Rigged game: inequality on the rise in legal pot industry How people of color are blocked from Washington’s legal pot marketplace

September 26, 2016





One of the major campaign promises of cannabis legalization was to begin undoing some of the damage of the War on Drugs in minority communities. But while the new recreational market has reduced cannabis-related arrests, it hasn’t created wealth in those communities. White people are getting rich off the "Green Rush," while minorities are often shut out.

Bill Piper, Senior Director of National Affairs at the Drug Policy Alliance, believes the legal cannabis industry is hurtling toward racial stratification, noting that only about 1 percent of dispensaries nationwide are owned by people of color.



“One of the things I worry about is that there’s essentially two markets,” Piper wrote in a recent article. “One market is the legal market which is really, really, really hard to get into, and then there’s the illicit market which has existed for hundreds if not thousands of years, which is going to linger on for awhile.

“I’m very worried that we’re going to end up in a situation where there’s one market for white people and another market for people of color.”

This sums up much of the animosity toward the market in Seattle, which has manifested in the form of repeated protests at Uncle Ike’s, a popular white-owned pot shop in the Central District, a historically African-American neighborhood. And, more specifically, on a corner where plenty of African-Americans have been arrested for drug crimes.

But Ian Eisenberg, the shop’s owner and everyone’s favorite bogeyman of Seattle cannabis gentrification, is not exactly a racist troll. He’s your typical genial, personable businessman, albeit one who occasionally jokes about hitting the vape pen after a long day at the office. He employs — and gets along swimmingly with — numerous minorities.

However, as a white man with preexisting wealth, he is also uniquely situated to benefit from the tightly restrictive structure of Washington’s cannabis market. Eisenberg has not been shy about his aggressive pursuit of success in the cannabis industry and use of money and regulatory savvy to achieve it. He didn’t earn the “Brash King of Pot” title for nothing.



Further, he is open about the fact that he was not one of the original winners of the state’s licensing lottery, instead buying a controlling interest in another business that did win. Eisenberg has gone to great lengths to compete with rivals, even once opening an arcade in hopes of invalidating a competitor’s license. Though many call his business practices into question on ethical grounds, he operates within the letter of the law.

And that, perhaps, best illustrates where the problem lies.

--

Until recently, the fact that minorities are underrepresented in Washington canna-business ownership was discussed more in terms of impressions, a lack of diversity at the industry mixers and conventions where pot poobahs congregate. As such, it was easily dismissed by policymakers and pot shop owners alike.

Now, thanks to a cleverly targeted public records request by Bob Young at the Seattle Times, there is data to confirm everyone’s worst suspicions: at the ownership level, the level where real money is being made, the Washington weed industry is overwhelmingly white.

Young, knowing that the state does not ask I-502 applicants for information on their ethnic background, instead asked for copies of applicants’ criminal background checks, upon which they are required to list their race.

“A review of retail licenses shows blacks account for just 2.7 percent of the 782 people with a stake in retail shops, although they amount to 3.6 percent of the 2015 state adult population,” he wrote. “In all, 21 blacks have a stake in the retail sector. Latinos fared worse, with 3.6 percent of the ownership interests and 9.5 percent of the population.”

Young’s article cites our state’s felony exclusion (no felonies in the past 10 years), high financial barriers to entry, and poor access to capital in minority communities as the root causes of the disparity.



Recently, Gov. Jay Inslee made a move that’s been interpreted as an attempt to combat this racial equity problem. Specifically, he appointed Ollie Garrett, who has been a long-time business development advocate in the African-American community, as a commissioner on the Washington State Liquor Control Board, which regulates the marijuana industry. The appointment was announced not long after Young’s front-page Seattle Times article was published.

Garrett’s background is almost too perfect of a fit for the issue to be a coincidence. She’s the five-term president of Tabor 100, an organization she described in a recent newsletter as a “unifying force providing much needed hope to those now disenfranchised and feeling the system is rigged to keep them from the success and prosperity others seem to enjoy.”

Reached for an interview, she made it clear that racial disparity in the cannabis industry was a major issue, and one she’d been hearing about for some time. She mentioned having several conversations with minority businesspeople who were having trouble getting licensed in the industry.

“My focus and priority going into my fifth term as president of Tabor 100 has always been to support women and minority-owned businesses where there’s disparity or institutional racism,” Garrett said, “and to dive into it to see where I can make a difference. That would be my goal even in this role: to dive into what’s going on, understand what I don’t know that I don’t know, pointing out where I see opportunities. And to come in and try to make a difference.”



--



While felony disqualifications, costs of entry, and access to capital are huge factors affecting minority canna-business ownership, Piper of the Drug Policy Alliance notes that limits on the total number of licensees are another major impediment to racial equity in the industry.



“If you only have 10 licenses,” he said, “the people with the best lobbyists and the most money are going to get those.”



That’s a fairly accurate description of how things have gone in Washington. To be fair, our initial licensing process was fairly egalitarian in theory. To get a retail cannabis license, applicants needed only put their names in the hat, which cost a mere $250. The state conducted a lottery, and any applicant who could pass a background check and prove that they’d secured a properly sited location could win.



In practice, however, the licenses still ended up with those who already had money.



Statistically speaking, that means white people. A recent Economic Policy Institute report found that the racial wage gap is at its worst point in four decades, and the racial wealth gap in King County is pronounced. According to a 2015 United Way report, the average local black family had $18,100 in net assets in 2013, while the average white family had $142,000. Considering that it costs $200,000 for a retail cannabis business in Washington just to get the doors open, according to the 2015 MJ Biz Daily market report, it’s no surprise that minorities are edged out.



“Retail has become whiter now because there’s limited space,” said Lorenzo Hughes, who is African-American and co-owns Panacea Cannabis, making him one of the state’s few minority entrepreneurs in the industry. “In the beginning, it was the lottery, if you won you won.”



But because the licenses were so coveted, wealthy investors were willing to buy them for hundreds of thousands of dollars.



“If you won the lottery, you literally won the lottery,” said his business partner Dave (who would only give his first name), “because you could sell that license for $300 or 400,000. And you could keep a percentage.”



For lottery winners, especially those with limited capital to start their own stores, this was often an offer they couldn’t refuse. Indeed, Eisenberg was not a lottery winner, instead obtaining his license by purchasing a controlling interest in a business that did.



--

The worst blow to minority ownership of canna-business, however, came with the passage of The Cannabis Patient Protection Act (SB 5052), the bill that merged the unregulated medical cannabis market with the existing recreational one. The law mandated the closure of the state’s unregulated medical marijuana shops, and called for a new batch of recreational licenses to replace them, setting up a priority system to ensure that the “good actors” of the medical marijuana industry got first crack at licenses.



Theoretically, this should have been a boon for minority ownership of canna-businesses, as the medical marijuana market was an extremely low barrier one, making it naturally more diverse. Moving more medical marijuana businesses into the legal market would have been, in many ways, an instant fix for some of the market’s inequity.



However, the bill was written and promoted by the existing legal industry, and it wasn’t exactly a welcoming hug for medical marijuana businesses.



For one, the priority licensing process was arcane, and the requirements to qualify were steep. It included several retroactive requirements that applicants have paid their taxes and obtained all relevant business licenses, as well as having been an original I-502 applicant. Given that the backers of recreational marijuana legalization specifically promised it wouldn’t affect the medical market, this basically ensured anyone who hadn’t psychically predicted the new law was out of luck.

Shortly after SB 5052 was passed, the City of Seattle passed its own ordinance, requiring dispensaries either to be qualified for the new round of licensing or to shut down immediately. The city conducted a string of raids and stings against dispensaries suspected of selling to patients without authorizations or not checking IDs, and sent cease and desist letters to dispensaries whose record-keeping wasn’t up to snuff.

This process, according to Peter Bellisole, who operated a dispensary in South Seattle, excluded a number of black entrepreneurs in the industry.



“They should go back to everybody that they closed down and say, ‘Hey look, we’ll let you in,’” he said. “Give them some sort of leniency. Say, ‘We went about this the wrong way. We want you guys to be a part of this….These are your requirements these requirements start now. They don’t start when you don’t know it.’”



According to Bellisole, who gave the second round of licensing a shot, many minority dispensary owners in his area didn’t even bother.



“It’s just too many requirements,” he said. “Like, ‘If this requirement isn’t good enough, then we have another one for you. If that requirement isn’t good enough, we have another one.’ It’s always a surprise dealing with them [state and local regulators]. It’s cloak and dagger shit.”



Marvin Scott, who owned a streetwear boutique in Tacoma and was well-acquainted with that city’s black-owned medical marijuana community, said not many people in his circle tried either.



“They didn’t have enough dough,” he surmised.

Those that did try didn’t fare well. Bellisole, after several rounds of back and forth with the WSLCB, finally got elevated to priority status, only to be told by the state Department of Revenue (DOR) that he owed back taxes he was unaware of, and his application would be on hold until he paid. He didn’t have enough money to pay, but even if he did, the priority status turned out to be useless anyway.

Each municipality and county was allotted a specific number of new licenses, with Seattle getting 22 new stores. Given that more qualified applicants existed than open slots, the process became a game of musical chairs.



Reginald White, who is African-American and ran a dispensary in West Seattle, managed to at least be a player in that game. He’d always had his ducks in a row, but he was wary of the regulatory thicket ahead, so he hired a licensing consultant for a 4 percent equity stake.



“I really couldn’t afford it,” he said, “but I felt that I had no choice because this is my livelihood. I didn’t want to just get out.”

He certainly didn’t. Renovating his store to be compliant cost him about $10,000, and when his landlord found out what he was up to, the rent went up by $700. But with the lease secured and the 24-hour surveillance system in place, he thought he was in. Not so.

The state hadn’t yet announced the cap on new licenses, and most medical marijuana applicants had actually been told that, if they qualified for the first priority round, they were almost certainly in, and could take their time. Thus, some of the frustratingly slow interactions with state licensing investigators that White outlined didn’t seem like such a big deal.



Those annoying delays, however, proved to be fatal. White received a letter informing him that the state was no longer processing applicants for Seattle, and that he could either close his application or move it to a different area. He’s currently assigned to unincorporated King County, where the council had instituted an emergency moratorium on new cannabis business until very recently. Now, he’s jumping through hoop after hoop trying to find a suitable location.



What he’s not doing is making money. Jilted applicant John Davis, who is currently suing the state over its priority system, contends that more well-connected applicants were able to complete their investigations quicker.

Despite the second round of licensing being purportedly specific to medical cannabis businesses, existing legal stores found a way to game the system. In another instance of money equaling access, applicants with no previous interest in medical marijuana were able to purchase the participation of former low-level employees from qualifying medical marijuana businesses, offering them a chunk of money — $100,000 give or take — to sign their name on the application and then disappear.

Those “franken-applicants,” as they were called, often included teams who had been through the licensing process before, and had preexisting relationships with their investigators, according to Davis. He even claims that a friend, visiting the WSLCB’s offices, overheard investigators openly discussing their preference for people they’d worked with before.

The end result? White’s stuck in purgatory and Eisenberg just opened two new stores, one of them in White Center, where White was located.



“I saw Uncle Ike’s on the list [of priority applicants],” Davis said, vexed. “Are you telling me that Uncle Ike’s was a dispensary prior to 2013? It’s patently ridiculous.”

After receiving the notice to vacate, White, a long-time Seattle resident who didn’t see himself fitting in so well in Yelm, joked that he was ready to make his peace with the industry.

“I guess I might buy me a little 2010 Toyota and start driving Uber,” he said. “I don’t have a lotta options. I’ve still got to make a living for my family.”



--

Despite not having a location for a store, White technically has a license for one, and hasn’t completely given up the fight. Plenty more never bothered to do battle. Bellisole said he’d gotten a call from a friend in Skyway shortly after the closure of three medical marijuana shops there, telling him the marijuana trade was moving back to the street corners.



“When I start riding around, I’m seeing that it’s back to where — instead of the dispensaries having the weed — it’s back to where the less desirables were having it, they’re dealing it,” he said. “They’re going on with macho-ism, gangster-ism, whatever ‘isms’ they can throw onto what they’re doing.”



Scott said he was seeing a return to the black market in Tacoma too. He estimated that at least ten people he knew from the medical marijuana community had gone back underground. He was sad to see it happen, he said, as getting into the medical marijuana industry had been a positive thing for his friends.

“Most of the cats that I knew that ended up going into the medical stuff was guys that was already into selling drugs, but then they found somebody that was doing it the right way through the medical stuff, so they could grow it legitimately,” he said.

One of his friends, a dealer who had previously been jailed for pot, told him one day that working in medical marijuana was the best thing that had ever happened to him, because he didn’t have to live in fear anymore. Beyond fear, Bellisole noted, it was also about pride.



“The black people that owned medical marijuana dispensaries in the South End, I cannot say to you that they were doing the wrong things with their money,” he said. “This city did not see a fluctuation in black people riding around in souped-up cars with 20,000 inch rims on them. They actually seen a lot of people switch their whole program and put more back in their community and ride through life more modestly than they ever had. Because they felt good about what they were doing.”



More importantly, it was undoing some of the drug war’s economic damage to minority communities in a way that marijuana legalization is failing to do.

“It was more black-owned, black-operated, and the money was staying in the black community,” said Bellisole. “Now there’s a hiccup and the hiccup is the state.… What’s gonna happen is the white people are gonna come in and establish their (retail marijuana) stores. None of that shit that they’re doing with (legalization) is working out for us.”

Scott said he was frustrated that his friends, who seemed to be doing things on the up and up, weren’t able to make the switch.

“Why couldn’t they just go in and take a look at each one of the companies that was running off of the medical and see that he had his stuff running right and offer him one of the licenses to go recreational first?” he asked. “Versus being like, ‘Forget all y’all, we shutting all y’all out. … They didn’t give these guys a chance.”

And when you don’t give people a chance, Piper said, you don’t really give them a choice.



“If you can’t get a license to legally sell marijuana, the only place left to sell marijuana is the illegal market,” he said. “We don’t want some sort of marijuana apartheid where some people can legally sell marijuana and others are criminalized. We have to make sure that legalization does not become an extension of white privilege.”



--

So what would it take to bring more minorities into the legal cannabis industry? Garrett, new to the WSLCB, had a few ideas.

Improving access to capital was her “number one” priority, followed by business development in the minority community. If there is another round of licensing, she said, she will do everything in her power to ensure that state resources are used for outreach into the minority community.

However, that new round of licensing is a big if. The state is not currently processing new or pending license applications, and has no plans to raise the retail licensing cap, according to Brian Smith, the WSLCB’s Director of Communications. Mikhail Carpenter, Smith’s colleague, noted that the WSLCB retains the authority to issue new licenses as they see fit, and they are watching the situation, saying, “The Board will continue to evaluate the market and could reopen licensing based on a verifiable need (i.e. access issues, market demand, etc.).”



Without more licenses, all the outreach in the world won’t help, Piper said.



“I would like to see, and this is somewhat of a stretch, but I think that there is a potential here for people who believe in racial justice and people who believe in free markets to work together,” he said. “The more we have crony capitalism, the worse it’s gonna be for racial justice. We need to level the playing field: more licenses, less capital requirements to get those licenses, fewer barriers in terms of who can get those licenses. I think that would go a long way.”



But, as evidenced by the statistics, there’s a long way to go. And the clock is ticking, said Piper.



“There’s a sense that if we don’t deal with this situation now, it could be too late two, five, ten years from now,” said Piper. “This is an opportunity to change it before it happens, and there’s not too many opportunities to affect how an industry progresses.”



Hughes, reflecting on Washington’s situation, put it a little more directly: “It’s almost like it’s too late.”



--

Tobias Coughlin-Bogue is a journalist in Seattle, whose work has also appeared in Seattle Weekly and The Stranger.

All photos courtesy of the author or subject of photo, except — dispensary tour guide photo courtesy Beverly Yuen Thompson.