July 8, 2020
New Licensing Procedure for All License Types
● Phase 3 Round 2 for storefront retail licenses will be selected by a lottery opposed to the first come, first served selection process utilized during Phase 3 Round 1. Lottery winners will have a period of one year to find a business location in an area that has not met undue concentration.
● Applicants must pay a new non-refundable pre-application review fee meant to cover DCR’s costs. The DCR will review zoning, location requirements to sensitive uses, and LiveScan information before allowing applications to proceed.
● If there is a problem with zoning or sensitive uses, applicants may submit a new application with a new location.
● If a preliminary review determines the application is eligible to move forward for further processing, the applicant must pay a new Temporary Approval Application Fee covering the costs to review Temporary Approval documents and conduct an Initial Inspection. Initial Inspections are required before issuance of Temporary Approval.
● After issuance of Temporary Approval, applicants are required to pay an Annual License Application Fee covering review of annual license documents, Final Inspection, CEQA clearance and when applicable, scheduling community meetings and a public hearing with the Cannabis Regulation Commission. Final Inspection is required before issuance of an annual license, after DCR determines the application is complete.
The city imposes sensitive use restrictions on commercial cannabis facilities as follows:
● Storefront Retailer: must be outside of a 700’ radius to a school, public park, public library, alcoholism or drug abuse recovery or treatment facility, day care center, permanent supportive housing, and another Type 10 licensed storefront retailer.
● Delivery, Distributor, Cultivator, Non-Volatile Manufacturer, and Testing: must be outside a 600’ radius to a school.
● Volatile Manufacturer: must be outside a 600’ radius to a school and 200’ radius to any residentially zoned property. Note, the city is currently not accepting applications for volatile manufacturing.
● For additional restrictions on where cannabis businesses may operate within the City of Los Angeles refer to LAMC 105.00.
● Licensees will not be required to move locations for any new sensitive use that moves into the area after licensure.
● A new ownership limitation clarifies no one can have 20% or more of profit sharing interest in more than three storefront retail or medium cultivation licenses.
Amendments and Modifications
● A new streamlined process to request application modifications will be implemented including: 1) business premises relocation; 2) ownership structure; 3) legal entity name change; 4) physical modification of business premises; and 5) fictitious business name change.
● At a time specified by the DCR amendment forms will be accepted to make approved modifications pursuant to a fee. Licensees will be able to request license entity name changes so long as the entity number registered with the Secretary of State (SOS) remains the same. This is for corporations, LLCs, and limited partnerships. All relevant documents must be filed with the SOS. Does not mention sole proprietors.
● A new process for application withdrawal will also be implemented.
● Location changes: any applicant is now allowed to relocate their business premises provided that the new location is not in an area that has hit undue concentration and meets all zoning requirements. For cultivation, storefront retail, and volatile manufacturing, may only move within the same community plan area. Other categories may move anywhere in the city.
● Modifications of business premises, expansion of footprint is limited to 500 square feet or 20 percent of the existing business premises floor area, whichever is less. A new proposed premises diagram for any “proposed construction, alterations, addition or expansion of the Business Premises Footprint” must be submitted.
● A new process regarding application modifications related to ownership structure changes must provide the DCR ownership information for each business entity that has
ownership or financial interest, for each layer until only individuals remain. This includes all entities in a multi-layer business structure, as well as the chief financial officer, members of the board of directors, partners, trustees and all Persons who have control of a trust, and managing members or non-members managers of the entity.
● For any ownership change, if at least one exiting owner is not transferring his or her ownership interest and will remain as an owner under the new structure, the business may continue to operate if a Temporary Approval or License has been issued by DCR while it reviews the eligibility of the new owner(s) to determine whether the change would constitute grounds for disqualification of the license pursuant to Section 104.03(a)(1) and (2).
● If all owners will be transferring their ownership interest, the applicant must resubmit all application documents and pay all required application fees. The business shall not operate under the new ownership structure until a new license has been issued by the DCR.
Annual License Renewal
● A renewal inspection will be required before each license renewal.
● DCR are now allowed to conduct community meetings via video or phone conferencing.
● Applicants must now offer to appear before their local Neighborhood Council to address questions about the application after receiving notice of a complete application from the DCR. This comes before the public hearing.
● Applicants must pay a cost for notice mailing and/or posting before Neighborhood Council meetings and the public hearing. There are new procedures for sending electronic notices to relevant groups after the application is deemed complete or after a non PCN application is sent to City Council, mailed notices to nearby properties before any community meetings or the public hearing, and posted notice on property to be licensed.
● DCR will establish a process for the issuance of temporary approval for all applicants, conditioned on the submittal documents, passing an Initial Inspection and provided there are no fire or life safety violations on the business premises.
Type 9 - Delivery Licensing
● Amendments to Type 9 Non-Storefront Retailer application processing delete the delivery pilot program and the ability for non-retail Phase 2 applicants to apply for a delivery license, unless otherwise eligible pursuant to the Social Equity Program.
● There will be a new application period for SEIAs to apply for delivery licenses.
● In order to be eligible to apply for a delivery license applicants must be verified under the original or revised social equity applicant criteria. Original verification was criteria used during the May 28-July 29, 2019 period.
● Round 1 applicants who were ineligible to receive a license due to undue concentration or being knocked out due to the 700’ rule to another Type 10 Retailer will have priority to apply for a delivery license over other SEIAs.
Public Convenience or Necessity (PCN)
● Applicants must file a request for PCN on a form provided by the DCR that the City Council finds that approval of the license application would serve a public convenience or necessity, supported by evidence in the record. New approval standards are set forth in the amendments.
● Applicants are allowed to apply for a Type 10 Retail License with a verified social equity applicant in community plan areas that have hit undue concentration. Criteria to be considered for a finding of PCN are:
○ The business is located in an area not already concentrated by existing cannabis businesses;
○ The area has increased density or consumer traffic satisfying a higher demand for cannabis retailers;
○ Located in an area with a higher concentrated number of unlicensed businesses with the aim to increase demand and access to legal cannabis retailers; and
○ Will have an impact to reduce crime or nuisance in the area.
New Social Equity Program Rules
● All retail storefront and delivery licenses will be limited to Social Equity Applicants until 2025.
● There will be a new 60 day period for becoming qualified as a Social Equity Applicant, before Phase 3 Round 2. DCR will have 90 days to review and determine eligibility.
● There are new definitions of “low income” (accounting for assets and household size) and “Disproportionately Impacted Areas” (DIA) (based on police reporting districts rather than zip codes) that will be used to qualify social equity applicants, and new applicants will have to meet two of the three of a) low income; b) prior cannabis arrest or conviction; or c) 10 years cumulative residence in a DIA.
● Social Equity Applicants now must provide all business records and agreements necessary to demonstrate that the Social Equity Individual Applicant meets the new “Equity Share” definition. The new provisions seek to mitigate against potential predatory practices and would require that all SEIAs currently operating comply with the expanded definition of Equity Share by January 2021.
● The new “Equity Share” definition is expanded to ensure SEIAs have control over at least the equity share percent of the voting rights on all decisions involving the operation of the business, and are offered the highest officer position of the business, but another person can be appointed to that position by mutual agreement of the parties.
● Now, if a social equity applicant dies, their rights of ownership will go to the surviving spouse for a maximum of 10 years, or until the spouse remarries or relinquishes ownership interest, whichever comes first.
● The amendments state that, in order to apply for the next lottery round of dispensary licenses, Los Angeles will “require that an individual who seeks to participate in Type 10 Retail Round 2 application processing, to have a prior California Arrest or Conviction and either meet one of the following two criteria: a) low income; b) 10 years cumulative residency in a DIA.
Revised Social Equity Program and Round 2: Contradictory information on whether SEIAs can participate in the Round 2 Lottery
One part of the ordinance states that all lottery applicants will need to meet the revised criteria of equity share requirements.
Another part of the ordinance states that already verified SEIAs can participate in the lottery.
Executive Director Cat Packer publicly supported the position that the ordinance requires SEIAs eligibility under the new criteria in order to apply in the lottery.
The new criteria requires an applicant MUST have a California arrest or conviction AND one of the two criteria: a) low income; b) 10 years cumulative residency in a Disproportionately Impacted Area (DIA).
Eligibility criteria pursuant to the revised definitions pursuant to Section 104.20(b) for cannabis arrest or conviction, DIA, and low income.
We called the DCR who reported to Margolin & Lawrence that they will have answers to this issue after their executive meeting this week.
All retail licensees will need to meet the revised criteria of equity share requirements. Existing Phase 3 Round 1 licensees will need to revise their equity share to meet the newly established criteria.
For more information about this post, contact Margolin & Lawrence.