December 11, 2017 - From the November, 2017 issue

L.A. City Council President Herb Wesson 'Banking' on Cannabis

California's legalization of recreational cannabis January 1 promises to be one of the biggest economic disruptions in the state since the repeal of Prohibition. To prepare for this transformative shift, Los Angeles City Council this month approved its first set of regulations aimed at stabilizing the sector’s entry into the legitimate economy; folding a flood of new businesses into city planning goals; and channeling the industry’s vast demand for land, water, and power into existing sustainability targets. One proposal still pending is an unprecedented plan for the City of Los Angeles to charter its own bank—a public entity that would finance cannabis transactions while investing in community needs, such as affordable housing and small business. In this TPR interview, Council President Herb Wesson lays out his vision of a public bank and a truly “green” cannabis industry for L.A.


Herb Wesson

"A municipal bank would have as its mission to reinvest in the community and help L.A. take the lead on the cannabis conversation, where we still face federal hiccups." —Herb Wesson

You recently proposed that the City of Los Angeles create a municipal bank open to, among other business interests, the cannabis industry. Elaborate on the need that prompted this rather novel proposal.

Herb Wesson: For some time, many folks have felt that there should be an alternative to the conventional banking system. When my team began thinking about creating a municipal bank, our conversation was about providing the residents of this city that alternative. Later, as the idea grew, we began looking for a way to incorporate cannabis-related businesses.

I convened a committee to review this proposal—the Ad Hoc Committee on the Comprehensive Job Creation Plan—led by Paul Krekorian, chair of Council’s Budget and Finance Committee. We are expecting reports back soon, and I anticipate that Los Angeles is going to lead the way in this conversation. 

What would be the mission and the benefits of a municipal bank for L.A.?

Firstly, as elected city representatives, we always want to be in a position where we can provide services to the people we represent. A municipal bank would have as its mission to reinvest in the community, fund the construction of affordable housing, and finance small business and entrepreneurs. We’re excited about moving those priorities ahead.

But also, a public bank would help L.A. take the lead on the cannabis conversation, where we still face federal hiccups. The more conversation about this issue the better, because it’s not going away. It’s already legal in several other states, and that number is only going to grow. If LA can push that conversation ahead, we should.

You’re undoubtedly aware of public criticism of your proposal positing that the city faces too many fiscal challenges—caused by mismanagement—to start and operate a successful municipal bank. Surely, the political cartoons will be legion. How have you responded?

We hear this every day, and I respect it. I want to be clear: This would not be a bank that City Council would run. I’m not going to run it, nor is any councilperson, and nor is the mayor. I’ve never envisioned that the city of L.A. would run this bank.

Certainly, Council would set up guidelines to establish the bank’s mission, and we might also have to put up some upfront capital. But after that, there would be a firewall between us. We would let the professionals run it, just like banks that exist now.

Is there an example in the U.S. of a publicly chartered city or state bank? 

The only one is the Bank of North Dakota, which started in 1919. The state structured that bank to provide services for the folks they represented—at that time, primarily the farming community. It has now been in existence for almost 100 years. If we are successful in L.A., that is the model we’d want to look at. I’ve thrown out some ideas of things for our bank to fund—the things we in this city are in need of, like affordable housing.

Lieutenant Governor and gubernatorial candidate Gavin Newsom has called for a public bank at the state level to fund student loans, healthcare facilities, and housing. Is there alignment or overlap between that proposal and the ideas percolating in the city? 

The lieutenant governor is a friend of mine, and he’s known for being a creative thinker. It’s my understanding that another gubernatorial candidate, State Treasurer John Chiang, also feels strongly that this option needs to be investigated. I’m sure a lot of their ideas will be incorporated as our proposal moves forward. But I actually think that, at least on this issue, the city is nimbler and can act more quickly to jumpstart the idea.

Prior to joining Los Angeles City Council, you served as Speaker of the California State Assembly. Drawing on that experience, what is likely to be the state’s view of a locally chartered bank?

I’m pleased—though a little surprised—to say that there has been minimal to no pushback. We are starting something that’s brand-spanking-new, and people are fascinated and inquisitive; they want to see how this would work. Of course, the state wants to make sure the bank is properly vetted, that it’s not rushed, and that we bring in experts to give us advice. But no one has said, “Don’t have this conversation.”

Even representatives from conventional banks have not suggested that we not go forward. In fact, many of them believe that if the city figured out a way to bank this industry, it would then be just a short time before the private banks could engage it as well.

What is the current status of the city’s proposed regulations for cannabis-related businesses?

On December 6, Council unanimously voted to approve our first set of rules and regulations on operating in the cannabis industry. Los Angeles has taken the lead and become one of the first local governments in the country to have a set of rules and regulations in place.

We worked on this proposal for almost two years. The city of L.A. and the Rules, Elections, and Intergovernmental Relations Committee, which I chair, have had more than two dozen public meetings since May 2016. About half those hearings were during the day and about half in the evening, in locations throughout the city, to make it easier for working people to participate and to get as much input as we can. We’ve also spoken with individuals from Native tribes who want to get engaged; tribal sovereignty gives them a different flexibility than the state.

The way cannabis legalization is playing out is reminiscent of the end of Prohibition—with the incumbents, who have operated without transparency, battling the new players who demand a transparent and regulated industry. As you try to meaningfully regulate the maturing cannabis industry, what are the interests that you must accommodate? 

Just as in our history with Prohibition, Los Angeles is taking the pragmatic approach and lining up early. The people my colleagues and I work for—the voters of California and Los Angeles—have basically ordered us to regulate, police, and tax this industry, and that’s what we’re doing.

We’re certainly getting pressure; every action we take seems to have an equal and opposite reaction. But I think we’ve done a good job of building respect in both the industry and the community based on how transparent our hearing process has been. Even industry people probably support around 80 percent of our program.

The regulations deal primarily with planning components, like how far businesses can be from various sensitive uses. They also set up a licensing process and other preliminary rules. Our regulations are also one of the first in the United States to include a social equity component, aiming to afford an opportunity for individuals who have been adversely affected by drug criminalization to engage in this business.

Let me note that this vote is just the first set of actions we’re going to take. That vote is over, but this process isn’t over. We first need a framework, which we can then work constantly to make better. One thing that was promised to me by Washington, Oregon, and Colorado was that this process is going to be fluid. There are going to be state bills on this topic every year, and the city is going to have to be nimble enough to make adjustments.

There is a new city Department of Cannabis Regulation, led by Cat Packer. What led the city to appoint her as executive director?

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We met her at the very first public hearing on our proposed regulations. The first time she testified, I remember saying to my staff, “Who the hell is that? Find out who that is!”

She’s brilliant. At every hearing from then on, she was the common-sense, pragmatic voice—not to mention a very knowledgeable voice. When we got to the point of interviewing for the first executive director, she basically ran away with it. We’re very lucky to have her.

You mentioned social equity as one element of the city’s regulatory framework; what about sustainability, as it pertains to energy and water usage? 

I believe it’s important for Los Angeles to incorporate these concerns and set an example for other cities.

There are some robust water-efficiency and energy-efficiency standards in the state regulations, and certainly, at a minimum, we will meet those state standards. But as time goes on, we may need to make adjustments for more efficiency, and I don’t think we would wait on the state to make those changes.

It’s a tough job, but our council is one that looks for and welcomes a challenge—and we like to set the tone for other cities. As we move ahead on our regulations, you’ll see us trying to lead the way on sustainability beyond the guidelines that have been handed down by the state.

Los Angeles is being monitored throughout the country; other cities are literally looking at our draft proposals to see what L.A. is doing today. That makes it even more important for us to guarantee sustainability and ensure this is a green and efficient industry.

What lessons did Council take from its 2007 effort to regulate cannabis?

That was a very rough experience. In some ways, we caused problems for ourselves by trying so hard to create gray areas that would put us in a better position in the event that we were taken to court. That caused problems with enforcement. For example, because of federal law, we didn’t require licensing then. Now, if you run a business without a license in L.A., we will shut you down. You will face unbelievably stiff penalties—as high as $20,000 a day.

At that time, we had also toyed around with the idea of a cap on the number of cannabis businesses that could operate in the city. This time, we’ve tried to address that issue by working with the Planning Department. Instead of a numerical cap, we’ve proposed limitations based on planning recommendations—such as requiring a certain distance between one operation and another, or designating certain areas for growing and manufacturing. Overall, I think we’ve done a much better job this time around.

If we were to conduct a follow-up interview on this matter in a year, what successes would you would hope to share with our readers?

I believe that in a year, we’ll be the leaders for the rest of the country, and even other countries are going to be looking to us for our experience and advice.

Now that we have legalized the use and purchase of cannabis, the next phase is to regulate where people can partake. That problem was voiced to me by Colorado: They didn’t have places for people to go, so people would end up taking edible products on the street. One of the next big things we’re going to work on is creating facilities—a private club, cigar-bar type framework, where people become members and bring their own product to use there. We also want to explore eliminating cash from industry somehow.

We are refining our proposals, and I’m optimistic that, a year from now, we’ll be in a much better place than we are in today.

Fiscal issues are always a concern for L.A. What kind of revenue stream might the city expect from regulation of the cannabis industry going forward?

We’ve heard that it could be more than $50 million annually. In the beginning, there will be additional costs associated with the creation of the new department, which is going to be a little bigger than we initially anticipated. But once we get up and operational, I expect that the Los Angeles cannabis market will be one of the biggest, if not the biggest, in this country. 

Are the 88 cities of Los Angeles County collaborating on regulating the cannabis industry?

Different cities are doing this in different ways. Some cities, at least initially, are just saying, “No. We don’t want to have anything to do with this.” I think that might shift when the comfort level with this industry increases—which I anticipate that it will, as it did after Prohibition.

For now, each and every city is taking its own approach to what works best there. I think Los Angeles will help create a template that, at the end of the day, other cities will at least take components from.

In closing, what are other priorities on your agenda as council president? 

A major priority for the city of Los Angeles is building permanent supportive housing, affordable housing, and in fact all housing.

I’ve also launched a program called EmbRACE LA, which brings people from different generations, religions, and ethnic groups together to have serious, perhaps uncomfortable conversations on race, religion, and police. That’s an area where I feel that, based on our diversity, we in Los Angeles should be taking the lead.

The city has been giving away refurbished computers and free internet to low-income residents for three years, and now has a new program called OurCycle LA. We’re asking companies and organizations, as well as the city itself, not to throw old computers away—give them to us. We’ll rebuild them and give them to those who cannot afford them. The educational divide between kids who have computer and internet access and those who don’t is tremendous.

Those are just a handful of some of the important issues we’re working on. Oh—and I’m giving away 1,000 bikes for the holidays!

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© 2018 The Planning Report | David Abel, Publisher, ABL, Inc.