This is the first of two installments examining the status of the cannabis social equity program in Los Angeles.

Los Angeles’ cannabis social equity program, one of the largest in the U.S., has “failed” to live up to its promise of boosting minority participation in the industry, several participants and activists said recently. The group was asked to respond to a city report from January that found that only 111 of 200 social equity dispensary licenses have actually been issued since permit winners were named almost four years ago.

And far less than 111 are actually serving customers, industry insiders told Green Market Report.

By the numbers

At the beginning of 2024, a total of 499 social equity business permits had been awarded to retailers, growers, manufacturers, distributors, and delivery services. That’s out of 1,506 total marijuana permits awarded in the city, including non-social equity licenses, according to the report, which was authored by the L.A. Department of Cannabis Regulation.

That tally includes:

• 111 storefront dispensaries
• 130 delivery companies
• 71 manufacturers
• 92 distributors
• 95 growers

As of December last year, only 40% of the social equity licenses – a total of 200 operators across categories – were operational, the DCR found. The analysis comes nearly six years after the city council signed off on the social equity program and licensing began.

The report didn’t specify how many of the operational businesses fell into each category, but a spokesperson confirmed that the agency is far from done with its licensing – and that more application windows are coming, though dates have yet to be determined.

The spokesperson also noted that permits for retailers, delivery operators, and growers remain reserved for social equity applicants until January 2025.

“It is our goal to continue supporting and providing resources to Social Equity entrepreneurs as they maneuver the growing commercial cannabis market,” the spokesperson wrote in an email. “DCR is aware of the many hurdles equity small business owners face especially in this industry, and this is why the Department offers a myriad of resources including financial and legal assistance, as well as individual and general education opportunities tailored to starting and growing cannabis businesses.”

The agency stated in its report that it has “overseen the creation of a tremendous business framework from the ground up that has issued more commercial cannabis business licenses than any other jurisdiction in the United States. Of those licenses, one-third have been issued to Social Equity individuals – a key element of DCR’s mission.”

The social equity struggles also need to be considered against the backdrop of ineffective enforcement against the still-thriving underground marijuana market – including estimates of hundreds of unlicensed dispensaries in L.A. That has been one of the primary factors undercutting the potential success of the city’s social equity cannabis shops, sources said.

“They asked us all to pursue this. We all jumped out the window with them, and there was no parachute. There was no fluffy safety net at the bottom,” said Madison Shockley III, one of the few social equity shop owners who’s managed to get a dispensary operational. “There’s so many unlicensed shops just within a mile or two radius of me.”

‘It’s failed’

Anecdotally, L.A. cannabis executives such as Shockley estimated only between 10 and 30 dispensaries out of the 200 named four years ago are actually serving customers. That, several said, means the program is thus far a “failure.”

The vast majority of retail license winners walked away from the opportunity because of various hurdles, including a systemic lack of access to capital with which to start their businesses and a high tax burden, sources told Green Market Report.

“It’s failed. The program itself has failed. And it’s next to dormant,” said Shockley, who’s worried about the future of his store in South Central L.A.

That’s also despite the city having given out over $12 million in “direct financial assistance” to “over 1,700 social equity applicants through grant disbursements and fee waivers,” the January DCR report stated. Last year alone, the DCR said it gave $5 million to 226 social equity companies for “rental assistance.” In the 2023-2024 fiscal year that ended June 30, the DCR gave out another $480,000 in grants to social equity companies, according to the report, and provided hundreds of hours of free business coaching and technical assistance to participants.

That’s also not including $15.6 million in state money that’s been doled out to L.A. to help develop social equity programs, between 2018 and 2022, according to a legislative report from last summer.

Despite that help, Shockley and others said many permit winners weren’t able to figure out how to land angel investors or financial partners who weren’t trying to take advantage of them with predatory agreements. Most of the licensees didn’t have the money needed to find and hold retail shop locations, let alone build them out or purchase cannabis inventory to sell, which effectively left them nowhere.

The bottom line was the city’s help simply wasn’t enough to get the job done, sources said.

“Most of them never opened, and they just cut their losses and walked away,” Shockley said of the original 200 dispensary license winners. “A lot of those partners that came in and really trying to use the equity partner as a figurehead, a lot of those partnerships failed, and so did the opening of the stores.”

Lack of capital

That’s why Shockley, and several other social equity entrepreneurs, were forced to partner with financiers like Off the Charts, a retail chain that has teamed up with at least five social equity dispensaries in the past few years.

Off the Charts entered the social equity space around the time that 4thMVMT, a Black-owned company that had originally planned to finance about two dozen social equity shops in L.A., pulled out of the space entirely, leaving many hopeful social equity retailers scrambling to find other sources of funding, sources said.

Shockley ultimately parted ways with Off the Charts after an “embarrassing” video was posted online in January in which Norman Yousif, Off the Charts’ founder and CEO, appeared to be bragging about not paying vendor bills as part of his cannabis business strategy, among other reasons.

Yousif could not be reached for comment for this series, but he told Green Market Report last year that many of his cannabis colleagues had advised him against partnering with social equity licensees, in part because he knew he’d have to relinquish some control over business decisions to license recipients who may not have real business acumen.

“We do business together, but they’re not like me,” Yousif said, referring to some of his L.A. social equity partners. “I’m experienced. I’ve owned businesses all my life … People coming into this, especially social equity, they’ve never even ran a business before, and you’re going to give them a business like this to run with low money and they got to make a profit. Some of them don’t understand that immediately, and some of them will never understand it.”

Annual Report 2023