Professional Athletes, Cannabis Businesses, and the San Francisco Equity Program
By Omar Figueroa and Daniel Dellafosse
September 5, 2021
San Francisco is one of the great cities of the world. The City has been an epicenter of cannabis culture for decades, from the halcyon hippie days of Haight-Ashbury to the AIDS crisis when cannabis patients, caregivers, and other voters organized to pass Proposition 215, which sparked a revolution of legalization across the world. In recent years, San Franciso’s residents enjoy what has been characterized as the highest disposable income in the world, surpassing even Zurich, Switzerland. It’s not surprising then, that many entrepreneurial minds dream of one day opening a cannabis dispensary in San Francisco.
Yet, entering the cannabis industry in San Francisco is a daunting task. Entrepreneurs inclined to enter the San Francisco cannabis industry must get in line behind verified equity applicants or find a way to work with an equity applicant. The equity program was designed for persons from communities affected by the War on Drugs so that they can be some of the first ones in line to enter the regulated cannabis industry in San Francisco. The equity program does allow equity applicants to raise capital by attracting investors, but the ordinance places limitations on how much ownership and control the equity applicant must retain. See, San Francisco Police Code Section 1604.
The wait is so long that equity applicants (who may not have sufficient capital) and non-equity applicants (who tend to be well-capitalized) are working together to speed up the process by forming legal entities and allocating the percentage of ownership and control so that the legal entity qualifies as an equity applicant. This type of business relationship helps both sides; however, it does not come without risks. These risks can be mitigated if the parties take care to ensure that they are compatible in terms of temperament, risk-tolerance, and work-style .
Consider the following thought experiment. A very successful retired professional athlete dreams of opening a state-of-the-art cannabis dispensary in San Francisco. The retired athlete does not meet the equity applicant requirements. The retired athlete, in consultation with legal and financial advisors, decides to reach out to verified equity applicants so that they can discuss the possibility of entering into a business relationship. After a widely-shared post on Twitter, the athlete’s team is deluged with inquiries. After the meet and greet period, the retired athlete identifies the most compatible equity applicant.
The parties discuss how they can enter the industry while remaining compliant with the San Francisco cannabis ordinance (“Ordinance”). The two parties decide to form a corporation in which the equity applicant is a 45% shareholder and the Chief Executive Officer. That leaves room for the retired athlete to be the majority shareholder. See, San Francisco Police Code Section 1604, subsection (b)(3)(B) (Requiring that the Equity Applicant apply as “an individual with an ownership interest of at least 40% in the corporate Applicant, and who is also the Chief Executive Officer of the corporate Applicant.”) Since the retired athlete will be providing the startup capital, the retired athlete gets 55% of the corporate Applicant.
Working together, the Equity Applicant and the retired athlete’s advisors navigate the time-consuming San Francisco permitting process, which is not only subject to planning department approval, but also requires issued building permits so the corporation can begin to build out the retail space. The retired athlete is busy with several other projects, but is kept in the loop the whole time.
Inspired by an article in Architectural Digest entitled Inside 12 of the Country’s Most Stylish Cannabis Dispensaries, the architectural firm working on the project comes up with an amazing design and the build out is completed. After the local permit comes the state license, and preparations for opening day.
Opening day is a roaring success, driven by the retired athlete’s huge popularity. The Equity Applicant carefully curates the menu, and the dispensary stocks a wide variety of Equity Trade certified cannabis goods, in addition to biodynamic, and Clean Green certified items. There is an onsite consumption lounge with a stage, which later becomes a spontaneous meeting spot for comedians, musicians, and celebrities visiting San Francisco.
In the end, the dispensary becomes a destination for high-end travelers from all over the world, and the Equity Applicant and the retired athlete are able to do very well for themselves while creating jobs and helping the community through SB 34 supply drops. To top it off, the architectural firm wins several awards for the environmentally advanced LEED Platinum architecture, and the gorgeous design is featured in Architectural Digest.
This thought experiment shows how a retired professional athlete (or any other well-capitalized investor) could, in accordance with the local regulations, work with a verified equity applicant to realize the entrepreneurial ambition of owning a cannabis dispensary in San Francisco.
The information herein is provided as a public educational service and is not intended as legal advice. For specific questions regarding how to legally navigate the San Francisco equity program, please contact the Law Offices of Omar Figueroa at 707-829-0215 or info@omarfigueroa.com to schedule a confidential legal consultation.