Today, the L.A. City Council finally adopted three ordinances (totaling over 70 pages) to regulate and zone the city of Los Angeles’s cannabis businesses pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). The ordinances are: Cannabis Procedures (adding Article 4 to Chapter X of the municipal code), Rules and Regulations for Cannabis Procedures (supplementing Article 4), and zoning for Commercial Cannabis Activity (adding Article 5 to Chapter X of the municipal code). Though these ordinances went through a huge number of tweaks and changes (see here and here), we finally know what L.A.’s regulated cannabis businesses will look like in 2018. This post focuses mainly on the licensing process and operational requirements for would-be licensees in L.A.
Proposition D-compliant dispensaries still get first dibs on the licensing process in L.A. under Prop. M, but the definition of an “existing medical marijuana dispensary” (“EMMD”) has changed somewhat under the revised ordinances. EMMD now means:
. . . an existing medical marijuana dispensary that is in compliance with all restrictions of Proposition D, notwithstanding those restrictions are or would have been repealed, including, but not limited to, either possessing a 2017 L050 BTRC and current with all City-owed business taxes, or received a BTRC in 2007, registered with the City Clerk by November 13, 2007 (in accordance with the requirements under Interim Control Ordinance 179027), received a L050 BTRC in 2015 or 2016 and submits payment for all City-owed business taxes before the License application is deemed complete.
L.A. will still have a local licensing system made up of the following licenses for both medical and adult use cannabis commercial activity: Type 10 (brick and mortar retail); Type 9 (delivery only, non-storefront retailer); Type 12 (microbusiness); Type 1A, 2A, 3A, 4, 5A, and 1C (indoor only cultivation licenses (Type 5s aren’t available from the state right now)); Processor license; Type 6 (non-volatile manufacturing license); Type 7 (volatile manufacturing license); Type P (infusion license); Type N (packaging license); Type 8 (testing); and Type 11 (distributor license). All license applicants in L.A. now need to pay attention to “Undue Concentration”. Undue Concentration means:
. . . the Applicant’s Business Premises is located within a higher cannabis license/population ratio within the community plan based on the 2016 American Community Survey, updated by each decennial census, than the following: ratio of one license per 10,000 residents for Retailer (Type 10); ratio of one license per 7,500 residents for Microbusiness (Type 12); ratio of 1 square foot of cultivated area for every 350 square feet of land zoned M1, M2, M3, MR1, and MR2 with a maximum aggregate of 100,000 square feet of cultivated area and a maximum aggregate number of 15 Licenses at a ratio of one License for every 2,500 square feet of allowable cultivated area for Cultivation (Types 1A, 1C, 2A, 3A, 4 and 5A); and ratio of one license per 7,500 residents for Manufacture (Type 7).
Outside of priority licensing processing for EMMDs, the basic gist of the general licensing process is as follows.
The City of L.A. Department of Cannabis Regulation (“DCR”) is your first stop for submitting your license application once the application window opens (we don’t know when that will be outside of EMMDs). Whether or not you ultimately get your license though is decided by the City of L.A. Cannabis Regulation Commission (“Commission”). Within 10 days of determining that your license application is complete, the DCR will instruct you to provide mailed notice of your application to the owner or owners of business premises, and to the owners and occupants of all property, within 500 feet of your proposed premises property line. Written notice must also be given to the closest neighborhood council, the closest business improvement district and the City Council office within which your proposed business is situated. And for any public hearings regarding your license application, you have to provide written notice of that hearing to all of the foregoing no less than 45 days prior to the date of the hearings.
For retail commercial cannabis activity (which is defined to include sales and distribution of cannabis to the public) and for non-retail commercial cannabis activity taking place in a space that’s more than 30,000 square feet, once your license application is complete and you undergo a mandatory pre-license inspection, the DCR must tell you within 60 days whether they will deny your license application or recommend you to the Commission for a license. DCR can deny your license application with no hearing and based only on written findings for several grounds as laid out in the Cannabis Procedures ordinance, including for being non-responsive, because of Undue Concentration (unless the public convenience exception is met), or because you made material misrepresentations in your application. If DCR recommends the Commission grant you a license, a public hearing must then be held “within the geographic area of the Area Planning Commission”. At this point, the Commission basically has all authority to consider the entire record, Undue Concentration, all public testimony, any public safety issues, and the recommendation of the DCR in deciding whether to issue a license.
For non-retail commercial cannabis activity taking place in a space that’s less than 30,000 square feet, the licensing process is simpler where the DCR can just deny or issue the license without a hearing within 60 days of receiving a complete application and completing a pre-license inspection.
Even though Prop. D. is repealed as of January 1, 2018, for Prop. M priority processing, an EMMD that, as of January 1, 2018, meets all Proposition D requirements will receive limited immunity up until the time it gets Temporary Approval (i.e., DCR-issued temporary approval of your license). This limited immunity terminates if the EMMD fails to seek or obtain a Temporary Approval. Once DCR deems a Proposition M priority processing application is complete and eligible for priority processing, DCR has to issue a Temporary Approval to the EMMD, which then allows the EMMD to maintain its Prop. D immunity (even after that immunity is repealed until it receives a license from the City). Before getting a Temporary Approval (or a license), EMMDs have to submit to a financial audit by the City’s Office of Finance and clear all City tax obligations.
An EMMD issued a license pursuant to Proposition M priority processing is not required to adhere to the zoning, distance and sensitive use restrictions posed by the new zoning laws on the condition that the EMMD operates and continues to operate in compliance with the distance and sensitive use restrictions of Proposition D and so long as it limits on site cultivation, if any, not to exceed the size of its existing square footage of building space as of March 7, 2017, “as documented by dated photographs, building lease entered into on or before March 7, 2017, or other comparable evidence”. This limited grandfathering stops on December 31, 2022, after which all EMMDs must comply with applicable zoning laws.
Of course, there’s way more detail to the licensing process than the foregoing. If you haven’t had a chance to read the ordinances in full, don’t worry–here are the highlights:
- EMMDs can only apply for priority processing during the first 60 days after DCR opens license applications.
- Limitations on licenses are as follows: an applicant can only have up to THREE Type 10 or Type 9 retailer licenses, and cultivators aren’t limited in the number of cultivation licenses they can have but they will have a plant canopy cap citywide of no more than 1.5 acres per applicant (recall, the state no longer has any statewide plant canopy cap limitations). In addition, EMMDs may apply for a maximum of ONE Type 12 microbusiness OR a maximum combination of ONE Type 10 retail license, ONE “Delivery for Retailer License”, ONE Distributor License (Type 11 for self-distribution transport only), ONE manufacturer license (Type 6 only) and ONE cultivation license (Type 1A, 1C, 2A or 3A) identified in its original or amended Business Tax Registration Certificate (“BTRC”) and as “demonstrated in previous Commercial Cannabis Activity as of March 7, 2017.”
- There’s a list of folks who will be ineligible for certain periods of time (or completely ineligible) to receive a local license in L.A. which includes (but is not limited to) persons convicted of “illegal volatile cannabis manufacturing” in violation of the Health and Safety Code, anyone who’s violated state or local hour or labor laws, companies formed outside the U.S., and anyone convicted of violating any law involving distribution of cannabis to minors. And any non-cannabis drug felonies may also be grounds to reject a license application.
- A License is not transferable–there can only be a change of ownership for the licensee. And that change has to be submitted to and approved by DCR.
- A change from non-profit to for-profit status is allowed by an EMMD and it’s exempt from clearance by DCR if “no other ownership change is made in accordance with Proposition D’s ownership rules and notice is provided to DCR within five business days.” This exemption isn’t available after the license issues.
- Temporary approval is also available for those existing non-retail operators who qualify presumably to ensure that L.A. has a smooth transition period from gray market to fully regulated. An applicant who applies for a license for non-retail commercial cannabis activity and who meets the following criteria as determined by DCR will receive Temporary Approval, which gives the applicant limited immunity to operate pending the review of its license application (through essentially April 1, 2018):
- the Business Premises meets all of the land use and sensitive use requirements of the zoning laws;
- there are no fire or life safety violations on the Business Premises; and
- the Applicant:
- was engaged prior to January 1,2016, in the same non-retailer commercial cannabis activity for which it now seeks a license;
- provides evidence and attests under penalty of perjury that it was a supplier to an EMMD prior to January 1, 2017;
- passes a pre-license inspection;
- paid all outstanding City business tax obligations;
- indemnifies the City from any potential liability on a form approved by DCR;
- provides a written agreement with a testing laboratory for testing of all cannabis and cannabis products and attests to testing all of its cannabis and cannabis products in accordance with state standards;
- is not engaged in retailer commercial cannabis activity at the business premises;
- attests that it will cease all operations if denied a state license or city license;
- qualifies under the social equity program;
- attests that it will comply with all operating requirements imposed by DCR and that DCR may immediately suspend or revoke the Temporary Approval if the Aaplicant fails to abide by any City operating requirement.
- We finally have the social equity program codified in law. There are three tiers of social equity applicants based on an applicants’ low-income, previous California cannabis convictions, and cumulative residency in a “Disproportionately Impacted Area.” Tier 1 social equity applicants get priority processing for Type 9 and 10 and for Type 12 (that includes retail) licenses on a 2 to 1 ratio with all non-social equity applicants, and for all non-retail license types, Tier 1-3 social equity applicants get priority processing on a 1 to 1 ratio with all non-social equity applicants. There are multiple ownership and financier restrictions for social equity applicants so that the City can safeguard these applicants from hawkish and predatory business behavior and activities.
- The operational requirements for licensees in L.A. (found in the Rules and Regulations for Cannabis Procedures ordinance) pretty much track the emergency MAUCRSA rules, with a few notable exceptions (and this is not an exhaustive list) — no on-site consumption will be allowed in L.A., and no parties or special events (or even entertainment) of any kind may be held at any licensed cannabis business. And if any company wants to deliver within the City of L.A., it must also get a license from the DCR and/or Commission.
With this kind of comprehensive regulation, it’s not going to be easy to get through the gauntlet of DCR and/or the Commission to receive a local license, so license applicants should prepare themselves accordingly ahead of January 1.