Los Angeles (Finally) Passes Cannabis Business Regulations

Last week, the Los Angeles City Council adopted three ordinances to regulate and zone the City’s cannabis businesses pursuant to California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). The ordinances are: Cannabis Procedures, Rules and Regulations for Cannabis Procedures, and zoning for Commercial Cannabis Activity. Though these ordinances went through many iterations (see here and here), we finally know what L.A’s licensing process and operational requirements will be in 2018.

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 to now mean the following:

. . . 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that is in compliance with all restrictions of Proposition D, notwithstanding those restrictions are or would have been repealed, including, but not limited to, either possessing a 2017 L050 Business Tax Registration Certificate (“BTRC”) and current with all City-owed business taxes, or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.

Existing non-retail operators (i.e., manufacturers and cultivators) will be eligible to keep operating with limited immunity (through essentially April 1, 2018) if they satisfy a litany of requirements set forth in the ordinances.

With passage of the ordinances, we finally have a 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. 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 cannabis within the City of L.A., it must also get a license from the DCR and/or Commission. L.A. will also allow for adult use and medical licenses for pretty much all licensed activity, excluding outdoor and mixed light grows of certain sizes. In addition, all license applicants in L.A. now need to pay attention to “Undue Concentration”:

. . . 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).

If you’re in a geographical area of Undue Concentration, you have to file with the City Clerk on a form provided by the Department of Cannabis Regulation (“DCR”), “a request that the City Council find that approval of the License application would serve public convenience or necessity, supported by evidence in the record.” If the City Council does not act on your request within 90 days, it will be deemed to support “public convenience.” See here for the City’s calculations around Undue Concentration.

For the actual licensing process, DCR is your first stop for submitting your license application once the application window opens. Whether you ultimately get your license though will be decided by the City of L.A. Cannabis Regulation Commission (“Commission”). Within 10 days of determining 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.

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. In addition, the state opened temporary licensing this past Friday and to better prepare folks for temporary and annual licensing, my firm will be hosting a free webinar on December 18th to cover the ins, outs, and gritty details. For more information and to register for that webinar, see here.

SOURCE = https://abovethelaw.com/2017/12/icymi-los-angeles-finally-passes-cannabis-business-regulations/