Los Angeles Regulatory Update

On September 22, 2017, the City of Los Angeles released its second proposal (the “New Proposal”) for the draft regulations concerning commercial cannabis activity within L.A. The New Proposal will now move to the City Council for discussion and approval at a yet to be determined date. The discussion below will cover the requirements under the New Proposal to apply for and operate a commercial cannabis business in L.A. from the application procedures to miscellaneous provisions governing the operation of cannabis businesses in L.A.

Application Processing

The City of Los Angeles Department of Cannabis Regulation (the “Department”) will be the primary City agency responsible for reviewing applications and issuing commercial cannabis licenses. Applications may be submitted online or by delivery to the Department office. If the application is determined to be incomplete, the applicant will have six months from the date of the notice to correct their application, or the application will be considered abandoned and require the submission of a new application.

Application Phases

  • Phase 1 and Provisional Licenses – Existing Dispensaries Licensing
  • Applications will first be available to Existing Medical Marijuana Dispensaries (“EMMD”) as defined under Measure M for priority processing. The application window for EMMDs is the first 60 days from when the application is first made available to the general public, and after the 60th day the Measure M priority processing will be permanently closed. The Department will be the sole regulatory body that will determine a business’ eligibility for priority. If the Department determines that a business is not eligible for priority the business must cease operations immediately.

    EMMDs will also benefit from a provisional licensing regime, where the City plans to issue provisional licenses to EMMDs only while a permanent application is pending by an EMMD. Only businesses issued a provisional license may conduct commercial cannabis activity while their permanent application is pending. EMMDs are the only type of business that will be provided provisional licenses in L.A., and therefore, EMMDs will be required to source their cannabis products from outside L.A. until other business types gain licensure from the City, unless the EMMD had a grow that complied with Proposition D and in that case the EMMD can continue to sell the flower produced in its Proposition D compliance grow.

    Once an EMMD who has been issued a provisional license receives a license issued by the State, then the City will issue a permanent license to the applicant pending a successful outcome of the procedure outlined above. The licenses will be valid for 12 months and must be renewed annually.

  • Phase 2 – Social Equity and General Processing
  • The second, and final, phase of the L.A. licensing structure will be for the yet to be determined social equity participants and all non-priority retail, cultivation, testing laboratories, manufacturer, and distributor license types. These applications will open after the completion of the priority application period, and under the current regulations, all non-priority retailers, cultivators, manufacturers, testing laboratories and distributors must cease all commercial cannabis activity if currently in operation, and may not begin or resume commercial cannabis activity unless and until a license is approved by the City.

Highlights & Miscellaneous Provisions

  • Available License Types
  • The New Proposal mirrors the language and definitions state regulators have developed for the different license types and requirements for each business. L.A.’s retail licenses allow for both on-site sales and delivery businesses (Type 10) while adopting the State’s microbusiness (Type 12) license category as well.  For cultivation operations, the City will provide licenses for indoor cultivation (Types 1A, 2A, 3A, and 5A), mixed light cultivation licenses (Types 1B, 2B, and 3B) with outdoor cultivation being banned by the city. The city will allow for both non-volatile (Type 6) and volatile (Type 7) manufacturers, as well as testing (Type 8) and distributor (Type 11) licenses.

  • Restrictions on Ownership
  • For Type 10 retailer licenses, including delivery and microbusinesses, a maximum of three per owner is allowed.

    Cultivation license types will not be limited by the number of licenses each business or owner is entitled to hold; however, the maximum aggregate canopy area of all cultivation licenses owned by an applicant shall not exceed 1.5 acres within the City of L.A.

  • Business Structure
  • Under the New Proposal commercial cannabis businesses may be organized as for profit entities and prior non-profit entities are allowed to change to a for profit status.

  • Transferability
  • Businesses are not transferable once a license or provisional license is issued, unless written approval is obtained by the licensee from the Department.

  • Foreign Corporations
  • Applicants that are corporations located outside of the United States shall not be allowed to conduct commercial cannabis activity in L.A. However, this does not restrict companies located anywhere within the United States, including states outside of California, from owning or investing in L.A. commercial cannabis businesses.

  • Product Testing & Labeling
  • Businesses are not required to test or follow the labeling guidelines for cannabis products as required by the State or the Department until 120 days after licensure by the City OR April, 1, 2018, whichever occurs earlier.

  • Odor Elimination
  • All cannabis odors must be neutralized so that it cannot be detected by a person with a normal sense of smell from the exterior of the premises or any adjoining property.

  • On-Site Consumption
  • Currently, on-site consumption is not allowed.

  • Hours of Operation
  • Retail hours of operation are limited to the hours of 6:00 a.m. to 9:00 p.m. Pacific.

As you know, McAllister Garfield, P.C. has expanded into California in the past year in order to prepare for full regulation in the largest cannabis market in the U.S. and founding lawyer Sean McAllister personally became licensed as a California lawyer. The Firm has lawyers in San Diego, Los Angeles, and San Francisco and works with clients throughout the state. If you are interested in the California market, or have questions about the Los Angeles market in particular, do not hesitate to contact us.