HdL Companies have managed to become the so-called “kingmakers” of cannabis companies in the state of California by controlling the way policies are implemented and overseeing the way applications are scored in every city that’s contracted with them (and that’s a lot of cities).
Some municipalities that were forced into legalization by voter initiatives like HdL’s arbitrary heavy-handedness. By their own admission HdL is in it for the money and gladly tailor each process to equal how hard each respective city wants the process to be.
Other cities have learned the hard way how allowing such capricious tactics cost them in the long run. Fairfield hired and then fired HdL due to irregularities in the scoring of applications in their area. The issues were so egregious that HdL agreed to refund their fees.
The City of Oceanside was threatened with a lawsuit after 4 of the initial 5 cultivation licenses allowed were mysteriously awarded to the financial benefit of a single family. The remaining 7 applicants were wait-listed rather than denied, leaving them with no available appeals process so one of them decided to go to court. The lawsuit was averted when the Oceanside city council decided to award licenses to all 12 applicants who made it through the process, but the facts discovered in the initial stages of that case highlighted some profoundly serious flaws in their, shall we say, techniques.
In San Diego County, the City of Chula Vista is the latest to face the HdL music as they are now facing 3 lawsuits over what one court found the rejection of one license (so far) to be “arbitrary and capricious” and an abuse of the city’s regulations”. HdL is paying Chula Vista’s legal fees.
But how did they become so powerful?
HdL Companies has made its name providing public sector services in Tax Audits and Cost Recovery to cities throughout the state of California since 1983. They remained safely behind the curtain until they established a “Cannabis Compliance” division to capitalize on the passage of Prop 64 in 2016. They used their history to convince municipalities that allowed cannabis business in their borders that HdL was the team to help navigate the complexities of the new laws. Offering services like application process implementation, management support and audits & compliance inspections, they were quickly off and running.
Fast forward to today and they are dug in like a tick. Staffed with people who had previously opposed legalization, HdL Companies revenue has grown exponentially. They not only profit from the licenses on one contract, but they audit the winners on a separate agreement and gain access to a whole lot of data none of their competitors has access to in the process.
“We’re the only company in California that has all the financial information from everyone who pays sales tax. What we’ve done is identified cannabis businesses through our queries or clients. … So, every time we run that data, we would always know all the retail businesses that are cannabis-related.”David McPherson of HdL
This “double-dipping” has created a lot of ire amongst the industry as well as their very few competitors, most of whom fear the potential for retaliation from his Goliath so much that they will only comment under the condition of anonymity.
Some may call it an unfair advantage while others might simply say that business is business but, whatever name you choose, it seems they are here to stay … unfortunately.
My only question right now is, how long before Encinitas regrets their decision to hire HdL to help with their voter initiative mandated new industry?
You can read the 3-part series that inspired my post on MJBizDaily: Part 1, Part 2, Part 3