The Disruptive Legalization of Los Angeles Marijuana
Changes in law may make it harder (and more expensive) for dispensaries and consumers.
The present life of cannabis in Los Angeles doesn’t look like your college friend’s dirty grinder. It’s $55 breath mints and $40 vaporizers. Lucite display cases and chemical composition fact sheets. It’s dazzling in its array of options, exciting in its possibilities, and even innocent in its consequences. Clean, organized. An Apple store, basically.
Daniel Yi, director of communications at dispensary chain/marijuana private equity firm MedMen, explained that the likeness of his stores to the computer giant’s is coincidental, but the feeling is the same: “You come in, feel at home, if you have any questions, our sales associates will come and answer them. If you want to check the iPads and look at the THC levels or the profiles of flowers. You can come spend an hour or two doing that.”
This is the face of the cannabis industry as we head toward January 1st, 2018, when the city of Los Angeles will begin issuing business licenses for recreational cannabis use along with new, more expansive medical licenses. Within this straightforward, Whole-Foods-nutraceuticals-aisle aesthetic, it’s clear that legalization will disrupt the way that consumers, dispensaries, and manufacturers will interact. Meanwhile, most of the economy–80% of the current LA marijuana business as a representative from the app Weedmaps told me–will be continuing into the new year without the prospect of a license, under threat of being left behind.
Legal recreational pot has a very suit-and-tie image because of the resources, both monetary and temporal, that the businesses need to get licenses. “It doesn’t matter if you’re a chain, it doesn’t matter how much money you have,” says Yi. “It matters over the last ten or sixteen years that you have operated within the ordinances of Prop D. You show that you can pass background tests, that you are well-financed, so all those requirements are going to be the make-or-break.” These 150 or so Prop D-compliant businesses, those dispensaries left open when LA tried to limit their number, are going to receive priority licenses, the first round of licenses the city offers, either on the 1st or soon afterward.
These businesses will have clean, safe, and transparent products available to whatever adult might want them. The consensus in the industry is that the 15% state excise tax, the 10% city tax, and the 9% sales tax on top (overall around 36%, ignoring the likely price increase that will come with increased demand) will be passed on to the consumer, itemized on the receipt so that they know why their recreational product is so expensive. Though the tax is more than noticeable, it will be the only change the consumer will see. There won’t be two lines separating the medical and the non-medical. Regulators and licensed businesses will be the ones working out the consequences of licensing, a messy matter whose regulations were only established weeks before they take effect.
However, these priority-licensed businesses are only a fraction of those that want licenses; if pre-Prop D dispensary figures are anything to go on, that number may be around 1000. It’s unclear when these businesses will be given a chance to compete in an open licensed market. Some say the next round of applications won’t be reviewed until April.
The situation is further complicated by the fact that many businesses that have been operating since Prop D was passed have been doing so in the grey market–not raided or untaxed but still technically illegal—and they don’t plan to shut down en masse on the 1st when they don’t have licenses. For instance, the HERB delivery service has been unlicensed since its inception a few years ago because delivery licenses weren’t available at that time for medical cannabis, though the market showed a desire for them. The company operator, who told me to call him Bob, explained his state of affairs: “The [Prop D compliant places] are going to be the first to apply for both storefront and non-storefront licenses right off the bat, for both medical and adult-use permits. Unless I’m able to partner up with one of those, I am stuck in a crux, where I either shut down my operation, let go my staff of forty people, and lose my 10,000+ patients, or I forgo it and take the same risk that I’ve taken thus far and continue to operate in a grey market and hope nothing happens.”
HERB and those like it are on the edge of imploding unless they continue to operate in the grey market while priority licenses are in effect. Meanwhile, MedMen has a buffer in its having a priority license, and more importantly, it has a relationship with the city to maintain. If it doesn’t get its licenses immediately at the beginning of the year, Yi says that “businesses like ours…are not going to sell, as tempting as it might be, to people who just walk in.”
But no matter the prospective legality of these companies, they are excited about their business prospects in this new environment. These include new business partners (“There are many people I speak to now that want to get into business with me and my company who in years past would have looked down on what I do,” said Bob) and a drastic increase in the number of available products, especially edibles and vapes. “[Vapor] is a discreet product. It comes in at an affordable price point. Concentrates are finally able to be tested and verified,” said Bob. Vapes are convenient, mainstream, and inconspicuous. Yi agreed: if “you’re a professional, you don’t want to be smelling like marijuana wherever you go.”
Dosages and messaging are changing toward discretion as well. Under the guise of preventing some sense of a marijuana “overdose,” the state has limited the potency of edibles such that no package will contain more than 100 mg of THC. This devastates companies that made their name with high-dose medicinal product, though they continue to crank out these items in the final days of their legality in 2017 and can still be bought in 2018. Such THC bombs aren’t seen as respectable by the powers that be, and businesses have to adapt.
Korova Edibles, for instance, has changed their slogan from “Unrivaled Potency” to just “Unrivaled,” while they experiment with flower lines and make the last of their 1000 mg THC Black Bars. Other products have already started marketing to the beginner or casual recreational user. These focus their marketing not on dosages or strains but intended effects. For example, the new SuicideGirls vape line has names the names Chill, Hustle, and Zero so that prospective users don’t have to guess whether the product will make them anxious or be good at a party or give them the munchies. When strains are mentioned, they’re increasingly marketed as “heritage” products.
Microdosing is perhaps the pinnacle of discretion, aiming to reduce the perception that pot’s only use is always toward complete intoxication. These products are intended to dull chronic anxiety and panic in a gentler way than say Xanax does. Pot dust has made its way into the market, letting you invisibly infuse whatever you’re eating with 5 mg scoops of THC. Kiva, the state’s largest edible manufacturer, is marking recreational legalization with a push toward microdose edibles like 5 mg chocolate blueberries and 2.5 mg mints. The new potency restrictions and the need to court new users seem tailor-made for products like these.
Yi explained the growing diversity of products through a wine parallel, noting that “there’s wine from Napa Valley, there’s wine from Australia, there’s wine from France, there’s two-buck chuck, and there are $500 bottles of wine. With cannabis, it won’t be any different.”
The analogous diversification in the pot industry is only going to continue as more entrepreneurs decide that the cannabis market is a sound enough investment of time and energy. Top-flight MBA grads will find their way in, as will forward-thinking agriculturists. They bring a tantalizing unknown to the future of the industry. Like the products themselves, the industry itself is becoming more discreet, more of a question of personal preference and circumstance, and with that change, it gains a collegial sense of respectability in the wider business community.
Companies like MedMen that are about to receive priority licensing are understandably fervent about getting illegal competition out of the way. When asked about whether Los Angeles law enforcement would root out unlicensed dispensaries, Yi responded strongly. He explained that there is no point in legalizing pot if you allow illegal pot to exist. The taxes and regulatory expenses that the companies pay will become meaningless: “There is a reason why there is no more moonshine in the US.” Cat Packer, the city cannabis czar, has said as much: “It’s going to be my department, the city attorney and the LAPD working together, kind of as this enforcement trio, either against licensed businesses who are not in compliance, or unlicensed businesses who need to shut down,” she told the LA Times.
Bob from HERB defends his and other grey market businesses out of the belief that those who voted for Prop 64 wanted all dispensaries legalized immediately, not to a select few that because of legal finagling found their way to relative Prop D respectability. “I get it,” he said. “The state’s in a tough position. The city’s in a tough position. But you have to bite the bullet and do what’s right for the business community and do what’s right for all the people who’ve put their necks on the line for years to do something that the people have voted into law.” Bob also points out that legalizing some but not all will force the legal market to compete with the prevalent illegal market, a market large enough and decentralized enough that the city won’t be able to derail it entirely. “Why buy a $70 eighth from a licensed storefront if you can buy a $40 eighth from the guy who lives next to you?…It creates an unfair competitive environment.” You can see this issue in action in Oregon, where the black market refuses to die.
Of course, there will be people for whom price is no object, for whom pre-rolled joints going for hundreds of dollars seem like a fun evening, and they will go to the legal dispensaries every time. But there is a significant portion of the market—Bob was eager to remind me that “it’s a very diverse group of people who use cannabis”—for whom price is more of an issue than this newly created sense of legality.
Tightening the strictures around users is the fact that the new Prop 64-inspired law outlaws medical collectives, forcing those who previously got a significant discount by functioning within collectives to now go to licensed dispensaries. Though those with cannabis convictions will be able to have their sentences and marked records expunged in some way to allow them to gain employment throughout the economy, even in the legal pot business, this repatriation does nothing to remedy the fact that they couldn’t have created a Prop D-compliant dispensary a few years ago. They, like HERB and other unlicensed grey businesses, are already too many steps behind the 150 well-organized businesses that have been given a head start in controlling the city’s pot business.
At every turn, the conception of a product and its release and its distribution and its sale, there is some stricture keeping real and fair innovation to take place in this ecosystem. Even the labs built to test for pathogens and potency under the medical cannabis system are now overburdened with hastily-written regulations to such a degree that few people are legally knowledgeable enough to do the enormous amount of testing required.
The desires and needs of current users, future users, and those who are supposed to be able to supply them are all compromised in this stopgap, incomplete system. Bob excitedly described the state of affairs as the Wild West, and it makes one wonder who will be the mythical cowpoke to bring about justice.
In some ways, Los Angeles and these soon-to-be-licensed dispensaries are following in the footsteps of the businesses they evoke, the Apples and Whole Foods of the world. In corporatizing and pumping up the value of the hobby computer industry, women were demeaned out of the industry where they had previously been pioneers. Whole Foods erased the labor and genius of people of color from the organic and local food movements, replacing them with Gwyneth Paltrows and Amanda Chantal Bacons. The legal pot industry has already had incredible challenges for people of color trying to open dispensaries or even just get on with their lives while holding (Black people were 4.6 times more likely to be cited for marijuana possession than whites in Los Angeles since 2011. The line between legal and illegal isn’t becoming fairer.
Companies that position themselves for legalization like MedMen or stand to gain from cheaper, untaxed prices in exchange for legal dubiousness like HERB are not necessarily to blame for that disparity; they are doing what they can for themselves, their employees, their employees’ families, their patients, and their future consumers. Cannabis product manufacturers similarly make do with what the state of affairs has given them. The legal pot industry is set to thrive with a panoply of products for every type of consumer, but who is it going to be thriving for? The onus for the disparity lies with the city of Los Angeles and the history of its inefficient legalization process that favors some rather than benefiting all.
But there’s hope what Cat Packer has said: “I truly believe if we don’t take the moment to acknowledge our past policies, the history of cannabis policies in this country, then we’re bound to make the same mistakes as we move forward.” What happens after January 1 may be more interesting than what led up to it.