Recently, rumors and misinformation have circulated surrounding LA’s “undue concentration” rules for commercial cannabis licensing. The undue concentration rules have not been eliminated, as some have falsely claimed. LA has recently changed details about the policy, in a way that will allow more retail dispensary licenses to be issued sooner. Some have feared, however, that the latest changes may introduce an element of unfairness to the licensing process.
On Tuesday, May 28, the Los Angeles City Attorney Michael Feuer filed a draft ordinance regarding retail cannabis licensing.
NEW PHASE 3 LEGISLATION APPROVED BY CITY COUNCIL
On April 30th, the Los Angeles City Council approved new legislation to begin the third and final Phase of cannabis licensing within the City of Los Angeles no later than the end of next month.
Phase 3 will include two rounds of applications for Storefront Retailer Licenses in addition to one round of applications for Non-Storefront (i.e., Delivery) Retailer Licenses.
Priority will be given to Tier 1 and Tier 2 Social Equity Applicants for all three rounds. Additionally, each round will operate on a first-in-time rule. In other words, the first application submitted will be given priority over succeeding applications with premises within 700 feet of the property. Licenses will be issued on a first-come-first-serve basis.
PHASE 3: ROUND 1, ROUND 2, & DELIVERY PILOT PROGRAM
The upcoming Phase of cannabis licensing will give priority to applicants under the Social Equity Program, a program designed to provide reparations to individuals who have been disproportionally impacted by the war on drugs. Social Equity Applicants will receive expedited application review among other benefits through the program. Eligible applicants in the program will be classified as either Tier 1 or Tier 2 applicants, depending on the criteria they meet. To qualify for Tier 1 or Tier 2 Applicant status, individuals must have lived in a Disproportionately Impacted Area (DIA) for a minimum amount of time and cannot own an Existing Medical Marijuana Business (EMMB). The City of Los Angeles has listed a set of zip codes that currently qualify as DIAs. The City announced that it may add additional zip codes to this list in the future.
ROUND 1 (STOREFRONT RETAIL LICENSING)
After all Tier 1 and Tier 2 Applicants have been verified and notified by the DCR, the DCR will begin accepting applications for Round 1 of Phase 3. Only verified Tier 1 or Tier 2 Social Equity Applicants will be eligible to submit an application during Round 1. Applicants must submit all required documents (see table) within a 14-day period to be announced by the DCR. The dates of the 14-day period have not yet been identified, but the City Council has ordered the DCR to begin this period no later than September 3, 2019. The DCR will distribute 100 licenses during Round 1 to the first 75 eligible Tier 1 Applicants and the first 25 eligible Tier 2 Applicants. Verified Tier 1 or Tier 2 Applicants can only apply for one license during Round 1.
ROUND 2 (STOREFRONT RETAIL LICENSING)
Following the 14-day period of Round 1, the DCR will host a second round of Storefront Retail License application processing. Round 2 will only accept applications from verified Tier 1 and Tier 2 Applicants, just as in Round 1. For the second round of application processing, the DCR will accept applications during a 30-day period that has yet to be determined. Specific documents will be due within the 30-day application period, while all additional documents will be due within 90 days (see table). The first 150 eligible applicants will be issued licenses. The DCR may issue additional licenses until each Community Plan Area (CPA) has reached Undue Concentration. Tier 1 or Tier 2 Applicants who were issued a license during Round 1 may not apply for a license in Round 2.
DELIVERY PILOT PROGRAM (NON-STOREFRONT RETAIL LICENSING)
The DCR has announced that it will launch a Delivery Pilot Program, where it will issue Non-Storefront Retail (i.e., Delivery) Licenses to the first 60 eligible applicants. The Delivery Pilot Program will accept applications from verified Tier 1 and Tier 2 Applicants as well as General Applicants. The DCR announced that delivery will be restricted to addresses within City limits unless special permission is granted by the DCR.
PRE-VETTING PROCESS FOR SOCIAL EQUITY APPLICANTS
Applicants that qualify as Tier 1 or Tier 2 Social Equity Applicants must submit a preliminary application along with supporting documents to the Department of Cannabis Regulation (DCR) in order to have their Tier 1 or 2 status verified. The Ordinance voted into law yesterday identifies an unspecified 60-day period in which these preliminary applications will be received. Although the exact dates of the application window have yet to be determined, the City Council approved a motion ordering that the 60-day period begin no later than May 28, 2019. The DCR will not accept applications or supporting documents after the 60-day period. After the 60-day period ends, the DCR will determine whether or not applicants are verified as Tier 1 or Tier 2 applicants and notify all applicants of their final, non-appealable decision prior to the beginning of the Phase 3 Round 1 application window.
Wednesday, April 17 - The City of Los Angeles Rules, Elections, and Intergovernmental Relations Committee discussed and approved an April 12, 2019 report and proposed ordinance from the LA City Attorney regarding cannabis licensing, with recommendations to make some amendments.
All recommendations were approved and will be redrafted for Council consideration and presented on Tuesday, April 30.
Today’s meeting moves the City closer to the opening of the highly anticipated Phase 3, which is the first chance that will allow the general public to receive dispensary licenses. The City Attorney was directed to make requested changes to the proposed new ordinance, to present for City Council consideration on April 30.
Notable Takeaways from Wednesday’s Meeting
The City of Los Angeles and the DCR have been hard at work in recent months, particularly as they sort through the specifics of Phase 3. While Phases 1 and 2 focused on existing cannabis dispensaries, non-retailers (i.e. growers and manufacturers), and social equity applicants, Phase 3 has been the main attraction for many entrepreneurs and would-be business owners looking to break into the industry.
In an earlier April meeting, the fate of Phase 3 was largely unknown due to funding. The DCR claimed that licensing was on hold as they awaited the Fee Deferral Program, which would allow Phase 3 to commence.
While a date has not been announced for the opening of Phase 3 applications, Wednesday’s meeting shed some light as to the direction the City and DCR are taking to solidify the process.
Among the notable new details that are coming out through these recent meetings and reports are:
● Changes to the Los Angeles Municipal Code establishing a first come, first served application process for retailer commercial cannabis activity licenses, with details regarding what is required for an application to be considered complete
● A proposal to allow applications for retail storefront dispensaries beginning January 1, 2020, in neighborhoods that have already exceeded Undue Concentration caps, with City Council approval
● Modifications to the process for issuing non-storefront retail licenses
● Allowing the Department of Cannabis Regulation (DCR) to grant Temporary Approval to Phase 3 storefront retail applicants
● Exempting Phase 2 applicants from the Undue Concentration requirements
● Setting deadlines for Phase 2 applicants to finalize their business location (May 15) and obtain Temporary Approval (substantial progress by July 1)
● Revising various requirements to qualify as a Tier 3 Social Equity Applicant and revising various benefits provided to Tier 1 and Tier 2 Social Equity Applicants
● Adding an additional reason to deny a license application — if the City has taken enforcement action against unlicensed cannabis activity at the same address since January 2018
● Clarifying the definition of license ownership relative to management companies
In addition, one of the recommendations to the draft ordinance that was approved on Wednesday was to instruct the DCR to finalize a timeline for all Phase 3 and Type 9 Pilot activities and post the information on the Department’s website. This indicates that an exact date for Phase 3 licensing could be established by April 30, if not sooner.
Know Your Rights: Understanding State Hemp Regulations
Contra Costa County
On February 14th, Contra Costa officially issued a Request For Proposal form for new cannabis businesses, including storefront retailers. The number of retailer licenses (with or without delivery operations) will be capped at four.
The county’s deadline for letters of intent is April 4th, while full proposals will be due (by request only) on June 27th. Additionally, the county has released a zoning map showing the proposed areas that will be eligible for cannabis business locations.
City of Fresno
On December 12th, 2018, Fresno voted to allow up to seven medical cannabis retail licenses for the following year, with seven additional retail licenses to follow upon city approval in 2019. The current ordinance limits the number of cannabis retail businesses within the city to fourteen, but seven more may be allowed by a city council resolution.
Fresno limits cannabis retail businesses to locations zones DTN, DTG, CMS, CC, CR, CG, and CH. Additionally, no more than two cannabis retail businesses may be allowed in any one council district.
City of Martinez
On February 26th, the City of Martinez’s Planning Commission met to discuss the city’s newly released draft ordinance for cannabis businesses. The draft regulations would allow for a maximum of two storefront retail licenses, along with a maximum of two delivery licenses (to be associated with a storefront retail business). Retail cannabis businesses would be limited to commercial and light industrial zones. According to the Martinez Gazette, the Planning Commission sent these proposed regulations to the City Council, including a suggestion that the city raise the proposed number of licensed delivery services to three.
City of Pomona
On March 5th, the Pomona City Council met for the first reading of the city’s new cannabis ordinance. The draft regulations provide for licensing of both storefront and delivery-only cannabis businesses. However, the proposed caps on licenses and zoning/location restrictions for cannabis businesses have yet to be released.
City of South Lake Tahoe
On February 5th, the City of South Lake Tahoe released a new cannabis ordinance, allowing up to two retail operations and two microbusiness operations with on-site retail. Cannabis businesses will be restricted to the locations indicated on the city’s buffer map. The city has released its application form and guidelines: the submission period will last from March 11th to April 5th.
City of Ventura
On January 1st, new regulations from the California Bureau of Cannabis Control took effect, allowing delivery of adult-use and medical cannabis anywhere in the state. This overturned Ventura’s past cannabis ordinances, which had restricted retail cannabis activities within the city to deliveries by a maximum of three licensed businesses located outside of city limits. At a City Council meeting on March 4th, the city discussed new policy measures to bring Ventura’s policies in compliance with California law. Among the items on the agenda was the possibility of taxing and permitting cannabis activities within the city, an indication that Ventura is becoming more open to cannabis business.
Steps toward the legalization of cannabis in New York and New Jersey have been in the news recently. But how close are these states to having fully licensed legal cannabis supply chains? Here's a brief overview of the two states' marijuana laws and where they stand in regard to cannabis licensing.
NY State Licensing Overview
Currently, there are ten (10) “Registered Organizations” responsible for manufacturing and distributing medical marijuana in New York State. Pursuant to the Compassionate Care Act (CCA), which established New York’s comprehensive medical marijuana program in July 2014, each Registered Organization is authorized to have up to four (4) dispensing facilities.
New York’s State Department of Health (NYSDOH) began accepting applications for registrations for a Registered Organization on April 27, 2015, with a deadline for receipt of applications on June 5, 2015. Of the original 43 applicants, five (5) Registered Organizations were approved July 31, 2015; another five (5) were registered by NYSDOH on August 1, 2017. The NYSDOH has yet to announce opening another application window for additional prospective Registered Organizations.
While New York’s Medical Marijuana Program is currently closed to would-be applicants looking to manufacture and dispense medical marijuana under the CCA, a spokesperson for Gov. Andrew Cuomo recently stated that the administration expects to introduce a comprehensive proposal for legalizing and regulating recreational adult-use marijuana in 2019. Therefore, cannabis businesses interested in becoming licensed in New York State should be looking down the road to determine next steps in preparation for licensure.
NJ State Licensing Overview
Currently, there are six (6) “Alternative Treatment Centers” (ATCs) responsible for manufacturing and distributing medical marijuana in New Jersey, pursuant to the Compassionate Use Medical Marijuana Act, which established the state's medical marijuana program in 2011. In August 2018, the New Jersey Department of Health (NJDOH) accepted 146 applications in response to its request to add up to six (6) additional ATCs. Despite a November 1st target date, NJDOH has yet to announce the successful applicants, stating that additional time is needed to complete a full review of the applications submitted. The NJDOH is not currently accepting applications to open additional ATCs. But on November 26th, the state Senate and Assembly budget committees passed Senate Act S2426, which, once passed by the full Senate and Assembly and signed into law by Gov. Phil Murphy, would require the NJDOH to issue licenses for 34 new dispensaries and six new cultivation facilities within 90 days.
Additionally, the most recent version of the New Jersey Cannabis Regulatory and Expungement Aid Modernization Act (the NJ Act) was released last week and also passed by the state Senate and Assembly budget committees yesterday, November 26th. The next step for New Jersey is a vote by the full Senate and Assembly slated for mid-December. Until then, negotiations between Gov. Phil Murphy and NJ’s legislature will continue, mostly with regard to the tax rate and how much power the proposed Cannabis Regulatory Commission will exercise over the industry.
Because New York is at the inception of legalizing recreational marijuana, regulations and licensing requirements for adult-use cannabis businesses have not yet been implemented. That being said, a review of the NYSDOH Medical Marijuana Program Application for Registration as a Registered Organization (https://www.health.ny.gov/forms/doh-5138.pdf) is likely a good place to start for prospective medical and recreational cannabis businesses alike.
New Jersey is closer than New York to recreational legalization, and could have a bill passed before 2019. It is important for anyone looking to establish a medical cannabis business in New Jersey to keep an eye on the passage of S2426, which would mandate NJDOH’s licensure of 34 new dispensaries and 6 cultivation facilities within ninety (90) days. However, it remains unclear whether the NJDOH would open another application window, or choose from the 146 applications submitted in August 2018. In the meantime, it would behoove any prospective cannabis business licensee to take a look at both the NJ Act (S2703), as well as the ATC permit request application materials (https://www.nj.gov/health/medicalmarijuana/alt-treatment-centers/applications.shtml). Because the NJ Act gives local governments the power to enact their own cannabis regulations and ordinances – prospective licensees will first need to make sure their cannabis business will be permitted by their local jurisdiction.
While we recognize that any future recreational adult-use business license applications will differ from the above-mentioned applications for Registered Organizations and ATCs, much of the information requested will most certainly be the same. As is standard throughout jurisdictions that have legalized the use of both medical and recreational marijuana, any cannabis business seeking licensure will need to make full disclosures of entity, ownership and financial information, as well as identify and describe proposed facility locations, buildings and equipment. Additionally, those seeking licensure will need to provide licensing authorities with an extensive operating plan with detailed descriptions of policies and procedures related to its operations including but not limited to: processes, devices, security, quality assurance, recalls, staffing and record keeping.
To get a head start as the regulatory frameworks for cannabis businesses in New York and New Jersey continue to develop, anyone looking to establish a cannabis business in either state should be taking steps to create a tentative operating plan, focusing on those aspects and information that can be reasonably assumed as required for any future licensing application.
For more information on cannabis licensing in New York, New Jersey, and any other state, contact our cannabis attorneys at firstname.lastname@example.org.
What is white labeling, and how might the proposed white labeling ban affect commercial cannabis deal structures?
Both established and nascent players in the cannabis industry have turned to white labeling – rebranding an existing product under a different producer's name – as a means to carve out their niche. For instance, some manufacturers in the process of obtaining proper local and state licenses have entered into contractual arrangements whereby they source product from licensed cultivators or manufacturers before branding and distributing the product as their own. Other deals see established brands, traditionally unassociated with cannabis, staking their industry claim by offering their intellectual property (branding) and promotional efforts in joint ventures with licensed manufacturers looking to find brand awareness for their product.
Despite the fact that white labeling is standard operating procedure in product manufacturing at large, the current version of the California Bureau of Cannabis Control’s proposed regulations have been interpreted by industry stakeholders who are disturbed at what is being called an outright ban on intellectual property licensing. While §5032 seems to be taking aim at arrangements whereby non-licensees are purchasing, packaging and selling cannabis without a license, the language has been interpreted to reach as far as to ban licensees from entering into trademark licensing agreements with brand owners. Such interpretation could even prohibit a parent company from holding its licensed cannabis manufacturing operations in one entity and its unlicensed brand in another – suggesting the need for license options to facilitate trademark licensing in the cannabis space:
If §5032 is promulgated as currently drafted, the strictest interpretation would force parties currently engaged in white labeling to re-structure their deals or get proper licensing. Established brands may need to sell rather than license trademarks – effectively forcing or keeping brand owners out of the cannabis industry and companies holding their brands in separate entities may need to obtain additional licenses – an expensive and time consuming endeavor.
Other types of arrangements may or may not meet regulatory requirements. For instance, would it be OK for a cannabis brand to operate as an unlicensed subsidiary of a licensed manufacturer? What if the unlicensed cannabis brand acquires an ownership interest in the licensed manufacturer, but remains unlicensed itself? At the moment, the answers to these questions are unclear.
Until the industry is provided with some official guidance from the BCC or the regulations are tested, many licensees and non-licensees operating in cannabis will need to examine and possibly modify their business relationships or look into licensing options in attempt to stay compliant.
Fun fact: Wine industry folks who purchase bulk wine before bottling/branding/selling it as their own combine two licenses (17/20) to achieve ABC compliance. A type 17 is a beer/wine wholesaler license and a type 20 is an off-premise beer/wine retailer license.
For more information on cannabis business and licensing, reach out to our California cannabis attorneys at email@example.com.