Don't take marijuana legalization for granted, Gavin Newsom says

Lt. Gov. Gavin Newsom, the major proponent of a measure to legalize marijuana in California, speaks about the ballot initiative's chances on June 21, 2016 at a pot conference in Oakland.
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Lt. Gov. Gavin Newsom, the major proponent of a measure to legalize marijuana in California, speaks about the ballot initiative's chances on June 21, 2016 at a pot conference in Oakland.
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Capitol Alert

The go-to source for news on California policy and politics

Capitol Alert

Money and marijuana: Donors with ties to industry give to legalize pot

By Christopher Cadelago and Jim Miller

ccadelago@sacbee.com

August 26, 2016 06:00 AM

Justin Hartfield, former chief executive of a company called Weedmaps, two years ago discussed his plans to legalize marijuana nationwide and make his company the Philip Morris of pot.

“Prohibition is about to pop,” he predicted in The Wall Street Journal. “And the people that were here before, if they’re positioned intelligently, will reap a profit. I think we’re positioned really well.”

Proposition 64’s passage would create a burgeoning new economy in California, from growing operations to delivery services, and those who stand to profit are pitching in to ensure it succeeds. Weedmaps, which helps connect cannabis users with dispensaries, delivery services and doctors, has given $1 million to the fall effort to legalize marijuana in California.

A web of campaign committees, nonprofits and wealthy individuals has funneled at least $6.6 million so far to the main Yes on 64 campaign committee. The pro-legalization effort involves eight fundraising accounts, at least three of which are linked to corresponding organizations.

Among the donors are those with obvious existing ties to the issue who could profit immensely from a legal marijuana marketplace.

Prohibition is about to pop.

Justin Hartfield, former chief executive of Weedmaps

Weedmaps describes itself as the first and largest global technology and media firm in the “marijuana space.” Hartfield did not return messages seeking comment, and a company spokeswoman declined, but the firm’s moves in recent months suggest a high level of political sophistication and an expectation the industry will continue to mature.

In June, Weedmaps hired California Strategies, the influential lobbying and public affairs firm where Yes on 64 spokesman Jason Kinney works.

The company has written big checks to the chairs of powerful committees and leaders in the California Legislature, and gave the maximum $56,400 to Lt. Gov. Gavin Newsom, the measure’s highest-profile elected supporter, for his 2018 gubernatorial campaign.

Hartfield has been tapping into Newsom’s political world for some time. Last spring, he helped sponsor the California Young Democrats’ “Turn Up for Turn Out” party honoring Newsom and featuring 90s hit-maker Sugar Ray in Anaheim.

Hartfield was replaced as Weedmaps’ chief executive earlier this year by Doug Francis, the chief operating officer since 2009. Hartfield in a statement at the time praised his replacement’s “clear vision on Weedmaps’ necessary strategy to become the first billion-dollar company in the sector.”

Another contributor to the Proposition 64 campaign is Nicholas Pritzker of Tao Capital Partners, a firm that is a big investor in MJ Freeway, a leader in software and services helping legal cannabis businesses manage inventory.

Pritzker, an investor in Tesla, SpaceX and Uber, contributed $250,000 to committees supporting the pot campaign. His brother Joby is a board member of the Marijuana Policy Project, and the Pritzkers, heirs to the Hyatt Hotels family, have made considerable donations to Newsom’s campaign for governor.

MJ Freeway, separate from Pritzker, gave to the legalization push. In March, the firm also brought on California Strategies to lobby.

The profit motive is something Newsom sought to avoid when, as the chairman of a panel of academic and legal experts, he released a report last year calling for a highly regulated market that guards against creating the next “Big Tobacco.” Marijuana shouldn’t create a future “gold rush,” Newsom said. He says the ballot measure aligns with the panel’s recommendations.

Andrew Acosta, a spokesman for the campaign opposing marijuana legalization, said his side disagrees.

“Their No. 1 concern was allowing this to become the next gold rush,” Acosta said of Newsom and other supporters. “It’s the gold rush. Every article I see on marijuana investments is related to the gold rush in California.

“Why are they hiring lobbyists in California? Because it’s a business decision.”

Proponents say the bulk of the funding for the marijuana measure has come from organizations and individuals with no current – or future – financial interest in the marijuana industry.

Kinney, speaking on behalf of the campaign, said that the bulk of the funding for the measure has come from organizations and individuals with no current – or future – financial interest in the marijuana industry.

Some donors have indeed backed legalization efforts in California and other states on philosophical grounds. Other contributors, such as Sean Parker, the billionaire tech entrepreneur who pitched in on Oregon’s legalization effort, are newer as major players in California marijuana politics, and have said little to nothing about the reasons for their support.

Parker’s lack of public contemplation has left opponents to speculate that his involvement amounts to an early business investment. Kinney said Parker supports the initiative as a social justice priority, but has no personal financial interest in the marijuana industry, nor will he invest in it in the future.

It’s unclear whether Parker plans to talk about what’s compelling him to spend $3.3 million – so far – on a ballot initiative.

Parker, co-founder of the file-sharing service Napster and founding president of Facebook, has given about $1.8 million directly to the main Yes on 64 committee, as well as routing $250,000 apiece through a pair of intermediary committees: the Washington, D.C.-based Marijuana Policy Project of California and the Washington, D.C.-based New Approach PAC. He has separately given $1 million to the New Approach PAC.

Some of the money finding its way to the campaign is difficult to trace back to individual donors because it comes from nonprofits not required to disclose that information.

The New York-based Fund for Policy Reform passed along $1.97 million to the nonprofit organization’s campaign committee, which has given $1.97 million to the campaign committee for Oakland-based Drug Policy Action.

The Fund for Policy Reform shows no donors on the state’s campaign finance website. Federal tax records list the billionaire business magnate and philanthropist George Soros as its chairman-director. In 2014, the $1.4 billion fund reported $19.5 million in program expenses, including a $9.5 million grant to Drug Policy Action to support its operations and to advocate for changing drug laws.

The Drug Policy Action campaign committee received $500,000 from its parent nonprofit, Drug Policy Action, in the 2016 election cycle, according to state records. The campaign committee gave $1.25 million to Yes on 64 and $720,000 to another campaign group sponsored by Drug Policy Action: Californians for Responsible Marijuana Reform.

Donors to Drug Policy Action are not publicly reported on the state’s campaign finance portal.

Acosta, whose side has reported raising just above $200,000, said voters should know where those groups are getting their money. “There’s clearly an industry push” to pass Proposition 64, Acosta said. “Is this more industry money coming through to grab part of the California market?”

Some smaller donors listed in campaign-finance filings have a clear interest in the business. They include a pot testing lab called the Werc Shop, the dispensary Supreme Organics and the Marijuana Business Daily. Others contributing are Vicente Sederberg LLC, a law firm specializing in marijuana; Emily Paxhia, managing director for Poseidon, an investment management company dealing exclusively in the cannabis industry; and Pineapple Express, an investing and branding company for the cannabis industry.

The political money pales in comparison to the future profits at stake. Arcview Market Research, an Oakland organization specializing in attracting investment for marijuana businesses and legalization causes, and New Frontier Data, a Washington, D.C., firm conducting cannabis market research, released a report this week projecting that legal cannabis sales in California would grow to $6.5 billion by 2020 from $2.8 billion in 2016.

Lynne Lyman, state director for the Drug Policy Alliance, which includes the advocacy and political arm Drug Policy Action, downplayed the campaign’s reliance on the industry and said it could actually use donations from more of those with a stake in legalizing marijuana.

“The industry has not stepped up to fill the void, and the social justice contributors are stepping back,” Lyman said. “This has become a hard year to raise money because of that.”

Proposition 64 seeks to permit adults 21 years and older to possess, use and share as much as an ounce of marijuana and to grow up to six cannabis plants. There would be a 15 percent tax on retail sales, on top of state and local sales taxes, and a cultivation tax of $9.25 per ounce for marijuana buds.

It provides for several different types of licenses, from retailers and distributors to small outdoor growers and large indoor cultivators (greater than 22,000 square feet). Licenses to large-scale growers would not be distributed until 2023.

There are more immediate business opportunities: The measure permits deliveries of marijuana, and allows retailers to use a “technology platform.”

Supporters counter that it empowers localities to dictate where, and how, marijuana could be sold. They have acknowledged that early drafts of the measure were distributed to dozens of interested parties and businesses for input, but stressed that the final product’s provisions were not tailored to any particular interest.

Proposition 64’s authors had options when designing a legalization scheme, said Dr. Beau Kilmer, co-director of the Rand Drug Policy Research Center. In Washington, D.C., which tangles with Congress over cannabis policy, Kilmer said residents were allowed to grow pot, but not sell it commercially.

Uruguay, which three years ago became the first country to legalize marijuana, allows people 18 and older to obtain the drug via a home grow, a collective or a pharmacy. Two producers have so far been selected to grow marijuana.

Kilmer said one could imagine a nonprofit model, or even restricting production to a government monopoly. Instead, much of the discussion in the U.S. and the states that legalized weed has been between for-profit or all-out prohibition. The important thing to acknowledge, he said, is that there are tradeoffs for all of the options.

“It ultimately comes down to your values and your preferences for risk,” Kilmer said.

Aaron Herzberg, a marijuana entrepreneur and the general counsel at CalCann Holdings, which focuses on municipally licensed marijuana real estate opportunities, said he favors ensuring there are plenty of business “opportunities for the small guy.”

But, he added, “the reality is it takes a lot of capital and business knowledge to enter into a highly regulated market.”

Christopher Cadelago: 916-326-5538, @ccadelago