A California Plan To Save Millions On Cannabis Regulation Is Getting Props Worldwide
Janet Burns, Forbes.com
June 7, 2017
In his new gig heading the U.S. Department of Justice, Attorney General Jeff Sessions has kicked up plenty of dust over cannabis, from erroneously aligning the plant with heroin to threatening to reignite our deadly drug war, which Sir Richard Branson called "a trillion-dollar failure."
But while Sessions was making headlines with ill-considered claims for the past few months, entrepreneurs and lawmakers in Los Angeles were putting the finishing touches on a plan they've developed over decades to finally bring order and stability to the legal cannabis industry's biggest market--and cities around the world, if not the A.G., are paying close attention.
In March, Los Angeles voters resoundingly chose to approve Proposition M, a measure designed to give operators in the city's legal cannabis industry both the room and regulation they need to grow. Since then, Prop M's master cultivators in City Hall and the cannabis business community have been working nonstop to pin down the licensing system and processes that will define the largest market of the highest-selling state in this booming industry for years to come.
They've also been fielding calls from interested parties in cities around the country and globe.
By phone, Southern California Coalition (SCC) co-founder and cannapreneur Virgil Grant and SCC executive director Adam Spiker noted that their cannabis industry collective, which has joined others in the area to help bring about Prop M, has received inquiries about the measure from legislators across the country, and even from other nations in North America and Europe.
"When you realize Los Angeles is the biggest cannabis market in the world, you understand how many eyeballs are on this city right now, and we truly believe we're creating a model that other cities and states would want to use," Spiker said.
According to Grant and Spiker, who joined forces in the quest for Prop M several years ago along with their SCC co-founders and members, their model for creating a stable, enforceable legal cannabis industry relies on a four-pronged approach designed to take Los Angelenos' priorities into account, both inside and outside of the cannabis community.
"Firstly, it creates smart and sensible regulation, which is something we've not had in L.A. for over 20 years, since medicinal marijuana was first allowed in California," Grant explained. "Prop D was a disaster--it passed the buck, didn't want to deal with the realities of the industry, and was toxic for it overall."
"Secondly, Prop M creates a licensing mechanism for the first time, allowing operators to obtain a physical license to own and operate in the city of Los Angeles, which is also something we haven't had before," Grant said. "We had something known as a BTRC, a business tax registration certificate, for operating under Prop B's limited immunity ban, but never a physical license, which will soon be required under California law."
"The third component is taxation," he said. "We have the lowest taxes in the nation right now: 2% for cultivation, manufacturing, distribution, and transportation, and 1% for lab testing. And because Prop M raises those taxes toward a more feasible level, it also lowers the tax for the collective [operating] model from 6% to 5%."
"And the last component is enforcement--it has to be the last component," Grant said. "Because you have to have the first three in place, or else you end up enforcing on legitimate and good operators, which we've seen in L.A. throughout our history, under Prop B, and in the course of 21 years of operation."
Enforcement and harassment of good operators is something that Spiker, with a background in finance and government affairs, has often witnessed since joining the cannabis industry, and which Grant, a native of Compton who's been working in the legal cannabis industry for two decades, has experienced first-hand. Not too long ago, Grant returned to his active and leadership-heavy role in the cannabis community after serving 72 months in federal prison for being the kind of good operator that L.A. regulators have promoted over the years.
After a marijuana edible from Grant's company was found to have been used by a driver who admitted to driving under the influence at the time of a fatal crash, authorities conducted a seven-location raid of Grant's properties, including his home, on two occasions, ultimately confiscating close to $2 million in personal and business assets under federal provisions against profiting from illegal drug sales. After being arrested in front of his daughters and having his wife also locked up and charged, Grant acted on their behalf and accepted an open plea deal of six years in federal prison for providing a product allowed--if imprecisely--under California law.
According to persons close to the cannabis industry, such raids are common in Southern California, where businesses of all sizes in the industry's largest production center frequently see hundreds of thousands of dollars in cannabis or cash seized with no hope of recovery. In Grant's case, his open plea agreement required that he not go after the assets lost in the two raids, or in the various government seizures that followed.
"They seized all my bank accounts--I had about a million--and took everything from my stores, took my cars. They took the jet skis in the garage, and never gave them back," Grant said. "They tried to go after my house, but it wasn't in my name and was bought prior with money we could show was from 'legitimate' businesses, which is the only reason they couldn't take it. But I was willing to sacrifice all that, and myself, for my family, and for the greater good."
When he got out, Grant said, his goal was to continue doing for the movement what he had before he left: being one of a legal industry's front-runners. "It hadn't progressed anywhere like it should have in that time, except getting media buzz about being a billion-dollar industry, with rich white guys pouring millions in, but not talking about the real issues of cannabis in L.A.," he said.
"But we knew we could make a model for businesses that the people of L.A. would feel comfortable having in their county, in their neighborhoods, and which law enforcement and elected officials could be comfortable with, too."
"Thankfully," Spiker added, "people like Virgil are not afraid to come out of the shadows, and put targets on their backs, in order to educate officials, law enforcement, and everyone else on this issue, since many don't even know why cannabis was illegal in the first place."
To help make L.A.'s cannabis industry one that is for the community, by the community, Prop M's architects have also built in aspects that will allow groups the legal industry has traditionally left behind to get on board, and safely. "Another key component within this is the minority equity piece, [created] to make sure communities that have been negatively impacted by the war on drugs can participate, and to ensure the barrier is not too high for them to pass entry into the cannabis industry."
"It also addresses public safety and cleans up the rogue industry, because of the licensing mechanism. Under Prop B, there was no licensing mechanism, and so [authorities] didn’t know who was legitimate and who wasn’t," Grant explained. "Under Prop M, you’ll know who has a license and who doesn’t, and then you can enforce that, and clean up rogue operators who’ve created unfair competition that legitimate operators have had to deal with for so many years, including disrespectful people coming into the industry. Those without licenses will be dealt with, legally, to the fullest extent."
Grant added, "This is the most smart, sensible, and progressive ordinance you will see rolled out, period."
In the meantime, law enforcement is effectively wasting many millions and ruining lives by trying to enforce hazy regulations in an industry left vulnerable by a lack of clear expectations or protections, according to Spiker.
"Who’s losing on this is minority communities and the taxpayers," he said. "I can't even quantify how much money has, in my opinion, been pissed away on these investigations. I’m sure it’s an absolutely bottomless pit of many, many dollars."
Reflecting on the raids that interrupted his family's life, Grant noted, "That was a lot of resources--eight or nine cars deep at the house, dozens of officers at different locations, and they get paid extra when they have to put on tactical gear, which they wore those times. I'm curious to know how much that cost," he said.
Spiker pointed out that voters nationwide have indicated they're ready for some comprehensive changes themselves. "To me, the most powerful voice in our country is the voice of the people, and it is overwhelmingly saying that we want regulated cannabis. Many contend that it's a states' rights issue, to borrow [President] Trump's own words, but we still see federal involvement. Well, how do you arbitrarily decide when states' rights matter?" he said.
" Cannabis needs a chance to be regulated like any other business in this country --that's what we believe, and what we fight for every day," Spiker said. "I don't see a rationale in cherry-picking states’ rights. Politicians on either side of the aisle, have some consistency: let states govern."
Spiker continued, "It’s important to mention, too, that while there have been some protection methods implemented in L.A., all very poorly done, there’s never been any attempt to protect the production side of the industry. And I don’t know any regulated industry that doesn’t address the production side." He added,
For the past 21 years, authorities have tried to protect dispensaries while, y’know, sprinkling pixie dust and thinking the product will get there somehow. So that’s a huge component of Prop M and its implementation--this is regulating the whole industry, finally, in the city of Los Angeles.
Grant, Spiker, and their cannabis industry comrades have also been working hard in recent weeks to develop an early registration system for businesses who intend to obtain licenses and want to get on the right side of the law while they're waiting. With the help of L.A. City Council President Herb Wesson, who's provided huge support in trying to usher in legal cannabis' third (and improved) generation in the city, the SCC and others hope to establish this list of would-be compliant operators before the tumult of national politics can further hinder L.A.'s green business community.
Last month, Grant joined his SCC co-founder Donnie Anderson, who also chairs the California Minority Alliance, in receiving the California State Assembly's Community Pioneer Award during the 2017 California Democrats State Convention, where they were honored for their work helping Los Angeles to get a handle on its cannabis industry.