The City of Los Angeles had a busy week for the cannabis industry as the city moved forward with the process of regulating commercial cannabis activity. First, on October 30, the Rules, Elections, and Intergovernmental Relations Committee (“REIR”), headed by City Council President Herb Wesson, held its first public hearing on the L.A. Social Equity Program Report. The Social Equity Program (the “Program”), which has yet to be finalized, is the last major piece to be included in the L.A. cannabis ordinance and will have important repercussions for the entire L.A. cannabis industry. The following day on October 31, the proposed commercial cannabis regulations were considered and heard for the first time before the entire L.A. City Council. The October 31st hearing was the first time the general public heard the positions of each Councilmember on the proposed cannabis regulations, and culminated in passing a motion by a 14 to 1 vote instructing the L.A. City Attorney to draft the proposed ordinance. Once the City Attorney completes a draft of the ordinance, it will be considered at length by the City Council in the coming weeks. The meetings and proposals considered this week by the city are discussed in more detail below.
Proposed Social Equity Program Highlights
The Program is an important component of the city’s cannabis regulation that is aimed at correcting the inequities caused by the uneven enforcement of the war on drugs on certain communities within the city. The Program will impact all licensees (except Prop. D compliant dispensaries) since the proposed Program limits the issuance of licenses to the general applicant pool at a one to one ratio with Program participants.
As proposed, the Program separates participants into four distinct groups, with each group receiving different levels of support from the City to cure past inequities. The general grouping of Program participants is: 1) low income residents of L.A. with prior cannabis related convictions; 2) low income residents of L.A. with a family member who was convicted of cannabis related offenses; 3) low income residents of L.A. who live or lived in community districts with disproportionate enforcement of cannabis prohibition; and 4) applicants who provide “qualifying support” to the Program. The support offered to Program participants through the proposal varies from group to group, with group one receiving the most support and group four receiving the least. The proposed support offered under the Program would provide benefits such as application priority processing, application assistance, application fee waivers or deferrals, business training, and access to certain funds set aside to provide capital to qualifying businesses. The Program is expected to undergo several changes in the coming weeks and will be considered again by the REIR Committee later in November. For help understanding how your business could qualify for participation in the Program, or if you would like your voice to be heard through our representation at the next REIR Committee meeting, please contact us at McAllister Garfield, P.C.
October 31, City Council Hearing on Commercial Cannabis Regulations
The October 31st L.A. City Council Meeting was the first of several anticipated hearings before the entire council regarding the proposed commercial cannabis regulations. The discussion centered around the different Councilmembers’ support of, and concerns with, certain aspects of the proposed commercial cannabis regulations. While there was some opposition expressed by a few Councilmembers, the general tone was positive as L.A. hastily moves forward toward full regulation of L.A.’s cannabis industry. This meeting also introduced over twenty amendments to the proposed regulations released in September of this year. The amendments, which can be found here, propose a wide array of changes, but three substantial impacts the proposed amendments will have on the future of the L.A. cannabis industry stick out to us.
First, and most importantly, amendment number two provides a pathway for non-retail businesses in operation before January 1, 2016, to continue to operate once the licensing windows open. These businesses will be able to continue operations through a grant of limited immunity from prosecution if they can meet each of the thirteen requirements set forth in the amendment. In order to receive limited immunity, the businesses must: 1) submit a completed application within 15 days of the opening of the licensing window for these businesses; 2) have the continuing operations be the same as the operations that the business are seeking licensure for; 3) be a supplier of Prop. D compliant dispensaries before January 1, 2017; 4) provide proof of operations before January 1, 2016; 5) meet all required zoning and sensitive use setbacks required for the specific use; 6) submit to and passes a pre-inspection with any fire or safety violations corrected before continuing operations; 7) sign an indemnity agreement indemnifying the City; 8) provide proof of an agreement with a testing lab for the testing of its products; 9) attest that only non-retail operations will be conducted under the limited immunity program; 10) test all cannabis-related products in accord with state standards; 11) agree to stop operations if a State or City license is denied; 12) agree to comply with all operating requirements set forth by the City; and 13) qualify under the social equity program. This is a much needed solution to the previously proposed regulations ensuring that qualifying non-retail businesses may continue to operate before receiving a full license from the city.
Next, as a result of the temporary approval plan for qualified non-retail operators, the City will now have three application windows. Window one remains the same and is for qualified Prop. D compliant retail operations. Window two will be for the qualified non-retail businesses discussed in amendment two above to receive limited immunity and permanent licensure upon approval. Window three is now for general applicants (all retail operations who do not qualify for window one processing and all non-retail operations that do not qualify for window two processing) and qualified Program participants. This new structure may further delay the beginning of new operations in the L.A. depending on the opening of each window.
Lastly, amendment number one would provide for license caps in the city to prevent an undue concentration of businesses in certain districts. The proposed caps are as follows: 1) one retail license for every 10,000 residents with Prop. D compliant retail operations being exempted from this limitation; 2) one microbusiness license for every 7,500 residents; 3) one square foot of cultivation canopy per one resident; and 4) one type 7 manufacturing license for every 7,500 residents. This is a substantial change since previous versions of the proposed regulations did not include any license caps on cannabis businesses, and could heat up the competition for licenses in certain districts with an abundance of properties that meet all zoning and sensitive use restrictions.
The one thing about this process that is certain is that these regulations are bound to change before the City finalizes its ordinance. The City still has a long way to go until its regulations are finalized, but the policies are finally beginning to take shape giving some insight into what the regulated cannabis market will look like in L.A. For more information on the recent developments in L.A.’s cannabis ordinance and legislative process, please contact Navid Brewster, in the Los Angeles Office of McAllister Garfield, P.C. with any questions.