The Department of Cannabis Regulation (DCR) has just confirmed that it is now processing requests for ownership changes to existing Phase 2 (non-retail) cannabis licenses in Los Angeles. This long-awaited news is a game-changer for savvy investors and license holders alike, as it opens opportunities to buy or sell shares of the 139 cultivation, manufacturing, and distribution businesses that are licensed under Phase 2 in Los Angeles.
Since Phase 2 licensing was first opened by the city in August of 2018, the DCR has only considered ownership changes under limited circumstances. Potential investors who did not apply for a Phase 2 license upfront have not been able to enter the Los Angeles cannabis market by buying shares of an existing business for most of the past year and a half. Instead, many of these investors have been waiting for the city to roll out Phase 3 retail licensing, which allows for several individuals to apply for a license collectively as a corporate entity. The City of Los Angeles hosted its first round of Phase 3 applications and selected 100 applicants to move on to the next part of licensing. However, recent allegations of the city’s misconduct have led to an immediate pause of the Phase 3 licensing process, and those applicants will not be able to move forward until (if at all) a comprehensive audit report is released. The new possibility for investors to enter the Los Angeles market by buying into an existing Phase 2 (non-retail) business comes as especially good news to interested entrepreneurs in light of the recent Phase 3 misfortunes. The change also behooves current Phase 2 license holders by providing them with access to more opportunities for capital investment.
As of October 24, 2019, an additional 360 Phase 2 applications were “pending” and under review. It is likely that many of these applicants will too receive a license to operate, adding to the 139 active Phase 2 (non-retail) businesses in the city. As the number of Phase 2 licenses grows, so will the opportunities for investment. It is unclear if the DCR will allow ownership changes indefinitely or for a limited period of time. Now is a prime time for investors and licensees alike to expand their business opportunities.
Margolin & Lawrence represents many of the current Phase 2 license holders in Los Angeles as well as applicants who are still pending review. In our years of experience mitigating cannabusiness ownership transactions throughout the state, we have grown a strong network of licensees and interested investors.
If you are interested in buying part of a Phase 2 non-retail license or if you own a Phase 2 license and are looking to sell part of your business, contact one of our attorneys today!