Our California cannabis attorneys are constantly receiving inquiries from individuals interested in starting cannabis companies in the City of Los Angeles. But for many reasons, Los Angeles is not the best place to set up shop.
First, you will not be able to operate a legally compliant business (except under a very small exception). Los Angeles does not permit any cannabis businesses but allows a select 135 businesses to operate under immunity from prohibition under Proposition D. These businesses must meet certain criteria, the first of which is that they have been registered to operate in the city since 2007 (also known as “pre-ICO” businesses). This means your only options for starting a cannabis business in Los Angeles are to either purchase an existing pre-ICO business or find yourself a working time machine. (Note: Los Angeles County is even more restrictive with a nearly complete ban on all marijuana activities.)
Second, if you decide to move forward anyway and operate an illegal cannabis business in Los Angeles, you risk severe fines and possible jail time. The Los Angeles City Attorney has been busy cracking down on illegal cannabis businesses and claimed to have shut down over 500 illegal businesses as of early last year. More recently, the City began targeting illegal cannabis delivery companies through court-enforced injunctions and landlords renting to illegal businesses through criminal complaints. Here again is a list of over 400 criminal cases filed against illegal medical marijuana businesses by the Los Angeles City Attorney as of July 7, 2016.
Finally, if you are at all interested in obtaining a state license in 2018, then you would be wise not to locate your business in Los Angeles. Both the MCRSA and Proposition 64 require applicants to demonstrate compliance with local laws in order to apply for and receive a state-issued cannabis license. For Los Angeles-based businesses, that means showing compliance with Proposition D through confirmation to the state from the City itself. Again, this option will be limited to those select businesses that have been operating since 2007.
Yet even with all these factors against setting up a cannabis business in Los Angeles, there continues to be a lot of interest in the area. One explanation could be the dispensaries on every corner that lead some to falsely assume cannabis businesses are not only legal in Los Angeles, but very easy to start. Another cause of confusion is the fact the Los Angeles has continued to issue tax certificates to illegal cannabis businesses. But it is an “urban legend” that receiving a tax certificate means a business is legal. In fact, earlier this year, the Los Angeles City Council voted to stop issuing new tax certificates to medical marijuana collectives while emphasizing that an issued tax certificate does not indicate a business is legal.
We want to remind everyone operating or interested in starting a cannabis business in the City of Los Angles, that registering to pay taxes as a cannabis business gives you zero rights to operate in Los Angeles and provides zero defense if the City later shuts you down for operating illegally. To put it bluntly, unless you are one of the aforementioned 135 businesses granted immunity under Proposition D, you are operating an illegal drug business in violation of local, state, and federal law.