California Cannabis: L.A. Phase 3 Social Equity Window Opens Today

The prelude to Phase 3 licensing in the City of L.A. is finally upon us. Today, L.A. will begin accepting applications for Phase 3 social equity applicants for retail and delivery in the City. Specifically, Phase 3 social equity applicants will have from today through July 29th to prove up their Tier 1 or Tier 2 status. And if they can do that, they’ll move on to be able to apply for actual licensure in Phase 3, which kicks off (or should kick off) in September of this year.

If you have any hope at all of securing a coveted L.A. brick and mortar retail or delivery retail license, you must apply as a Tier 1 or 2 social equity applicant in Phase 3 and you must first demonstrate your Tier 1 or 2 eligibility in this 60-day window set up by the Department of Cannabis Regulation (DCR). This is incredibly important as the City will not accept eligibility applications after July 29th. Moreover, only 250 retail licenses remain in the entire City.

Logistically, Tier 1s and 2s will apply online through the DCR’s licensing portal. This is the specific link to register for pre-verification. There is no application or verification fee and this is not a first come, first serve process–the City will simply review eligibility applications as they come in and respond to applicants as quickly as possible. The date at which you file in this pre-vetting window has nothing to do with your place in line when Phase 3 actually opens in September. Most important of all for this 60-day window is that applicants must also upload “various documents to prove certain eligibility criteria.”

Translated: you’ll need to provide physical evidence of your low income status, your residency in a Disproportionately Impacted Area, and/or your cannabis arrest or conviction when you file online.

In the future, DCR will make the rounds on verifying that social equity applicants receive their mandatory equity allocations in their cannabis businesses but, for now, DCR is solely focused on basic eligibility criteria. For more on that criteria and how to prove you meet it, see here. Now is the time to compile your eligibility documentation so that you’re not caught flatfooted at the end of July. And applicants should include their strongest, prima facie evidence of Tier 1 or Tier 2 status where the DCR allows a range of evidence to come in, including declarations signed under penalty of perjury (which you’ll need to draft yourself since there is no designated City form for that).

Finally, it’s worth revisiting the ownership thresholds at play in this convoluted process. A Tier 1 social equity applicant must own at least 51% of the applicant business and has to meet the following criteria:

1. Low Income (which means means 80% or below of Area Median Income for the City based on the 2016 American Community Survey and updated with each decennial census) and prior California Cannabis Arrest or Conviction (which means an arrest or conviction in California for any crime under the laws of the State of California or the United States relating to the sale, possession, use, manufacture, or cultivation of cannabis that occurred prior to November 8, 2016); or
2. Low Income and a minimum of 5 years cumulative residency in a Disproportionately Impacted Area (which means total (not consecutive) years in those eligible zip codes based on the “More Inclusive Option” as described on page 23 of the “Cannabis Social Equity Analysis Report” commissioned by the City in 2017, and referenced in Regulation No. 13 of the Rules and Regulations, or as established using similar criteria in an analysis provided by an applicant for an area outside of the City).

As to Tier 2, each social equity applicant has to have at least 33 1/3% equity in the applicant business and has to meet the following criteria :

1. Low Income and a minimum of 5 years cumulative residency in a Disproportionately Impacted Area; or
2. A minimum of 10 years cumulative residency in a Disproportionately Impacted Area.

Yes, there is overlap between the Tier 1s and Tier 2s per the above, and if you don’t know which tranche you qualify for, the DCR will let you apply for both in the next 60 days. The DCR’s social equity program FAQ is also a helpful resource for addressing ambiguities about the program, so be sure to check it out before you start throwing documents at the City.

It is incredibly important for stakeholders to understand that today doesn’t represent the actual opening of the Phase 3 licensing window–people won’t submit their business or real property documents to the DCR until September when Round 1 and 2 of Phase 3 licensing commence. This window is only dedicated to qualifying social equity applicants and that’s it.

So, gather and organize your eligibility documents and get them into the City well before July 29th. And if you haven’t sorted your business dealings yet for the actual cannabis businesses, it’s never too early to start planning for Round 1 in September. Last, because social equity applicants are going to be the hottest (and only) ticket in L.A. for retail licensing, be on the lookout for hawkish, predatory business partners as they’re a dime a dozen in L.A.’s emerging cannabis scene.