Oakland’s revised pot laws add residency requirement

Ian Almerico, a clones consultant, puts a tray of clones back on a shelf at Harborside Health Center medical cannabis dispensary May 12 in Oakland. Ian Almerico, a clones consultant, puts a tray of clones back on a shelf at Harborside Health Center medical cannabis dispensary May 12 in Oakland. Photo: Leah Millis, The Chronicle Buy photo Photo: Leah Millis, The Chronicle Image 1 of / 7 Caption Close Oakland’s revised pot laws add residency requirement 1 / 7 Back to Gallery

Anyone who owns and operates a pot business in Oakland will have to live in the city, Oakland’s lawmakers have decided.

That’s bad news for established businesses like Dark Heart Nursery, run by a San Leandro resident who’s worked in the city for more than a decade and whose family has lived in Oakland for three generations.

“We’re sitting here with millions of dollars of investments, millions paid in taxes to the city and 60 local employees. And we’re going to have to shutter our doors,” said Dan Grace, who runs the East Oakland nursery.

The residency requirement was a last-minute addition during a contentious meeting Tuesday of the Oakland City Council as it overhauled legislation on how marijuana businesses will be regulated in the city. A faction of the council fought to change the rules approved in May that were meant to provide reparations to the people whose marijuana use was disproportionately policed in recent decades — a landmark effort to inject racial equity into regulation.

But the attempts were met with fierce opposition from Councilwoman Desley Brooks, the architect of the original program, and her supporters, who were able Tuesday to keep the program in place, but with some dramatic revisions. Ultimately, the council found a semblance of common ground and approved the overhaul unanimously.

“Black folks built this city and we demand ownership in the industry,” said Carroll Fife, a local organizer with a coalition pushing for the equity laws. “We’re watching the end of an empire... And the part that we need to do to make sure that happens is have that economic base. We do that as owners, not as workers.”

The action Tuesday came after nearly a year of disputes and delays over the controversial set of cannabis ordinances. Some people thought the May laws didn’t go far enough in promoting racial equity or too narrowly defined who could qualify for the program. Others said the regulations were overreaching and would all but paralyze the market before it could even get rolling.

The council heard three hours of public comment and drafted and redrafted the legislation on the fly, much of which was summarily shot down by Brooks. More than 100 people, nearly all supporters of the plan, signed up to speak at the meeting.

Although the laws passed unanimously last year, half the council quickly regretted their votes and wanted to scrap the ordinances, advocating instead a program that would grant loans and other assistance to low-income African Americans and Latinos hoping to open a cannabis business.

The ordinances are designed to bring the city in line with state laws that will regulate all aspects of the multibillion-dollar cannabis industry by 2018. Those laws stipulate that all cannabis businesses get a license from the city in which they operate.

Before Tuesday’s revisions, the laws included a provision that reserved half the city’s cannabis permits for residents who were jailed on marijuana convictions in Oakland within the past decade, or who had lived for at least two years within six police beats in East Oakland where pot arrests were concentrated in 2013. All of the police beats fell in the districts represented by Brooks or Council President Larry Reid, another supporter of the legislation.

Now the cannabis permits will be doled out in two phases. The first still reserves half of the licenses for equity applicants but will end once an assistance program — funded by expected cannabis business tax revenue — reaches $3 million. The program will provide zero-interest business loans and technical help to equity applicants. In phase two, there won’t be any restrictions on who can get a license.

The definition of an equity applicant radically changed Tuesday, too. Now there are triple the number of qualifying neighborhoods, some of which are in West Oakland and Fruitvale. Applicants are required to have lived in one or a combination of the neighborhoods for 10 of the last 20 years, and their current income must be below 80 percent of the city’s average median income. They can also qualify if they were arrested in Oakland and convicted on a pot offense in the last two decades.

The residency requirement was met with reluctance by some council members.

“We might have to revisit those later this year,” Councilman Dan Kalb said Wednesday morning. Kalb said he was “shocked” that small amendments he put forward with Council members Annie Campbell Washington and Abel Guillén were rejected. One would have allowed Oakland residents arrested on a cannabis charge in another city to meet the equity qualification.

None of the equity laws apply to eight Oakland dispensaries that already have licenses. City officials, though, estimate that roughly 130 other businesses, from edible delivery services to collectives, have been operating without a permit in Oakland and will have to vie to get one.

Grace, the owner of Dark Heart Nursey, which grows starter plants, wasn’t happy about the change, even though he applauded and agreed with the efforts to establish equity in the industry.

“It certainly wouldn’t be fair to characterize us as outsiders,” Grace said. “We’re all on the same side and the same page in terms of the disparity and the war on drugs and its impact on black and brown communities. (But) we feel the blame is being misallocated.”

Many industry insiders remained critical of the revised laws. Some worried that longtime Oakland businesses like Dark Heart, whose owners aren’t considered equity applicants, won’t be able to get their operating permits ahead of Jan. 1, the deadline by which businesses must have a local license or be in good standing with a city in order to continue operating under new state regulations.

“It’s better than what we had, which was just an absolute effort to destroy any cannabis industry in Oakland,” said Robert Raich, a veteran Oakland marijuana attorney. “Someone who might want to move to or invest in Oakland is still motivated to take their jobs and their money to another city.”

The changes that passed Tuesday were based on a report by Darlene Flynn, director of Oakland’s newly created Department of Race and Equity. It was the first project she tackled in the role.

The report showed stark differences in arrest rates between whites and African Americans, despite their cannabis use being roughly the same. In 2015, for instance, 77 percent of all cannabis arrests in Oakland were of African Americans, even though they are less than a third of the population. Whites, by comparison, made up 31 percent of the city population last year but only 4 percent of the cannabis arrests, according to Flynn’s report.

“We have great disparities between more well off and less well off operators — those that, especially in the cannabis industry, can’t get a traditional loan from a bank, can’t get traditional business advice, (compared to) those that have mom and dad offering a loan to help start your business (who) haven’t been arrested and convicted of a cannabis offense,” said Greg Minor, assistant city administrator, who worked on the report. “If we were to just open permitting today, we would just be maintaining those disparities into the future, if not exacerbating them.”

Kimberly Veklerov is a San Francisco Chronicle staff writer. Email: kveklerov@sfchronicle.com Twitter: @kveklerov

Revised Oakland medical pot program

In phase 1, half of permits go to equity applicants. Someone can be considered an equity applicant in one of two ways:

The person lived in a designated Oakland neighborhood for 10 of the last 20 years. The applicant must also have a salary at or below 80 percent of the city’s average median income.

The person was arrested in Oakland and convicted for a cannabis crime after November 5, 1996.

In phase 1, the other half of permits will be prioritized based on whether the applicants are serving as an “incubator” for one of the aforementioned types of people. Incubation means the person is providing free rent or real estate to an equity applicant, and will thus get a preference for one of the general permits.

In phase 2, there are no restrictions based on equity.

For both phases and for all types of applicants — equity, incubator or general — the person must provide proof of Oakland residency for the last three years in order to get a permit.