The wait for further adequate regulation will soon be over, as Los Angeles is preparing to launch what will be the largest cannabis licensing program in the world. Government, community, and business leaders eagerly anticipated this moment. Excitement and nervousness are peaking as applicants prepare for this monumental opportunity. For individuals most affected by the War on Drugs, this moment is especially significant, given that they are prioritized for licensing and job opportunities in the largest cannabis retail market in the world.
Just last week the LA City Department of Cannabis Regulation held their final briefing before retail licensing opens on September 3rd, 2019. Below are some key takeaways from this briefing as well as other points to assist others in the process. Information here may be useful to a diverse range of stakeholders interested in what’s happening in Los Angeles.
1. Licensing cycle – LA’s initial licensing phase is broken down into three parts: Phase 1 launched in 2017 and was focused on medical cannabis operations that met certain criteria to be grandfathered into the new recreational program. About 180 Phase 1 retail locations have already been approved. LA has a soft cap of 400 retail licenses and the remaining licenses will be issued to social equity applicants. Phase 2 licensing launched in Early 2018 and allowed for social equity non-retail applicants to pursue licensing in cultivation, manufacturing, distribution, etc. Roughly 400 Phase 2 operators currently exist.
The much-anticipated Phase 3 licensing rounds are set to start September 3rd, 2019 and are broken down into two rounds: Round 1 will allow for 100 new retail businesses to be approved. This will be on a first come first serve basis. Assuming these 100 applicants have compliant property and submit all requested forms, then they will be approved without much scrutiny. Moreover, this round will prioritize Tier 1 social equity applicants. 75 applications will be earmarked for Tier 1 applicants while 25 will be earmarked for Tier 2 applicants (assuming enough tier 1 applicants are part of the first 100 eligible applicants). Pre-vetting deadlines for social equity applicants has passed and hundreds are still awaiting their eligibility verification from the city. More on this below. To learn more about these tiers and how they are broken down visit the city website.
2. First come first serve – As indicated above, licensing decisions will be made on a first come first serve basis. Meaning that each ‘completed’ application will be time stamped and the first 100 that meets the criteria will be temporarily approved and moved into the next phase of the vetting process. Most notably, applicants must ensure their property is fully compliant and that agreements between social equity partners follow guidelines of the city. If applicants meet every requirement but fall short on these last two items they will be incomplete essentially bumping applicants out of the running to be the first 100. You can find more detailed instructions here.
3. Round 2 – Given the hurdles to acquiring property and securing social equity partnerships, it is likely that a vast majority of applicants will go into Round 2. The timeline of Round 2 is unclear but may happen quarter one of 2020. Round 2 will allow for 150 more retail locations and will also be for social equity businesses. No preference will be given in this round for social equity tier 1 versus tier 2. Moreover, property is not required to apply for round 2; though it remains to be seen whether having property will be weighted more heavily. More guidelines for Round 2 will be coming out later this year and we will keep you abreast of what’s happening on this front.
4. No fees – you can apply for Round 1 without paying an application fee. And you will only be charged the application fee (roughly $9,000) if you are part of the 100 applicants. Not a bad deal, especially given that most cities charge these exorbitant fees regardless of whether your application is approved.
5. Social equity protection – implementing the social equity program has been a monumental and unprecedented task for city, community and business leaders. Thus, implementation challenges are present. Without technical support for social equity applicants, individuals have had to rely on incubators, consulting firms, or other resources to ensure they are set up for success. While well-intentioned, these efforts have sometimes fallen short while others have developed proven models for success.
Within this context, social equity applicants are advised to reach out to their own attorneys to ensure that their contracts and agreements protect their equity interests and follow city guidelines. DCR has issued guidelines to assist in constructing these agreements.
Legal resources, however, are out there. For instance, the California State Bar asks attorneys to complete 50 pro bono hours annually; thus the pool of pro bono attorneys is out there to provide support.
6. City hires new Social Equity Director, Dr. Imani Brown — during the city briefing, officials also announced the hiring of a new Social Equity Director, Dr. Imani Brown, who brings a wealth experience to shore up needed resources for social equity programming. Dr. Brown is an urban policy and planning expert that will bring immense leadership to the table. More info on Dr. Brown and the city press release can be found here.
7. Pre-vetting is over for now – for the meantime, pre-vetting to determine eligibility for the social equity program is closed. Thus, only the approximately 2000 social equity applicants that applied to be verified by the city may be eligible to apply for Round 1 of Phase 3. Pre-vetting may open up again, as changes to social equity criteria (i.e. expansion of eligible zip codes) are voted on by the LA City Council. More updates will be shared as they become available.
8. Delivery pilot – the city announced that it will launch a pilot program for delivery licenses before 2020. This is great news for aspiring or current delivery operators in Los Angeles. Again, the program will prioritize social equity applicants: of the total 60 delivery applications, 40 will be allocated for social equity applicants.
As Phase 3 licensing comes online, there is much anticipation to see how this all shakes out. Exciting times are ahead and the tips suggested above are pointers to help ease pathways for everyone. More updates on LA licensing will be shared as we receive them.