Be Prepared

[dropcap class=”kp-dropcap”]I[/dropcap]n early February of this year, the Department of Cannabis Regulation (DCR) proposed to the Rules, Elections and Intergovernmental Relations Committee the concept of a first come, first served system, lottery or merit-based review to divvy up those licenses between those social equity applicants who had real property and those who didn’t in order to “make our licensing process more efficient, transparent, and, most important, equitable.” The council (after a hearing with the Committee and the DCR) came back to the DCR with a different set of proposals for Phase III reform, namely, to study how other cities have handled social equity and limited licensing.

On April 16, after adopting the city attorney’s April 12 report, the council also decided to adopt the April 12 draft ordinance (subject to certain council amendments and additions to the DCR and city attorney from April 16). The council reviewed and adopted this amended ordinance on April 30. The April 12 ordinance represents major reform. Its biggest impact is the creation of a first come, first served system for Phase III licensing, which basically tracks the original proposals from DCR from back in February.

Here is a general summary of how Phase III will now work:

When the DCR decides it’s time, applicants for Phase III Type 10 retail licensing (i.e., brick and mortar) can apply to the DCR to be vetted and approved as either Tier 1 or Tier 2 Social Equity applicants. Licensing will then be split up into two rounds. For Round 1 licensing, for a period of 14 calendar days (provided that the DCR posts written notice of Round 1 on its website 15 days before the 14-day window opens), the DCR will process the first 100 Type 10 retail licenses. To qualify in Round 1, an applicant business must have a Tier 1 or Tier 2 Social Equity applicant already verified.

During the 14-day application window, applicants have to submit to the DCR a complete application that includes a variety of completed paperwork. All of these business records and agreements are necessary to demonstrate that a Tier 1 or Tier 2 Social Equity applicant owns the minimum equity share in the business as required under current city law. The first 100 applicants who meet all of the foregoing will go forward for further license processing, which represents the “first come, first served” system in play.

For Round 2 for the remaining Type 10 retail licenses, when the DCR decides it’s time to open the window, they’ll process Round 2 applications for 30 calendar days. This Round 2 window cannot open “until DCR has made business, licensing, and compliance assistance available to  [pre-verified] Tier 1 and Tier 2 Social Equity applicants . . . for a period of at least 30 calendar days” (note that Council changed this to have this assistance in place for 45 days before Round 1 opens instead of for 30 days before the commencement of Round 2).

“We finally know what Phase III is going to look like in L.A., which will probably cause a lot of relief and also major anxiety.”

To qualify for Round 2, an applicant must have an individual “owner” that is a Tier 1 or Tier 2 Social Equity applicant that’s already been verified by the city. During the 30-day application period, applicants have to submit a complete application that includes an ownership and financial interest holder form, a financial information form, a labor peace agreement attestation form and an indemnification agreement. The first 150 applicants who submit an application that meet the foregoing requirements then get 90 calendar days, when the DCR calls it, to then submit more paperwork.

We finally know what Phase III is going to look like in LA, which will probably cause a lot of relief and also major anxiety. Without a doubt though, Phase III retail licensing in LA is now going to be a massive race to get in complete applications, and it will be a feeding frenzy for business folks to partner with social equity applicants (so be on the lookout for predatory tactics). For those out there who have been sitting on property in LA just waiting for Phase III to open, now is the time to start preparing for the submission of your complete application to the DCR, as one missed or incorrect document can spell rejection. Be sure to organize and analyze accordingly.