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Los Angeles's Licensing Process: A look at the past, present, and future.

*NOTE: if you want to skip the lines and are well-capitalized, there are existing – oftentimes profitable, cannabis businesses who are selling their hard-earned retail, cultivation, manufacturing, distribution and delivery licenses. Contact 420 Real Properties for more details.  

Cannabis legalization in California has seen some challenges since its inception in Los Angeles. From companies who weren’t prepared for new packaging requirements to the black market’s continued success due to heavy regulation in the legal market, legal operators may feel like they’re fighting an uphill battle. 

In the City of Angels, we're approaching the next and final phase of cannabis business licensing with hopes that it will all go smoothly. We still don’t know when exactly Phase 3 will be in full swing, but we can get an idea of what's in store by understanding what's already taken place. 

The Road to Phase 3

During Phase 1 and Phase 2, licenses were awarded to cannabis retailers who existed before legalization (ie, medicinal dispensaries). Phase 2 took place in Summer of 2018 and followed Phase 1’s brick and mortar licenses with licenses for non-storefront operations like delivery services. 

In February 2019, the Department of Cannabis Regulation (DCR) wrote to a Los Angeles council committee that they wanted to reform the process for phase three to deal with high concentrations, the financial stakes of the people waiting to find out about their licenses, and making the process more socially equitable. 

In the letter, the DCR stated: 

“DCR recognizes that the existing licensing process provided in the Cannabis Procedures ordinance and regulations will take significant time to implement and that many Phase 3 storefront retail applicants will have to make significant investments in the application process before knowing for certain whether they might be denied because another applicant within 700 feet of them gets licensed first or the Community Plan in which they are located reaches undue concentration before they obtain a license.”

The DCR’s principle concerns about efficiency and equity would be addressed in the coming months, as they sought to ease the financial burden on cannabis business hopefuls who were already in possession of compliant property, and who may have been running out of time before becoming unable to hold on to their lease.

At a hearing on February 15, 2019, the city council moved to have the city attorney work with the DCR to draft an ordinance that would grant instant approval for businesses to open their doors immediately upon obtaining a license and exclude anyone from Phase 3 approval who was involved in illegal cannabis activity after January 1, 2018 (the day legalization took effect). It would also exempt non-storefront businesses from a hearing procedure before licensing. 

In April, the city of Los Angeles officially adopted a draft ordinance that overhauled the system for Phase 3. With several provisions, it set up exactly how Phase 3 would be executed. It broke Phase 3 into three rounds and set some rules for applicants. On April 30th, the L.A. city council approved the start of Phase 3, which will be under way this Summer. 

How Will Phase 3 Work?

Phase 3 will be broken up into two initial rounds for retailers, and one final round for non-storefront businesses. There are about 200 licenses left to go around. During the first round, the DCR will look at the first one hundred storefront applications for people who fall under the “social equity” aspect of this phase of licensing. 

Social equity applicants include those applicants who live in low-income areas and have had prior legal troubles pre-legalization. They will be broken into “Tier 1” and “Tier 2” applicants. These applicants cannot own another marijuana business. They are all awaiting Phase 3 for licensing as Phases 1 and 2 only gave licenses to existing businesses. Many of these applicants do not have the resources to secure a lease ahead of time, and those that have are in danger of losing their lease. 

During the first round of Phase 3, there will be 100 licenses granted on a first-come-first-served basis to 75 Tier 1 social equity applicants and 25 Tier 2 social equity applicants. Round 2 will take a very similar shape with 100 more licenses granted to social equity applicants. Round 3 is the “delivery pilot” program and will grant 60 licenses to non-storefront retailers, 40 to social equity applicants and 20 to other applicants. 

Phase 3 has set up some qualification requirements, including proof of property ownership, proof that license fees have been paid, and even proposed security staffing plans. The city is giving a 14-day window for applicants to get all of this submitted in round 1, and a 30-day window for round 2. The city council has instructed the DCR to begin this process no later than September 3, 2019.

How You Can Get Ahead

Plan, prepare, and ensure you have all your ducks in a row. Start now if you haven't already. 

Don't know where to start or have the bandwidth to get everything dialed in time? Reach out to the expert compliance team at Green Consulting Partners for full-service help. They've helped clients across the country win cannabis business licenses and are fully capable of taking care of all your needs. 

Matthew Thompson

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