Major Changes Recommended for Los Angeles’ Phase III Storefront Cannabis Retail Licensing Process

On February 8, 2019, the Los Angeles Department of Cannabis Regulation (“the DCR”) issued a report to the City’s Rules, Elections, Intergovernmental Relations Committee (the “Committee”) recommending a number of amendments to the City’s cannabis program that it believes will make the licensing process more efficient, transparent and equitable. The ten-page report signals a significant shift in DCR policy and explicitly acknowledges that there is still quite a bit of work for the DCR to do before it meets its goal of promoting “community health and safety, harm reduction, and equity within the administration” of cannabis programs.

Updating LA’s Phase III Storefront Cannabis Retail Licensing Process

To work toward achieving its goals, the DCR report first recommends updating the Phase III Storefront Retail licensing process. In its report, the DCR recognizes that “the existing licensing process provided in the Cannabis Procedures ordinance and regulations will take significant time to implement and that many Phase III storefront retail applicants will have to make significant investments in the application process before knowing for certain whether they might be denied because another applicant within 700 feet of them gets licensed first or the Community Plan in which they are located reaches undue concentration before they obtain a license.” While implementing an efficient licensing process is a priority for the DCR, ensuring the Social Equity Program (“SEP”) is fully established and can be properly implemented during Phase III appears to the be the DCR’s top priority.

As is widely known, the City’s SEP applies to Phase III and, according to the City’s cannabis ordinance, Tier 1 and Tier 2 social equity program participants will receive priority processing and business, licensing, and compliance support. Per the DCR’s memo, it is finalizing a draft Request for Proposals to identify vendors that can provide a suite of business, licensing, and compliance support but does not expect to make such support services available to applicants until July 2019 at the earliest. This fact has left many stakeholders wondering how the DCR can begin accepting Phase III storefront retail license applications in Spring 2019, when the support services that will make it possible for many Tier 1 and Tier 2 applicants to participate in the licensing process will not be available at that time. In an effort to balance the interests of those looking to start the licensing process now and Tier 1 and Tier 2 social equity applicants who need support services to participate in the program, the DCR proposes a bifurcated licensing process to issue the approximately 200 storefront retail licenses it believes will be available through Phase III before undue concentration is reached in most or all of the City’s Community Plans.  The proposed bifurcated licensing process includes:

• A Spring 2019 Storefront Retail Application Processing Period during which the DCR would accept applications with a goal of issuing 100 storefront retail applications using either a first come, first served method that will include a date and time stamp process for verified Tier 1 and Tier 2 applicants or a lottery for verified Tier 1 and Tier 2 applicants; and 
• A Merit-Based Application Process during which the City Council, DCR, Cannabis Regulations Commission, and stakeholders would develop a merit-based system for selecting the remaining 100 storefront retail licensing applicants. However, the DCR estimates that it will take a minimum of nine (9) months before applicants can be selected to apply for an annual license through a merit-based system.

Restrictions for the Cannabis Retail License Application

If the storefront retail license application process opens in the Spring, the DCR further recommends a number of processing restrictions be applied to both the first come, first served and lottery methods of processing, including that:

1. A verified Tier 1 or Tier 2 applicant may only be associated with one application and may only apply at one address
2. The individual owner who allowed the applicant to be verified as Tier 1 or Tier 2 must remain on the application during the entire application process and cannot be switched out; and
3. The applicant cannot relocate its application at any point during the licensing process.

Along with changing the structure of the cannabis licensing process in the City of Los Angeles, the report also flags the fact that as a result of undue concentration limits, there will be fewer storefront licenses available than originally projected. It also seems to solidify that in order to obtain a storefront retail license during Phase III, applicants will have to participate in the SEP.

Additional Recommended Amendments to The Cannabis Program

The DCR’s report also lists over fifteen additional recommended amendments to the cannabis program. Such recommendations include, but are not limited to:

1. Starting a Non-Storefront Retail (Delivery) Pilot Program wherein the DCR will process 40 Tier 1 and Tier 2 social equity applications and 20 non-social equity applications in order to adhere to the 2:1 licensing ratio required by the SEP. The DCR recommends processing both the social equity applications and non-social equity applications using the first come, first served method detailed in its report and further recommends that an applicant should not be eligible for the pilot program if any of its owners are owners of (i) a Phase I applicant with Temporary Approval, (ii) a Phase II applicant, or (iii) have applied or will apply for a storefront retail license in Phase III;
2. Relaxing the Ownership Limits on Storefront Retail Licenses by changing the storefront retail limit from three (3) to twelve (12) when a person holds no more than a 49% ownership or profit-sharing interest in a Tier 1 storefront retailer;
3. Allowing the DCR to Grant Temporary Approval to Phase III Storefront Retailers in order to allow Phase III storefront retailer applicants who (at this point) will be exclusively Tier 1 and Tier 2 applicants, to be given the opportunity to operate during the period of time in which they are awaiting Commission action on the DCR’s licensing recommendation; and
4. Updating the City’s Delivery Regulations concerning the maximum value of goods a delivery employee may have in her vehicle at any time to be in line with State law. Currently, Section 5418 of the Bureau of Cannabis Control Regulations caps the total value of cannabis good that may be carried in a delivery vehicle at $5,000.

Rogoway Law Group anticipates that Kat Packer, the Executive Director and General Manager of the Los Angeles Department of Cannabis Regulation, will be at the Committee meeting on February 15th to address the Committee and elaborate on the contents of the DCR’s report. Check back here for updates after the Committee meeting.