California Cannabis: DCR Issues City of Los Angeles Licensing Update

On Friday, January 31, the Los Angeles Department of Cannabis Regulation (“DCR”) issued an updates bulletin to stakeholders via email that outlines some important highlights and reminders for licensees and would-be licensees in the City. Below are the key points, with analysis.

1. Round 1, Phase 3 license applicants move forward.

The initial 100 winners in Round 1, Phase 3 are moving forward in the licensing process with the DCR. On September 3, 2019 at 10 a.m., the DCR opened the flood gates to would-be Round 1 applicants. Prior to that date, the DCR verified over 800 social equity applicants (out of 1800 applicants that applied; folks had to be approved as social equity applicants by July 29, 2019). Those 800 social equity applicants vied for the first 100 coveted Type 10 retail licenses (75 of which went to Type 1 social equity applicants and 25 of which went to Type 2 social equity applicants).

Round 1 licensing was first come, first served with an online application via the City’s Accela licensing portal. One of the hallmark criteria for Round 1, in addition to meeting the social equity qualification, was proof of right to real property the intended license type. The real property had to meet all sensitive use buffers and zoning requirements, too. And applicants had to file a slew of other paperwork while racing against the clock (against other applicants) in the City’s online system.

There was immense scrutiny of the Round 1 application process by stakeholders. On October 28, 2019, Council member Herb Wesson alleged in a letter to DCR that:

Over the last couple of weeks, including at the Cannabis Regulation Commission meeting last Thursday, allegations have been made that multiple applicants had access to the application portal prior to the announced start time of 10 am on Tuesday September 3rd. Unfortunately these allegations have been substantiated by the Department at the Commission meeting and the Phase 3 Retail Round 1 process was compromised. While it was always understood that not every applicant would get a license, it is paramount that the application process have the utmost integrity, be transparent, and fair. There appears to be no scenario in which the Retail Round 1 process can meet those three principles currently.

Wesson went on to write that:

I am recommending that the Department: 1) suspend all Retail Round 1 applications; 2) refund all monies paid by Retail Round 1 applicants and cancel all invoices; and 3) prepare a full audit and report by an independent third party not involved in the process – unless there are other options like processing every application that would provide the necessary assurances that the process was not compromised. These are the only options that will provide the clarity and time we need to ensure that the Phase 3 Retail process is fair, transparent, and has integrity .

In the City’s update on January 31, the DCR let everyone know that the first 100 selected applicants are still moving forward and that “the Phase 3 Retail Round One application process is currently under review by an independent third-party auditor. That audit is being managed by the office of the City Administrative Officer (CAO). Once final, the audit will help to inform our approach to the application process.”

As far as when Round 2 of the Phase 3 licensing process will open, the DCR hasn’t said yet. ICYMI, the Round 2 window will be 30 calendar days for 150 licenses that will also go to pre-verified Tier 1 and 2 social equity applicants. In Round 2 though, at the time of filing, applicants only have to submit to the DCR “a financial information form; a labor peace agreement attestation form; and an indemnification agreement.” Those 150 applicants will then have 90 days to supplement their applications with the more robust information required by the DCR. There’s also no update regarding when the Phase 3 general public application window will open.

2. Phase 1s.

There are only 188 Phase 1 EMMDs in the City. Their license renewals are due by the end of March or they forfeit their EMMD status. Simple.

3. Phase 2 pre-licensing inspection has a new deadline.

There are currently 158 Phase 2 applications that received temporary approval from the DCR. However, in order to operate, Phase 2 applicants have to pass a pre-licensing inspection with the DCR and the L.A. Fire Department (and have a state license). The new deadline for Phase 2 applicants to pass pre-licensing inspections is extended to March 31, and Phase 2 applicants must request their pre-licensing inspection by or before March 1.

4. Undue concentration update.

There are currently 10 community plan areas that have reached undue concentration limits. Recall, undue concentration basically stands for soft licensing caps within the City. The areas affected by undue concentration now include Boyle Heights, Central City, Central City North, Harbor-Gateway, Hollywood, North Hollywood-Valley Village, Sherman Oaks – Studio City-Toluca Lake-Cahuenga Pass, Sun Valley – La Tuna Canyon, Venice, and West LA. Folks can still apply for licensure in these areas, but they have to request a finding for Public Convenience or Necessity (PCN) from the local City Council. To date, “the [DCR] has received 75 PCN applications since the opening of Retail Round 1 on September 3, 2019.” It’s important to note that the PCN process is only available right now to social equity applicants.

5. Amendments to applications are now available.

The DCR released some pretty helpful guidance on how to make amendments to your licensing application (including change of entity and/or ownership). See here for instructions on how to fill out the specific form.

We’ll be sure to give a full analysis of the City’s progress towards Round 2, Phase 3 licensing, which is the next big licensing milestone in L.A. So, stay tuned!