Red Tape Alert: Phase 3 Cannabis Delivery Licensing in L.A.

A lot of attention has been paid recently to brick and mortar retail licenses in the City of Los Angeles for Phase 3 licensing, which is set to commence in early September of this year. While L.A. is trying its best to champion social equity with its Phase 3 storefront licensing, it’s also going to develop a Delivery Pilot Program for social equity applicants in the City.

As a recap of Phase 3 in L.A., the first 100 Type 10 (brick and mortar retail) licenses will go to social equity applicants on a first-come, first-served basis (specifically, the first 75 Tier 1 applicants and the first 25 Tier 2 applicants will get licenses if they meet all eligibility requirements) in Round 1. For Round 2, which will be for 150 Type 10 retail licenses, this will also be on a first-come, first-served basis. The Round 1 window is going to be extremely short–only 14 calendar days (preceded by a 15 calendar day notice from the DCR). Businesses are only eligible to apply if they have a verified Tier 1 or 2 social equity “Owner” (with the mandated equity share in the business). Importantly, an individual can’t be the Tier 1 or Tier 2 social equity Owner for more than one applicant in Round 1, and existing medical marijuana dispensary (“EMMD”) owners can’t act as social equity Owners in this round either. The Round 2 window is 30 calendar days for 150 licenses that will also go to pre-verified Tier 1 and 2 social equity applicants (without any processing priority between those two groups). Note that the Department of Cannabis Regulation (“DCR”) began the pre-vetting process for social equity applicants for Round 1, Phase 3 licensing very recently– on May 28th, 2019. This window is open until July 29, 2019 (see here for how to demonstrate your social equity status to the City).

Specifically regarding Type 9 non-storefront, delivery only licenses, the DCR will, on a date to be determined in the future, begin accepting applications for delivery (there will be a 15-day notice before this particular window opens, too). Eligibility for a Type 9 license hinges on submitting at the time of filing: 1) a copy of an executed lease agreement with proof of a deposit or property deed for the business premises (yes, even as a delivery service, you have to have a physical facility to store your inventory); 2) a premises diagram; 3) proposed staffing, security, and delivery plans; 4) a dated radius map including horizontal lines and labeling of any sensitive uses relative to a Type 9 License; 5) an indemnification agreement with the City; 6) a current Certificate of Occupancy for retail use for the business premises; and 7) all business records and agreements necessary to demonstrate that a Tier 1 or Tier 2 social equity applicant owns the minimum equity share in the Type 9 applicant (i.e., a Tier 1 must own at least 51% and a Tier 2 must own at least 33%). Criteria number 7 is “as applicable” in that the City must also issue on a 2 to 1 basis Type 9 licenses to general public, non-social equity applicants.

Regarding order of priority for Type 9 applicants, the DCR will process a total of 60 Type 9 applicants in Round 1 of licensing (delivery actually has three rounds). 40 of these licenses will go to first Tier 1 and 2 social equity applicants, and 20 will go to the first general public applicants that don’t have any social equity component (to satisfy the 2:1 licensing ratio required under LA law). These licenses represent the City’s Delivery Pilot Program, and these applicants must submit 1-7 (7 as applicable) per the above at the time of filing.

For Round 2 of delivery licensing, importantly, if you applied but were rejected for a Type 10 license in Rounds 1 or 2 because your proposed storefront location was in a geographic area of undue concentration limits or within a 700-foot radius of another Type 10 application, you get priority processing for a Type 9 license relative to all other applicants except those in the Delivery Pilot Program.

And Round 3 of delivery licensing is for those non-retail applicants that applied for licensure in Phase 2 licensing. Those applicants can, at a time TBD by the DCR, amend their Phase 2 annual applications to include delivery.