A Los Angeles city program crafted to ensure that cannabis sales licenses go to people from communities most harmed by the war on drugs has been hailed as a kind of reckoning with historic injustice.
It was designed with a lofty goal: Ensure that people affected by the government’s crackdown on the illicit drug trade become business owners in this emerging industry.
But the city’s “social equity program” is under renewed scrutiny over whether the initiative is fulfilling its promise.
The latest controversy centers around 4thMVMT, a company founded by a well-to-do businessman who partners with Black entrepreneurs to obtain cannabis licenses. The company positioned itself as one of the program’s biggest winners by partnering with at least 13 of the applicants scheduled to receive temporary approval this week to start operating after meeting certain conditions.
An attorney who reviewed one of 4thMVMT’s partnership contracts has raised alarms over what she says are “predatory” business practices baked into the agreements. Meanwhile, competitors of 4thMVMT have seized on the contract language to attack the company.
The contract allows a subsidiary of 4thMVMT to buy out the “social equity” partners if they refuse a “lawful direction/instruction” from the company, according to a copy of the contract reviewed by The Times. The buyout price is set at $200,000, an amount experts on the state’s cannabis trade say is far less than the likely market value of a licensed pot shop in Los Angeles.
“The intent of the social equity program is to create ownership for the applicant,” said Yvette McDowell, an attorney representing a person who signed a contract with 4thMVMT. “That sounds like an employer-employee relationship.”
McDowell also faulted city officials for failing to thoroughly vet contracts to make sure social equity partners would be in control of their businesses and receive the majority of the profits.
In an interview with The Times, 4thMVMT CEO Karim Webb said he planned to amend the contract language but bristled at any suggestion that the company would take advantage of a social equity partner.
“4thMVMT is not … doing anything that’s predatory or that is not in the interest of our partners executing at the highest level,” Webb said. “We are going to address displacement with these folks and build generational wealth.”
He said the contract’s buyout language was meant to protect the millions of dollars in investments he and others have made to launch the businesses, train applicants and rent real estate. The social equity applicants haven’t contributed money, he said, and the clause was necessary in order to attract other investors.
“That provision in our contract, more so than anything else, is an incentive not to sell,” Webb said. “And to behave properly. You’ve got a million and a half dollars into a property and somebody gets a dividend check and goes to [Cabo San Lucas] and doesn’t come back, you want to at least disincentivize that kind of behavior.”
James Bryant, general counsel for 4thMVMT, described the language as “harsh” and said it was drafted by another lawyer. He said 4thMVMT wouldn’t exercise a forced sale over petty business disagreements
“The forced sale is an action of last resort,” Bryant wrote in an email to The Times.
Bryant said the contracts are being amended so that 4thMVMT would have to pay “fair market value” to buy out a partner.
It’s unclear if other applicants have similar language in their business contracts.
The city’s department of cannabis regulation recently proposed new rules for the program, including changes intended to prevent “predatory” behavior from investors who partner with social equity applicants. The changes include barring any conditions that would force a social equity applicant to transfer his or her ownership.
Bryant said 4thMVMT would make sure its contracts comply with any changes in the city’s rules.
Published: June 23, 2020
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