The Latest on the LA Cannabis Delivery Lawsuit: A Proposed Settlement

The city of Los Angeles, home to one of the country’s largest cannabis markets, has struggled to move from a gray market after a porous 1996 medical cannabis law to a legal and regulated one after the passage of Proposition 64 in 2016, which legalized adult-use cannabis in California.

A case in point is the battle over delivery licenses, still unfolding. It began last year when the city’s Department of Cannabis Regulation proposed an ordinance, later adopted, in an effort to increase equity in the cannabis industry: only social equity applicants, meaning applicants who have been disproportionately impacted by the war on drugs, would be able to obtain cannabis delivery licenses until 2025.

On October 19, Zachary Pitts, the Southern California Coalition, and the California Cannabis Couriers Association, filed a lawsuit against the city and its cannabis regulators with the Superior Court of California. Their issue, they argue, is not equity—Pitts and the Coalition have in fact long advocated for equity in the city’s industry—it is the sudden restriction that bars them from participating in a market they long had a stake in.

And now, Cannabis Wire has learned, they have proposed a settlement. It was laid out in a letter sent to Taylor C. Wagniere, the Los Angeles deputy city attorney, on January 22, in an effort to avoid drawn out litigation.

The push against the city began when Pitts—the individual plaintiff and an aspiring delivery licensee—realized that he had abruptly become ineligible, due to the new ordinance, at least for a few years. Pitts, the CEO of Ganja Goddess, an online platform for cannabis deliveries in California, told Cannabis Wire that he prepared for years to apply for a delivery license in Los Angeles. When Pitts learned of the city council’s decision, he said, he initially thought there must have been a misunderstanding, and he felt like the rug had been pulled from beneath his feet.

The idea of suing Los Angeles and its cannabis regulator “terrifies me,” said Pitts. “But I just don’t see any other way.”

The ordinance was adopted under what’s known as an “urgency clause,” which, the lawsuit alleges, was an unjustified use of the procedure. As Cannabis Wire previously reported, the city’s Department of Cannabis Regulation’s executive director, Cat Packer, requested that the city council employ the urgency clause because it “would allow us to move forward more expeditiously, to allow our applicants to move to the process.” Packer added that constituents were keen and ready to get started.

The Department’s revised eligibility requirement discards what was known as the Delivery Pilot Program, which would have granted forty delivery licenses to social equity applicants while awarding twenty to legacy operators—those who were in the industry prior to the passage of Proposition 64.

To understand the change requires a bit of a deep dive. The background: The Delivery Pilot Program was going to launch after what’s known as Phase Three Round One licensing. Phase One and Phase Two were for medicinal dispensaries to obtain adult use cannabis licenses, while Phase Three is for those newly seeking licenses, with priority given to equity applicants. On December 2, the Department announced it had concluded its review of Phase Three Retail Round One applications and granted temporary licenses to 200 equity applicants.

The Department’s new approach with delivery effectively cut Pitts out, he says, and squashed his dream of setting up shop in LA. “We’ve passed on so many opportunities that we had outside the city of LA,” Pitts said. “LA is my community. It’s where I grew up, where I was born, it’s where I feel connected to, and it’s where I wanted to make it work.”

The plaintiffs’ proposed settlement pitches a new system based on the Tier designations of the social equity program. Tier 1 and Tier 2 applicants are those who have been directly impacted or have lived for a certain period in an area disproportionately affected by the war on drugs, while Tier 3 applicants, who are not social equity recipients themselves, provide support—property in some cases, or licensing or compliance support—for Tier 1 and Tier 2 applicants.

The heart of the settlement proposal would in effect allow for Tier 3 applicants in delivery now: “The City Council should revise the law to allow for a 3:1 ratio of Tier 1 and Tier 2 delivery applicants to Tier 3 delivery applicants retroactive to,” when the Department opened the application process on October 13, 2020, the letter states, adding that this proposal has a more generous ratio for equity applicants compared to the original Delivery Pilot Program, which was 2:1.

The letter also requests that the plaintiffs be allowed to present their proposed settlement to the city council during a public forum.

The lawsuit, the plaintiffs assert, is not meant to infringe on the rights of equity applicants, but aims to allow for legacy operators to also apply.

“We’re not in any way, shape, or form, trying to take away from social equity,” said Adam Spiker, co-founder and executive director of the Southern California Coalition, a cannabis trade group.

Sharing that sentiment is Virgil Grant, another co-founder and the first president of the Southern California Coalition. Grant formed the organization after serving six years in federal prison for his cannabis activity, despite his operations being licensed and approved in each city in which they were established.

“Legacy operators should be granted first rites of passage [in delivery], same as they did in Phase One and Phase Two,” Grant told Cannabis Wire. “It shouldn’t be any different. I don’t feel it has anything to do with social equity.”

Luis Rivera, co-founder and executive director of Social Equity LA, a non-profit offering services for aspiring cannabis entrepreneurs from marginalized communities, said he supports the Department of Cannabis Regulation restricting access to only equity applicants for the next few years.

“I think it’s beneficial for the market, because you’re bringing in diversity into the market right now,” Rivera told Cannabis Wire. “And we all know that in terms of business and shopping, consumers tend to buy from people they look like more and sell to, as well.”

On November 19, the Department held its first public meeting since the lawsuit was filed. The elephant in the room was addressed multiple times during public comments, including by Pitts and Spiker.

The Southern California Coalition respects the thinking behind the ordinance change, said Spiker, during the November meeting, but the 2025 timeline won’t provide a real head start for equity applicants since delivery businesses that are not licensed by the city are already delivering to its residents. Plus, he added, the predominant illicit market will also compete with equity applicants, so it would be more effective to grow the regulated market by granting more delivery licenses.

“I don’t feel like it’s actually fair that they are doing that,” said an aspiring delivery operator based in West Los Angeles, during public comments, about the Department’s ordinance change. “They want to combat racism within the system with racism.”

An equity applicant rebuked those remarks a few minutes later during her turn to speak. “The program was set up for people like me who did not have an opportunity because of the way I looked, and based upon my economic background,” she said. “Now you’re saying that it’s racist, that the city developed a program to help me and you feel like you’re cheated, because you’re telling me I have to continue to be in the back of the mind?”

No one from the Department of Cannabis Regulation addressed the lawsuit during the meeting. A spokesperson for the department declined to comment on the lawsuit and directed Cannabis Wire to the Los Angeles City Attorney’s Office, which also declined to comment.

The defendants’ deadline to respond to an amended version of the plaintiffs’ petition is March 10. A trial is scheduled to take place on April 7.

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