By Raza Lawrence Esq. (Margolin & Lawrence)
Los Angeles is open for cannabis business – a land of opportunity in these uncertain times.
The commercial cannabis industry is rocketing forward in Los Angeles, as much of the rest of society has stagnated amidst the coronavirus pandemic and lockdowns. Budding entrepreneurs can now acquire and operate all types of licensed cannabis businesses within the LA City limits, at the same time as the regulated cannabis market has opened up more and more across California and the country, in red and blue states. Many cannabis industry veterans see this as the opportunity they have been waiting for all their lives, with the establishment finally appreciating their talents and giving them a path to build a legitimate business after decades of stigmatization and criminal prosecution.
After months of Covid-19 lockdowns, protests against police brutality and the racist drug war, and political turmoil, many people are struggling to find some stability and hope for the future. This year, people from all walks of life lost their livelihoods, countless businesses failed, and entire industries disappeared or were completely transformed. Many people are starving for economic and employment opportunities. The commercial cannabis industry is a potential lifeline, with Los Angeles ground zero for this new economic engine.
Commercial cannabis was fortunate to be classified as an “essential” industry in California, allowed to continue operating throughout the Covid-19 pandemic at all levels from cultivation to retail, as many other types of business were required to shut down or drastically curtail operations. At the same time, cannabis sales and consumption have shot up, with many people stuck at home for long stretches and looking for natural comfort. And local governments, including in Los Angeles, are finally starting to roll out many new business licenses to keep up with the demand.
So far, California has been slow to roll out its cannabis licensing system since voters passed Proposition 64 in 2016 legalizing recreational cannabis, and the legislature created the regulatory framework in the 2017 Medical and Adult Use Cannabis Regulation and Safety Act. Under California’s system, each local government is free to ban all commercial cannabis or to enact its own regulations and licensing process. Los Angeles, like most of the rest of the state, has so far not approved enough licensed businesses to keep up with demand, resulting in a huge, thriving illicit market – which of course is untaxed and unregulated.
Los Angeles is finally starting to turn the corner and approve many new licensed cannabis businesses, throughout the supply chain. So far, the City has not issued licenses to any cannabis storefronts other than a select group of former medical marijuana collectives that had operated continuously in the City since 2007 and had complied with a host of other requirements over the years. A new retail licensing application system started in September 2019, but was delayed by an external audit of the licensing process, lawsuits alleging various improprieties, and a shift in local government priorities due to Covid-19. Now, finally, the City is about to issue 200 new cannabis storefront licenses, and continue with the process for issuing many more.
The City of Los Angeles also recently began accepting license applications for new businesses seeking to engage in cannabis retail delivery, distribution, and manufacturing (of concentrated cannabis and cannabis edibles). It is not clear how long the application window will remain open for these activities, but there is currently no numerical limit to how many licenses the City may issue. While Los Angeles is not currently issuing any cannabis cultivation licenses, it issued hundreds of cultivation licenses in 2018 to certain legacy operators who had supplied medical marijuana collectives, and the City recently began allowing those licenses to be transferred to new owners and moved to new locations within the City, opening up the market for cannabis cultivation to any interested new parties.
This could be a golden opportunity for anyone with the right interest, skills, and resources to start up a new business in an emerging industry. Greater Los Angeles has a population – and potential customer base – of nearly 19 million people. In addition, cannabis license holders are allowed to do business with any other license holders throughout the state – a population of nearly 40 million people. While cannabis remains federally illegal, the pending MORE Act and other recent bills have proposed legalizing cannabis at the federal level, which could eventually expand the legal market for California cannabis to the entire country, and the rest of the world. Given the vast size of the potential market for LA cannabis, there is plenty of room for numerous cultivators, manufacturers, distributors, and retailers to be successful.
Los Angeles is a vast City, with huge numbers of properties available in all types of neighborhoods. LA now has even more attractive real estate opportunities than usual, with other businesses having shut down due to Covid-19 and property owners looking for any potential tenants who will have the ability to pay rent. Rent for commercial properties has gone down, with supply exceeding demand. In certain California communities that have started cannabis licensing, the available real estate in the correct zoning is extremely limited. Solvang, California, notably included only one property in the zone where cannabis retailers are allowed. LA, by contrast, has relatively liberal zoning rules for cannabis, and plenty of available properties.
Many other localities issuing cannabis licenses have placed strict caps on the number of licenses allowed to be issued, making it difficult or impossible for new businesses to join the market. LA, however, has placed no limit on the number of delivery, distribution, or manufacturing licenses that may be issued, and has only “soft” caps on the number of storefront and cultivation licenses, which may be exceeded if the City Council finds the additional licenses would serve “public convenience or necessity” (an exceedingly vague standard).
In sum, LA is one of the few places around where people can now apply for or easily acquire all types of cannabis licenses, and begin operating cannabis retail, cultivation, manufacturing, and distribution businesses all over a booming metropolis. With cannabis laws being liberalized and cannabis use becoming more mainstream all over the country, the cannabis industry seems ripe with opportunity. Although it has taken a long time to get rolling, LA is finally starting to approve all kinds of new cannabis licenses, and the American dream of building a business is about to become a new reality for many people. With its massive population, liberal licensing policies, and location at the epicenter of the cannabis industry, LA just might be the best place in the world to start a licensed cannabis business.
For more information about this post, contact Margolin & Lawrence.