//Where There’s Smoke

Where There’s Smoke

By Dave Fountinelle | dave@fresnoflyer.com

On August 31st, Fresno’s Office of Cannabis Oversight announced its tentative list of recipients for cannabis business permits in the city. Twenty-one applicants were selected, three for each of the city’s seven districts. Out of those applications, only four were chosen per California’s Cannabis Social Equity Program. 

The Social Equity program is part of Prop. 64, the Adult Use of Marijuana Act (AUMA), passed in 2016. The Social Equity program intends to provide an opportunity for ownership and investment in the cannabis industry to benefit individuals and communities that have been disproportionately impacted by the war on drugs. Fresno had allotted a minimum of three and a maximum of six social equity permits of the 21 total spots available. In the end, only four businesses were chosen: Fresno Canna Co, Viola, Traditional Fresno, and Roeding Leaf. But before the ink dried on the announcement, accusations of conflicts of interest, “pay-to-play” schemes, and shady deals with big cannabis companies started to fly. As a result, the City has already begun gearing up for what is shaping up to be a lengthy appeals process.

Social equity applicant, The People’s Dispensary, Fresno, was denied a retail business permit. Owners Cesar Casamayor and Gidai Maaza are long-standing supporters of legal cannabis and social equity advocates. They claim that a lack of transparency throughout the application and review process has left them with more questions than answers.

“At this point, we have a number of questions,” Casamayor asserts, “How can there be equity without representation? How is it that two of the city’s most impoverished districts were denied a social equity permit? Why only four social equity permits for a city with so many disadvantaged areas? And, why were half of those chosen backed by big business?”

From the start, one of the strongest complaints from both standard and social equity applicants has been the lack of transparency from the City. Among the criticisms is the absence of clearly defined guidelines and seemingly arbitrary and inconsistent enforcement. Some applicants were disqualified for failing to meet specific criteria. At the same time, other applicants with the same issues were approved—for example, the City mandated an 800ft minimum distance between dispensaries. Two approved locations, Haven and Authentic Fresno/Urban Leaf, are more than 1000ft apart. But a 3rd approved location, Blackstone OPCO, would lie only 500ft between them both. Yet, the City denied other applicants for failing to meet the 800ft minimum. Still, all three of these businesses have been approved.

However, the lack of transparency and clearly defined standards for social equity applicants are about more than just property lines. With two of the four social equity applicants in Fresno backed by out-of-state holding companies or large LLCs, many of the smaller, independent social equity applicants feel that they have been pushed out of a program intended to give them a seat at the table.

“An equitable process, or lack thereof, will have a lasting effect on these communities in Fresno,” Casamayor observes, “What is the message that we are sending to the youth and those with entrepreneurial dreams?” 

The People’s Dispensary co-owner Gidai Maaza adds, “If there had been adequate transparency and consistency in the approval process, questions like these could have been addressed as soon as they came up. Instead, most of us are just left wondering why it seems that there are a different set of rules for each applicant.”

Casamayor questions the lack of social equity approvals for Districts 4 and 7, two of the lowest-income districts in the city. 

Casamayor continues, “It has always been our understanding that the purpose of the social equity program is to address [those] who have been disproportionately harmed by the criminal policies of the war on drugs … Anyone who knows Fresno knows that Districts 4 and 7 are among the most negatively-impacted areas of the city. Again, it begs the question, how were these determinations made? Why were these communities denied a voice in the discussion? Why was the public kept out of the approval process?”

Further adding fuel to the fire is the awarding of a social equity dispensary to District 2. Despite it containing Pinedale, which qualifies as a low-income community, over 85% of the district is among the most affluent communities in Fresno. Northwest Fresno is one of the city’s fastest-growing areas, with over 20% of its growth occurring since the passage of Prop. 215, which legalized cannabis for medicinal use and began the statewide decriminalization process. In contrast, Districts 4 and 7 are over 60% low-income and are two of the slowest-growing areas of the city. Based on the numbers, it’s difficult to defend awarding District 2 with a social equity location while denying them for Districts 4 and 7. Without a clearly defined public approval process from the City, critics are left to speculate why northwest Fresno received a social equity dispensary but central and southeast Fresno did not. The Fresno Flyer reached out to Councilman Karbassi’s office for a comment but did not receive a response.

Still, the involvement of big business backers in two of the four social equity recipients is the most troubling issue for Casamayor, Maaza, and other social equity applicants. Viola is backed by VCA Ops, Inc., based out of Chicago, IL. Traditional Fresno is backed by EEL Holdings LLC, a Los Angeles-based company owned by Elliot Lewis, who applied for and was denied a standard-use permit in District 3 operating as Catalyst. “Standard use” permits refer to traditional, commercial retail businesses. And “double-dipping” by applying for multiple retail permits is supposed to be against the rules for social equity applicants. Some applicants view Lewis’ backing of Traditional Fresno as using the social equity program as a loophole to get another shot at owning a retail business location.

The abuse of the Social Equity program by standard retail business applicants “double-dipping” has been an issue for nearly every county in the state that has participated in the program. In Los Angeles, the problem was so widespread that the City adopted the strictest social equity mandates in the state to address it. In addition to restricting retail and delivery businesses solely to social equity applicants until 2025, Los Angeles also revised the eligibility criteria to require all applicants to meet at least two of the three qualifying factors. Those factors are low income, a record of cannabis arrest or conviction, and residency within a recognized, impacted area. They also expanded the definition of “equity share” in the businesses co-owned by licensees. It includes adequate profit share, voting rights, and operational control in qualifying licensees as majority owners. In addition, this revision prohibits divestment of any part of the social equity owner’s requisite equity share. It ensures that the stated social equity owner retains unconditional ownership. As a result, many Los Angeles-based cannabis investment businesses have shifted their interests to smaller cities that have not yet adopted those same equity protections, including Fresno.

Simply being backed by a larger business isn’t by itself a cause for alarm – the social equity application process has proven to be quite costly. There are many fees and expenses associated with the permit process. As such, many of the social equity applicants seek out financial backing from various sources. However, the problem arises when a big business backs an applicant with an agreement to acquire their equity shares after receiving approval from the City. In doing so, the big business uses the social equity applicant as a proxy to get approval. After approval, the company buys them out and takes over the business – having used the social equity program as a loophole to gain a permit they may have been denied as a standard applicant.

EEL Holdings LLC, the Los Angeles-based backer for Traditional Fresno’s successful social equity application, was rejected for a standard permit for its d.b.a. Catalyst in District 1. Fresno has not adopted the same strict requirements for equity protection and ownership control as Los Angeles. This lack of oversight is a significant cause for concern among other social equity applicants, including Casamayor and Maaza.

“We know how rigorous, stressful, and costly the application process is,” Casamayor explains, “That being said, the social equity program is about creating both opportunity and investment in these impacted communities. What should matter most to the people of Fresno is – are these businesses going to invest those profits back into the areas they’re meant to serve? Because the ones that do are the ones they should be supporting.”

With all of the questions and controversy surrounding the approval process so far, it appears the legal challenges are only just beginning. So far, five of the awarded business permits have been appealed by council members. Mike Karbassi has appealed the Cookies-owned Blackstone OPCO location in District 2. Esmeralda Soria has appealed both the standard business applications in District 1, 1261 Wishon OPCO, owned by Lemonade, and The Artist Tree, set to occupy the former location of Audie’s Olympic on Van Ness Ave. Miguel Arias has also appealed both the standard business locations in District 3, Haven, and Public Cannabis.

On the surface, these appeals don’t seem particularly concerning. However, a closer look reveals some potentially troublesome relationships between the council members and some rejected applicants in their districts. For example, Soria’s fiancee, Terance Frazier, owns a 40% share of the Catalyst location rejected for an application in Arias’ District 3. Frazier’s business partner, Elliot Lewis of EEL Holdings LLC, was denied his Catalyst location in Soria’s District 1. 

Additionally, Arias is among several council members named in a Fresno County District Attorney’s investigation into Brown Act violations regarding a $4.3 million settlement with Frazier. Finally, cannabis investor Cliff Tutelian has filed a lawsuit against Arias. He accuses the councilman of attempting to coerce the developer into a “pay for play” scheme, demanding bribes, kickbacks, and special favors in exchange for permit approvals. Tutelian is a 20% owner in The Artist Tree location granted a permit in Karbassi’s District 2. 

Arias’ and Soria’s office did not return the Fresno Flyer’s calls to their offices for comment.

As Fresno moves forward into the appeal process, Fresno can be sure that retail dispensaries are coming to the city. One major takeaway from this whole fiasco is that consumers can choose where to spend their money. The choice will undoubtedly determine what kind of an impact these businesses have on their communities. With each district receiving three dispensaries, prospective cannabis buyers have the power to choose to do business with the ones whose values and priorities align with theirs. By spending with locally owned and invested dispensaries, consumers are assured that their money will continue to be reinvested in the community. It will provide not just jobs but real growth, equity, and opportunity for all of Fresno.

The City set a public hearing date for the five pending cannabis permit appeals for October 27th. The public may attend and express their opinions about the appeals during the hearing.

For more details, including how and where to attend, as well as all public information about the other approved cannabis businesses, visit the Fresno City Office of Cannabis Oversight’s website.