Is Oakland Idea On Pot Permits Legal?

By Rachel Swan
San Francisco Chronicle

WWR Article Summary (tl;dr) As the marijuana industry picks up steam in California, local leaders and community members are battling over legislation. This article takes a deeper look at what is happening in Oakland.

San Francisco Chronicle

Oakland would require pot entrepreneurs to hand over business money and control in exchange for an operating permit, under a proposal by three City Council members who want local government to benefit from California’s multibillion-dollar marijuana industry.

But the move would not be legal, according to state Assemblyman Rob Bonta, D-Oakland, the lawmaker who was lead author of the state’s marijuana regulations, which were signed into law a year ago.

That’s not stopping council members Desley Brooks, Larry Reid and Noel Gallo from pushing their plan to force cannabis businesses to give the city one-quarter of their ownership and at least one seat on their boards of directors — in exchange for an operating permit.

Such permits are required under the state Medical Marijuana Regulation and Safety Act that established regulations for marijuana businesses as the state heads toward legalization of recreational pot.

“We’ll be able to use a resource that generates millions” of dollars, Gallo said, explaining his support for the proposal that would amend Oakland’s cannabis laws. The plan is to be discussed by the City Council’s Public Safety Committee next week. “I’ll be able to get specific services that I need in East Oakland. If I were to rely on the general budget, I would never get them.”

Gallo, Brooks and Reid say their proposal would generate revenue for the city to fund district activities, community beautification and loans for aspiring business owners who the council members say were hurt by the U.S. war on drugs.

Additionally, the city would dole out some of the new revenue to three community job-training programs that are run by politically connected people. One of them, the Hispanic Engineers, Builders & Contractors of California, has no website or state records, and is run by a childhood friend of Gallo’s.

The friend, Rafael Zamora, said he is in the process of solidifying the group’s nonprofit status.

In a memo sent Friday to the Public Safety Committee, the council members say they came up with the proposal to “ensure equity and fairness” in a “burgeoning” cannabis industry. Brooks, who according to Gallo was the proposal’s main author, has previously claimed that systemic racism gives some cannabis operators a head start, while others are shut out.

In addition to requiring pot businesses to share revenue, the proposal would require business permits to be given to pot entrepreneurs who have lived in Oakland for at least five years.

Brooks and Reid did not return phone calls on Monday.

Bonta said the proposal raises legal concerns.

“The idea of a transfer of 25 percent ownership and one seat on the board raises significant concerns about prohibited taking and about whether this is an appropriate use of eminent domain,” Bonta told The Chronicle on Monday. “If the city is an owner, it’s also a regulator. So it’s regulating itself.”

Bonta also noted that state laws prohibit public entities, like cities, from having a stake in businesses, both nonprofit and for profit.

Under current state law, all marijuana businesses are categorized as nonprofits, but Bonta has been working to change that. This year, he pushed a bill that would have allowed for-profit cannabis businesses to obtain permits, but it stalled in the Senate right before the end of the legislative session.

Bonta said the council members’ proposal would also run afoul of state laws that restrict the type of licenses a single entity can hold. Under state regulations, for example, anyone holding a distributor’s license can only be a distributor. So the proposal could potentially mean that Oakland would hold dozens of licenses in all sectors of the industry, which would be illegal.

Oakland attorney Robert Selna, who is helping clients with cannabis permit applications in Oakland and other cities, said it would be “highly unusual” for a city to require that it participate in a business in exchange for a permit.

Such arrangements might occur between a city and a low-income-housing developer, Selna said, but in that case, the city would be providing a public benefit in return.

Selna said the proposal raises other concerns, in that it would interfere with cannabis companies’ business practices and put them at a competitive disadvantage.

Daniel Grace, head of the East Oakland cultivation facility Dark Heart Nursery, said he is already looking to move to another city or county that is “doing something more workable.”

“This is a gut punch,” said Grace, who for several years has paid 5 percent of his gross receipts to the city, as required by a voter-approved city ordinance.

“For us, this legislation feels like we’re being punished for being good actors,” he said. “It would break the cannabis industry in Oakland, not just for now, but forever.”

Lanese Martin, co-chair of the Oakland Diversity and Equity Cannabis Coalition — an advocacy group that looks out for women, immigrants and people of color working in the marijuana industry — said that while she disagrees with the proposed rules, she supports the council members’ idea of creating a loan fund for entrepreneurs living in areas with high marijuana-arrest rates. The proposal would allocate 42 percent of the city’s future proceeds to these “equity” applicants.

But Martin said the loans to help these applicants should come from taxes the city collects, not revenue it pulls in by being a part owner in many businesses.

“I think reparations are important,” she said. “But if (the council members) think these (rules) are addressing that, they’re not.”

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular

To Top