Hollyweed: Legal Pot Gains Foothold in Rich California Market

  • City of Lynwood is first to negotiate with prospective sellers
  • ‘There’s going to be a domino effect with other local cities’

QuickTake: Marijuana's Road to U.S. Legalization

Hollywood is on its way to becoming Hollyweed: The city of Lynwood is the first in Los Angeles County to start negotiating with licensees who would grow, manufacture and deliver pot.

As the most populous county in the most populous state, Los Angeles is a major play as the cannabis industry gains a wider ability to sell the drug for recreational use. Voters in California -- along with those in Nevada, Maine and Massachusetts -- legalized it in November. The $6 billion U.S. industry is expected to reach $50 billion by 2026, according to investment bank Cowen & Co.

Lynwood is kick-starting the momentum. Its city council this week granted preliminary approval to 13 applicants for commercial cannabis cultivation and manufacturing, according to a statement from the mayor. The groups each must negotiate individually with Lynwood on terms and conditions for their operations, and must demonstrate clean backgrounds and financial security.

“They are the first ones to be able to do this,” said Priscilla Vilchis, 30, who is seeking at least two licenses. “There are a lot of people watching. If this goes well, there’s going to be a domino effect with other local cities.”

The prize is large. Vilchis estimated Los Angeles County dispensaries will collectively make about $1.4 billion in their first year. Cali Premium Produce Inc., her company, expects to make about $25 million.

The industry could help city and state coffers, too. State and local cannabis tax revenue could exceed $1 billion a year by the mid-2020s, according to the nonpartisan Legislative Analyst’s Office. 

New cannabis industry regulations will boost in Lynwood’s general fund, create jobs and fill vacant properties, Mayor Maria Santillan-Beas said in a statement. 

“This is a win for retailers, consumers, and more notably our community,” she said.

Seedy Business

Some say the benefits don’t outweigh the risk. 

“It’s unconscionable that governments would choose to add tax revenues on the backs of addicting our kids,” said Scott Chipman, founder of Citizens Against the Legalization of Marijuana. “We’ve never measured the full cost of the harm from the drug.”

Still, most Americans believe marijuana should be legal, according to a Quinnipiac University poll released in February. Fifty-one percent said the plant should be legal generally, and 93 percent said it should be permitted for medical use.

Vilchis, the only women among the Lynwood applicants, has made a name for herself in the cannabis industry. Her company won two licenses in Nevada in 2014. She then turned her attention to California, her home state. 

Lynwood city staff reviewed more than 40 applications: 15 for cultivation, 17 for manufacturing, seven for distribution and transportation, and two for product testing, according to a council meeting agenda. Applicants were required to submit details on a proposed location and architectural and operations plans. The hopefuls also had to include security plans, according to the mayor.

Hemp Bureaucracy

Permits to sell pot don’t come cheap. Each of Vilchis’s Lynwood applications cost between $150,000 and $200,000 to prepare. The submissions included proof that she has space, architectural plans, air-quality precautions, and policy and procedures governing manufacturing and cultivation. The 11,000-square-foot facility already rented by Cali Premium Produce will take $2.75 million to build out. Vilchis’s group submitted documents proving $12 million in liquidity to complete the task, she said.

Like many in the burgeoning industry, Vilchis didn’t start in cannabis. She became an entrepreneur in her early 20s as a consultant for medical practices. She helped doctors navigate regulations and negotiate with insurance companies to treat patients suffering from occupational injuries. Through her work in health care, Vilchis saw the growing opioid epidemic, she said, which spurred her to learn about medical marijuana.

Vilchis ran into hurdles that confront many in an industry that the federal government still outlaws. She was on vacation in Italy when her lawyer called to say they couldn’t secure financing for Nevada warehouse space because banks wouldn’t lend to a cannabis company. Vilchis used her own $1.89 million to acquire a 12,500-square-foot building.

“The process was very excruciating,” she said.

Her group won two licenses in Nevada, but even with permits in hand, the industry remains precarious. Though President Barack Obama took a mostly hands-off approach to cannabis, the Trump administration has a less friendly stance. Attorney General Jeff Sessions has long been an enemy of the drug.

Still, Vilchis says she wants to do her part to make the drug available and, eventually, put it in the hands of the doctors she worked with in her previous career.

“My goal is one day to get marijuana reimbursable in place of an opioid,” she said. “I hope to be the front and center of that.”

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