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.
Operational compliance has become paramount to the success of many cannabis businesses following new state regulations that went into effect earlier this year. For others, non-compliance has been a great downfall. Following the legalization of commercial cannabis, the state of California hastily drafted and passed emergency regulations which outlined licensing and operational requirements for cannabis businesses under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). These emergency regulations went into effect in December of 2017 to provide a temporary solution for the lack of cannabis legislation until more thorough regulations could be drafted and adopted by state agencies. Just three months ago, the Office of Administrative Law (OAL) approved new regulations which were immediately adopted by all three state licensing agencies. The new regulations include many significant changes from the previous emergency regulations and introduce more restrictive guidelines for cannabis businesses. Further, the new regulations define serious implications for businesses who violate the new guidelines – from fines up to $250,000 to loss of licensure. In recent months, a rapid number of compliance enforcement agencies have emerged at both the local and state level. Licensed cannabis businesses in California have experienced a peak in random compliance inspection visits, raids from local and state law enforcement, and seizure of cannabis products. With the commercial cannabis industry now in full effect, local and state agencies are beginning to focus less on setting the framework for the industry and more on enforcement of regulations.
A majority of licensed cannabis businesses are in some way in violation of current regulations despite their intentional efforts to comply. This is largely due to the cumbersome location-dependent nature of cannabis regulations. Although cannabis is legal in the state of California, commercial cannabis businesses are still federally illegal, and there is no federal legislation governing the licensing and operational compliance of cannabis businesses. As a result, cannabis regulations vary between states. Further convoluting the concept of cannabis compliance, regulations also vary within-state and are dependent on legislation issued by local authorities. All California cannabis businesses must adhere to statewide regulations enforced by the three state agencies – the Bureau of Cannabis Control (BCC), the California Department of Public Health (CDPH), and the California Department of Food and Agriculture (CDFA) – in addition to guidelines enforced by local agencies. For instance, outdoor cultivation is legal at the state level per the CDFA, but it is prohibited within the City of Los Angeles per the local Department of Cannabis Regulation (DCR). Cannabis businesses must also comply with local Fire Department safety codes which also vary by jurisdiction.
With compliance enforcement on the rise, it is crucial for all cannabis businesses to stay informed about both state and local regulations in order to avoid high penalties or business closure. Our firm offers full-coverage compliance counseling to licensed cannabis businesses. Our team is in regular attendance of local city hall and county government meetings pertaining to commercial cannabis in all areas of California and maintains current knowledge of the ever-changing regulations. We provide counsel in all areas of business compliance for cannabis retailers, distributors, cultivators, and microbusinesses. Our attorneys have a combined 20+ years of experience in the commercial cannabis industry and are active in compliance consulting throughout the state. We are able to provide our clients with expert contractors in building safety code pre-inspection, packaging and labeling compliance, product inventory and storage, advertisement restrictions, etc. We would love to help ensure that your cannabis business is successful and in compliance with all local and state regulations, giving you one less thing to worry about. If you have any questions or would like to speak with our attorneys to further discuss our compliance services, please feel free to reach us via email (firstname.lastname@example.org) or phone (323-253-9700).
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.
The LA City Council held a meeting today to follow up on the April 1 meeting of the Budget Committee and approve the recommendations made on April 1. After a good deal of discussion about the enforcement efforts against unlicensed dispensaries, the City Council approved all the recommendations with only minor revisions. This means the licensing process can now move forward.
The funding approved today by the City Council will allow the Social Equity Program to move forward, which is an integral part of the upcoming Phase 3 licensing process awarding cannabis licenses to new businesses in the City of LA. So far, the licensing has been delayed while the City has worked through issues surrounding the Social Equity Program. We are still waiting for the City to announce details of the timing of the next phase of LA cannabis licensing. This phase will start with the issuance of 200 retail storefront and 40 retail delivery licenses, issued largely to Social Equity applicants.
Now that the City Council has approved the Social Equity funding, we expect the licensing to open up soon, and now is the time for anyone interested in applying to find a property and get all the elements of their applications in order.
Before the ruling on the Social Equity funding, there was an update on enforcement efforts against unlicensed cannabis businesses, including utilities disconnects, cease and desist letters, and search warrants.
So far, the City has been shutting down the illegal businesses bureau by bureau. The City started the crackdown in the Valley, where it has gone to 22 locations, with 10 more scheduled for next week when it will be finished with the Valley. Then, it will move to the South bureau, where it will start with 10 locations in the Harbor area, and then move to the Southeast. The City has also been disconnecting utilities from unlicensed businesses in the past month. $2.3 million has been set aside by the police department for cannabis enforcement.
The Cannabis Regulations Commission met on March 5th and presented their recommendations to the City Attorney that would establish policies for processing 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 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
- 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
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.
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
As recreational cannabis becomes legal in California, the marijuana industry is expanding into a number of different spaces that previously were impossible to operate in legally. One of the most exciting of these new opportunities is the cannabis lounge. Made famous by Amsterdam’s marijuana cafés, lounges are cannabis retail businesses that also allow for the on-site consumption of cannabis – an exciting possibility for customers, business owners, and investors alike. However, while a great deal of interest in these businesses exists across the state, only a few jurisdictions in California plan to allow cannabis lounges, and only some of those locations currently are open to licensed cannabis lounge operations.
When it comes to cannabis lounges currently in operation, the Bay Area is ahead of the pack by a wide margin, with a number of cannabis lounges fully licensed and open for business – seven in San Francisco and one in Oakland, according to a recent Leafly article. No other jurisdiction, in California or elsewhere, has more individual lounges in operation. However, several other cities in California are in the process of opening up for fully licensed cannabis lounge business.
After the Bay Area, the Los Angeles area is furthest ahead in the process of cannabis lounge licensing. Earlier this year, West Hollywood opened applications for cannabis lounges, planning to grant a total of 16 licenses – 8 for edible-only lounges, and 8 for lounges allowing edibles, smoking, and vaping. These applications are still under review, but the city plans to announce its decisions by the end of November, meaning operational businesses may be only a few months away. The city of Los Angeles has also shown interest in social consumption lounges. Between LA City and West Hollywood, this indicates that LA county may not be far behind the Bay Area when it comes to cannabis lounges.
While San Francisco and Los Angeles are the largest California cities to move toward legalizing cannabis lounges, several other areas in the state are beginning to explore the possibility as well. Earlier this month, the city of Eureka voted to allow on-site consumption. After voting to approve cannabis lounges last year, the city of Palm Springs issued its first permit for on-site cannabis consumption this summer, and, though the business in question has yet to open, several other communities in Coachella Valley are considering following suit.
While cannabis lounges remain a controversial issue in many communities, with local residents concerned about the potential nuisances that may come with legal on-site consumption, many cities across California are also beginning to see their potential economic and social appeal. Given the large amount of consumer interest demonstrated in the cities that have already moved toward licensing on-site consumption, the number of jurisdictions embracing legal cannabis lounges can be expected to increase in the future.