Big changes are coming for L.A.’s long-awaited Phase 3 licensing regarding storefront retail. The last time I wrote on this topic, the Department of Cannabis Regulation (“DCR”) made several proposals to City Council on how to re-vamp Phase 3 licensing for efficiency and expediency, which at the time the City Council pretty much rejected. However, last week, the Council came around and Phase 3 is going to look a lot different than anyone may have anticipated. Needless to say there are going to be some winners and a lot of losers in the City of Angels.
On March 8, City Council requested the City Attorney develop an ordinance (based on these instructions) to, among other things, overhaul Phase 3 licensing for type 10 retail storefronts. It’s no secret now that only 200 retail licenses remain in the City when you do the math on undue concentration limits. And all 200 licenses are destined for social equity applicants because of existing City laws. Previously, the DCR was weighing what to do with these 200 licenses–would they be given on a first come, first serve basis? Via lotto? Via merit? As of Friday, here’s how the City plans to proceed in Phase 3 regarding retail storefront licenses, which will now take place in two sub-phases:
In a 14-day window, the DCR will first process the initial 100 storefront licenses for folks who have been “pre-verified” as Tier 1 or 2 social equity applicants (there is no mention of Tier 3 applicants getting any kind of priority here). Pre-verification means that the applicants can prove how they meet their social equity tier and that they ink an indemnification agreement with the City. Plus, those Tier 1s and 2s, at the time of application submission to ensure a complete application, also have to meet “basic qualifications,” which are to:
provide a signed lease with proof of payment or deposit, or a property deed;
meet all sensitive use requirements, including undue concentration;
pay of required license fees;
provide ownership organizational structure;
provide financial information;
provide proposed staffing plan;
provide complete and detailed diagram;
provide proposed security plan;
provide the applicable radius map;
provide a labor peace agreement; and
demonstrate compliance with the City’s Equity Share rules (I.e., tier 1s get 51% of the business and tier 2s get 33%).
In addition, “75 percent of the licenses will be reserved for Tier 1 applicants, unless 75 qualified Tier 1 applicants cannot be identified,” only one application per applicant is allowed, and Type 10 EMMDs cannot participate in this sub-Phase 1. Importantly, these folks cannot relocate their businesses while in the licensing process, and the qualifying Tier 1 or 2 individual cannot sell their equity in the business and must maintain their equity share in the business during the licensing process.
Unless and until the first batch of licenses is sorted and the City has established/funded compliance assistance programs for Social Equity applicants, no more Phase 3 retail licensing will occur. So, it could be a while before we see what goes down with the second hundred retail storefront licenses.
Once the first 100 licenses are taken care of and we have compliance assistance for Social Equity, DCR will proceed with processing the additional 100 Tier 1 and Tier 2 Social Equity storefront retail applications in a 30-day window, but there won’t be priority for Tier 1s and 2s during this Phase 2. The basic qualifications to apply are less than for Phase 1, but within 90 days of application, the applicants in this phase have to provide proof of right to occupy real estate as well as the other required documentation for eligibility including SOPs and a radius map. And the restrictions on this phase are the same as Phase 1–no moving locations during the licensing process and no selling of equity by the qualifying social equity individual who must maintain their equity throughout the licensing process.
Without a doubt, the City and applicants are going to face issues with the concept of submitting “complete applications” during the open windows. In both phases, applicants have 5 days from submission to correct any application deficiencies and then they’re locked out, so I don’t anticipate the City allowing applicants to amend their applications after-the-fact if it goes to completeness. The other question is what happens if the City receives more than 100 qualifying applicants in Phase 1? Presumably this mechanism of the “complete application” solves that problem though there are bound to be issues regarding timing without any official first come, first serve standard (though your application will be time-stamped and dated at submission). And if someone ahead of you is DQ’ed, do you move up in the line? And, if so, when? For folks who have been sitting on property in Los Angeles for some time now, there’s likely no guarantee of success in Phase 1 if you don’t act quickly to file and all have all of your ducks lined up within that two-week window.
The overall good news is that we now have a clear road map for licensing in Phase 3 in L.A. No one knows still when this window will actually. open, but when it does it’s undoubtedly going to be a serious race to file for those first 100 licenses.
Since joining Harris Bricken in 2010, Hilary has earned a reputation as an exceptional and fearless business law attorney. Hilary’s clients—start-ups, entrepreneurs, and companies in all stages of development—value her bold approach to business strategy. Hilary also appears before city councils and community forums, where she advocates tirelessly for her clients.
Hilary’s clients reflect the diversity and ingenuity of the West Coast and she takes pride in her strong client relationships, which allow her to hone in on each company’s unique needs and goals. Nothing brings Hilary greater satisfaction than helping a business thrive in a cutting-edge industry.