Los Angeles committee continues DCR fee study after social-equity operators call grant a 'fee trap'

Public commenters representing social-equity cannabis businesses urged a Los Angeles City Council committee to overhaul the city's cannabis licensing fees and investigate how a state grant was spent, saying the Department of Cannabis Regulation (DCR) left equity operators paying thousands in licensing and environmental fees.

The committee heard a presentation from DCR staff on a 2024 comprehensive fee study that would increase commercial cannabis application, licensing, inspection and regulatory fees to recover departmental costs. DCR staff told the committee the fees have not been raised since 2020 and that if the council does not adopt the proposed increases, several general‑fund departments that support DCR would face a budget shortfall.

Why it matters: The dispute affects hundreds of licensees and the city’s special cannabis revenue fund. Public speakers said state grant money intended to waive certain local fees instead was used for salaries and other costs, leaving operators to pay tens of thousands in fees. DCR says the state later retroactively disallowed some uses of grant funds, creating a budget hole the fee study is intended to close.

Public comment: More than a dozen speakers — including owners and representatives of social-equity retailers and industry groups — described similar experiences. “We were told this social equity program would help those harmed by the war on drugs. Instead, the Department of Cannabis Regulation took $22,000,000 meant to support us and turned it into a ... fee trap,” said Evelyn Brinson, a social-equity retailer. Kika Keith, owner of Gorilla Rx Wellness, presented grant budgets and alleged $19,000,000 in DCR salaries tied to the grant and asked the committee to “have a thorough investigation and also pass our motion for social equity reform and market stabilization.”

Industry operators described lost market share to illicit sellers and steep local costs. Elliot Lewis, CEO of Catalyst Cannabis Co., told the committee, “The DCR, with all due respect ... is a joke,” and urged a total overhaul of the program. Veterans' and nonprofit spokespeople asked the committee to consider public-health impacts where legal access has been part of services for veterans.

DCR presentation and staff responses: Jason Clean, assistant executive director of DCR, and Zachary De Coors, head of the department’s administrative division, presented the fee study. Clean said the department received a state local jurisdiction assistance (LJ) grant award of $22,000,000 and had received about $17,000,000; he said roughly $10,500,000 of that was later disallowed by the state for the uses the city reported.

“If the fees are not adopted as recommended, it will result in a general fund deficit for the office of finance, the city attorney, the personnel department, and others,” Clean told the committee. DCR staff said the proposed fee changes are intended to generate about $7,800,000 for the city’s cannabis regulation special revenue trust fund; staff projected that fund’s balance at roughly $3,000,000 at the end of the fiscal year.

Committee questioning focused on three themes: (1) the grant disallowance, (2) why processing delays persisted despite large grant funding, and (3) how fee revenue is allocated among supporting departments. Councilmembers pressed DCR on the grant timeline and the state auditor’s finding that a state grant coordinator had not read grant agreements before signing, and they asked for clearer historic data across multiple years rather than a two‑year snapshot.

DCR explained that the city transitioned roughly 700 businesses from provisional to annual licenses to meet state deadlines, and that the state later disallowed certain uses of grant funds (notably annual application fees), creating an estimated $10.5 million deficit. DCR said some revenues were deferred beginning in 2023 while awaiting final state guidance.

On enforcement and fines, DCR described violation tiers in its rules and regulations (minor through severe) and provided examples: an off‑site special event sale would be a major violation, missing posted temporary approval could be minor, and documentation discrepancies often are moderate violations.

Council direction and next steps: The committee voted to continue consideration of the fee study and instructed DCR, with the assistance of the City Administrative Officer (CAO), to return with more detailed materials. The chair requested (and the committee required) that DCR provide: historical columns for 2021–2024 in the fee tables; a full list of DCR positions and salaries (not a single title summary); an itemization, by fee, of the costs and which departments are funded by each fee; and average and policy processing times versus actual processing times for each application type.

Votes at the meeting: The committee approved items 1 through 9 on consent (Councilmember Padilla and Councilmember Lee voted yes; one councilmember was absent). The committee also passed a separate amendment on item 8 directing the Department of General Services to issue a revocable permit to the Los Angeles Philharmonic for use of the city‑owned parking lot at the Sylmar/San Fernando Metrolink station for LA Phil shuttle service during the 2025 Hollywood Bowl season; that amendment passed with the same recorded votes.

What remains unresolved: DCR staff said the state’s retroactive disallowance of portions of the LJ grant is the principal reason the department is seeking fee increases; staff and councilmembers acknowledged uncertainty about whether the city will ultimately return all or part of the disallowed funds to the state or seek other budgetary remedies. Councilmembers asked for itemized evidence and cross‑departmental cost breakdowns before making a final decision.

The committee continued the item for a future meeting with specific data requests to DCR and the CAO. The committee also directed staff to provide receipts and breakdowns of taxes and fees charged at point of sale to help assess the competitive disparity with illicit sellers.