the fly,” Spiker said.

‘Slap in the face’

The Cannabis Couriers Association and businessowner Zach Pitts join the SCC as plaintiffs in the suit against Los Angeles, the DCR and Cat Packer, the DCR’s executive director.

Under the city’s initial guidelines, which were largely blown up this summer, regulators were to award 20 delivery licenses to non-social equity applicants. Instead, as part of the changes aimed at boosting the social equity program, the city decided that for four years delivery licenses would only be made available to social equity applicants. 

To qualify for the social equity program, L.A. requires applicants to meet two of the following criteria: Be low-income, have a California cannabis arrest or conviction, or have 10 years of residency in a disproportionately impacted area.

The plaintiffs in the newest lawsuit are mostly so-called legacy operators that participated in the MED market prior to the introduction of legal REC in 2018. They are calling on the court to reinstate the requirement that 20 delivery licenses go to non-social equity applicants. They say they aren’t interested in taking any licenses away from the social-equity candidates, but want the licenses they say they were originally promised.

The lawsuit charges that the new ordinance violates California Constitution provisions on due process and that the relevant City Council meeting was not properly noticed.

Spiker said the group has followed the rules for years and “continued to wait and wait and wait … and then the rug got pulled out from underneath them in a 10-day span in June and July.”

The lawsuit, and the reasoning behind it, doesn’t sit well with everyone, however.

Madison Shockley III, an actor and entrepreneur, is among the qualified social equity applicants seeking licensing. Shockley and the Social Equity Owners and Workers Association (SEOWA) filed a suit against the DCR last year that raised several issues with the rollout of the social equity program.

As part of this summer’s settlement of that suit, the city agreed to double the number of social equity retail licenses in the current round from 100 to 200, along with the other changes since adopted. Those retail licenses are separate from the delivery, distributor, nonvolatile manufacturer and testing lab licenses the city began accepting applications for this week.

Shockley, who is among the applicants for that expanded group of 200 licenses, said he was encouraged by the city’s changes this summer and is looking forward to the new-look program.

He referred to the lawsuit from the non-social equity deliverers as “tone-deaf” and a “slap in the face to communities who have suffered from the War on Drugs.”

“The whole point of social equity is to give priority to folks who have historically been at a disadvantage,” he said. “So what they’re doing is contrary and offensive to social equity because they’re saying, ‘These folks don’t deserve priority. We should have an opportunity to apply just like they do, even though we don’t have the same disadvantages that they do.’”

“If they’re allowed to enter the market before or at the same time as our communities,” he added, “they’ll be able to move at 100 mph while we’re moving at 15 mph. [The lawsuit] just seems like a complete disregard for that.”

Setting the table

Shockley, who said he plans to apply for distribution and delivery licenses in the future, is among those who sees a divide between the two groups of applicants. After the settlement of the SEOWA lawsuit, he said he received hate messages via email and on social media from would-be non-social equity applicants who accused him of ruining their chances to get licensure.

He views that attitude as a mix of “entitlement and greed” and said those applicants either don’t understand the point of the social equity program or don’t care about it.

“I think it’s pure capitalism, and in a capitalistic structure we know white men tend to be at the top of the pyramid and Black and brown folks are at the bottom,” he said. “Social equity is supposed to be legislation that kind of re-engineers that construct to spread the wealth around. But now you’ve got folks who already have the wealth complaining about other folks without the wealth getting opportunity before they do. It’s kind of gross.”

Spiker, head of the CSS, disputed that characterization. He said he has worked to build connections between the two groups of applicants and is all for strengthening the social equity program in the proper ways.

“We’re trying to set the best table possible for the broadest legal industry in L.A. and in the state of California,” he said.

Key to that is the word “legal,” he said.

Spiker said he would like for everyone involved in the program – applicants and regulators – to join together to battle a common enemy that he says continues to threaten them all: Illicit operators.

“I would argue that we’re all fighting for 20% of the market, which is the problem,” he said. “Eighty percent of the market is still illegal and could give two craps about paying taxes, testing their products, paying prevailing wages. They don’t care.”

Ready for change

In an Oct. 16 conversation with WeedWeek, DCR Executive Director Packer acknowledged that the organization will continue to face challenges, but said she was driven to ensure that regulations are fair and transparent.

Neither Packer nor the DCR has commented on Monday’s lawsuit filing, but Packer said Oct. 16 that she was particularly proud of the city’s social-equity provisions, and encouraged more people to get involved to help improve them.

“The reality is we’re leading this conversation and we’re trying to elevate folks who are modeling what we see as best practices in this space,” she said then. “But in order for us to have best practices, we need to have practices. We need more folks participating in this conversation about what it’s going to take.”

Shockley, who said he spent about $120,000 on his retail application, said he’d also like to see the city do more to help connect social equity applicants to sources of capital, whether through no- or low-interest loans or grants.

Shockley said a dynamic has developed where well-capitalized applicants are shut out due to the social equity program while simultaneously social equity applicants lack capital but face hostility from some potential partners who are bitter about being excluded from licensing.

“There’s definitely a lot of envy from folks who have money and haven’t been impacted by the War on Drugs that we have this priority,” he said. “But it’s really greed. They have priority in every other aspect of life. It’s like we get a little bit of priority in this and I’ve definitely seen attitudes that don’t appreciate that at all. … They don’t like us having something that they don’t have.”

Spiker agreed that more protections are needed for social equity applicants and said that, despite the lawsuit, he and the SCC would continue to fight for improvements to the regulations, including for the social equity program.

He said stamping out the illegal market should be a top priority, however. He pointed to the similarities with the tobacco industry by noting that a person can walk into a convenience store and pay $10 for a box of cigarettes, with much of that cost going to various taxes, much like with cannabis.

“The difference is you can’t go down the street and buy a similar-looking pack [of cigarettes] for $3 from an illicit operator,” he said. “But in cannabis you can. That’s what we’re all facing.”

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