City of L.A. voters banned all new pot stores in May, but that hasn’t stopped several entrepreneurs from opening since then.
How many have started business isn’t clear. But Adam Bierman, owner of MedMen, a West L.A. consulting business, said he has helped four medical marijuana dispensaries open in the city since the initiative passed.
Why would they open a shop that’s been outlawed?
“The people that are getting into this business, they are extreme opportunists,” said Bierman.
For one thing, he explained, they expect the voter initiative eventually will be challenged in court. For another, they don’t expect the city will enforce the ban any more vigorously than it enforced three previous bans.
And, importantly, they believe marijuana will become legalized in some fashion nationally.
“They are willing to make a bet on the future. They see the trends happening all over the country on legalization of marijuana,” he said. “They want to be in the industry in the interim, so they are ahead of everyone else who comes in when the market stabilizes.”
Federal law prohibits marijuana sales. But U.S. Attorney General Eric Holder indicated last month that the Justice Department would not pursue cases against dispensaries in states that had legalized medical marijuana with strict regulations. California is not one of those states. However, it’s believed that there will soon be a push for California to pass similar regulations.
It’s estimated that there are between 500 and 1,000 pot shops operating in the city. The number of dispensaries is assumed to be up from a year ago because some opened after the City Council last fall lifted a ban on pot shops in anticipation of the ballot measure.
Local crackdown?
Voters in May opted to place a cap on the number of medical marijuana dispensaries in the city, allowing only about 130 that predated a 2007 moratorium. That effectively banned all new shops.
Once the measure, called Proposition D, takes full effect in December, all post-2007 dispensaries must close. What’s more, many of the remaining 130 will have to move so that they are more than 1,000 feet from any school and 600 feet from parks, churches or other dispensaries.
City Attorney Mike Feuer’s office last week said he intends to fully enforce the initiative.
“We are working closely with the Los Angeles Police Department and the Department of Building and Safety to aggressively enforce Proposition D,” spokesman Rob Wilcox said in a statement. “Since the passage of Proposition D, dozens of dispensaries have shut down. The City Attorney’s office … is filing criminal cases and will defend Proposition D against any legal challenges.”
But this tough stance hasn’t deterred some. Bierman, who started consulting for dispensary owners four years ago, said that in the last three months, he has helped open dispensaries in downtown, Venice, just east of Beverly Hills and near Baldwin Hills. All are in city limits.
He said the threats of shutdown from the city have been repeated so often in the past that it has just become background noise in the operating environment. Since 2007, there have been four city bans on new medical marijuana shops; each time, new dispensaries have found ways to open, either by exploiting loopholes or simply in open defiance of city law.
“I tell the dispensary owners the current legal environment and what they are up against with possible federal and city enforcement, but they usually decide to go ahead anyway,” he said.
Once they decide to open, Bierman’s firm helps with store layout, construction and marketing.
Justin Hartfield, a partner with marijuana-focused venture capital firm Ghost Group in Newport Beach, said he isn’t surprised dispensaries are still opening in Los Angeles. Ghost’s portfolio company, WeedMaps.com, provides listings and reviews of dispensaries.
Hartfield said entrepreneurs see continued demand for marijuana and a lack of meaningful enforcement by local or federal authorities. Neither Proposition D nor other apparent bans seem to affect those sentiments.
“The attitude of owners is similar to the attitude in 2005 and 2006, when dispensaries were starting to appear in Los Angeles,” Hartfield said. “Regardless of any measure, it’s not stopping our clients from opening up. They’re operating and opening illegally or against city regulations, but many of these people don’t believe they’re doing anything wrong.”
Downtown pot shop
Indeed that’s the view held by the owners of two city of L.A. dispensaries that have opened in the last six weeks, both with Bierman’s assistance. Because of fear of being targeted for prosecution or a shutdown, the owners spoke on condition that only their first names be used.
Both store owners said they had all their city permits and licenses approved prior to the May 21st vote. With those in hand, they decided to open, despite passage of the initiative that requires them to close. They both believe the initiative will be challenged in court, although it has not so far.
“Given the low turnout and the fact that this measure was driven by one small group of people, I don’t believe the initiative reflected the true will of the people,” said John, who opened his dispensary near downtown Los Angeles in mid-August. “The main premise of the initiative – a cap on the number of dispensaries – was flawed. I believe it will be challenged.”
John, who said he is in his mid-30s and previously was in marketing and asset management, said he first considered opening a medical marijuana dispensary several years ago, after trying to obtain marijuana for a cousin with multiple myeloma.
“I had to go to some pretty unsavory places,” he said. “I thought to myself, ‘There must be a way to operate a dispensary in the right way and in the right place.’”
John decided last year to open a dispensary. He said it took several months to find a suitable location and line up required city permits. He received his permits in April; at the time, the City Council had lifted a ban on new dispensaries.
“I have a city permit with ‘medical marijuana dispensary’ stamped on it and I have a taxpayer identification number with the state Board of Equalization,” John said.
Just weeks later, voters approved Proposition D. But John opened anyway; he now has a staff of five.
John said he estimates it cost him about $150,000 to open his dispensary. Initial customer traffic has been at about the level he expected, although less than what he hoped for.
Since city officials know where his business is, John knows he could receive a shutdown letter.
“I know that whatever happens, I’m not going to want to set up a big confrontation with the city,” he said. “Whether that means a complete shutdown or something else, we’ll just have to see.”
‘Amazing opportunity’
Meanwhile, Jeff opened his marijuana dispensary in early August in Venice. Jeff also received his permits from the city before the May 21 vote. And he, too, had to spend several months finding space, which has been in tight supply as the area has boomed with Silicon Beach businesses.
Jeff, who had previously owned construction and retail businesses, said no single event motivated him to open his dispensary; rather he cited growing up in Venice in the 1970s amid a generally permissive environment for smoking marijuana.
“It’s part of my generation,” Jeff said. “For me, it’s an amazing opportunity. I prefer to spend my time helping people and having a business that I love.”
He said that it took him until last year to save up enough money to open a pot store.
“It’s not like you can just go to a bank and get a loan for this,” he said.
Most banks have shied away from financing marijuana-related businesses because federal law regards marijuana as a prohibited substance.
Jeff said he was disappointed when the initiative passed and believes it will be challenged.
“I think there’s still a way we can work out the zoning issues,” he said.
In the meantime, Jeff said his business, like John’s, has gotten off to a slower start than he would have liked. He attributed this to the usual challenges of starting a business.
As for the prospect of receiving a shutdown letter from the city, Jeff said the politics of marijuana are changing so fast that it’s impossible to predict what his reaction would be.
“My intention is not to be a burden on the city or to be an outlaw, so I intend to abide by what the city wants me to do,” he said. “But I’m also hoping by that time, there will be options besides a complete shutdown.”
– Staff reporter James Rufus Koren
contributed to this story.
