AURA member the Artist Tree and six of the other winners of West Hollywood’s permits for cannabis businesses will receive a tax rebate. (photo by Cameron Kiszla)

An agreement has been reached between the city of West Hollywood and proponents of two ballot measures related to the city’s cannabis business regulations.

On Aug. 3, the West Hollywood City Council approved the deal, which likely puts an end to a pair of competing ballot initiatives – the Close the Loopholes initiative and the Cannabis License Integrity Initiative – that the council had previously indicated would be put to the voters in November if city staff was unable to reach an agreement with the initiatives’ supporters.

MedMen and the other West Hollywood Originals will be able to continue selling adult-use retail cannabis after a deal was reached with the city. (photo by Cameron Kiszla)

The Close the Loopholes initiative was largely supported by the self-described “West Hollywood Originals” – four dispensaries that were operating on temporary adult-use retail licenses but were given only medicinal, not adult-use retail, licenses in the city’s selection process – and permit winners for edible-only cannabis lounges, as well as UFCW Local 770, the union that represents cannabis retail workers.

The Cannabis License Integrity Initiative was developed in response to the Close the Loopholes initiative, and it would make much more minor changes to the city’s cannabis ordinance. The Cannabis License Integrity Initiative was supported by the Adult Use Retailers Association of West Hollywood or AURA, a collection of the businesses who were awarded adult-use recreational permits in the city’s ballot process.

As part of the agreement, the Originals will be awarded modified medicinal licenses. These new license types, which still fall under the city’s medicinal retail license type, will allow Zen Healing Collective, Los Angeles Patients and Caregivers Group, MedMen WeHo and Alternative Herbal Health Services to sell recreational cannabis for adult use in addition to medicinal sales, which the Originals claimed was not enough to keep them in business once recreational cannabis sales became legal in 2018.

As a condition of receiving a legacy cannabis business license, these existing businesses face some restrictions. For instance, they cannot move to a new location or expand in size, though they will be required to make any improvements or upgrades they included in their applications to the city for adult-use retail permits.

“If they proposed enhanced design, they’re going to have to improve their design to come into compliance with that. They’re also going to have to meet all the security and business standards they put forward,” said John Leonard, the city’s community and legislative affairs manager.

The Originals will also face restricted operating hours and will be limited in their ability to sell their business for the next few years.

Additionally, edible-only consumption lounges will be allowed to have a smoking area – no more than 50% of the premises or 1,500 square feet, whichever is less – and they can allow customers to take home more unconsumed cannabis products than previously allowed. Because of some state regulations, including that cannabis lounges cannot sell non-cannabis products, some of the permit winners in West Hollywood claimed they were struggling to find a viable business model without being able to sell food and drinks to accompany their cannabis sales. So far, only one cannabis lounge, the Original Cannabis Café at 1201 N. La Brea Ave., has opened, and it relies on an adjacent but technically separate kitchen to “deliver” food to the consumption lounge portion of the business, which allows smoking, vaping and edible consumption.

The council also approved a plan to offer tax rebates for the as-yet unopened adult-use retail permit winners and their attached consumption lounges, which will be offset by an additional fee paid by the Originals. That fee will go toward a marketing effort by the city to advertise its cannabis businesses.

The rebate was the only point of contention on the deal, which drew very limited discussion from council members. Councilman John D’Amico was the only vote against the agreement, which passed 4-1.

When explaining his vote, D’Amico referenced the council’s decision last month to settle a lawsuit against the owners the AKA West Hollywood project, which some council members estimated had cost the city as much as $1 million in legal fees, and the decision to award seven adult-use retailers approximately $250,000 each in tax rebates in exchange for halting the ordinances and a lawsuit filed against the city by MedMen. One AURA member, Essence WeHo LLC, decided not to join the city’s agreement and will not receive the rebate, though the owners of Essence can change their minds in the future.

“We’ve spent now $2.75 million of taxpayer money to settle lawsuits that would have resolved themselves if we had just let the businesses take care of the business of doing business. I’m concerned that’s becoming a habit of ours,” D’Amico said.

D’Amico also referenced the pandemic-related economic struggles facing many governments.

“With a $20 million deficit looming, I can’t believe that we’re planning to give money away,” D’Amico said.

Leonard noted that city staff calculated that the tax rebates would be revenue-neutral, as the rebates would be offset by the fees paid by the Originals, and could even be revenue-positive as time goes on, as the rebates decrease or end if certain conditions are met, such as the sale of 85% or more of the cannabis business or the closure of an Original.

“The winning eight [AURA members] face increased competition, so reducing the city’s tax rate helps to offset that competition, while at the same time allowing those existing four medical dispensaries to remain in place and provide additional tax revenue to the city,” Leonard said.

Leonard also said there will be more allowance for ownership changes in the future, a complaint raised by some cannabis business owners who said they could not raise money without offering ownership stakes in their companies, though city staff was not able to hold a meeting with the city’s Business License Commission to discuss the matter. Council members requested in December that a public meeting be held with the Business License Commission, but the coronavirus pandemic made such a meeting impossible, Leonard said.

In a separate vote, the council unanimously agreed to table motions that would have placed the initiatives on the ballot, as the agreement made the initiatives unnecessary.

When reached by phone, Scott Schmidt, executive director of AURA, declined to comment and referred to his comments during the Aug. 3 meeting, in which he expressed support for the deal and thanked city staff for work in reaching a deal.

“A majority of our members are supportive of the settlement agreement and encourage [the City Council’s] support as well,” Schmidt said.

In a phone call on Aug. 5, Amanda Pagel, operations manager for the West Hollywood Original Zen Healing Collective, said she was “pleasantly surprised” that an agreement was reached.

“After all we’ve been through, I’m trying to look at it as an experience and not have any bitter feelings about it. All in all, I’m happy everything has been resolved and we can put this behind us,” Pagel said.