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Los Angeles: Timing, Practicality and Enforcement Concerns for Phase 3 Govern Newest Cannabis Policies

Posted by Meital Manzuri, Esq. | May 16, 2019 | 2 Comments

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Since last month’s update, there have been several meetings where LA City Council and DCR discussed the different possibilities and processes for the upcoming Phase 3.  After much debate and public input, the city has released final ordinances which you can read here and here.  In addition, there have been several new motions put forth by the council that are to be considered when the council revisits cannabis policies in the fall.  You can see those motions here, here, and here.   Or feel free to read below for the full rundown!

What We Know

On or around May 28, 2019, the city's Accela software system should be ready to accept applicant submissions for pre-vetting in order to qualify for Social Equity for Rounds 1 and 2 of Phase 3. Sounds like a video game doesn't it!?

The pre-vetting process will span approximately 60 days and there is no first-come, first-served component to this stage.  Any Social Equity applicant who wants to be considered for a commercial cannabis license for retail or the pilot delivery program in Phase 3 must submit their eligibility docs to pre-qualify during this 60-day window.  

In order to qualify as a Social Equity applicant, you must meet these minimum requirements.

Thereafter, September 3, 2019, is the proposed start date for accepting applications for Round 1 of Phase 3 storefront retail, although the date is subject to change under DCR discretion.  Pilot delivery applications are slated to open at a later date. Although it's important to be ready to submit on this date, there could be delays if there are additional Social Equity requirements put in place after the enhanced Social Equity analysis report comes back, there is an unmanageable number of Tier 1 or Tier 2 applicants for the city to pre-vet, policies change over the summer, or any other myriad of changes come our way.   My experience with cannabis licensing has made me too cynical to believe that a set timeline will actually be met by a licensing authority as there are too many unknowns and everybody (stakeholders, the city, and the department alike) is building the plane while they're flying it.

In addition, the newest version of the ordinance:

  1. Removes the Certificate of Occupancy requirement from the initial Phase 3 retailer licensing process;
  2. Allocates 150 licenses in Round 2 of Phase 3 storefront retail application processing;
  3. States that, if you do not make the cut in Round 1, you can re-apply in Round 2 for a storefront retail license;
  4. Prohibits the transfer of equity shares in a Tier 1 or Tier 2 Social Equity business until DCR adopts minimum standards for such transfers;
  5. Removes Type 4 nursery licenses from the definition of Undue Concentration;
  6. Conforms the city's delivery regulations with the state's delivery regulations;
  7. States that a person may hold an ownership or profit-sharing interest of 20 percent or greater in no more than three storefront or delivery retail licenses; and
  8. States that an applicant may be denied if their Business Premises was the site of Unlicensed Commercial Cannabis Activity on or after January 1, 2018.

What We Don't Know

  1. Golden Handcuffs issue. As discussed in a previous post, this has been a hot button issue and it remains to be seen what the DCR will establish as “minimum standards” for transfers or buyouts of Phase 3 Social Equity owners.
  2. What will come back in the enhanced Social Equity analysis report.  Currently, we are awaiting the results of an additional social equity analysis report which could add requirements to the social equity program.

Recent Motions  

As discussed above, there have been several motions put forward by City Council to be discussed in the Fall.  Specifically:

  1. There has been a motion to accept applications from Phase 3 applicants located in an area of undue concentration and seeking a PCN;
  2. There has been a motion to create a task force for “compliance checks” on cannabis businesses;
  3. There has been a motion to instruct  DCR to begin the pre-vetting process for Social Equity applicants no later than Tuesday, May 28, 2019 and to begin the application window for Round 1 of Phase 3 no later than Tuesday, September 3rd, 2019.

How to plan for it all - What you will need.

Get your ducks in a row! In order to apply for Phase 3 storefront and delivery retail, you will need to submit the following:

Phase 3 - Round 1 Storefront Retail (Type 10):

  1. A copy of an executed lease agreement with proof of a deposit or property deed for its Business Premises;
  2. An ownership and financial interest holder form;
  3. A financial information form;
  4. A Business Premises diagram;
  5. Proposed staffing and security plans;
  6. A dated radius map including horizontal lines and labeling of any sensitive uses relative to a Type 10 License;
  7. A labor peace agreement attestation form;
  8. An indemnification agreement; and
  9. All business records and agreements necessary to demonstrate that a Tier 1 or Tier 2 Social EquityApplicant owns the minimum Equity Share in the Applicant required under Section104.20

Phase 3 - Round 2 Storefront Retail (Type 10):

  1. A copy of an executed lease agreement with proof of a deposit or property deed for its Business Premises;
  2. A Business Premises diagram;
  3. Proposed staffing and security plans;
  4. A dated radius map including horizontal lines and labeling of any sensitive uses relative to a Type10 License;
  5. An indemnification agreement;
  6. An ownership and financial interest holder form; and
  7. All business records and agreements necessary to demonstrate that a Tier 1 or Tier 2 Social Equity Applicant owns the minimum Equity Share in the Applicant required under Section104.20.

Phase 3 - Pilot Delivery (Type 9) Licensing Program:

  1. A copy of an executed lease agreement with proof of a deposit or property deed for its business premises;
  2. A Business Premises diagram;
  3. Proposed staffing, security and delivery plans;
  4. A dated radius map including horizontal lines and labeling of any sensitive uses relative to a Type 9 License;
  5. An indemnification agreement;
  6. A current Certificate of Occupancy for retail use for the Business Premises; and
  7. All business records and agreements necessary to demonstrate that a Tier 1 or Tier 2 Social Equity Applicant owns the minimum Equity Share in the Type 9 Applicant required under Section104.20, if applicable.

Stay tuned as these policies and principles develop!

About the Author

Meital Manzuri, Esq.

Managing Partner.

Comments

Toni GiampietroReply

Posted May 21, 2019 at 08:26:33

Great article! I wonder when more cities in Orange County will allow retail licenses, since LA is already so densely populated with dispensaries.

Toni GiampietroReply

Posted May 21, 2019 at 08:32:40

Great article! I am so curious as to when Orange County cities will issue more retail licenses, especially since LA is already so densely populated with dispensaries. I have not heard anything regarding Orange County. I know the company/fund I work for has 3 retail licenses in LA, so far, and are looking to acquire more throughout the state of CA & will expand to other states very soon.

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