SF’s Equity Program Fails to Address Racial Disparities in Cannabis Industry

Mimi Cavalheiro was in the cannabis industry for over 20 years.

She started working on cannabis farms in Humboldt County in the late 1990s. The county is part of the coastal region in Northern California known as The Emerald Triangle and includes Trinity and Mendocino counties. It was the center of cannabis production in the United States before recreational marijuana was legalized.

Farmers who planted marijuana alongside other crops on their land for decades taught Cavalheiro their tricks for growing high-quality cannabis. In 2004, she moved to San Francisco and started her own business, selling products to medical dispensaries under Proposition 215.

“Man, I miss 215,” she said, laughing as we walked through the historic home of Dennis Peron, widely considered the father of medical marijuana in California. The house, known as the Castro Castle, is an archive of cannabis and AIDS activism in San Francisco in the 1980s and 90s. The walls are plastered with newspaper cut-outs, framed protest photos, and Proposition 215 posters, pins and T-shirts.

Peron co-authored the proposition, a state law that allowed people to possess and cultivate marijuana for personal medical use with a doctor’s recommendation. Peron was a staunch advocate for medicinal marijuana because he saw how it eased the pain of AIDS patients as the epidemic swept through San Francisco in the 1980s. His partner, Jonathan West, died from complications of the disease in 1990.

The law, which passed in 1996, was expanded to protect growers like Cavalheiro, who were producing and selling modest amounts of marijuana. Two decades later, Proposition 64 legalized adult recreational use of cannabis in California.

San Francisco created an equity program in 2018 that aimed to help Black and brown people, who were disproportionately arrested and imprisoned during the so-called War on Drugs, enter the industry. In six years, hundreds have been verified as candidates for the program, but only a few dozen equity operators have active businesses in the city. Cavalheiro, a Mexican and Brazilian woman in her late 40s, isn’t one of them.

Cavalheiro and other Black and brown cannabis business owners interviewed by KQED said they feel that the equity program has failed.

“I never had this huge operation, and I wasn’t making millions of dollars, but I could support myself, and I lived a nice life,” said Cavalheiro, a single mother. “I don’t have a college degree. I could have easily been on food stamps. I was able to support myself.”

Legalization shuttered Cavalheiro’s business because she needed a permit to grow cannabis. And new regulations meant she couldn’t sell directly to the dispensary owners she had decadeslong relationships with. The legal market was quickly saturated by operators from outside California and speculative venture capitalists.

Legalization was met with a rush of excitement, but seven years later, California’s cannabis industry is struggling economically. According to data released in February by the California Department of Tax and Fee Administration, sales at dispensaries in the state were down for the second consecutive year as consumers, who buy tax-free weed products from illicit dealers and stores, continue to undermine the legal market. The price of cannabis has plummeted, and some cannabis cultivators in the Emerald Triangle are broke and starving.

Two weeks ago, San Francisco canceled its annual 420 celebration at Hippie Hill, a city-supported event since legalization, in part because of the industry’s financial problems. David Downs, a cannabis journalist and creator of SF Weed Week, which runs through Friday, told KQED that industry revenues have plateaued at around $5 billion and profit margins remain thin.

The festival has historically brought hazy skies and crowds of up to 20,000 to share joints and dance to DJ sets in Golden Gate Park. This year will be the first time in decades that San Francisco has no formal event. Local equity cannabis entrepreneurs don’t feel like there’s much to celebrate anyway because they bear the brunt of the industry’s downturn.

Ramon Garcia, a cannabis entrepreneur, advocated for Oakland’s first-in-the-nation cannabis equity program in 2017 and the similar one developed in San Francisco the following year. San Francisco’s program provides priority permitting, application fee waivers, industry partnerships and technical support to people who qualify. Garcia said the city hasn’t provided enough resources, such as business education and money for startup costs.

“You’re taking impacted people that may not have gotten through high school or even college or been arrested, and you’re expecting them to run a highly restrictive, highly regulated business,” said Garcia, the former equity chair of the California Grower’s Association. “You’re admitting to the fact that you did this damage and giving them the licenses, but you’re not giving them any resources to actually be able to service it.”

According to Lily Moser, a communications and legislative analyst for the city administrator’s office, more than 450 people have been verified as equity applicants, and 150 have submitted at least one business permit application.

As of March, just 45 equity-owned cannabis businesses were operating in San Francisco.

Ivan Castro, who started selling weed to classmates and neighbors in the Mission as a teenager, owns one of them.

Castro, 47, was working in internet sales when he learned he could qualify for the San Francisco equity program. He was still selling weed as a side hustle, and Castro saw it as an opportunity to pair his marketing skills with his cannabis knowledge. He went through the verification process, digging up a lease for his childhood home, foreclosure documents and an old arrest record for marijuana possession to qualify.

He applied for a retail permit to open a dispensary. It is stalled in the permitting queue.

A review of cannabis in San Francisco since legalization by the City Services Auditor found that the average waiting time for approval of an equity cannabis business permit was between 18 and 24 months. Castro, who submitted his dispensary permit in 2019, said it still hasn’t been reviewed.

“Given the current wait time for equity applications, the businesses most likely to survive to market will be from the more well-resourced applicants, including businesses that sold partial ownership to investors,” the review concluded. “Applications from individuals such as sole proprietors with little outside investment will be less likely to survive [to get their product] to market due to the capital needed.”

To apply for a permit, applicants must have an existing lease on the space where they will operate. According to Castro, rent is about $40,000 a month, and he hopes to open a dispensary in the South of Market neighborhood. As the City Services Auditor review noted, San Francisco does not provide direct capital assistance to equity applicants other than waiving application and permit fees. Castro couldn’t afford the rent, so he used one of the equity program’s pillars, incubation, to secure a lease.

The incubator initiative pairs equity and non-equity cannabis operators. The non-equity partner pays for the equity partner’s working space for at least three years. In exchange, both get priority permitting.

Castro’s lease with his incubator was supposed to continue until 2027, according to a lease document reviewed by KQED. But in May 2023, the company determined that the rent on the building was too high to keep paying without a permit, so it stopped, according to Castro. When his permit is finally reviewed, an active lease won’t be attached.

Without the dispensary permit, Castro pivoted and started SyncSF, a manufacturing business. Getting SyncSF products to consumers is difficult. His brand is only on shelves at six of the roughly 80 dispensaries in San Francisco and isn’t available for delivery in the city on Eaze or Weedmaps, two of the major online cannabis delivery platforms.

Under Proposition 215, Castro would grow, package and deliver his weed to dispensaries, which paid him directly. As a manufacturer under Proposition 64, he can only manufacture cannabis products. Cultivating, transporting and selling weed requires different permits, so Castro has to contract with other operators.

Transactions between cultivators, manufacturers and retailers cut into profits. For this reason, some large operators have several permits, but most small equity operators don’t have the financial backing to do the same.

“The most successful cannabis businesses are more vertically integrated — those are the only ones that are going to survive,” Cavalheiro said. “But you have to have a lot of capital and a lot of people to do that.”

Cavalheiro worked in business relations after legalization, helping cannabis producers from Humboldt connect to the Bay Area market. She’s also worked for companies trying to bridge the gap between cultivators, manufacturers and retailers within the disjointed legal market.

She was a retail relations manager for Buyers Club SF, a now-defunct cannabis showroom and event space. She lost her job at Buyers Club when the company went bankrupt last year. Cavalheiro hasn’t been able to find a similar position.

When Proposition 64 passed in 2016, she had a newborn and didn’t have time — or money — to get a new business off the ground. Looking at the current market, she said there’s no way she’d pursue a cannabis license.

“I have friends who have done it, and five years later, they’re just empty-handed,” she said.

Instead, she’s looking for steady work outside the cannabis world, taking temporary jobs wherever she can while studying for the insurance license exam. She enrolled in food stamps.

“I have a daughter I need to feed and bills I need to pay,” she said. “If I can’t even do that, it might just be time to switch gears completely.”