Oakland Cannabis Sellers, Once Full of Hope, Face a Harsh Reality

OAKLAND, Calif. — Across from where the Athletics play baseball sits a two-story concrete building painted bright orange and white. It is home to a cannabis dispensary called Blunts and Moore.

A pair of inflatable “tube guys” flap crazily on the roof, beckoning customers with their windblown gyrations. A food truck sells tacos in the parking lot under a bright California sun.

But there are signs that all is not well here. Bullet holes etched by an assault rifle dot the entrance. Three security guards, dressed in military fatigues, screen customers as they pass through a metal detector. One of the guards, a former infantryman, wears a camouflage Kevlar vest and mirrored sunglasses. A 9-millimeter pistol and 50 rounds of ammunition are strapped to his waist.

“It’s crazy to think we need all this war stuff to protect our business,” said the store’s owner, Alphonso Blunt, who is known as Tucky. “But that’s where we are today.”

In May 2020, Blunts and Moore was ransacked by thieves with automatic weapons, incurring losses of nearly $1 million, much of which insurance would not cover. The store, which has the air of a high-end boutique, was robbed again in late November, its shelves cleared and the floor speckled with blood from where the thieves had cut their hands on all the smashed glass. Struggling financially, Mr. Blunt turned to his landlord for a rescue but had to give up some managerial control of the store.

This is not what Mr. Blunt, the City of Oakland or the State of California had in mind for an ambitious effort to help grow a cannabis industry and provide financial opportunity to struggling neighborhoods with a large number of Black and Hispanic residents.

Mr. Blunt is among the entrepreneurs in Oakland, many of whom are Black, who were granted equity licenses to run cannabis businesses after California legalized the substance for recreational usein 2016. Applicants who live in areas that had a high number of drug-related arrests or who have a cannabis-related arrest recordare given priority to receive the licenses.

Race has often been at the heart of the movement to legalize cannabis. Some states legalized the drug largely to stop the cannabis-related arrests that disproportionately ensnared Black and Hispanic people. But there has also been a push by lawmakers in states like California, Illinois and New Jersey to ensure that those same communities can profit from the legalized industry, which has been largely dominated by white owners, some of whom have made a fortune on cannabis.

On Thursday, Gov. Kathy Hochul of New York announced that the state planned to give its first cannabis retail licenses to people who had been convicted of a cannabis crime or their relatives.

Oakland was one of the first cities to prioritizeequity licensesfor those like Mr. Blunt, 42, who got teased in high school because his name is a common term for a cannabis cigar. In 2005, he was arrested and accused of possessing several small bags of the drug.

The nation’s emerging cannabis industry is being shaped by the broader push for racial justice and the belief that creating business opportunities for Black individuals will help lift communities.

But interviews with more than 30 cannabis business owners, investors and regulators in California, an early adopter of equity licenses, show how the hope of fixing historical wrongs is being challenged by the reality of an industry facing troubled business conditions, including issues like high taxes and volatile sales.

Some of the problems are being exacerbated by conflicting state and federal policies. Even as 18 states have legalized the substance for recreational use, the federal government still prohibits it.

That means cannabis stores are limited in their access to federally regulated banking services, such as credit cards. Forced to deal largely in cash, the businesses can be a tantalizing target for thieves.

The federal prohibition also makes it difficult to obtain bank financing or small-business loans, forcing some Black social equity applicants to enter deals with investors who sometimes end up controlling the business.

Another challenge is policing. Some say the police in Oakland, at times, have not switched their mind-set from arresting cannabis dealers to protecting their legal businesses. During a wave of robberies late last year, the police never showed up to some of the crimes, business owners say. The police saya surge in crime during the pandemic has stretched their resources.

Insurance companies are also adding to the challenges. Some owners said their claims were denied even though their policies indicated they would be covered. Others said they believe they were treated unfairly during the claims process because they were Black.

“You are giving licenses to people who would struggle in any industry, but in cannabis, the deck is further stacked against them,” said John Hudak, deputy director of the Center for Effective Public Management at the Brookings Institution. “States need to do a better job adjusting for the structural racism built into the system.”

Since the initiative began in 2017, Oakland has granted cannabis licenses to 282 equity applicants and 328 non-equity applicants. But the city does not keep an ongoing tally of how many of those businesses are currently operating.

“While not a panacea, this program is a meaningful step toward embedding fairness and justice in all we do to improve conditions for communities of color,” Greg Minor, an assistant to the city administrator, said in an email. Amid the industry’s struggles, Mr. Minor said, the state recently authorized a $5.4 million grant to support Oakland’s equity program and was considering reducing the cannabis taxes.

But for Mr. Blunt, legalization has not produced the boon some might expect. Since he opened his licensed store four years ago, Mr. Blunt has yet to generate a profit.

“Social equity sounds like peaches and cream,” Mr. Blunt said. “But I did better selling weed on the street than I am doing right now.”

Thin margins and, often, losses

Keith Stephenson, 53, is a former aviation maintenance technician who is originally from South Los Angeles. He suffers from a severe form of arthritis and takes cannabis to relieve his constant pain.

“Cannabis saved my life,” he said.

Mr. Stephenson opened his dispensary on Fourth Street in downtown Oakland in 2006, 10 years after California legalized cannabis for medical use.

His goal has long been to own a publicly traded cannabis company. But his store has been closed to customers for nearly two years, the result of theft, vandalism and an insurance company that he says treated him poorly because of his race.

When Mr. Stephenson started his business, there were few of the generousloans or rent subsidies that the city’s equity initiative now provides. He took out a second mortgage on his house and put up $60,000 in cash as collateral for a secured bank loan. He called the store the Purple Heart Patient Center, inspired by a cannabis strain known as the Granddaddy Purple.

Business was rough at first. He was losing $130,000 each month, paying to process the raw cannabis, and for security guards at the front door.

Broader legalization brought more customers, but not necessarily higher profits. The state and city impose steep taxes — which can total more than 30 percentof each sale. Some dispensaries take in about $3 million in revenue annually, but their taxes and expenses leave little left over.

Yet there has been a perception around Oakland, he said, that cannabis operators are swimming in money.

On May 29, 2020, Mr. Stephenson was watching the news about the murder of George Floyd when he looked at footage from his store’s security camera on his phone. A man was trying to break in through the bulletproof front door.

Over the next few days, a band of thieves returned and ransacked the store, stealing everything they could. The police told him they were too busy with the broader unrest provoked by Mr. Floyd’s killing to help.

The real fight came months later, when his insurance company reviewed his claims. The adjuster, he said, asked him “leading and insulting” questions, like whether he had left the door open or whether Mr. Stephenson personally knew any of the thieves.

“Are you kidding me?” Mr. Stephenson said in recounting the conversation. “Did I leave the door open? Come on, man. Why is the door beaten in?”

At one point, the adjuster falsely suggested that money had been taken from an A.T.M. inside the store. Mr. Stephenson believed the adjuster wanted to see if he could catch him in a lie. “It is my belief he would not have said that if I was a white male,” he said.

Christy Thiems, a senior director at American Property Casualty Insurance Association, a trade group, said that she did not know the specifics of Mr. Stephenson’s case, but that the claims process could be difficult. Some questioning, she said, could seem offensive to a business owner because adjusters were acting like investigators. Only a limited number of insurance companies are willing to cover the cannabis industry, she added, because of the federal prohibition, and the few insurers operating in the sector are still trying to understand the “unique risk” that the businesses pose.

In the end, Mr. Stephenson’s insurer rejected most of his claims. Mr. Stephenson is still planning to reopen his doors to customers late next month or in May.

“There is no Plan B,” he said.

‘Where are the police?’

In the early hours of Nov. 20, a group of 12 people, many of their faces obscured by sweatshirt hoods, streamed into Amber Senter’s cannabis manufacturing facility in East Oakland.

This is where Ms. Senter provides space to help social equity cannabis businesses get off the ground.

The robbers broke through the first door easily, security footage showed, then a second door and a third. Most of the cannabis product was locked in a cage, which the thieves couldn’t breach. Ms. Senter estimates that the damage totaled $20,000.

But when she called the police, they told her to fill out a report online. “Where are the police?” Ms. Senter said. “Why aren’t they helping us?”

Over one 24-hour period in November, the police said, they investigated more than a dozen reported burglaries of cannabis businesses across Oakland, including several in which the thieves were armed and one in which officers were shot at as they responded.

That rash of robberies followed burglaries and crimes at other cannabis businesses through the spring and summer of 2020.

In a statement, a spokesman for the Oakland Police Department said it “treats the cannabis businesses as it does all businesses in the city of Oakland” and added that the police were engaged in “ongoing meetings with cannabis business owners” over safety issues.

Ersie Joyner, a retired captain in the Oakland Police Department, said that after arresting drug dealers for decades, some officers still did not respect the cannabis industry as a legitimate enterprise.

Mr. Joyner, who supervised Mr. Blunt’s arrest 17 years ago, understands how ingrained drug prosecution is in law enforcement.

“The messaging from the highest level of government was that drugs are bad and destroying the community, and law enforcement should have zero tolerance,” Mr. Joyner said. “Looking back, it was absolutely the wrong way of dealing with this societal issue.”

Mr. Joyner, who now works as a security consultant to cannabis businesses, said the police needed to adjust their attitudes. He said it took the Oakland police nearly three hours to dispatch officers to the store of one of his clients, whose cannabis business had been robbed.

“If this happened to Bank of America, the police would have a more robust response,” said Mr. Joyner, who was nearly killed in a shootout with robbers at an Oakland gas station in late October. The doctors, he said, found 22 bullet holes in his body.

In many instances, private security companies are acting as the unofficial police force of the city’s cannabis industry.

One security firm, Black Anchor Tactical Response, operates a set of sport utility vehicles with a color scheme similar to those of Oakland police cruisers. When a client transports cannabis from a warehouse to a store, the company’s guards, some of whom are veterans who served in Iraq and Afghanistan, block off city streets to prevent ambushes. The firm also guards cannabis operators’ homes.

While it is difficult to pinpoint what prompted surging crime during the pandemic, the legacy of mass drug arrests still looms over Oakland.

About 71 percent of those arrested on suspicion of cannabis offenses in Oakland between 1995 and 2015 were Black, according to an analysis by the city. During that time, Oakland’s Black population was 30 percent.

The robberies and property damage are compounding the cannabis industry’s other challenges, such as high taxes.

“Why would I want to transition to the legal market if I know I am going to go broke?” said Chaney Turner, a member of the city’s Cannabis Regulatory Commission.

‘This is not sustainable’

When Tucky Blunt was selected for one of Oakland’s first equity cannabis licenses in early 2018, he remembers shouting out his gratitude to the crowd gathered at City Hall.

“Praise you all,” Mr. Blunt said.

Mr. Blunt, who started selling cannabis to his co-workers at a grocery store when he was 16, also remembers being surrounded that day by representatives from established cannabis companies looking to be his partner. Some wanted to lend him money in exchange for an ownership stake in his store; he wanted to own it outright.

But he didn’t have the money needed to start a licensed business. So he agreed to do a deal with a larger cannabis operator, Grizzly Peak, started by a real estate contractor from San Diego named Dave Gash.

Grizzly Peak, which focuses on cultivating cannabis, was denied a dispensary license in Oakland and was looking for a partner to open a store.

Mr. Blunt was proud of his store’s appearance: glass cases displaying cannabis cigarettes and brightly colored packs of gummies and lots of natural light.

But Mr. Blunt also struggled with the rising taxes; the cost of the armed guards, who are each paid about $30 an hour; and the looting in the late spring of 2020.

The bigger problem, he said, was that one of his partners, who oversaw the books, stopped paying taxes and vendors. A year ago, Mr. Blunt had to close for several months because the store’s finances were a shambles.

Grizzly Peak agreed to bail him out, but Mr. Gash told Mr. Blunt, “We have to do it our way, and we need total control.”

Mr. Gash’s company has now taken tighter oversight of the store and will split any profits with Mr. Blunt, who still owns a majority stake in the store but is paid a salary as a consultant.

“I am grateful that Grizzly Peak believes in me,” Mr. Blunt said. “I wouldn’t be in business without them.”

In late November, business was looking up. The store’s finances had been stabilized. But then, a few days before Thanksgiving, Mr. Blunt’s store was robbed for the second time in 18 months. The thieves cleared out much of the store.

“This,” he said, “is not sustainable.”