Hilary Bricken
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The Top 10: What We Still Don't Know About L.A.'s Cannabis Business Laws
What’s in Los Angeles’ Cannabis Business Laws? What You Don’t Know Might Hurt You.

It was a massive step forward for L.A. to pass its suite of ordinances that now make up Measure M, which regulates, licenses, and taxes cannabis businesses within the City’s borders. However, since the passage of those ordinances, we’ve gotten non-stop questions about the details of certain provisions therein and what they actually mean and what effect they’ll have during the application process and operationally. To help stakeholders better understand some of the gaps and/or ambiguities posed by these ordinances, we wanted to provide the following FAQ list:

  1. Does the City have a website for the Department of Cannabis Regulation (DCR) or Cannabis Regulation Commission? Unfortunately, the answer is still no. The County of L.A. has one, but don’t get confused–L.A. County’s cannabis laws have no bearing on City of L.A. cannabis businesses. Having a website for the DCR is going to be incredibly important though since all licensees should have to file for their local licenses online with the City (though other portions of the Rules and Regulations ordinance do mandate that each applicant receive a time and date stamp upon DCR’s receipt of their application or “the electronic equivalent,” so hardcopy submissions may or may not be in play).
  2. What are the licensing fees? In all of the reporting on L.A. dropping these regulations, coverage on actual licensing fees was, on the whole, left out (probably because the licensing fee schedule was just adopted by council on December 13th), but here they are. EMMDs seeking retail licenses or microbusiness licenses with retail have to pay $9,360; pre-existing non-retailers have to pay $11,806 for each license they pursue; and everyone else (including EMMDs that want other license types outside of retail and retail microbusiness) have to pay $8,059 per license application.
  3. Where is a copy of the license application? As of the writing of this post, the “master license application” doesn’t yet exist (at least, not that I could find anywhere) and the City presumably still needs to create it. Even though the ordinances outline what you’ll have to provide to the City in the master license application, it doesn’t say in what format (other than online or potentially in physical hard copy) or concerning what exact details or demonstrative exhibits have to go into your licensing submissions regarding specific operational plans per license type.
  4. If I have local approval for my cannabis business in another California city or county, can I do business with L.A. operators? The short answer is yes for almost all license types. However, in specific regard to retail delivery, L.A. mandates that “[n]o person shall conduct any deliveries within the boundaries of the City of Los Angeles without first obtaining the required license from the DCR. Furthermore, no Licensee is authorized to provide delivery services outside of the City of Los Angeles under a license issued by the DCR, unless authorized by the jurisdiction where the delivery is to be made.” Additionally, “[a] Licensee may only deliver cannabis goods to a physical address within the boundaries of the City of Los Angeles [and a] Licensee may only deliver outside of the City of Los Angeles with the approval of DCR and the affected jurisdiction.”
  5. Can I sublease my licensed premises? L.A. says no, you can’t, unless you get written approval from DCR first. However, licensee subletting is prohibited by current MAUCRSA regulations, so it’s a moot point.
  6. Selling untested product–what’s the deal? Under L.A. law, “[u]p to 120 days after the date of City licensure or April 1, 2018, whichever is sooner, a Licensee may sell its inventory of untested cannabis goods if the Licensee places a label on each package it sells with the date of purchase and the following statement: ‘This product has not been tested under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).'” However, under current MAUCRSA regulations, if a licensee possesses cannabis products made or manufactured from before 1/1/2018, those untested products can enter and be sold in the regulated marketplace untested (so long as they’re packaged and labeled accordingly) until July 1, 2018. However, in L.A., it appears there’s going to be an earlier cut off date regarding the sale of untested products, so prepare accordingly.
  7. If I’m an existing cultivator or manufacturer in the City, do I have to qualify for the social equity program in order to keep operating while my license application is pending? The short answer is yes. In addition to a slew of other qualifications (including proof of engagement in non-retail cannabis activities (i.e., growing or manufacturing) prior to January 1, 2016), you have to be able to qualify for the social equity program in order to continue operating while your license application is pending. What does that mean? It means you have to fall into Tier 1, 2, or 3 of the social equity program set forth at section 104.20 of the Cannabis Procedures ordinance.
  8. How will non-profit transitions for EMMDs work? Since L.A. allows for-profit operation and because both the city and state licenses are not transferable, new license applicants will very likely apply for city licenses as for-profit entities. However, almost all EMMDs are organized as some form of non-profit because of California’s Compassionate Use Act and a 2008 State Attorney General memo regarding “collectives”. Still, L.A.’s new cannabis laws state that:

A change from non-profit status to for-profit status by an EMMD is exempt from [having to get the City’s approval of the change] 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 is not available after a license is issued.”

Does this mean that EMMDs can have a for-profit waiting in the wings when they apply for licensure or can they just apply with a for-profit so long as they can show they were running a compliant EMMD? Or do they have to apply as non-profits first and then transition that entity to a for-profit company after licensure? It seems like the latter is the case if you want Priority M processing, which is likely going to pose significant problems for EMMDs whose bylaws, on the whole, likely don’t exactly allow for conversion or merger into a for-profit (see here fore more on that particular issue).

  1. When does the license application window open? No opening deadline for applications was set in the ordinances other than that:
    1. Pre-ICO/Prop. D dispensaries (now known under the new laws as “existing medical marijuana dispensaries” or “EMMDs”), including their delivery and on-site cultivation operations consistent with Proposition D, “shall be accepted and processed by DCR for the first 60 days after DCR starts accepting applications”; and
    2. Existing non-retail operators (who meet all qualifying conditions under section 104.08 of the Cannabis Procedures ordinance) can have their applications processed by DCR until April 1, 2018.

Regarding other license types, it’s anyone’s guess as to when applications will become available and be accepted by the City.

  1. What is undue concentration and how does it work? L.A. doesn’t have a formal license cap on licensees, but it does have a de facto cap based on “undue concentration” for pretty much everyone who’s not a distributor or a Pre-ICO/Prop. D compliant dispensary. 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).

Here are the City’s calculations for the undue concentration limitations by license type. To understand how undue concentration works, let’s analyze Chatsworth. The Chatsworth region has 101,427 residents. On the numbers, 101,427/10,000 equals around 10 dispensary licenses for Chatsworth (note that each microbusiness with a retail license counts against the retail limit). Growing is a little more complicated. The City has calculated that between the M1, M2, M3, MR1, and MR2 zones located in Chatsworth there exists 59,207,864 eligible square feet for cultivation. Note that the City’s calculation does NOT say what the eligible square feet for cultivation is per zone, it’s just the total across all zones. If you have an 80,000 square foot building, 80,000/350 equals one 114 square foot cultivation site. However, that calculation is misleading unless you know the eligible square footage within your exact zone as it may expand or lower that number. In addition, who’s to say that all eligible square footage will actually be used or even leased? As a result, it’s going to be extremely tough to determine and plan for how large of a grow you can have at a given property.

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The Canna Law Blog™ is a forum for discussion about the practical aspects of cannabis law and how it impacts those involved in this growing industry. We will provide insight into how canna businesspeople can use the law to their advantage…

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Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law.