LA Phase III Cannabis Update - Feb. 2019

On February 8th, the DCR recommended a number of amendments to the current Los Angeles cannabis program, mostly relating to Phase III, at the Rules, Elections, and Intergovernmental Relations Committee meeting. These are proposals from DCR to the Council and do not go into effect immediately, but it is likely that some of these changes will be implemented. The City Attorney will draft a new ordinance that incorporates these amendments to the existing program, and they will be presented to the Council for a vote before they go into effect.

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Here is a summary of some of the key takeaways:

Los Angeles Phase III - 100 Cannabis Storefront Retail Licenses in Spring 2019

DCR proposes either a lottery or a first-in-time system to process the first 100 cannabis storefront retail applications this spring. Under this bifurcated framework, only those companies who have been pre-verified to have a Tier 1 or Tier 2 owner with the requisite equity share will be able to apply for these spots. In addition, DCR is going to report back to the City Council within 45 days (by the end of March 2019) with recommendations for a merit-based application system, where retailer applications will be scored based on a set of criteria DCR has proposed. Under this proposal, another 100 cannabis retail licenses would be held for licensing at a later date under the merit-based system.

Los Angeles Cannabis Delivery - Pilot Program

DCR recommends the creation of a delivery pilot program to begin this spring, which will process 40 Tier 1 or Tier 2 delivery applications, and 20 general/non-social equity applications (adhering to the 2:1 ratio adopted in the original ordinance) for a total of 60 delivery licenses. DCR recommends processing these on a first come, first served method based on the submittal timestamp.

Note that DCR is recommending that the applicant NOT be eligible to apply in the pilot program if any of its owners are owners of (i) a Phase 1 applicant with Temporary Approval, (ii) a Phase 2 applicant or (iii) have applied or will apply for a storefront retail license in Phase 3. In other words, the delivery pilot program is meant for those who will only be operating a delivery operation and is not accessible to those participating in other rounds of L.A. cannabis licensing.

Increasing Retail License Limit from 3 to 12

DCR proposes increasing the number of retailer licenses an individual can hold from 3 to 12 for those who own less than a 49% share of a Tier 1 storefront.

Increasing Delivery Inventory Limit from $3,000 to $5,000, Consistent with State Law

DCR also recommends that the Commission increase the limit of inventory a cannabis delivery vehicle can contain from $3,000 to $5,000 of inventory, so that it is consistent with State Law. This will allow for mobile storefronts with larger inventory.

Temporary Approval for Phase 3

The original ordinance did not allow DCR to grant temporary approval to Phase 3 retailers. The DCR is recommending that a new ordinance be drafted that amends the previous one and allows for Phase 3 retailers to receive temporary approvals from DCR.

Streamlining Social Equity Requirements

DCR proposes simplifying the social equity program and rather than having different qualifications for Tier 1 and Tier 2, combining them so that you can qualify for either if you meet any of the following criteria:

(i) Low Income and has a California Cannabis Arrest or Conviction;

(ii) Low Income and has resided in a Disproportionately Impacted Area for at least 5 years; or

(iii) Resided in a Disproportionately Impacted Area for at least 10 years

Some of the open questions left are whether the City will grant more delivery licenses than the 60 pilot program ones and whether storefront retailers will also be able to obtain delivery licenses later in Phase III.

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Lauren Estevez is an attorney who advises international, multi-state and California cannabis brands, operators, and investors. She is nationally recognized as a subject matter expert in Cannabis Law and her work has been featured on CNBC, Bloomberg Law, and SXSW. The National Law Journal awarded Lauren the recognition of Cannabis Law Trailblazer in 2019. Lauren is the founder of LME Law.