Audit says L.A. took ‘reasonable’ steps to prevent unfairness in cannabis licensing

A newly released audit found that although some cannabis entrepreneurs got into Los Angeles’ application system ahead of time, the city took “reasonable and appropriate” steps to prevent them from having any unfair advantage.

An L.A. official is recommending, in light of those findings, that the Department of Cannabis Regulation press forward with processing and awarding licenses for new retailers, which had been suspended last year amid concerns about fairness.

Auditors found that the department “conducted the process in good faith and found no evidence of bias or unfairness,” City Administrative Officer Richard Llewellyn wrote in a summary of the report, concluding that the department should be directed to “commence the necessary work” to continue the licensing process.

The Department of Cannabis Regulation said it was preparing recommendations on how to process such applications, aiming to make “reasonable and practical reforms” to its procedures and “establish a more equitable path forward.”

Although the audit found the process was “fair and reasonable, it still remains true that the process itself, and the overall and underlying policy, can be improved,” department head Cat Packer said in a statement.

The audit and its findings met with sharply mixed reactions from cannabis applicants and advocates, some of whom want the city to press forward with licensing, others who want the city to overhaul or reopen the process.

The audit, called for last year by Mayor Eric Garcetti and other officials and conducted by Sjoberg Evashenk Consulting, scrutinized the hotly contested process to snap up a limited number of new licenses for pot shops in Los Angeles.

Hundreds of cannabis entrepreneurs rushed to turn in their applications in September, but only 100 licenses were expected to be awarded through a first-come, first-served process that hinged heavily on who submitted their applications fastest. Mere seconds made the difference in whether someone had a shot at a coveted license.

When marijuana entrepreneurs discovered that some applicants had gotten into the application system before its official launch time of 10 a.m., they argued that the process had been tainted. Furious applicants packed meetings at City Hall.

The Department of Cannabis Regulation said it had “normalized” the early applications — pushing them back in line to where they would have been if they were started at 10 a.m. — to prevent them from having an unfair edge.

The audit found that was a “reasonable and appropriate” approach to fixing the problem.

It wasn’t the only way to do so: Sjoberg Evashenk found that if the department had adjusted the application order based on when applicants signed onto the online system, as opposed to when they actually started the application, nearly a dozen applicants who ended up disappointed might have had a shot at licenses.

However, “we did not find alternative methods to be more reasonable or more appropriate than the adopted approach,” the auditors said. Nor is it clear that those 11 applicants would have ultimately gotten a license, since their applications had not been vetted fully, the report noted.

The auditors did fault the Department of Cannabis Regulation for “imprecise messaging” about when people could sign onto the online system, which they needed to do before beginning their applications.

In some cases, the department told applicants that they couldn’t sign on until 10 a.m., which wasn’t accurate — and that might have put some applicants at a disadvantage because they waited while others logged on earlier, auditors found. All total, 226 applicants accessed the platform before 10 a.m., although only 14 started their applications ahead of that time.

The process for rolling out the application was “confusing and prone to human error,” the auditors found. But they nonetheless concluded that the “normalization process effectively negated any benefits for all 14 applicants that accessed the application before 10:00 AM.”

Kika Keith, an applicant in the “social equity” program that aims to assist entrepreneurs from communities hit hardest by the war on drugs, questioned how auditors could conclude the process was fair to people who waited until 10 a.m. to log on, saying it insulted their intelligence to say there was any “misperception” on their part.

“Every training, video, informational bulletin precisely indicated a 10 a.m. start time!” said Keith, founder of Life Development Group, concluding, “This is a grave injustice that requires intervention from the courts.”

The audit may have found that the process wasn’t corrupt, “but it clearly was unfair,” said Adam Spiker of the cannabis industry group Southern California Coalition. People who logged onto the system before 10 a.m. had “a clear and distinct head start and advantage over the rest who didn’t know they could log in early.”

Another group that represents cannabis applicants who are now poised to get licenses said it welcomed the results. “We’re excited about it and looking forward to moving this process forward,” said Johnny Sayegh, another social equity applicant and founder of the Cannabis Equity Retailer Association.

The bitterly contested process is only the latest round of licensing for marijuana businesses in Los Angeles.

The city has already granted approval to some existing shops and their suppliers. But it was the first shot at opening a new shop for local entrepreneurs, who had complained about the financial strain they suffered as they waited on the city process.

Another round of applications for new retailers is expected to follow. Attorney Ariel Clark, who has some clients who are poised to get licenses and others who are not, said she hoped that the city had learned from the problems.

“We’re happy that this will allow the licensing process to move forward — or at least the discussion to proceed,” Clark said. “I think it will help hone in on certain issues. Maybe next time we should do a lottery.”