ICYMI: Phase 3 Marijuana Retail Licensing in L.A. Shoots to Commence in September

In case you missed it, at the end of last month, the City of L.A. finally decided on what to do with Phase 3 cannabis licensing regarding retail and retail delivery (see here and here for the City’s newest ordinances). In addition, City Council instructed the Department of Cannabis Regulation (“DCR”) to begin the pre-vetting process for social equity applicants for Round 1, Phase 3 licensing no later than May 28th, 2019 and to begin taking applications for Round 1 of Phase 3 no later than September 3, 2019. This is the first time the City has given any indication of when it expects Phase 3 to finally open. And when that pre-vetting opens, it’s going to be fast and furious for applicants to file as it will be when Phase 3 licensing commences.

There are significant changes to note for this Phase 3 overhaul. Prior to the commencement of opening Phase 3, the DCR must first determine social equity eligibility through a pre-vetting process that will take place for 60 calendar days (see here for a breakdown of social equity in LA). It’s highly likely that the DCR will use the same social equity eligibility criteria as it did in Phase 2 to decide who gets to proceed to the actual licensing window. And if you need to know who qualifies for what under social equity, check out the DCR’s FAQ page on the topic. The long-awaited “social equity assistance” for Tier 1 and 2 social equity applicants has to be in place for 45 days prior to Phase 3 actually opening. After social equity pre-vetting is done and technical assistance has been available for the mandatory time, the DCR will open Phase 3 for the first 100 Type 10 (brick and mortar retail) licenses 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 (see below, too)). This is now known as 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. Notably, DCR’s determination of whether an individual is a Tier 1 or Tier 2 social equity applicant shall be made with no hearing and is final and not appealable.

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, individual can’t be the Tier 1 or Tier 2 social equity Owner for more than one applicant in Round 1, and EMMD owners can’t act as social equity Owners in this round either.

The difference between Round 1 and 2 is mainly three-fold: more licenses will be given in Round 2, more qualifying information is required for Round 1, and the licensing window is longer for Round 2; showing that you have proof of right to real property for your commercial cannabis activity is required in Round 1 upon filing (and it’s not required in Round 2 at the time of filing). For Round 1, applicants must give over to the DCR: “1) a copy of an executed lease agreement with proof of a deposit or property deed for its Business Premises; 2) an ownership and financial interest holder form; 3) a financial information form; 4) a Business Premises diagram; 5) proposed staffing and security plans; 6) a dated radius map including horizontal lines and labeling of any sensitive uses relative to a Type 10 License; 7) a labor peace agreement attestation form; 8) an indemnification agreement; and 9) 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 business.” Round 1 businesses will not be subject to Undue Concentration unless DCR decides otherwise.

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. 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.

The City also solidified its Type 9 delivery pilot program, which I’ll be covering in more detail in my next post on Los Angeles cannabis licensing next week.

Whether you’re shooting for Round 1 or 2, now that the DCR has a path forward, it is absolutely time to start gathering your proof of social equity eligibility. The DCR has been clear in the past about the documents it will accept to establish this status, so there’s no time to waste in at least beginning to look at the City’s previous guidelines to get organized for pre-vetting.