How Federal Pressure Is Affecting L.A.'s Cannabis Industry

By Shelby Hartman

It was a bittersweet day for the cannabis industry in Los Angeles. On the evening of Nov. 8, 2016, at around 9 p.m. there were yelps of delight and group hugs among a crowd of marijuana business owners in a Santa Monica bar as news spread about the passage of Proposition 64, legalizing the recreational use of cannabis among Californians over the age of 21. But shortly thereafter, anxiety about the future of the cannabis industry started to trickle in along with votes for Republican presidential nominee Donald Trump.

Ten days after President Trump was elected, he nominated Alabama senator and marijuana opponent Jeff Sessions to run the Department of Justice, causing pervasive trepidation among cannabis stakeholders in L.A. about how to proceed.

“When it comes to feeling protected in the cannabis industry, we don’t — not many people do,” said Kristen Yoder, a partner at LIV Consulting, a management consulting company for cannabis businesses.

Yoder, who has been in the L.A. cannabis industry for more than a decade, says she now is recommending to clients that they apply for a medical, rather than recreational, marijuana business license through the state of California. Jonathan Caulkins, Carnegie Mellon University public policy professor, calls this decision a “no-brainer.” He says Sessions and Trump have “clearly indicated that they see a distinction” between the medical and recreational use of cannabis, with the former warranting protections that the latter does not.

Caulkins warns, though, that Angelenos shouldn't assume that businesses providing marijuana to anyone who feigns a medical condition will be respected by the federal government. Anyone who knows anything about cannabis, he says, knows California’s medical cannabis industry is a “Trojan horse for quasi-legalization.” Trump and Sessions could easily ask Congress to close this loophole.

These sorts of uncertainties have caused some hesitation among investors who were banking on a recreational cannabis boom in California but, for the most part, it seems as though there’s still a growing interest in the state’s marijuana industry. “You have seen some pull-back,” says Richard Medina, chief operational officer at Latinos for Cannabis. “But you still have a lot of Wall Street–type money looking at this space.” Medina, who works with minority-owned cannabis businesses in Los Angeles, has recruited a dozen cannabis investors since Trump was elected.

Local cannabis business owners express concern about Sessions but also seem to be moving forward.

“I’m looking, I’m waiting, but I’m just running business as usual,” says Mikal Pradia, founder of Los Angeles–based edibles company Boomshaka Cupcakes. Pradia aims to be the “Sprinkles of the cannabis world,” and he thinks California’s cannabis industry has made too much progress for the federal government to significantly interfere.

Mike, who declined to give his last name, created the cultivation company Pearl Pharma in Van Nuys two years ago. He says a lot of his colleagues are “feeling queasy” about Sessions, but that uncertainty hasn’t changed his behavior. His company is in talks with a few investors, all of whom are still interested in proceeding.

Some marijuana lobbyists in Washington, D.C., speculate that this is the right business move.

On April 28, a spending bill that includes an amendment preventing the Justice Department from interfering with states’ medical marijuana programs will be up for renewal. Robert Capecchi, director of federal policies at the Marijuana Policy Project, says he expects this amendment, or a similar one, to pass. If people are exploring investment opportunities in the cannabis industry, he says, “There’s nothing at this point to stop them.”

Ultimately, federal interference will be largely dependent upon what resources Sessions decides he wants to invest in regulating cannabis. The Department of Justice has yet to make its priorities clear.

Caulkins says that with current federal law Sessions could “shut down the recreational cannabis market overnight,” but he could also just decide to do nothing in order to focus on issues such as immigration.

Cannabis industry experts agree that regardless of what happens, it’s essential that cities and states flesh out their regulations if they want to help protect local businesses from the federal government.

The recent passage of Measure M, which allows L.A. City Council to license and regulate marijuana businesses, was an important step. But the city still has to work out a number of specifics, including how many of the hundreds of dispensaries currently operating in Los Angeles should be legalized.

“It doesn’t seem like uncertainty about Sessions is changing how the city of Los Angeles moves forward,” says LIV Consulting founder Simone Cimiluca-Radzins. “They don’t have a lot of time, and it seems like they’re being very proactive.”