LA’s Department of Cannabis Regulation Moves Forward with New Licensing, and Additional Scrutiny of Previously Submitted Social Equity License Applications
On October 1, 2021, as expected, the Los Angeles Department of Cannabis Regulation re-opened its online portal and began accepting applications for the following types of commercial cannabis licenses throughout the City of Los Angeles (https://cannabis.lacity.org/articles/beginning-oct-1-2021-new-licenses-and-new-licensing-process-webinar-1012-and-1026):
The “Cultivation – Processor” and “Nursery” license types – both types of cultivation licenses – are notable in that the City of Los Angeles did not previously offer them. Acceptance of all new license applications has been on hold for the past several weeks, as the DCR has been installing a new application process and procedure applicable to all new licensing. Each of the license types being offered by the City of Los Angeles corresponds with categories of state commercial cannabis licenses (https://cannabis.ca.gov/applicants/license-types/). Both a local and state license are required in order to start any commercial cannabis operations.
For the license types requiring the participation of social equity applicants, non-social-equity-applicant investors may be co-owners of the business, but the social equity applicant must hold a minimum equity interest (either 33 1/3% or 51% depending on the type of social equity applicant). It is currently unknown how long the application window will stay open for these license types. There is no numerical limitation on these license types like there is for storefront retail and regular cultivation licenses in the City of Los Angeles. The DCR is expected to move forward later this year with issuing additional storefront retail licenses (available only to ownership groups that include social equity applicants).
In addition to rolling out this system for new licensing, the DCR has started applying additional scrutiny to social equity applicant licenses that have already been submitted. Participation in Los Angeles’s social equity program – mandatory for all storefront retail, delivery retail, and nursery license applicants – requires compliance with certain “equity share requirements” that were included in recent amendments to the Los Angeles Municipal Code designed to provide additional benefits and protection to social equity applicants. As part of the social equity program, the City is now reviewing all social equity contracts and corporate records to ensure compliance with these “equity share” rules, and sending notices to applicants when the DCR concludes that the applicant may have fallen short on one or more of the rules. In all cases where the DCR has raised a potential issue regarding compliance with the program, it is giving applicants a chance to respond to the allegations, including by correcting any offending language in contracts or corporate records. Many of the “equity share” guidelines are somewhat ambiguous, and applicants have used various different approaches to structuring their businesses in an attempt to comply with them while also being able to secure the required investments and ensure smooth operation.
As part of its “equity” share review, the City of Los Angeles is confirming that each new delivery or storefront retail applicant meets each of the following standards, which are drawn from section 104.20 of the Los Angeles Municipal Code (https://codelibrary.amlegal.com/codes/los_angeles/latest/lamc/0-0-0-208318):
Raza Lawrence (Margolin & Lawrence)