In cities across our great state (L.A. and elsewhere), permitting may or may not be available before Jan. 1, 2018. This legislative limbo has business owners asking - what do we do until Jan. 1, 2018? In many cities, there are only two options: 1) Stay open and fight 2) Stop operations and wait until state licensing.
Obviously, either option has consequences associated therewith. Below we weigh the costs and benefits of each. Note – whatever your choice may be – you must maintain your legal operations as a collective and/or take necessary steps to prepare for licensing now.
Los Angeles Case Study: Prop 64, MCRSA, Prop D & Prop M
When Californians approved Proposition 64 to legalize cannabis last November, it was no secret that cannabis businesses in L.A. would remain illegal under city law due to the outdated ordinance known as Prop D, which essentially bans all but approximately 134 “pre-ICO” shops. But on March 7, 2017, that fundamental contradiction started to appear manageable because L.A. voters overwhelmingly approved Prop M to legalize and regulate cannabis in the city of L.A. … for the first time ever. This historical feat is made even more special by the fact that unlike all the other previous cannabis initiatives (that were put forth by industry stakeholders), Prop M was a city-sponsored initiative that was spearheaded by the City Council President himself – Herb Wesson, Jr.
After Prop M passed, Wesson said "The passing of Proposition M is a great victory for common sense, law enforcement and all Los Angelenos. We gave communities a voice in the process, and their voices will continue to be heard. This measure is what responsible marijuana laws should look like, and we couldn't be prouder of our city."
With statements like these, you'd think that the city would adopt a common sense policy and finally put an end to senseless raids on Los Angeles' legitimate cannabis businesses, right?! Wrong! Unfortunately, since Prop M passed, there have been several raids on professional, legitimate major grow operations within L.A. based on Prop D. This has happened even though the City has committed to repealing Prop D in less than 4 months so that it could permit these very businesses.
What's the status of L.A. now?
Prop M only gave the city council the ability to revise Prop D – aside from taxes, no actual rules have been set yet. So as the city puts pen to paper, we're going through a gap period (or sort of “legal limbo”) where technically Prop D is still law. Prop M requires the city council to have permitting regulations in place by September 30, 2017 (if not sooner) and the initiative will repeal Prop D once and for all, effective January 1, 2018, as determined by a majority vote of the council. Pre-ICO shops will be given priority status so long as they apply within the first sixty (60) days of L.A. accepting license applications.
What If I Decide to Stay Open in the Gray Area?
If you stay and fight, you run the risk of potential raids leading to severe financial loss and potentially criminal prosecution. Then, if you're convicted of any crime, this could weaken your chances for a state license or local permit. Additionally, your location could become a focus of law enforcement scrutiny and the local utility company may cut your power.
Since 2013, Prop D criminal charges have been filed against at least 500 shops in the city – but there is no clear indication as to how many have been filed since Prop M passed.
What if I Close up Shop and Wait?
In the alternative, if you stop operations and wait until permitting or licensing, this is the safest (but more expensive) option. It could potentially take months for the city to start issuing permits. If this is the route you choose, you should be financially prepared for the possibility of lengthy delays, especially if you're not a pre-ICO shop. Further, since real estate and relationships are essential pieces of this puzzle, you should have a location secured (with a friendly landlord) and get involved in networking opportunities while you wait for licensing.
Either Way, You Need to Maintain Your Collective and Prepare for Licensing!
Sometimes we get complacent in our operations because we see licensing on the horizon and are just waiting for the next thing. Although you should absolutely be preparing for licensing, we must remember that operating as a collective is STILL a requirement under the law. That means that 1) everybody touching the plant should be a patient member of your collective and 2) you should have the necessary documentation to demonstrate legal compliance. Please keep all patient recommendations onsite or have some system of demonstrating that the collective's product has a lawful purpose.
In addition to your collective's meticulous documentation, you need to really start strategizing and preparing for licensing. Unlike your tax deadline, the Jan. 1 application date will not come and go without consequence. There is so much work to be done and so little time. Now is the time to strategize on license types, degree of vertical integration, and begin to gather and draft all of your corporate operating agreements, business operating procedures, cash handling procedures, inventory procedures, security plans and much more to get the ball rolling.
If you need help with any of this or have questions, please do not hesitate to call one of our legal professionals right away.