Slow and Steady

[dropcap class=”kp-dropcap”]T[/dropcap]he city of Los Angeles has a love/hate relationship with its cannabis industry. After the passage of Proposition M (the local measure regulating and licensing Los Angeles cannabis businesses), the City of Los Angeles Department of Cannabis Regulation (DCR) has been implementing a three-phase cannabis business licensing system in the following order: Priority processing and temporary approval for existing Pre-ICO/Proposition D-compliant dispensaries (i.e., existing medical cannabis dispensaries or EMMDs), non-retail cultivators and manufacturers that can prove they have been operating in the city since Jan. 1, 2016 (and complied with various mandated criteria), and the general public. Somewhere in there, the city is supposed to implement licensing for its social equity program, but that has not been codified in law yet.

Priority processing and temporary approval provide “limited immunity” for EMMDs to keep their businesses open while the DCR processes their full-blown city license applications. Hundreds of dispensaries have applied to the DCR for licensure but the DCR has been issuing them temporary licenses at a glacial pace. As of March 13, the city has issued only 125 temporary approvals. The DCR is understaffed and unable to keep pace with the EMMD applications it has received. The good news is that, earlier in the month, the city council approved 21 new hires for the DCR, which should improve the rates at which operators are getting licensed by the city.

The first phase of licensing has not inspired confidence in the city’s system under Proposition M. To qualify for priority processing and temporary approval, an EMMD had to have had either (1) a 2017 Business Tax Registration Certificate (BTRC) from the city, or (2) have been registered with the city by 2007 and have either a 2015 or 2016 BTRC. For the first group of applicants, securing temporary approval from the DCR was a relative breeze. However, if an EMMD experienced any kind of partnership dispute, management issue or was in the second EMMD group, temporary approval was much harder to secure. Most of those applicants had to attempt to retrieve from the DCR temporary BTRCs with which to apply, and most of those applicants are still waiting to hear back from the DCR. It will likely be weeks before they move forward with actual city license processing.

Under the ordinances that make up Proposition M, the second phase of licensing must conclude by April 1, 2018 and as of March 13, the DCR has yet to open the window to allow non-retail cultivators and manufacturers to apply for licensure. When this phase will begin is at DSR’s discretion. The DCR has not said when social equity applicants will be able to apply nor when it anticipates opening the general public window.

Non-EMMD applicants are concerned about L.A.’s undue concentration requirements, which the city has never fully explained but identifies as applicable “soft caps” on licenses per neighborhood in various districts based on either population or on square footage of land in eligible zones. It is still somewhat of a mystery as to how cannabis stakeholders should best prepare for licensure when they cannot know how many licenses will issue for a given zone or neighborhood.

Most cannabis business stakeholders in L.A. are in the dark on when and how they will be able to move forward, and the second largest city in the United States is lagging way behind on establishing a comprehensive cannabis economy. Though the city has made progress by passing and implementing Proposition M, it still faces an uphill battle on starting and maintaining what should be one of the greatest and largest cannabis marketplaces in the U.S.