Seismic Licensing Changes Coming to Los Angeles

The third party audit of the City of Los Angeles Department of Cannabis Regulation (DCR) Phase 3 Round 1 application process for new cannabis retailers is complete. In response, DCR issued a set of pretty seismic recommendations that, if passed by the City Council and approved by the Mayor, will impact cannabis licensing in LA from here on out. The proposed amendments are based on audit findings, DCR’s lessons learned from licensing and policy implementation so far, and feedback from the community and stakeholders.

In this Green Frontier Bulletin, we highlight anticipated changes, lay out immediate next steps, and identify key takeaways. A brief refresher on the phased approach to cannabis licensing in Los Angeles is at the end for your reference.

Here’s what we might expect in the proposed ordinance revisions:

(1) A New “Equity Share” Definition & New “Equity Plan” Requirement

DCR recommendations do not give any detail on what will be required of applicants in the new “Equity Plan” requirement. We will have to wait and see on that one. Under the recommendations, the definition of “Equity Share” will be amended to “ensure that those most impacted have unconditional and direct control of their businesses” and will be based on best practices and input from Social Equity Program stakeholders. It is likely that “The 100” who have made it into the next round of application processing will have to revisit their equity agreements to ensure they comply with the newly amended definition.

(2) New Requirements for Round 1 Applicants

The 100 would receive Temporary Approval and be fast tracked to doors open. The Temporary Approval requirements seem to allow these applicants to sidestep public hearings — and given how contentious the process has been, this is a big deal.

Temporary Approval is contingent upon meeting certain requirements, including:

a. Submitting an Equity Plan;

b. Demonstrating compliance with the amended “Equity Share” definition;

c. Passing a pre-inspection; and

d. State authorization.

See the DCR’s response for more details and a complete list.

This does not mean that The 100 would not need to ever appear before their Neighborhood Council, present their application at a Community Meeting, or have a hearing before the Cannabis Commission. Applicants should still expect public hearings at some point down the line, likely in order to secure an Annual License; it just may mean applicants can open doors with Temporary Approval without all those steps.

(3) A Second Bite at the Apple – Priority Processing for Ineligible R1s

For the approximately 700 applicants that didn’t make it into The 100, priority processing would be available to them for future licensing opportunities in LA. That means they would be at the front of the line for one cannabis activity that is not subject to undue concentration. So, for non-volatile manufacturing, distribution and non-storefront delivery.

(4) New Eligibility Criteria for Social Equity Program

For Phase 3 Retail Round 2 and beyond, the DCR wants to “more appropriately target those individuals and communities whose lives were most impacted by the Drug War.” That includes changing the SEP criteria in the following ways:

Amending the definition of “Low Income;”
Amending “Disproportionately Impacted Areas” (“DIA”) from zip codes to Police Reporting Districts;
Must have a minimum 10 years of residency to qualify; and
Amending the “Social Equity Individual Applicant” definition to mean a natural person who owns no less than 51% Equity Share and meets TWO of these THREE criteria: (1) low income, (2) residency for 10 years in a DIA, and/or (3) cannabis arrest or conviction. This would mean no more “Tier 2s” and 33 ⅓ equity ownership.

(5) Phase 3 Round 2 Processed by Lottery

Round 2 applications would be processed by a lottery. Eligibility to be entered into the lottery depends on verification under the new SEP definition and clearing a background check. If eligible, applicants would be entered into a lottery to decide who can apply for the available retail cannabis licenses. This means applicants can wait to lease property and put off certain startup expenditures until they know they’ve been selected.

What Happens Next:

The LA City Council has to adopt these recommendations.
The DCR has to prepare and present an amended ordinance.

Stay tuned for more details. We will share with you as we get them.

Key Takeaways

Who qualifies for social equity and/or cannabis licenses in LA is changing.

Expect increased scrutiny of relationships between equity investors and applicants. We are awaiting guidance about what an equity share in a business will mean moving forward.

The DCR is signaling that application windows for non-retail will be open soon.

Even if you’re in another jurisdiction, you may want to keep tabs on LA. Changes in LA could influence Social Equity Programs elsewhere; we know that cannabis program directors in other jurisdictions have seen equity plans that don’t meet the intent of the law and are thinking about how to improve policy.

If you’re one of The 100, be prepared for new rules around what it means to have an equity share and know that you’ll need to submit a new equity plan. We are awaiting guidance about what the new plan should look like.

If you’re one of The 700 who didn’t get into Round 1, you may have another chance to apply soon but under different categories.

Refresher: City of LA’s Cannabis Licensing Phases

Whether it’s a second bite at the apple because you didn’t make it into the 100, or developing an Equity Plan and revisiting your equity agreements, or if you want to qualify for further rounds, we are here to help.

This email is provided as informational only and does not constitute legal advice.

If you have any questions about any of the above, please contact your attorney directly or call our main line at 877-257-2442.

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