New Lawsuit Adds to Los Angeles Social Equity Licensing Woes

By Willis Jacobson
Nov 9, 2020

Los Angeles’s oft-delayed cannabis retail licensing process is the subject of another lawsuit. This time the plaintiffs are unsuccessful social equity applicants who want the city’s licensing procedures halted until their year-old applications are reviewed, or for the city to implement a new, fairer system.

A total of eight petitioners – four social equity applicants and their partnering businesses – filed the suit (read complaint here) Oct. 30 in state court against the city of Los Angeles, its Department of Cannabis Regulation (DCR), and DCR Director Cat Packer. It accuses the defendants of violating their own regulations, as well as due process and equal protection clauses of the California and U.S. Constitutions.

The suit is at least the fourth filed against Los Angeles cannabis regulators this year.

Each of the petitioners in the latest suit applied for licenses in September 2019 when the city initially opened the application period for its current round of retail licenses for social equity applicants, those deemed to have been disproportionately impacted by the War on Drugs. They say their applications still haven’t been reviewed, due in large part to the “flawed” online application process that allowed some applicants to enter the first-come, first-served system ahead of others.

They further allege the process was “severely compromised” by city employees “working in unlawful concert” with some unnamed cannabis interests, to the detriment of lawful applicants.

Actium LLP attorney Mike Gatto, one of two lawyers representing the petitioners, said his clients are seeking answers.

“Social equity applicants, seeking to create productive businesses and, in some cases, turn around their lives, have faced nothing but soul-crushing bureaucracy, unexplained delays, and depressing rumors of misconduct, from the City of Los Angeles,” Gatto said Monday. “We intend to get to the bottom of why this program has disappointed so many, and we intend to right these wrongs.”

The accusations in the latest suit mirror some of those made in previous legal challenges – some of which are still pending – to the Los Angeles social equity retail licensing process, which has mostly remained in a holding pattern since that September 2019 launch.

As part of a settlement reached this summer in one of those other suits – filed against the city by the Social Equity Owners and Workers Association (SEOWA) – the city implemented several changes to the social equity program, including doubling the number of retail licenses from 100 to 200, in an effort to get the program back on track.

This new lawsuit, much like the one filed by the SEOWA, takes particular issue with the way the application process was rolled out. An independent audit commissioned by the city found that some applicants were able to access the online system earlier than the announced opening time of 10 a.m. on Sept. 3, 2019.

The new lawsuit argues that all applications that were started prior to 10 a.m. – at least 226, according to the suit – should be thrown out. The petitioners note that two applications were tossed due to being submitted after the closure of the process on Sept. 17, 2019.

“There is no rational basis why the applications of applicants who started the process early were not also rejected,” the suit states.

The suit alleges the system gave an unfair advantage to those who were able to access the application portal early. This is supported by the fact that just milliseconds separated the time difference between the 100th and 101st application submittals, which both had timestamps of 10:01:40 a.m., according to the lawsuit. Initially, prior to this summer’s changes, only 100 licenses were to be awarded.

The petitioners said that “despite a diligent effort to do so,” they have been unable to identify a single applicant who started the application process at 10 a.m. and was selected to move on to the next phase.

The suit also alleges the technology used by the city to manage the application process was “flawed and compromised the fundamental fairness of the entire application process.” 

The petitioners claim the evidence shows the system had no security in place to prevent bots from completing and submitting multiple applications, nor any measures to limit access prior to the opening of the application window.

The lawsuit claims some applicants were able to take advantage of those flaws by submitting multiple applications within seconds of each other. It notes that one applicant, who was not named in the suit, submitted three applications within a four-second span.

“Although the licensing scheme is contingent upon the applicant’s speed in completing an online application, given that 226 applicants had an early start, [the defendants] have no reliable means of determining which applicants actually ‘won’ the race to submit and where they should be placed in the licensing processing queue,” the lawsuit states.

The suit claims the injuries suffered by the petitioners “are not easily quantifiable or compensable” and calls on the court to order the city to review the petitioners’ applications or to force the city to institute a new “equal, fair and transparent” application process. They ask that the court prevent the city from continuing its current phase of licensing under the social equity program until a ruling is made in the case.

The DCR did not immediately respond Monday to a message seeking comment.

The city of Los Angeles resumed accepting applications for certain non-retail license types in October, though that move was preceded by another lawsuit. A group of deliverers sued city regulators for a policy change made this summer that limits all delivery licenses to social equity applicants through Jan. 1, 2025.

Packer, the director of the DCR, said in an interview with WeedWeek last month that she and the DCR were “open to input and feedback” from people involved in the social equity program and that regulators are always looking to improve the program.

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