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Growing Pains Part 2: Back to the Underground

Instead of welcoming the cannabis industry into the light, Oakland's new rules are putting many out of business, while others are disappearing into the illicit market.

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If someone doesn't qualify for an equity permit, the only way to jump ahead in the process is to "incubate" an equity business by providing them with space to operate.

Depending on who you ask, Oakland's equity program is either a game-changing social justice intervention or a business-killing injustice that's punishing mostly smaller operators. What's irrefutable about the program is that it's been highly divisive and fomented jealousy and frustration within Oakland's cannabis scene.

Edwards sees it as both essentially good and fundamentally fucked up. "This is the problem," said Edwards about the city's system. "They didn't try to find a way to legalize the existing industry. Instead, they imposed regulations on it that we could never comply with."

Under the equity program, Edwards' chance of getting a city permit to operate has been reduced to almost zero because he doesn't qualify as an "equity applicant" and he's too small to incubate equity applicants. His own business doesn't even need 1,000 square feet of space and his profit margin is too thin to afford the going rate for 1,000 extra square feet of real estate in Oakland's green zone — the areas concentrated in East and West Oakland's industrial flatlands along I-880.

He questions why there weren't other measures included in the equity program with which smaller companies like his could reasonably comply.

"My idea was to add a consultant level to the incubation process" that would allow business owners to help other entrepreneurs with financial management, product innovation, and regulatory compliance, said Edwards. His idea never went anywhere with policymakers.

In December, the city sent Edwards a cease-and-desist letter accusing him of operating an unpermitted cannabis manufacturing business at a small commercial space he'd recently leased. Edwards insists that he wasn't operating his business there yet. His equipment was boxed up, and over the previous six months, he'd sold all of his inventory to dispensaries because he knew he was going to be delayed getting permits. He would need the income to survive until the permitting situation got sorted out.

Today, Edwards is living off the cash flow of that dwindling inventory that can still be legally sold in dispensaries, but he can't sell them new product until he's permitted and has a space. Money is tight and time is running out. He says he's going to have to leave Oakland.



Gina Golden
is another small cannabis manufacturer who is struggling to navigate the state and local regulatory maze. "They actually put a lot of people out of business, and dispensaries are having trouble keeping products on the shelves," she said about city and state regulators in a recent interview.

In 1996, when she was a college student, Golden collected signatures to put Proposition 215 on the ballot. Later, she grew her company, Golden Goddess Botanicals, which focuses on therapeutic tinctures, butters, balms, and edibles. She's been in operation for 10 years, thriving, but the new costs of legalization and permitting hurdles are threatening to extinguish her business. "I'm in a really vulnerable position," she said.

One of her bigger problems is finding space. Golden takes issue with how Oakland and the state have classified cannabis food and topical activities. Companies that make THC-infused honey and chocolate, for example, can't lease a kitchen in a commercial zone. They're required to locate in industrial areas near auto shops, plating factories, and other heavy industry, places where small affordable spaces are harder to find.

Golden said she supports the equity program but says it has had unintended consequences and wishes city councilmembers would reform it. "They're trying to undo the damage that's been done by the War on Drugs and create regulations that serve the community," she said, "But honestly, it's really shutting out a lot of people like myself."

One strategy Golden is pursuing to stay afloat is expanding her line of non-psychoactive CBD-only products that she might be able to sell as holistic therapeutics that aren't regulated by state and local cannabis authorities.

Another business owner who has run a cannabis delivery service for several years said things are so bad in Oakland that he's looking to make a full exit. He asked not to be identified because he's currently in talks to sell his firm.

"Seeing [Prop. 64] pass at the state level was definitely good," he said. "There was a whole campaign about bringing people out of the shadows and into the light."

But he said that high taxes, difficulty getting state and local permits, and the prohibitive costs of participating in Oakland's equity program as an incubator for small- and medium-size companies mean that lots of the people who built Oakland's existing cannabis market over the past two decades are fleeing. Some are leaving Oakland to go legal elsewhere. But many more are now catering to the flourishing illicit market that legalization has ironically strengthened.

Golden has already watched a lot of her colleagues — other edibles and topical manufacturers, small- to medium-size growers, and marijuana flower retailers — give up on going legal and dive fully underground.

"It's thriving under the current situation," she said. "People are going to a sesh," she said, referring to the informal and secretive pop-ups that serve as cannabis bazaars where consumers can sample unregulated products and buy them, untaxed, directly from growers, dealers, and makers. "Or, they go to a friend who grows, and they get an ounce from them, instead of paying a much higher price at a dispensary."

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