City Council Agrees to Temporary Extension of Recreational Cannabis Licenses

In a four to one vote, the West Hollywood City Council tonight agreed to extend the recreational cannabis sales licenses granted temporarily to four existing medical cannabis businesses until the eight newly licensed businesses are up and running.

In making that decision, the Council effectively rejected a demand from the existing medical cannabis businesses that they be granted renewable licenses to sell recreational cannabis, licenses for which they failed to qualify in a complex application process last year. 

However, the Council’s decision did give those existing cannabis operators latitude to operate beyond Dec. 31, 2019, which is when City Hall staff had recommended ending the temporary recreational cannabis licenses.  Council members expressed concern that the newly licensed businesses might not have negotiated the leases and obtained the building and business licensing permits they need to open by then.

The Council’s decision came during an unusual standing room only meeting where dozens of people in the audience wore red shirts carrying the MedMen brand and 52 people stood up to speak before the Council about the issue. MedMen, which operates 35 shops in 12 states and whose stock is traded on the Canadian Securities Exchange, is one of the four existing medical cannabis businesses that have dubbed themselves “The Originals.” The others are Alternative Herbal Health Services, Los Angeles Patients and Caregivers Group, and Zen Healing Collective. In recent months, those four businesses have campaigned to get the City Council to reverse its earlier decision to grant eight cannabis licenses in each of five different categories only to the businesses who ranked highest in each category.  The “Originals” were granted an exception in that they qualified for new medical cannabis licenses without going through the application process.  That process involved an analysis by an independent group appointed by City Manager Paul Arevalo of 313 applications that used 54 criteria approved by the City Council.

While the Originals argued that they should have been grandfathered into the process and automatically guaranteed recreational cannabis licenses, Councilmember Lindsey  Horvath noted that the four actually were automatically granted new medical cannabis licenses without having to go through the lengthy and expensive application process, with a fee of almost $10,000, that was required of those seeking the other four medical cannabis licenses.  “We set up a process that grandfathered them in as the kind of businesses that they were,” Horvath said.

Some of the existing medical cannabis businesses have argued that they can’t be successful without being able to sell recreational cannabis, which doesn’t require a doctor’s prescription.  John Leonard, the city’s community and legislative affairs manager, who has overseen the license application process, said that the four medical cannabis businesses reported total revenue of $15 million in 2017. Leonard said that revenue more than doubled to $33 million in 2018 when the four were allowed to also sell recreational cannabis.

Councilmember John Heilman, citing those revenue numbers, said he understood why the four existing businesses didn’t want to give up the additional money they made from recreational cannabis sales.  However, Heilman said, he also understands why the other top-ranking applicants, who entered the lengthy and expensive process expecting only eight licenses would be granted, would not want to allow the existing four to be grandfathered in as recreational cannabis retailers.

Heilman also called out the original cannabis dealers for first supporting the process, then contesting it after they lost to the competition. “I feel there’s a bit of dishonesty here where they say ‘Oh, you have to let us continue’,” he said. “I don’t think they’re being honest with the community. I don’t think they are being honest to the Council as well.”

Heilman also noted that while MedMen described itself as a community business, it has more than $30 million in annual revenue and multiple locations. 

A number of speakers on the issue were employees of the existing cannabis businesses who expressed concern that they would lose their jobs if their employers weren’t granted recreational cannabis licenses. Those speaking on behalf of the eight recreational cannabis winners responded to the concerns about job losses by saying that they were open to hiring employees of the current cannabis retailers. 

Also speaking on behalf of employees of the current cannabis retailers were representatives of United Food and Commercial Workers Union (UFCW) Local 770.  MedMen signed a contract with the union in January after it was clear that it hadn’t qualified for a recreational license, which Heilman said was an act “not reflective of integrity.” 

While union representatives have praised MedMen as an employer, it is facing accusations of cheating its employees of their pay, accusations that haven’t been brought up at any of the City Council discussions of the licensing issue.  MedMen is the subject of a lawsuit filed by two of its former West Hollywood employees who allege the company refused to pay them overtime or give them required breaks. Daniel Srourian, the lawyer representing the former workers, estimates that more than 100 current and former employees of MedMen could be included in the class for which he is filing the suit. MedMen also is alleged to have taken tips away from its California employees. The company has denied the allegations in both of those situations.

Councilmember Lauren Meister questioned whether failing to get a recreational cannabis license would actually put any of the existing cannabis shops out of business.  Meister noted that many of those who spoke before the Council in support of the existing businesses praised them for helping them deal with medical issues. “I don’t think that these businesses will go out of business if they keep medical cannabis relevant,” Meister said, noting that support.  Councilmember Horvath agreed, saying “I’m not convinced that medical-only isn’t viable going forward.

Meister also noted that the City Council had discussed in 2017 whether the four existing medical cannabis businesses should be given recreational cannabis licenses without having to go through the application process and decided not to.  Meister said the four existing businesses could have made the argument then  for being granted recreational cannabis licenses while the Council was still putting together the application process.  “There is really a fairness issue here with regard to the process,” she said.

Councilmember John Duran cast the only vote against the temporary extension, which would give the existing cannabis businesses a six-month notice before their recreational sales licenses are rescinded.  Duran, who has described himself as a Libertarian, argued that the four existing business should be granted recreational cannabis sales licenses as part of a “free market” approach.  Duran said his fellow Council members were “substituting the judgement of government over free markets.”

The Council also discussed an issue faced by the eight successful applicants for licenses to operate lounges where edible cannabis products are served.  Originally, the concept was for those lounges to be able to offer other food and beverages that was not cannabis infused along with the cannabis products.  However, a change in state regulations  now bans edible cannabis lounges from offering other products.  That has led some successful applicants for edible lounge licenses to worry that they won’t be able to succeed financially.  Mayor John D’Amico suggested the city consider extending its deadline for license winners to get their businesses up and running. Community and Legislative Affairs Manager John Leonard said that some of the licensees are considering alternatives, including renting a space that would accommodate both an edible cannabis lounge and a separate but adjacent place where other food and drinks could be served.

Leonard said the successful cannabis license applicants must now obtain a business license from the city, complete tenant improvements on their new locations and get building and safety permits. To date, Leonard said, the city has received business license applications from four of the winners in the five license categories, which include recreational cannabis sales, medical cannabis sales, smoking and vaping lounges, edible cannabis product lounges, and cannabis delivery licenses.  He said he anticipated that several new cannabis businesses will open in July or August.  Several successful recreational cannabis license applicants told the City Council tonight that they anticipate opening early next year.