Opportunity for Potential Investors to Join Pending Phase II Licenses

Posted by Raza Lawrence on May 17, 2019

 

Governor Releases Revised State Budget, Statutory Changes Affecting Cannabis in California

Posted by CA NORML Guest Blog on May 13, 2019

 

L.A. Retail Cannabis Legislation Moves Forward: What Happens Now

Posted by Margolin & Lawrence on April 22, 2019

 

 

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.

 

Hemp and CBD updates

Posted by Margolin & Lawrence on March 20, 2019

Know Your Rights: Understanding State Hemp Regulations

 

March Report: Where We Are with Los Angeles Phase 3 Licensing

Posted by Margolin & Lawrence on March 8, 2019

February 28th, 2019

“I’m frustrated.”

These two words were expressed throughout last week’s city council meeting on the current state of cannabis affairs in the city of Los Angeles. Business owners, hopeful entrepreneurs, private citizens and council members reverberated this sentiment from the city’s long delayed licensing process and yet to be fulfilled promise of a social equity program.

The Department of Cannabis Regulation (DCR) held its regular meeting before city council on February 28th to report on the progress the department has made to date and forecast expectations for the future of cannabis licensure in Los Angeles and the long awaited opening of phase 3. Executive Director Cat Packer sat before the council and highlighted the department’s substantial progress since its commencement in 2017, but made clear that “we still have a long way to go.”

A call was made for a more inclusive social equity program to expand the demographic of eligible applicants to other disenfranchised communities impacted by the war on drugs particularly, hispanics. However, strains on resources and available funding have left little for the social equity program to get off the ground.

To date, 55 temporary approvals have been granted to phase 2 applicants and 178 to phase 1 applicants. There are hundreds left to wade through pushing back the opening of phase 3 to sometime in spring or summer. The DCR proposed a bifurcated application process for phase 3 general processing when the time comes that would split the application process in two parts. Part One would establish a lottery or first-come first-serve process and Part Two would be a merit based system. The two part process is suggested to mitigate fairness and allow those who do not have access to resources a fair chance to participate for a license.

Cat also pointed out the large disparity between the number of retail licenses that will be available for phase 3 eligible program applicants. To comply with the city’s regulations for undue concentration, in the city that is home to some 4 million residents, granting one license per 10,000 residents allows for approximately 200 retail licenses available to some 10,000 plus people who are eligible for the social equity program.

An immediate need was called for increased enforcement to shut down illegal and unlicensed cannabis businesses from operating in the city. The black market is not only harming licensed businesses by taking customers from paying high dispensary prices but the city. In order for the city to provide funding generated from tax revenues requires a crack down on the black market.   

With all eyes on Cat Packer for answers, she in turn responded to city council asking for direction and guidance on how the department is to proceed. A motion was submitted in support of immediate funding to implement the program and expand the demographic of eligible applicants to participate in the Los Angeles cannabis market and increased enforcement to crack down on the black market.   


March 5th, 2019

The Cannabis Regulations Commission met on March 5th and presented their recommendations to the City Attorney that would establish policies for processing of phase 3 applications. Phase 3 would begin with a 60 day pre-vetting process of Social Equity applicants to verify Tier 1 or Tier 2 qualification. Verified Tier 1 or Tier 2 applicants will then be eligible to move forward into the first phase of the licensing process. The DCR will issue 100 licenses in this initial phase allocating 75 to qualified Tier 1 applicants. Qualified Tier 1 applicants would receive priority receiving 75% of the available licenses during this initial phase so long as all basic application requirements are met, including:

  • A signed lease with proof of payment or deposit, or a property deed

  • Meet all sensitive use requirements, including undue concentration

  • Payment of required license fees

  • Ownership organizational structure

  • Financial information

  • Proposed staffing plan

  • Indemnification

  • Complete and detailed diagram

  • Proposed security plan

  • Radius map

  • Labor peace agreement

  • Current Certificate of Occupancy

  • Compliance with the Equity Share Rules


The second phase will allocate an additional 100 licenses establishing no priority between Tier 1 or Tier 2 applicants. The second phase will establish a “first-come, first-serve” process that will allow the first 100 qualified applicants will move forward. Basic qualifications required to be met are payment of the required license fees or deferment approval; ownership organizational structure; financial information; indemnification; and, labor peace agreement. The remaining qualifications mentioned above would be required within 90 days.

The Commission also recommended the implementation of a pilot program for Type 9 Retail Non-Storefront delivery services. A total of 40 licenses would be available allocating 20 licenses to pre-vetted Tier 1 Social Equity applicants. The pilot program will also allow verified applicants who could not obtain a Type 10 retail license due to undue concentration limits will receive priority for a Type 9 delivery license. This will allow licensees to remain in their building and operate as a non-storefront retailer in lieu of having to locate and secure another compliant location. Eligible phase 2 applicants will also have an opportunity to amend their application to include delivery so long as they are compliant with the city’s zoning and regulatory requirements.


Phase 3 Licensing Estimated Timeline


Phase 3 Application Processing

60 day Pre-Vetting Period

  • Basic Tier 1 or Tier 2 qualification

  • Indemnification

Phase 1:

14 day application window

  • Qualified Tier 1 or Tier 2 applicants will be processed for 100 retail licenses (75% reserved for Tier 1 applicants). Pre-vetted applicants will receive 15 days notice of when the first phase application window is to open.

  • Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.

Phase 2:

30 day application window

  • Pre-vetted Tier 1 or Tier 2 applicants who meet basic qualifications (see above) on a “first-come, first-serve” basis.

  • Applicants will have an additional 90 days to submit the remaining application requirements

  • Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.

Delivery Pilot Program:

  • Pre-vetted Tier 1 or Tier 2 applicants will receive 15 days notice for when Type 9 delivery licenses will become available

  • Pre-vetted Tier 1 or Tier 2 applicants subjected to undue concentration limits will have priority

  • Eligible phase 2 applicants will have opportunity to amend their application to include delivery

Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.

CA Cannabis Retail Update

Posted by Margolin & Lawrence on March 7, 2019

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.

Governor Newsom Calls In the National Guard

Posted by Raza Lawrence on February 19, 2019

Are we about to see more enforcement against unlicensed cannabis?

California Governor Gavin Newsom recently announced he is calling for the California National Guard to work with federal officials to target the California illicit market.  Given the history of the war on drugs and the current federal laws imposing harsh criminal and civil sanctions for cannabis, the involvement of the National Guard and the federal government in a new crackdown is concerning.  Governor Newsom’s announcement of this increased enforcement, however, comes amid growing frustration with perceived dysfunction in the state regulatory system and a persistent illicit market that crowds out regulated cannabis.

California has a thriving illicit market in cannabis, estimated by New Frontier Data to be valued at $3.7 billion last year.  This is due to many factors, including California’s unregulated cannabis collectives and cooperatives that operated for years before licensing came, the slow speed at which state and local governments in California have issued licenses, the high taxes and burdensome regulations of the new licensing system, and the demand for California cannabis products throughout the country.

In a sense, the entire cannabis market is an illicit market, as cannabis remains illegal under federal law, which makes any inconsistent California state law allowing cannabis invalid under the Supremacy Clause of the US Constitution. This federal illegality has caused most banks to refuse to do business with cannabis-linked companies, resulting in a largely cash business that is more difficult to track and regulate than it would be if banks were involved.  Federal illegality also makes it so the entire interstate market is illegal and unregulated, though lucrative. 

The California Bureau of Cannabis Control, tasked with regulating cannabis retail sales, has issued a few enforcement actions against some unlicensed dispensaries, but the efforts have been largely symbolic, against only a tiny fraction of the unlicensed operators.  Los Angeles and other cities have also filed misdemeanor cases against unlicensed operators for violations of local licensing laws, but unlicensed dispensaries seem to pop back up faster than they are shut down.

 In order for California’s regulatory project to succeed going forward, the state will need to convince more operators to move to the regulated market, through some combination of greater enforcement and lower taxes and regulatory burdens. 

The large illicit market and slow roll-out of the licensing process have shaken the confidence of many people who are attempting to comply with California laws.  Hopefully, state and local regulators will take advice from frustrated operators, learn from their mis-steps and continue to develop a functioning system.  The state and local governments are trying to find the right regulatory balance.  Over-regulation makes it so difficult and burdensome to comply that only rich people and companies with lots of resources can operate, and an expensive final product that leads many consumers to buy from the illicit market.

For now, many license holders are playing the long game, hoping the illicit market will shrink over time, and more consumers throughout the state (and eventually the country and world) join the regulated cannabis market.  Governor Newsom says that he expects it may take at least five years to develop its complex regulatory system.  If the state gets it right, this can be an industry that drives the state economy, creating more resources and jobs for everyone.

One approach that could be successful would be to offer a more simplified and inexpensive process to get new cannabis businesses up and running.  More burdensome regulations and higher taxes could kick in only after businesses have gotten through the startup phase and adapted to the regulations.  There could be a tiered or graduated system of compliance, taxes, and enforcement that is welcoming to new operators.  Startup costs for new businesses are already very expensive, and high licensing expenses and a burdensome application process can dissuade many people from pursuing licenses who might otherwise want to follow the law.  Lowering the tax rates in the beginning, while businesses get off the ground, could also encourage new entrants to the regulated market.  Once businesses become established and there is a healthy regulated market, taxes could be increased to desired levels.  The government has many tools available to help establish a functioning market.  We are optimistic that the future is bright for the cannabis economy in California.

The 2018 Farm Bill: What it Means for Hemp and CBD

Posted by Margolin & Lawrence on December 11, 2018

The House Committee on Agriculture is in the process of finalizing the 2018 Farm Bill, which is expected to go into effect later this month. It’s likely that the bill’s provisions will include the legalization of hemp, in the form of the removal of the plant from the government’s list of Schedule I Controlled Substances. Not only will this mean that hemp can be grown much more widely, it will also affect the production of hemp derivatives, including hemp-derived CBD. However, the legality of CBD products remains more complicated than this news may suggest.

As discussed in a prior blog post, the legal status of CBD can be very confusing to consumers, businesses, and lawmakers alike. As a substance that is derived from the cannabis plant, but is not cannabis’ main active ingredient, CBD currently occupies an unclear middle ground – particularly in California, where the state has imposed additional rules affecting how the various types of CBD may be legally used.

The legalization of hemp, though a step forward in the overall process of cannabis legalization, doesn’t do much to resolve the confusion surrounding CBD products. Even after hemp is legalized, CBD will be considered a drug and therefore subject to regulation by the FDA. Though the FDA has approved certain cannabis-derived CBD medications, CBD’s status as a drug makes it illegal to use as an ingredient in any kind of food or food additive.

Topicals, oils, and other non-edible forms of hemp-derived CBD, on the other hand, may not necessarily be banned once hemp is legalized. However, the FDA has yet to make a statement regarding this possibility – though they have sent unambiguous legal warnings to CBD businesses that make unsubstantiated or false claims about their products, indicating that they plan to regulate all CBD products to some degree, they’re less clear about the future legal status of hemp-derived CBD and non-edible hemp derivatives in general. 

In California, the law on CBD edibles will remain paradoxical even after hemp is legalized. While CBD products with THC levels of 0.3% or more will be treated as cannabis edibles and therefore legal, CBD products with lower THC levels – or no THC at all – will be considered food products and therefore banned, regardless of whether they’re derived from cannabis or hemp. However, hemp-based non-edible CBD products are not currently regulated by any state agency, meaning their legal status remains unclear. For the sake of the state’s cannabis consumers and businesses, hopefully California will respond to the new Farm Bill by clarifying the legal status of these products.

For more information on the legal status of hemp and CBD, check our Guide to California Cannabis Laws or contact our cannabis attorneys at info@margolinlawrence.com

Los Angeles Cannabis Update: November 29 LA Cannabis Regulation Commission Meeting

Posted by Raza Lawrence on November 30, 2018
Our cannabis attorneys attended yesterday's meeting of the LA Cannabis Regulation Commission. Here are our main takeaways on what was discussed.
 
1.  Enforcement Tactics Against Unlicensed Dispensaries
 
The following enforcement tactics are being considered by City Council:
  • Disconnecting DWP utility services to unlicensed businesses
  • Issuing citations to certain employees working in unlicensed businesses
  • -Sending cease and desist letters to businesses and landlords
  • Requiring all licensed retailers to display an emblem so the public knows whether a given business is licensed
  • Sending letters to creditors and contractors of unlicensed businesses 
  • Bringing civil and criminal cases against unlicensed businesses

2. Opportunity to Appeal Rejected Dispensary Permits


Applicants who applied in Phase 1 and were found to be ineligible based on failure to qualify as an Existing Medical Marijuana Dispensary were given a chance to appeal the written findings of the DCR. These parties were given an opportunity to present their points, with back-and-forth discussion on the points of the appeal with members of the commission.

Each Applicant appealing was allowed either have a single person present the appeal or to have multiple witnesses – each side was allowed to submit any documents up until a week before hearing, and given 10 minutes to present arguments and evidence. The DCR was then allowed to present its case and findings for 10 minutes. The hearing officer could grant either side more time if appropriate, and the applicant was allowed 5 minutes at the end of the session to address DCR’s comments, followed by discussion and questions.

The main issues in the appeal were whether the Applicant had a 2017 L050 BTRC or, if no 2017 BTRC, if the Applicant had a L050 2015 or 2016 BTRC and met all the pre-ICO requirements, including registering for the ICO in 2007.  One applicant was rejected who met all the requirements other than registering for the ICO in 2007 (the City reviewed records of office of city clerk regarding who was on the ICO registry), even though the business had BTRCs from 2007 to 2015 and had been paying taxes all along.

One applicant claimed another applicant mis-used the applicant’s ICO filing, applying under it for priority registration even though he was not an officer or director of the ICO registered entity. However, it turned out the ICO registered entity had registered as a sole proprietor “doing business as” a name similar to the current applicant, and the current applicant corporation was just using a similar same name as the 2007 entity but had a different legal name and different tax history and was a separate legal entity.

There were disputes during the appeals involving BTRCs issued with different account numbers or different entities, BTRCs that had been erroneously issued for addresses outside LA and then closed out, and BTRCs issued to related entities that had failed to follow merger process with the city. As a rule, only the same business entity that meets the eligibility requirements is eligible for priority processing.

Parties found ineligible for priority processing were encouraged to re-apply in Phase 3 general licensing, anticipated to open in 2019.  Going forward, the DCR will prioritize annual licensing for Phase 1 and 2 applicants first, then registration for social equity applicants, and then Phase 3 will open.

For more information on the cannabis licensing and social equity process in Los Angeles, keep checking this blog or reach out to our cannabis attorneys at info@margolinlawrence.com.

Sunset Clauses and California Cannabis

Posted by Jenna Rompel on November 27, 2018

Twilight is approaching in the state of commercial cannabis in California. Pursuant to the Medicinal and Adult-Use Cannabis Regulations and Safety Act (MAUCRSA), Business and Professions Code Section 26050.1, each of the state licensing authorities regulating commercial cannabis are subject to a Sunset Clause that prohibits the issuance or extension of temporary state licenses starting January 1, 2019.

What does this mean for you?

As a reminder, California has a dual-licensing system regulating commercial cannabis in the state. To operate legally, you must have both a local license issued by the local jurisdiction where your business is established, and a state license issued by one of the three state licensing agencies, the Bureau of Cannabis Control (BCC), California Department of Public Health (DPH), and California Department of Food and Agriculture (CDFA). Pursuant to MAUCRSA, the state temporary license enable business to operate while the state processes the annual license application. If you have already received a state temporary license and it expires prior to this date, you must submit an application for an annual license in order to receive the extension.

Each agency has set their own requirements dependent on the license type applied for and may be subject to compliance with ancillary agencies at the state level. Look through the application materials thoroughly, and consider consulting with an attorney to ensure you are in compliance with the necessary documentation.

To apply for a state temporary license, at a minimum you will need:

  • Local Authorization

  • Premises Information

  • Evidence of Legal Right to Occupy

Should the state deem any part of your application incomplete, they will notify the primary contact with an opportunity to rectify any insufficiencies. This will inevitably delay the review of your application until all deficiencies are rectified. We would like to reassure our readers this is a normal part of the licensing process and is common practice to go back and forth with the state to ensure your application is in line with the regulations.

DO NOT DELAY

We advise sticking to the state’s December 1 recommended deadline to submit your application for a temporary license. The review period can take up to several weeks so make sure to submit the application timely to ensure there is sufficient time to receive the license. You may still apply for an annual license after the new year, but are subject to the state’s review period until they issue the annual license. The review period of the annual application can take up to several months. If you do not hold a valid local and state license you are prohibited from conducting commercial cannabis operations in the state.

This can have an significant repercussions for businesses to take into consideration. For example, if you are paying rent on the property and cannot operate can cause significant financial strains. We recommend consulting with an attorney in preparation of the annual license.   

California Department of Public Health - Regulates Cannabis Manufacturing

https://www.cdph.ca.gov/Programs/CEH/DFDCS/MCSB/Pages/MCSB.aspx

California Department of Food and Agriculture - Regulates Cannabis Cultivation

http://calcannabis.cdfa.ca.gov

Bureau of Cannabis Control - Regulates Cannabis Retail, Delivery, Distrbution, Testing, Microbusiness

https://bcc.ca.gov/

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This blog is not intended as legal advice and should not be taken as such. The possession, use, and/or sale of marijuana is illegal under federal law.