Los Angeles Phase 3 Licensing Update


On Friday, February 15th, the Los Angeles Department of Cannabis Regulation (“DCR”) appeared before the Los Angeles City Council Rules Elections and Intergovernmental Relations Committee (the “REIR Committee”) to discuss potential changes to the City’s commercial cannabis ordinance related to the implementation and roll out of Phase 3 licensing with particular attention to retail licenses. The full DCR proposal can be found here. While the meeting was just the first step in a potentially months-long conversation, the following insights were gathered from this morning’s meeting.

  1. The DCR proposed a two-phase rollout of licensing for retail locations in Phase 3 with the initial round of 100 retail licenses being determined on either a first-come-first-served basis OR via a lottery system that would take place in “Spring 2019.” Neither the DCR nor the REIR Committee discussed the exact timeline of what “Spring 2019” means, but the City is committed to get the Phase 3 retail licensing process underway soon.
  2. The DCR proposed that the second phase of 100 Phase 3 retail licenses be determined by a merit-based point system, which the DCR anticipates will take 9 months or longer to implement this system. The REIR Committee would not commit to the approach proposed by the DCR but stated that it would consider a combination of the three licensing approaches (first-come-first-served, lottery, and merit-based) in its discussions in the coming weeks.
  3. The DCR proposed a non-storefront retail (Delivery) licensing pilot program with a proposed start date of “Spring 2019.” The pilot program would allow the DCR to process 40 social equity license applications and 20 non-social equity applications for delivery licenses. However, the proposed program, as currently contemplated, would specifically exclude the participation of businesses or individuals licensed in Phase 1, Phase 2 or those planning on participating in Phase 3 for storefront retail licenses.
  4. The DCR proposed expanding the number of retail locations that can be owned by an individual or entity from 3 to 12, so long as the equity position of that owner remained below 49% in each of the entities. The DCR stated the purpose of this expansion was to increase interest in outside investment in Tier 1 qualified social equity businesses. However, this expansion was scrutinized by several members of the REIR Committee who stated that they could not support such a proposal at this time.
  5. The DCR proposed to provide temporary approvals to Tier 1 and Tier 2 social equity businesses receiving retail licenses in Phase 3 to allow these businesses the opportunity to operate prior to final approval of the licenses. However, the effectiveness of this idea would remain to be seen since the licensees would still be required to receive their annual license from the State of California (which would take months) before they could operate.
  6. The DCR proposed to harmonize the qualification requirements for Tier 1 and Tier 2 of social equity with the only difference between the two tiers being tied to the percent equity the Social Equity Applicant maintains in the business (Tier 1 = 51% or more; Tier 2 = 33.3% or more but less than 51%).

Lastly, the REIR Committee and the DCR held a substantial discussion regarding enforcement priorities for the illicit shops and businesses that continue to operate in the City to the detriment of licensed businesses. The City stated that it is committed to using its full arsenal of enforcement capabilities through different departments such as the LAPD, Fire, Department of Water and Power, and Building and Planning, to name a few. The REIR Committee further requested a report on how the various city departments could better coordinate their efforts to eradicate unlicensed cannabis businesses.

McAllister Garfield has been following the developments in the City of Los Angeles closely and is prepared to assist businesses with commercial cannabis licensing in Los Angeles. For more information, or to request assistance, please contact Navid Brewster in the McAllister Garfield L.A. office.

McAllister Garfield, P.C.