Business

California Weed Biz Reels After Looting

avatar Dan Mitchell / Jun 5, 2020

Last Saturday night, riots and looting in Oakland — like cities across America — trashed numerous businesses. The neighborhood around the Magnolia Wellness dispensary, though, was mostly quiet. Magnolia is located in an industrial neighborhood just off the Nimitz Freeway, full of warehouses and truck barns, between a massive railyard and the Port of Oakland.

The silence broke around 2 a.m Sunday morning. About two dozen people showed up at Magnolia, broke in, smashed pretty much everything in sight, shot the place up, and made off with loads of weed and electronic equipment. A lone guard on duty understandably fled the scene. “20 guys with guns,” CEO Debby Goldsberry emailed me the next day.

“They got everything,” she said. Like other industry businesses, Magnolia has stressed that the crime wave owes to opportunistic criminals, not protestors standing up to police. 

The next night, more people — or maybe the same people — showed up. They shot out the security windows and broke in again. But there wasn’t anything left to steal. Presumably, they moved on to their next target. Dozens of dispensaries and other cannabis businesses were the scenes of similar crimes across the Bay Area, in other areas of California, and, to some degree, around the country.

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Another blow to a reeling industry

The rampage, or rampages, came just as the California cannabis industry was finding its footing after a difficult year. It was adjusting to the realities of doing business amid a pandemic. Sales had generally held up, since people are stuck at home and want their weed. 

Many dispensaries had gone through the expense to revamp their practices to do more deliveries and accommodate curbside pickup. Attempts by some local governments to restrict cannabis sales in various ways, despite weed having been deemed an essential business in most places, had mostly been pushed back.

Now  many companies lost a lot of inventory and equipment, putting some of them in existential danger. But even companies left unscathed might start having problems, depending on whether the crime wave disrupted the supply chain.

So far, it it’s not clear how badly suppliers, particularly cultivators — were hurt. “I’ve heard that cultivators were hit hard,” said Pedro Fonseca, general manager of the San Jose outlet of Harborside, which has three dispensaries in the Bay Area — including its Oakland flagship — and one in Desert Palm Springs. Robbers his all three of the Bay Area shops.

“They mostly focused on flower and concentrate,” Fonseca said. “They didn’t seem interested in vapes and edibles.” He didn’t yet know how much inventory the shops lost, or the extent of the damage. “Luckily, we had a lot of our inventory in the vaults.” The Oakland and San Jose shops are back in business already, but the MED-only San Leandro shop will stay closed for the time being.

Weathering the storm

Although Harborside’s business has struggled along with that of many other dispensaries in California, Fonseca thinks it will weather this storm. He’s more worried about some of his competitors. “Smaller dispensaries are at the most risk,” he said. “First they were dealing with Covid, now this. I think we’ll see some dispensaries not come back from this.”

Goldsberry fears her store, Magnolia, might be one of them. “We’re a mom-and-pop shop,” she said. “We have no nest-egg, no Canadian backers or big corporate money.”

But, she said, she’s been heartened by what she and many in the Bay Area cannabis industry call “the community.” Distributors and suppliers “have made very generous and kind offers” to help her replenish her stock. Customers are telling her that, when she re-opens, they’re ready to buy, with the intent of helping her stay in business.

Dona Ruth Frank, owner of Oakland Organics, another small shop, is also open for business after its shop floor was smashed up and “a lot” of  inventory taken. “We stayed open during Covid,” she said on Monday, less than two days after he shop was hit. “We still have clients coming in, so we’re going to help them.”

The insurance question

For businesses, a big uncertainty is whether they’ll be covered by insurance. Cannabis companies can generally get coverage, but whether claims get paid is often an iffy proposition. “Are we covered? That’s a great question,” Goldsberry said. “We have insurance, so I guess we’ll see.”

Many policies drawn on cannabis companies contain restrictive riders. Often, they won’t cover any losses of cannabis itself, and sometimes, they won’t even cover loss and damage that occurs in a room that contains cannabis.

As with the difficulty of getting banking services, it owes to the fact that pot is federally illegal. Banks and insurers don’t want to be held liable for taking part in an illegal enterprise. And “plant-touching” ones, like dispensaries are the most risky.

“Insurance isn’t going to cover us,” said Keven Ahaesy, founder and CEO of ECO Cannabis in Oakland. “The stipulations are so difficult with insurance. They always seem to find a loophole” for why they won’t pay.

Fonseca said Harborside will likely be OK on the insurance front, but it’s still a worry. “If there’s a rider that says that anything on the [sales] floor is not covered, then it at least becomes a long, drawn-out conversation,” he said.

All of the dispensary owners WeedWeek spoke with declined to name their insurers.

The silver lining

Ironically, the crime spree could end up helping the industry in the long run. The robberies sharpen the public safety argument that proponents of banking reform have long pushed. The SAFE Banking Act, which would shield banks from liability for working with state-legal cannabis companies, could gain supporters. It has passed the House of Representatives twice, but got held up in the Senate.

The disconnect between the federal law and state laws causes problems throughout the industry: in banking, insurance, law and funding for cannabis research. “This might turn out to be like the Napa fires,” said Fonseca, referring to the wildfires in Northern California’s Wine Country that wreaked havoc on the cannabis industry in 2017.

“It brings to the forefront the fact that we’re victims just like everybody else,” he said. “Looting is looting. Being robbed is being robbed. It doesn’t matter what industry you’re in.”

The question now is whether that message will resonate with lawmakers.

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Dan Mitchell
Business columnist