Don't panic. Although the first application cycle for cannabis retail licensing in the City of Los Angeles closed this morning, the real fun is only beginning. After today, the City’s Department of Cannabis Regulation (DCR) will begin to process and review applications submitted in Round 1. Over 800 applications were submitted in the first round, but only 100 applicants will be issued a license through this electronic process. Applicants who are unable to obtain a license in Round 1 of Phase 3 will be eligible to apply for one of the 150 licenses to be issued in Round 2, although it is anticipated that the final round will yield an even larger applicant turnout. However, applicants can apply for a license in an area of undue concentration, and there is no limit on the number of licenses that can be issued through the undue concentration process. Under Los Angeles Municipal Code (LAMC) SEC. 104.20 (Part a.), the number of Social Equity licenses to non-Social Equity licenses is 2:1, which means that if 190 licenses were issues through Measure M Priority Round 1, 380 should be issued through a combination of Round 1 and Round 2 Phase 3 processing, and the "Public Convenience or Necessity (PCN)" process (for areas of undue concentration) described below. If the city abides by its own ratio, 130 retail storefront licenses will be authorized in addition to the 250 through the electronic process.
On September 12th, M&L partner Raza Lawrence participated in a roundtable discussion with a group of attorneys in Downtown LA regarding alternative dispute resolution in cannabis law. This is a growing field becoming more and more important for people operating or starting a cannabis business. Starting a new cannabis business can be complicated, lengthy, and expensive, often including multiple investors, loans, licenses, employees, asset purchases, and phases of construction. As people adapt to the new licensed and regulated system, they are forming new companies and making large investments, and want to have ways to make sure their investment is protected and any disputes are resolved efficiently and fairly.
Now, commercial cannabis operators in California need both local and state licenses, and to comply with detailed local and state regulations. In Los Angeles, the structure and procedure of licensing is complicated further by the social equity program requiring many dispensary licenses to be majority-owned by social equity candidates who meet certain qualifications based on their history of living in certain parts of the city, being arrested for cannabis crimes, and being low income. In addition, cultivation, manufacturing, and distribution licenses in Los Angeles remain tied to “priority” applicants who can show a history of operating in the City, further complicating the business structures.
Disputes and problems inevitably arise when starting any business, even with the most careful plans. This is especially true with California’s complicated and changing cannabis laws, and the continued conflict with federal law. Until recently, California did not regulate or license commercial cannabis businesses. Instead, there was an affirmative defense to the criminal laws to people who operated as nonprofit medical marijuana collectives, jointly owned by all members. Collectives and medical marijuana operators were frequently arrested and prosecuted even when they tried to do things the right way, and laws were vague and unpredictably enforced. People tended to keep few if any records, because they did not want to keep evidence of criminal activity. Many cannabis businesses today are continuations or offshoots of these earlier, unregulated businesses, and have some disputes and growing pains when trying to adapt to the new laws.
People in the cannabis industry have traditionally shied away from courts , preferring to resolve disputes through informal means. That is because what happens in court becomes public record, and testimony and evidence presented in court could incriminate people for violating state or federal criminal laws, or even lead to asset forfeiture. For licensed operators, testifying in court continues to incriminate them under federal law. Distributing cannabis remains illegal under federal law, a felony with potential long jail sentences and asset forfeiture. While there are legal protections against prosecutions for state-licensed medical cannabis operators, the federal law complicates the legal landscape, making court results unpredictable. It can be difficult to even enforce a cannabis-related contract in court, given the federal illegality. Under the US constitution, federal law controls over state law when there is any conflict in the laws, including in the area of cannabis. In addition, many judges and courts start out biased against cannabis, having prosecuted and convicted cannabis defendants with felony charges for years.
Today, as people try to get their companies off the ground and adapt to the new legal regime, they need efficient and effective ways to resolve their inevitable problems and challenges. Court cases are expensive and take a long time. Arbitration and mediation can be much faster and cheaper, and a way to avoid potentially biased and uninformed judges. For all these reasons, we recommend that parties include alternative dispute resolutions in their contracts, requiring the parties to submit any disputes to mediation or arbitration and bypass the traditional court system. This way, parties can select someone they trust to resolve their dispute, using a transparent process agreed to by everyone.
Our law firm has helped numerous people and businesses resolve disputes relating to commercial cannabis. If you have a dispute involving your business, or are looking for ways to avoid them, you can contact our firm for help you find a solution.
Just yesterday, the Department of Cannabis Regulation (DCR) opened up the application process for Round 1 of Phase 3 retail storefront licenses in the City of Los Angeles. Due to heavy restrictions and high demand, appropriate locations for these storefronts can be difficult to come by. Many applicants have locations which meet all guidelines, yet still fall within a community plan area that has reached “undue concentration.” Here’s the 411 on what is expected to happen after the opening of Phase 3 Round 1 applications:
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.