January 1, 2018, marked the beginning of the regulated cannabis market in California. Since then, more and more Los Angeles area jurisdictions have adopted ordinances and policies allowing commercial cannabis activity within their borders. This article takes a brief look at two such cities – Santa Monica and Culver City – each with differing approaches to the regulation of commercial cannabis businesses.
Santa Monica
Santa Monica has taken a very limited initial step into cannabis regulation. The City plans to issue just two medicinal cannabis (no adult-use) retail locations through an application and Conditional Use Permit (“CUP”) process set to commence in early 2018 along with an unspecified number of “light manufacturing” businesses.
- Retail
The application process for the two authorized retail locations is competitive – meaning that the City will score qualified applicants based on, among other things, their cannabis experience, financial wherewithal, financial stability, familiarity with the City of Santa Monica, and proposed community benefits the business will provide. The City will then move to analyze each applicant and will select the two highest ranked applicants to move forward in the process through what is called “Preliminary Selection Letter.” If there is a tie, the City will conduct a lottery to decide the businesses that get to move forward in the process. Only the two retail businesses selected through this process will be qualified to move forward and must also obtain a CUP for the retail location, a Medicinal Cannabis Regulatory Permit to be issued by the City, and a City Business License. The City has set a deadline of February 28, 2018, as the last day it will accept the preliminary application. The City will then analyze the application on its point based system through April 30, 2018, and expects that the rankings and Preliminary Selection Letters will be issued by May 11, 2018.
- Light Manufacturing
The City of Santa Monica has also authorized the establishment of light medicinal commercial cannabis manufacturing within the City. Further, Santa Monica has not limited the number of Medicinal Cannabis Light Manufacturer Regulatory Permits that it will issue. Thus, the process for a light manufacturer permit is non-competitive and each applicant will be approved or denied the right to move forward in the permitting process based on the merits of their individual applications. Currently, it is unclear exactly what activities a “Light Manufacturer” license would allow a cannabis business to conduct; however, the City’s definition of light manufacturing states “light industrial activities taking place primarily within enclosed buildings and producing minimal impacts on nearby properties,” and “the preparation, manufacturing, and/or packaging of food for off-site consumption.” How the City’s definition of light manufacturing correlates to the State’s licensing scheme remains to be seen, but on its face, it appears that the City will likely allow the infusion (Type N) and packaging (Type P) of cannabis products. It is unclear whether the City would allow volatile or non-volatile extraction operations under the ordinance. The City has yet to announce its rules and regulations for the licensure and operation of Light Manufacturing licenses, but is anticipated to begin the licensure process sometime in early to mid-2018.
For more information on the City of Santa Monica’s cannabis ordinance, or if you have any questions regarding the process of obtaining a medicinal commercial cannabis license in the City of Santa Monica, please contact McAllister Garfield, P.C. for a consultation.
Culver City
Culver City has enacted an ordinance to allow for the licensing of adult-use and medicinal commercial cannabis businesses engaged in manufacturing, cultivation, distribution, testing, delivery-only retail, and storefront retail locations. The City anticipates licensing up to 3 storefront retail locations, 5 delivery-only retail locations, 6 manufacturing businesses, 6 distribution businesses, 3 indoor cultivation operations, and up to 4 testing laboratories. While the City has not released its applications, it anticipates that the applications for delivery, manufacturing, cultivation, testing and distribution to come available toward the end of Q1, 2018, and the storefront retail application is expected to be released sometime in Q2 of 2018. Since Culver City limits the number of licenses available in each category, the application process will be competitive and merit based on the following criteria.
- Application & Process for Manufacturing, Distribution, Cultivation, Testing Laboratories & Delivery-Only Businesses
For the above-listed businesses, Culver City has enacted a tiered application procedure. The first step would be for prospective businesses and business owners to submit a business plan that includes, among other things, detailed financial information, security plans, and safety plans, along with the business owners being required to submit to background checks, and the proposed location must receive a zoning verification from the City. The City’s staff will then review the application on a merit, or point based system and will authorize the highest scoring business to move to step two of the application process through the issuance of a “Step 2 Approval Letter.” If there is a tie among qualifying businesses after step one, the City will institute a lottery or some other method (not first come, first served) to determine the applicants who will be allowed to move forward in the process.
Step 2 requires approved businesses to apply for a Culver City Business Tax Certificate, apply for permits from the County of Los Angeles (including a Public Health Permit), and all other regularly required permits such as building permits. During this step, the applicant must also submit Part 2 of the Cannabis Business Application, which has yet to be released. Once the applicant receives all requisite approvals from the City and County, and is moved through the initial permitting phase of their operation, the City will issue a “Step 3 Approval Letter.”
Step 3 of the process is where the applicant will be required to build-out their operation. The build-out phase will require the payment of all associated fees related to any required permits, and the completion of inspections by City and County officials. Once the build-out is complete, the City will then perform a cannabis specific site inspection to ensure compliance with the relevant rules and regulations of the City based on a checklist to be developed by the City. If the business passes the cannabis inspection, the business will then be required to submit the requisite Annual Cannabis Business Permit fee and the City will then issue the business its Cannabis Business Permit and City Business Tax Certificate. Once the City permit is received, the business MUST apply for and receive a state license that correlates to the permitted activity by the City. The City (and California law) makes it clear that a business may NOT commence operations prior to receiving their state license. Once the state license is received, the business may open for business.
- Storefront Retail Operations
Similar to the requirements set forth above, Culver City has also taken a tiered approach to the licensing process for storefront retail (dispensary) operations with an expanded Step 1. Step 1 is broken down into five main phases.
First, in Step 1, business owners and managers must submit to background checks, receive a zoning verification from the City for their proposed location, and submit a business plan similar to the requirements for non-storefront businesses. If the applicant clears the initial hurdles, City staff will then review applications and the applicant must pay a “Step 1(a) fee.”
Next, in what the City is calling Step 1(a), the application will be reviewed and scored on a ranking system by a three person panel of city staff members appointed by the City Manager. The Step 1(a) panel will select a minimum of 3 applications and a maximum of 6 applications comprised of the highest scoring applications to proceed to Step 1(b).
Step 1(b) will then requires that two of the three largest individual owners of the applicant and the highest level manager responsible for the day-to-day operations of the business be interviewed by a panel of 5 city staff members to be selected by the City Manager. At the conclusion of the Step 1(b) interviews, the city staff members will score each of the applicants’ performance in this phase with the highest and lowest scores being dropped and the three remaining scores averaged to obtain the applicant’s Step 1(b) score. The three applications who receive the highest average score in Step 1(b) will be authorized to move along in the process through a “Step 1(c) Approval Letter.”
Once in Step 1(c) the applicant must apply for and receive CUP from the City. The CUP process requires the applicant to notice a public hearing by a posting on the proposed business location and by mail to all occupants and property owners within 2,500 feet of the proposed location. The applicant will then be required to conduct a public hearing where its plans will be presented to the public. Once the public meeting is conducted, the City Planning Commission must approve the CUP. If the business’ CUP is approved it shall be allowed to move to Step 1(d) of the process.
If a business makes it to Step 1(d), it will be required to present its business proposal to the public at a City Council meeting. Based on the information provided through the application process and at the City Council meeting, the Council will either approve or deny the business permit. If the City Council votes to approve the license, the City will issue a “Step 2 Approval Letter” and the applicant will receive a permit contingent upon the successful completion of Steps 2 through 4.
Step 2 of the process will require the applicant to apply for a Culver City Business Tax Certificate, all regularly required permits such as building permits, and receive approval from the Los Angeles County Department of Public health that the applicant is approved to move forward with the build-out of its premises.
Step 3 of the application is where the applicant must build-out its premises in conformity with all relevant City and County codes, and pass all City and County inspections. Similar for non-storefront businesses, the City will then inspect the business to ensure that it is compliant with the cannabis specific requirements of the City Code based on a checklist to be developed by the City.
Lastly, Step 4 requires that the applicant submit all permitting fees and the City will then issue its Cannabis Business Permit and Business Tax Certificate. Once the City approvals are received, the applicant must apply for and receive a State Cannabis license. Once the State license is received, the business will be allowed to open.
As you can see, the process of obtaining a commercial cannabis business license varies greatly from city to city. It is important that you have counsel that understands the procedures in place in the jurisdiction your business wishes to operate in so that your business can be one of the few success stories in the SoCal cannabis market. If you are interested in learning more about what McAllister Garfield, P.C. can do for your business licensing needs, please contact us for a consultation.