How Oakland's New Marijuana Regulations Could Cripple Industry Growth

Legal
Why Oakland's New Marijuana Regulations Both Aid and Cripple Industry Growth

(SF Gate)

Oakland, California, has recently been a hotbed of discussion in the cannabis industry since the City Council passed two new ordinances, both highly changing and regulating its MMJ market that has flourished since the state became the first to legalize in 1996.

While this new legislation is groundbreaking in Northern California for providing the unprecedentedly high limit of 8 dispensary permits awarded per year, it is structured in a way that, while well meaning, will actually cripple the quickly growing industry.

First, let’s address the quantity of permits allowed. Currently, Northern California (the region north of Monterey) hosts 190 medical marijuana dispensaries. That number may not shock you without context, so let me provide it: Southern California (the region south of Monterey) is home to more than 5,100 medical marijuana dispensaries. For further context, the estimated population of Northern California is around 14 million. The math just doesn’t add up.

So why is Northern California — one of the most affluent areas of the country and highly hailed as the weed capital of America — so behind in the legal market? The source goes back to the legalization of medical marijuana back in 1996 with Prop 215.

When California legalized medical marijuana, it signified a major shift in national opinion. We had a president who admitted to using cannabis (albeit not inhaling…) and a state that defied the past decades of drug war propaganda and said, You know what, this is medicine. While it was an amazing time for cannabis activists, patients and enthusiasts, the new law utterly failed when it came to setting up a reliable, regulated system for medical marijuana to develop as a legitimate industry.

Under Prop 215, there was virtually no chain of accountability for the cannabis and products that growers and retailers were producing. Furthermore, Northern California cities and counties were left to themselves to decide whether or not a medical marijuana dispensary was something they wanted in their city, which left many residually, fearfully ignorant politicians and citizens to ban dispensaries in spite of marijuana’s increasingly accepted medicinal properties, as well as the financial boon the business could bring to their area.

So while growing marijuana in Northern California was a booming industry (ever heard of Humboldt?), cultivators had minimal legal means to sell their legally produced product. Add this to the absence of accountability, and as you can guess, Northern California quickly became the largest, in-country cannabis supplier to the rest of the U.S.

As vicious cycles will do, this only caused the state’s district attorneys to prosecute medical marijuana more in Northern California, citing its off-the-books, illegal supply chain to the rest of the state and country that their own regulations had created. So while Southern California’s medical marijuana industry grew and grew, Northern California’s remained crippled.

Now Oakland wishes to break that cycle. As mentioned before, thanks to this new law, up to eight dispensary licensees will be awarded each year, greatly expanding the city’s medical marijuana trade while setting the groundwork for a booming recreational market when the state (most likely) legalizes this November. It doesn’t take an economic mastermind to see that when California legalizes recreational marijuana, the cannabis industry will explode. As of 2015, California’s medical marijuana market alone accounted for more gross revenue than the rest of the country’s legal markets combined (including Colorado’s impressive legal industry).

“Californians have made it clear that they want people to have safe, legal access to medical marijuana,” said Oakland Mayor Libby Schaaf. “I’m proud that by adopting groundbreaking medical cannabis regulations, Oakland is creating a national model for how communities can bring every aspect of this growing sector of our economy into the light.”

Which brings us to part two of our analysis — the sounds-like-a-great-idea-but-could-turn-out-to-be-unfortunately-crippling part.

Under the legislation, Oakland will:

     a)    Require licensed medical marijuana dispensaries to maintain a staff of which half live in Oakland.

     b)   Encourage the owners of such facilities to hire and retrain city residents who have been incarcerated.

     c)    Require facility owners to maintain an ownership stake of at least 50% in the business.

     d)   Issue half of all permits to applicants who have lived at least two years in Oakland districts most affected by cannabis-related crimes.

It’s no secret that Oakland, California, has suffered more than its fair share of crime. In fact, some of the city’s districts account for the lowest income and highest crime rates in the nation, a major part of which come from drug convictions. Seeing these statistics (and the proof before your eyes if you ever drive through certain parts of town), Oakland City Councilwoman Desley Brooks decided it was time to take the city’s medical marijuana regulations into the realm of social justice.

Councilwoman Brooks represents District 6, one of the most crime-ridden areas of Oakland. Under her guidance, the recently adopted regulations were written to make sure Oakland residents affected by the drug war were given an advantage in entering the now-legal industry that they once had to pay the price for. Furthermore, eight out of seven current dispensary permits in Oakland are owned by Caucasians — a figure that does not reflect the city’s high minority demographics.

It is with these facts in hand that the regulations were written, requiring under regulation 5.81 that for every permit given out, there must be a sister social justice permit given to a group whose owner is from one of six specified police beats in Oakland or has had a recent cannabis incarceration in Oakland. This person must own at least 51% of whatever company is applying for said social justice permit.

While it’s easy to see where Brooks is coming from, these strictly specific requirements for every new business permit will serve as a bottleneck on industry growth. It’s also easy to see that major companies looking for a permit will foster partner social justice permits to enable their own, and while it’s a good thing that more local and affected business owners will crop up, it’s not hard to guess which business the major funder will put more effort into developing.

No matter where you stand on the issue, these regulations have passed and are now written law. Will Oakland’s marijuana market explode, watching eight new cannabis companies crop up each year? Or will the social justice permits bottleneck the process and account for too much inside-industry handling for a local business to succeed? The only thing that’s 100% clear is that Oakland’s marijuana industry is something to keep a close eye on.