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Thursday, May 30, 2024

Too Much Weed

The city of Ventura saw its first marijuana dispensary open last month as Responsible and Compliant Retail Ventura LLC, known as Embarc Ventura, began selling bud on Main Street. In an abrupt turnaround from the city’s initial ban on all cannabis businesses following the drug’s statewide legalization in 2018, Ventura has approved six dispensary storefronts in the past year for its downtown district, double what the Ventura City Council first planned in 2021.

The city wanted to ease into the industry as a limited-license jurisdiction, meaning the city council, in tandem with the city manager, would allow only a strict number of storefronts, hoping to avoide sparking controversy in a region made up largely of families. 

But when three permit recipients were named last October out of eight finalists in an application pool, those not selected appealed the decision, leading to a settlement for three additional permits among the five businesses.

MOM Ventura LLC, Shryne Ventura LLC and Harbor Management Group LLC, known as Safeport, won the second round of application assessments by the city. 

Those selected last year, including West Hollywood-based The Artist Tree LLC, feel as if the city caved after upholding stringent standards for their own permitting campaigns, diluting each store’s market share by the addition of competitors. 

“It’s unfortunate the city chose to just capitulate to the people that appealed instead of sticking firm with what they originally had put forth to the public,” said Lauren Fontein, the founder and executive overseeing regulatory compliance for The Artist Tree.

Costly wait

Fontein’s dispensary leased a space in Ventura’s midtown, just minutes away from Embarc’s operations. After the other applicants appealed following last year’s decision by the city manager, Fontein said the city did not allow her business to move forward with renovation or construction permits as the litigation played out. 

Lauren Fontein, founder and chief compliance officer of The Artist Tree. (Photo by Ringo Chiu)

It was a costly waiting time for a business that, according to Fontein, must recover the expense of applying in the first place, a process that can cost as much as $100,000 when fees, consultant charges and the costs of creating renderings of store mockups are added up.

It was these business impacts Fontein says the city did not consider when issuing three more licenses.

“We had tried to be involved in the settlement negotiations for the city to consider our input,” Fontein said. “They just shut us out completely.”

According to Miles Hogan, a senior assistant city attorney for Ventura, the initial permit winners could participate in the administrative process as the appeal process went before the California Office of Administrative Hearings by submitting filings and appearing at hearings. But when it came to the “actual” negotiations, those were confidential discussions limited to the five appellants. 

In the city’s view, this settlement was a reasonable step compared to a drawn-out case that could further delay the first three applicants from launching operations.

“The city’s position is that (the) settlement agreement does not provide any harm to the three original awardees,” Hogan said. “Reaching that settlement agreement allowed the process to be completed and for them to be able to open as soon as possible.”

The two businesses that were not selected by Ventura in the second round, Haven #2 LLC and 805 Reefinery Inc., have 90 days to file a lawsuit challenging the interim City Manager Don Pittman’s most recent selection.

City-by-city headache

According to the California Department of Cannabis Control, cities and counties can prohibit cannabis businesses from opening. As a result, the state is a patchwork of areas with high concentrations of dispensaries in certain municipalities. 

In Ventura County, the city of Ventura joins Oxnard, Ojai and Port Hueneme as the only municipalities in the region allowing all types of cannabis business: retail storefronts, delivery services, distribution, testing and manufacturing. In unincorporated parts of Ventura County, only distribution is allowed.

According to Matt Portnoff, a partner at Venable LLP, a law firm with an extensive cannabis practice with offices in Century City, most municipalities in California start out as limited-license jurisdictions but are slowly worn down to allow more permits after multiple rounds of appeals by business applicants.

“It’s often very inefficient and often not beneficial for the community in terms of getting to the right place,” Portnoff said.

While none of his clients were involved in the case against the city of Ventura, Portnoff has dealt with a number of local application reviews involving subjective judgment on behalf of city leaders, as measurements for community benefits or business strength do not have standardized systems across the state. Without clear standards for selection, permitting decisions become prone to lawsuits.

According to Portnoff, retail expansion into new cities has become a test of a business owner’s lobbying power as much as their business judgment, with those who can afford the legal backing able to survive rounds of appeals.

Looking at the licensees in the city of Ventura, five out of the six awardees already have multiple retail locations across the state and fall into the “premium” weed category. A majority of Portnoff’s own clients fit within this profile as vertically integrated operations that can survive the inefficiencies of bureaucratic greenlighting. Businesses must handle the upfront cost of local permitting, then later bear the double-whammy of city and state taxes on cannabis.

“Although there may be all sorts of social equity licensing available in some of these jurisdictions, I just don’t know how well any sort of mom-and-pop shop can be equipped to succeed in a lot of those jurisdictions.”

Five years after pot was legalized by the state, numerous cities have only recently begun the permitting or voting process to allow legal dispensary operations. In June the Department of Cannabis Control announced $4 million in funding across 18 cities and counties to develop and implement local cannabis retail licensing programs.

Of those, Los Angeles County and the city of Calabasas received a combined $600,000 to explore the cannabis retail option. 

James Brock
James Brock
James Brock has worked in newsrooms around the world, including in New York, Paris, Abu Dhabi, Dubai, Houston, and Los Angeles. He began his career with a Newhouse News daily, where he served on the news desk and the editorial page. He was the copy chief for The New York Sun, and founded and edited the personal finance section for Abu Dhabi-based The National, among other positions. He has interviewed Anthony Bourdain, Tom Ford, Mark Cuban, and many other individuals, and has written and edited thousands of stories and articles.

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