Lawsuits, Fraud Charges, 4 Licenses Left. What’s Next for Fresno Legal Marijuana?
What is the future of retail marijuana in Fresno? Seventeen stores are in the process of obtaining conditional use permits, the next step to finally sell the drug legally.
But four licenses are still in play across three different areas of the city.
Two lawsuits, and possibly more, are pending.
One applicant faces fraud charges and has stepped down as CEO of a cannabis corporation.
And, there are complaints about how licenses are awarded, with some people using colorful, four-letter words.
Meanwhile, the City Hall official in charge of Fresno’s cannabis system says the system is a work in progress.
“For being the first one out of the box, 17 out of 21 (to make it through the appeal process)? I’d say we did OK, but it could be improved. So that’s the thing. We’re going to work with counsel to look at the ordinance,” said Fresno City Manager Thomas Esqueda.
Four Licenses Remain
In August and September, Esqueda awarded the initial 21 licenses, three in each of the seven city council districts as mandated by local ordinance.
As part of the process, councilmembers or the mayor could appeal the licenses. Five were appealed, and only one survived the Oct. 27 hearing — the Lemonnade-branded store in the Tower District.
Esqueda will have the opportunity to grant the four remaining licenses again, but will likely wait until mid-December. That is when new council electoral maps are due. Because licenses are restricted by council lines, Esqueda would rather wait until the new boundaries become official.
The city will consider applicants who made it to the Phase III interview round. If needed, officials will dip down to Phase II, businesses whose applications met city standards but did not score high enough to make it into the next round.
Two licenses are available in District 3 (downtown/southwest Fresno), and one each in District 2 (northwest) and District 1 (Tower District/west Fresno).
Related Story: Who Left Contentious Fresno Cannabis License Hearing Happy or in Tears?
Four Compete for Last License in District 1
As part of the cannabis permitting process, 94 marijuana entrepreneurs applied (some filing more than one application). The city whittled down those applicants to 36 standard and 17 social equity that made it to Phase III, the interview round.
Social equity applicants are graded under a different standard and qualifications — mainly facing economic or environmental hardship, or having a past marijuana-related conviction.
The three preliminary licenses in District 1 were awarded to Lemonnade (1264 N. Wishon Blvd., The Artist Tree (1426 N. Van Ness Ave.), and social equity winner Fresno Canna Co. Dispensary (3257 W. Shaw Ave., suite 109).
With the city council’s rejection of The Artist Tree’s preliminary approval, one license is up for grabs among the applicants who made it to Phase III.
The remaining contenders:
— Crescent Conquest (3759 W. Shaw Ave., suite 101)
— Catalyst Highway 99 (2250 N. Weber Ave.)
— Authentic 559 LLC (4248 W. Ashlan Ave.)
— Wonderbrett (1434 Van Ness LLC at 1434 N. Van Ness Ave.), a social equity applicant.
During the Oct. 27 hearing, the city attorney said new licenses did not necessarily have to be the applicant who scored highest in the Phase III interview round.
Elliot Lewis, CEO of Catalyst, criticized Fresno’s system for awarding licenses. He says the city has not communicated to them what happens next.
“The process in Fresno has been confusing, to say the least. And I have no idea what’s going to happen,” Lewis said. “I’m very suspect of the overall process.”
Lewis is confident that Catalyst is number one, and can’t believe that either of this applications (he also applied for a downtown location) were not selected.
“These things get a little political. It’s just the way that they are. But the fact that our group has not taken one of 21 licenses in Fresno is, to me, ridiculous. There’s no way that we’re not a Top 21 applicant,” Lewis said.
The downtown Catalyst scored second in District 3, but was buffered out — the city picked social equity applicant Viola 800 feet away instead.
Lewis speculated the decision may have been based on his downtown partner, Terance Frazier — also the fiancé of city councilwoman Esmeralda Soria.
“My take is, staff hates Terance Frazier’s guts and they f***** him,” Lewis said.
Frazier is engaged in a federal defamation lawsuit against the city regarding an audit to the city-owned Granite Park recreation facility that Frazier’s group operates.
During the Oct. 27 appeal hearing, Soria recused herself during a discussion of District 3 applicants (the council district where Catalyst Downtown is located).
SJ Van Horn and his business partner Kyle Wilkens, own Crescent Conquest. He says the fact they are both local should be taken into consideration. He was hesitant to criticize the process. He called it “tricky.”
“We do believe there was a lot of outside influence that seemed to take over the local interests that we thought needed to be kept to Fresno residents, to people who live here,” said Van Horn, who also operates two CBD Center stores in Fresno.
He did not single out a competitor, but said it applied to all non-Fresno companies receiving licenses.
The local face of Authentic is former MLB pitcher and resident Matt Garza. One of his partners recently was charged with a crime that some competitors hope will cast a doubt on their prospects.
Shryne CEO Charged with Fraud
Brian Mitchell, CEO of Shyrne Group Inc., resigned from his position, the company announced Sept. 21 “for personal reasons unrelated to Shryne.” He was charged in late August by the Alameda County District Attorney’s office on nine felony counts of insurance and workers’ compensation fraud.
KRON-TV in San Francisco reported that Mitchell was charged with fraud from his time running Signature Painting in the Bay Area. The state and a private insurance company lost more than $5 million, the Alameda County District Attorney alleges. His next court date is Nov. 18.
Shryne, under the brand name Authentic, filed three applications in Fresno. One was selected in northeast Fresno (council District 6). Mitchell personally owns a percentage of varying degrees in all three applications.
On the other two applications, Shryne and Mitchell partnered with Garza. Neither location (Blackstone/Shaw avenues, Ashlan/Highway 99) was selected during the preliminary awarding of licenses.
Mitchell owns a 14.25% stake at the District 1 location. Garza owns 51%.
Shryne does not expect any fallout from Mitchell.
“We continue to work with the City of Fresno on these applications and to bring the #1 cannabis retail experience to the people of Fresno,” Shryne spokesperson Christian Averill said. “Brian Mitchell’s situation was prior to and outside of his role at Shryne and has no bearing on this process.”
Esqueda, the city manager and point man on granting licenses, does not anticipate Mitchell’s legal problems being a detriment.
“If it’s not a conviction, that’s not a thing I can consider,” Esqueda said. “Now, if that came to (city) council and they wanted to appeal, they have different guidance they can use to make. I’ve got to go with the ordinance, and the ordinance says conviction,” Esqueda says.
Esqueda is correct that Sec. 9-3318 (a) (5 and 6) of the city’s cannabis ordinance says a conviction of fraud would prohibit holding a license.
Van Horn with Crescent Conquest said it should matter.
“We need to hold each other higher. If you don’t do that, you’re going to find yourself in the headlines. You’re going to find yourself in trouble,” Van Horn said.
Should License Be Granted to Social Equity Applicant?
One of the four District 1 applicants remaining is under the social equity category — WonderBrett.
David Judaken, COO of the proposed Fresno store and a WonderBrett company executive, said the process has been “frustrating” because of the lack of social equity award winners. Four of a maximum six were awarded to social equity applicants.
“Fresno has given out initially the absolute minimum on social equity licenses, but allocated multiple licenses to individual entities, which is in conflict with the spirit of what I believe was intended,” Judaken said.
Judaken said it “made no sense” they ranked 15th among social equity applicants. They were left in the dark about scoring, he said.
The Los Angeles-based company is partnering with Andre Scott, a Sacramento entrepreneur. Judaken said Scott qualifies under the social equity rules because of the socio-economic status of his neighborhood and because his father served jail time for cannabis crimes. Scott plans to move to Fresno to work, Judaken said.
Does the social equity applicant have a chance? Based on comments from District 1 Councilwoman Esmeralda Soria at last month’s appeal hearing, possibly.
“No one is included at the table that has been impacted by the War on Drugs, you know, and it’s like, how do you expect to make a difference in a community and an impact in people’s lives when those people are at the table?” Soria said to The Artist Tree during the Oct. 27 appeal hearing.
Judaken hopes WonderBrett is selected.
“I think Fresno would be better off with us there than allocating it as a second license or third license to someone else. And they would be fulfilling the intentions of social equity program,” Judaken said.
Denied Applicant Working on Lawsuit
A lawsuit is threatened by an applicant jilted at the city’s Oct. 27 appeal hearing.
Lauren Fontein, The Artist Tree founder and partial owner in the District 1 store, said her group is considering a lawsuit.
Two other applicants that were rejected on Oct. 27, Haven #20 and Public Cannabis, could join the suit as well, Fontein said.
Another Lawsuit Pending
The city also faces a pending lawsuit from applicants who did not make it to the interview phase. However, the complaint filed by Pietro DeSantis, Kerry Burroughs and their partners has not been served.
Earlier this month, a Fresno County Superior Court judge granted the plaintiffs more time to serve the city, beyond the 60 days the law allows. The request was based on the plaintiffs needing more time for their public records act request on the application scoring system to be granted by the city.
“We’ll treat them like every other lawsuit. Receive it (then), we’ll get an analysis of our options and then we’ll proceed based on whatever guidance we get from the city attorney’s office,” Esqueda said.
Fresno Farms Evaluating Next Step
Fresno Farms in District 5 (southeast Fresno) received preliminary approval for its location at the northwest intersection of Ventura Avenue and 9th Street. It was not subject to an appeal, but faces another problem — a new school campus will soon be under construction nearby.
Fresno Unified is in the planning phases for the Farber Education Campus, which is expected to open in 2023. The campus is within 800 feet of Fresno Farms — too close to operate by city rules.
“They have the option to continue the process or think about making adjustments. So, the ball in their court to figure out businesswise, what do they want to do. Our rules are pretty clear,” Esqueda said.
Jessica Reuven with Fresno Farms says they are considering their options.
“It’s not our preference to open in a location where we can only operate for a couple of years,” Reuven said. “It’s a very difficult proposition to make any money. … For us to operate for maybe two years at a location and be forced to move, that’s kind of a losing proposition. But we’re still running the numbers to see if there’s any way we can make that work.”
Reuven estimates it would cost $1.5 million just to prepare the building for opening.
Esqueda says there is a process to move locations without having to go through the application process all over again, but it depends on the timing of when the request is made.
Reuven believes they can transfer a license to a new location after they are operational, by just paying certain fees.
Fresno Farms only discovered that their location was near a school when the school district sent the city a letter.
“That was their application, their responsibility to do their things. We gave a zoning clearance letter because (the school is) not there,” Esqueda said. “It’s not there. That’s what the ordinance says.”
Related Story: Is Approved Cannabis Retailer Too Close to New Fresno Unified Campus?
Esqueda Optimistic but Sees Work Ahead
The complaints have rolled in about whether the licensing granting process has been fair.
“Usually the city f**** it up. If they did it right, I would be surprised,” Elliot Lewis of Catalyst said.
Esqueda questioned if the standard is too high.
“You would measure it as success if we have zero complaints? … So tell me how many things the city has done (with) zero complaints?” Esqueda said.
“I can tell, us and the council have identified things we got to probably make adjustments on,” Esqueda said. “We’re feeling we accomplished the objective, but we could be better. And we had we have to make some changes in the ordinance.”