These unlicensed, unregulated operations are snapping up black market business by selling the drug at a lower cost – made possible because those other shops aren’t following the stringent guidelines as expected by state regulators. They ignore city safety codes and guidelines, which means they can undercut licensed dispensaries on price. Licensed regulators have responded by suing a number of these operations.

You may recall back in 2014, Santa Ana city officials approved a city initiative called Measure BB. This gave the green light to about 20 medical marijuana dispensary licenses in the city, to be chosen via a lottery system. However, despite efforts to carefully regulate the legal marijuana system, the number of licensed dispensaries in the city soon became overwhelmed by the number of unlicensed shops.

A report from the Orange County Register last March revealed that seven months after the city started licensing medical marijuana dispensaries, there were twice as many unlicensed marijuana retailers as licensed ones. One store owner noted he and his staff were “stoked” to have a legitimate operation, to be doing everything on the up-and-up. But the “rogue sellers” had begun to make that increasingly tough.

However, the unlicensed sellers have been arguing that the city’s law violates the Compassionate Use Act, which legalized medical marijuana almost two decades ago. As of that writing, police had been successful in shuttering about 90 of the nearly 110 unlicensed shops that were open. However, getting the remaining ones to close their doors had proven difficult because, for starters, police reported there was a lack of information about who actually owned those facilities. And there were also ongoing legal questions about whether the government had the right to shutter the gray retail market that had largely gone unregulated in the state since the original marijuana legalization measure passed in 1998.

Now, the licensed marijuana dispensaries are taking matters into their own hands. They note that they are required to undergo a series of costly measures to operate legally in the city, including ensure their employees have undergone background checks, provide proper on-site ventilation and pay city taxes. The regulated marijuana dispensaries are seeking an injunction that would close up unlicensed medical marijuana providers and also result in an unspecified amount of damages suffered due to business lost as a result of these operations.

Meanwhile, attorneys representing the unlicensed facilities say they plan to fight back. They allege the city’s lottery was not in fact fair. Rather than being random, they allege, individuals and dispensaries that made political donations to certain local politicians were given preference for a sanctioned slot.

At this point, there haven’t been any hearings scheduled in the litigation.

Meanwhile, one of those unlicensed facilities has filed its own marijuana lawsuit against the city and its police department for relentless, ongoing raids. One of those became national news when city police officers were seen on camera consuming snacks from the business in the midst of one of those raids. Plaintiffs in that case are seeking $650,000 in damages.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Legal vs. illegal pot shops: Lawsuit alleges one can put the other out of business, Jan. 27, 2017, By Sean Emery, Orange County Register

More Blog Entries:

Marijuana for PTSD Still Controversial in Colorado, Feb. 11, 2017, L.A. Marijuana Lawyer Blog

For example, in Colorado, there is a system in place called the Radio-Frequency Identification, which uses microchips to follow plants from the time they are grown to the dispensary and sale. It is noted whether the plant is processed into an oil or edible or whether it is distributed as medicine. Having this type of a system ensures plants are legally grown and sold according to the law.

Beginning in February, a number of software companies will begin submitting proposals to the state, vying to be chosen as the company tapped to track California marijuana.

The goal is for marijuana businesses to be run like any other above-board, legitimate operation, as opposed to a clandestine one. Companies will have to bid on the state contract, which is expected to be a lucrative one.

Although many of these are smaller technology software firms and start-ups, there is evidence that some larger companies are looking to get some skin in the game. For example, last year, Microsoft teamed up with Kind Financial, an L.A.-based firm that is planning to submit its own bid for the state tracking system. The agreement involved Microsoft helping to market Kind’s Agrisoft software to a number of state government agencies. That partnership wasn’t just significant for Kind; it also was a good indicator that a lot of larger companies are testing the waters. They are likely to want to get into the “green rush” once they know the legal climate to do so is stable.

Software and technology firms are ancillary to the marijuana industry, which means they may prove vital to the operations, but they don’t involve actually growing, processing or selling the plant. As our L.A. marijuana attorneys know, ancillary companies are generally at lesser legal risks than those that work directly with the plant. Still, it’s telling that Microsoft agreed only to go so far as marketing the smaller tech firm’s services to the government – and not directly to the marijuana dispensaries that are going to need it. Plus, that decision came prior to the announcement that Donald Trump wanted to appoint Sen. Jeff Sessions as his U.S. attorney general. It’s well-known among those in the marijuana industry that Sessions holds a strong anti-marijuana stance.

Recently, Gov. Jerry Brown revealed his plan to budget more than $50 million for the regulation of marijuana, and a good portion of that is probably going toward that tracking system. The company that is ultimately awarded that contract is also going to be in a strong position to branch out those services to other states, so this is a big deal.

The regulation of marijuana is something that is likely to take some time to get right, but with a thorough plan and adequate investment, the goal is for an uneventful roll-out.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Cannabis Software Companies Seek to Legitimize the Marijuana Industry and Cash In, Jan. 16,2017, By Alex Halperin, L.A. Weekly

More Blog Entries:

Report: Legal Marijuana Sales Could be Delayed Until 2019, Jan. 12, 2017, L.A. Marijuana Business Lawyer Blog

One example noted was in Santa Monica, where salespeople don bright red t-shirts and cheerfully greet patrons. The merchandise is lined up carefully on chic wooden tables adorned by iPads. The reporter couldn’t help but draw parallels to the successful technology firm. But the gadgets laid out for display weren’t iPods – they were vape pens, for consumption of marijuana and derivatives.

This is a stark departure from the days of burglar bars and bullet-proof glass. Some are calling it a “makeover,” but it’s part of a strategic plan by marijuana dispensaries in California to establish some legitimacy in the market. This mirrors the advancing power and presence of the industry on the national stage.

Marijuana entrepreneurs are scoping out business models and store set-ups such as those at Apple, Whole Foods and other retail spaces that make use of natural light, open floor plans and displays that are spacious.

L.A. marijuana dispensary lawyers know this has become even more of a priority now that marijuana is legal for recreational use. There remains a great deal of skepticism about what these operations are going to mean for individual neighborhoods, and there remains opposition about them. Raising the bar for pot bars could be the first step in helping to change the image.

And these updated spaces serve another purpose as well: With California on the growing list of states that now allow recreational marijuana, it’s estimated there will be a huge influx of new customers. Many of these individuals may not be all that familiar with marijuana, and the last thing dispensaries want to do is scare away new customers with a dingy space or poor shopping experience.

Another important point is that now that there has been some level of stability within the market, it makes sense for cannabis dispensaries to invest in their property and make it a destination, something that can be utilized for years go come – a luxury businesses didn’t have when federal authorities were constantly raiding facilities.

The cannabis market in California last year generated $6 billion, according to the latest market reports. By 2026, it’s expected to balloon to $50 billion. Already, it’s poised to become the biggest cash crop in the state.

A recent survey showed between 2011 and 2015, users of marijuana who were 26 and older climbed by 30 percent. Meanwhile, those between the ages of 18 and 25 increased by 4 percent.

Some of these dispensaries are hoping to capture the older market – those customers who might not necessarily be regular smoker, but who might be tempted to peek into an attractive store or attend if a friend was hosting an event.

Stores want to encourage shoppers to stop in, browse, maybe sample – and return. They want it to be a place people want to be.

If you are considering your marijuana business plan, it’s important to consult with an experienced marijuana lawyer who can help you hammer out the details.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Marijuana shops are trying to look like the Apple store, Jan. 16, 2017, By Shan Li, L.A. Times

More Blog Entries:

Media and Marijuana: DEA Blames Media for Difficulty Enforcing Pot Laws, Jan. 16, 2017, L.A. Marijuana Lawyer