Despite an extensive vetting process for cannabis retail licenses in Santa Barbara, a Florida company ended up with one of the three coveted permits after bypassing that scrutiny.
With licenses valued at several million dollars at stake, the City of Santa Barbara is considering reviewing its process to ensure transparency and public trust.
Jushi, based in Boca Raton, Florida, legally acquired control of one of the licenses in May, before the original recipient, San Diego-based Golden State Greens, ever opened its dispensary.
The acquisition was unknown to most officials at City Hall until Noozhawk informed City Council members as part of its own investigation last year.
How could a corporation that is publicly traded on the Canadian Securities Exchange end up in possession of a scarce cannabis license on the American Riviera?
Pretty easily, actually. After a $2,400 review of Jushi’s financial standing, approved by a handful of city employees, the company was allowed to take control of the license.
Although the city utilized a layered vetting process in 2018 that included public interviews, applications and a matrix of scoring methods to rank companies wanting to legally sell cannabis in Santa Barbara, the procedure was much less rigorous for Jushi to swoop in to the market.
Under the name of Beyond/Hello, Jushi opened its cannabis retail shop at 3516 State St. in the San Roque neighborhood last September.
Technically, Golden State Greens still owns the license, but the city’s Municipal Code allows for a transfer of stock to another company to essentially control it.
Unlike the sale of a license, under a stock transfer the license remains with the original corporation to which the permit was awarded, said Matt Fore, senior assistant to City Administrator Paul Casey.
“In other words, GSG SBCA (Golden State Greens) is, and would continue to be the corporate owner,” he told Noozhawk. “The parties that own stock and their relative percentages of ownership may change, if the application for transfer of stock is approved.”
In January 2020, Fore said, Golden State Greens applied for a transfer of stock to Bear Flag Assets LLC, a subsidiary of Jushi Inc. The city evaluated the application, and also engaged Muni Services LLC of Westlake Village to evaluate the financial assets and capitalization of the new shareholders.
“The responsible parties of the proposed restructured ownership, including existing and newly proposed responsible parties and stockholders, are at least equally as qualified as those listed in the original application package,” the city determined after the review by staff and Muni Services.
“The new stockholder configuration is adequately capitalized to provide adequate working and operational capital that is at least equally sufficient to that pledged in the original permit application.”
According to the review, as of Sept. 30, 2019, Jushi had $27 million in cash and cash equivalents in the bank.
Based on the findings, Fore said, “the city granted conditional approval of the stock transfer on May 28, 2020.”
The unusual series of events points at the larger complexities that have erupted in the aftermath of California’s legalization of a drug still regarded as illegal under federal law.
From cultivation sites to retail storefronts, the legalization of marijuana has thrust government officials, regulators and the business community into the land of the unknown.
City Attorney Ariel Calonne told Noozhawk that the stock transfer, which was estimated at about $9 million, demonstrates that it might be time for policy makers to take a closer look at cannabis.
“It is worth staff and the council having a moment of inflection about the future of the cannabis industry in Santa Barbara,” he said. “This issue to me says there is tremendous demand to get into the market.”
In this case, after Muni Services reviewed and approved Jushi’s finances, a small team of city officials made the determination to approve the transfer.
Those involved were city project planner Andrew Bermond; Santa Barbara fire investigator Ryan DiGuilio; Julie Nemes, the city’s finance and treasury manager; assistant city attorney Tava Ostrenger; and Santa Barbara police spokesman and public information officer Anthony Wagner.
The five city employees, Calonne said, participated in several steps of review to ward off any potential conflict of interest. Each signed a special statement saying they would not have any financial conflict of interest and would act fairly in their evaluation.
As public employees, all five also were required by state law to file with the California Fair Political Practices Commission a Form 700, which discloses any personal financial interests.
Before the application process started, Calonne said, Wagner sought conflict of interest advice, which was provided by Ostrenger. He said Wagner answered questions “under compulsion of actually losing his job” if he were not truthful.
Earlier this month, interim police Chief Barney Melekian placed Wagner on paid administrative leave after Los Angeles magazine reported that he was a former business associate of the owner of Golden State Greens. Melekian hired a Ventura company to conduct an independent review of the allegations.
Wagner denied the magazine’s assertions and challenged its editorial fact checking. The magazine later issued a correction withdrawing its assertion about Golden State Greens and making other changes to its story.
Santa Barbara’s cannabis retail license applications were site specific. Applicants had to show ownership of a site or a long-term lease to run the business.
The city required that retail dispensaries be at least 1,000 feet part. Officials wanted them spread around the city, and not concentrated in one neighborhood. Dispensaries were approved on Chapala, West Mission and upper State streets.
The locations are most important because they underwent a vetting process that was approved, including assessing issues such as lighting, security and parking.
If, for example, a company sought to acquire control of an issued license, but wanted to move the retail dispensary to another location, the city would not approve such a relocation because the sites had already been agreed upon.
Calonne said the biggest concern about a stock transfer would be if it took place during the application process. He noted that the City of Pasadena issued an administrative regulation to stop companies from selling stock during the permitting process.
City Council members are mixed on what adjustments to the process are needed.
“I agree that we need more transparency in the transfer process,” Councilman Eric Friedman said. “I share the concerns of the community with the recent transfer that took place. I am open to re-examining the ordinance on how we might enhance transparency.
“We also need to understand any unintended consequences that might occur.”
Councilman Mike Jordan was not as adamant about a change.
“My understanding is the process involves review of both private financial and personal information that would not be appropriate or legal to share publicly, for any city and third-party business relationship,” he said.
“So it could come to City Council, but I suspect the only way would be a closed session discussion.”
Mayor Cathy Murillo said it might be best for the council not to be involved in transfers because it could open doors to worse problems. She also said it might be worth considering not allowing transfers at all.
“Ensuring that the licensing process is completely transparent, fair and above board is priority No. 1,” she said. “Currently, when a license is being transferred or sold, the recipient goes through a vetting review process overseen by city staff.
“The City Council is purposely not involved, in order to keep politics out of the process.”