October 3, 2017

Last week, Los Angeles lawmakers tentatively approved the City Council’s latest 42-page revised draft of proposed cannabis regulations under Proposition M. While a bulk of the draft rules were pretty unsurprising, the city did make several huge and unexpected changes – some good and some bad. This draft is not the first that LA City has released and will not be the last.

As the clock marches toward the New Year, many businesses in Los Angeles who thought the City would be granting their non retail operations cover, find themselves in an all too familiar conundrum: 1) (stay) open and risk a violation or 2) Close your doors and weather the financial storm.

Before you can make a decision as to how your business should move forward, here are some of key things you need to know about what the city’s proposing for the industry:

  1. The city will be issuing actual licenses instead of “certificates of compliance.” This go-round, the city has ditched the limited immunity scheme in favor of a straight licensing program before Jan. 1– for prop D dispensaries anyway.[1] The city will now be giving out licenses (both temporary and permanent) in order to give applicants more rights and better protection to conduct business within the city.
  1. Non – Retailers will now be treated same as General Population. Formerly, licensing priority was to be given to Prop D retailers and non-retail registrants that were operating prior to January 1, 2016. Therefore, under the original draft regulations, certificates of compliance were set to issue (1) existing Prop D-compliant dispensaries, (2) certain non-retail registrants (i.e., growers and manufacturers that were in operation prior to January 1, 2016), then (3) social equity applicants, and (4) general public. However, the city has eliminated the non-retail registry window altogether. Now, only Prop D shops will be eligible for priority licensing, meaning that the supply chain could be heavily disrupted in the current draft of the regulations.
  1. Only Prop-D compliant existing medical marijuana dispensaries (“EMMD’s”) may continue to operate after January 2nd. This is easily the most concerning part of the draft rules – especially the growers, manufacturers and distributors. Under the new draft rules, only EMMD’s will be eligible for temporary licenses that will allow them to continue operating as they wait for permanent state licensure. Due to state licensing timelines, this effectively means that only EMMD’s will be allowed to continue operating after January 2nd. All other businesses will either have to shut down for an unknown period of time (likely several months) or roll the dice and risk the possibility of enforcement. This places most businesses into the precarious position of being stuck between a “rock” and a “hard place” – between compliance, closing up shop and potentially getting forced into bankruptcy before even getting the chance to apply; and non-compliance, retreating back into the black market until the licensing process is compete.   This time, however, the stakes are much higher. Under Prop M, “bad actors” (owners and landlords) risk criminal prosecution, heavy fines of up to $20K per day, and their chances at licensure. City Council Herb Wesson has acknowledged the problems that this causes for the local cannabis industry and the supply chain, but every indication from the city thus far indicates that non-retailers will be unable to get provisional licensing by January 2nd.
  1. Anyone convicted of running an illegal cannabis business after April 1st will be banned for 5 years.   Added to the draft rules is the provision that: “Any owner, business, or individual cited for conducting illegal Commercial Cannabis Activity after April 1, 2018” will be banned from the city for 5 years.   As noted in Marijuana Business Daily, Cannabis Attorney Meital Manzuri – who represents hundreds of diverse MJ businesses in L.A. – believes a possible compromise could involve granting existing businesses limited immunity from prosecution – while also giving the city legal cover.   In addition, some believe that this April 1st deadline for businesses to cease operations before triggering the 5-year ban almost seems like a “wink-and-a-nod” from the city that there will be some sort of informal grace period from January 2nd to April 1st, where city officials will be looking the other way when it comes to enforcement. However, LAPD still rules this land and you can trust their discretion at your own peril.
  2. EMMD’s can apply for retail, delivery and on-site cultivation. EMMD’s will only be allowed to apply for a Type 10 retailer permit (including delivery). They can also apply for on-site cultivation provided that the EMMD does not exceed the size of the EMMD’s existing canopy or square footage of building space as documented by a lease or Certificate of Occupancy prior to January 1, 2017. A maximum of three licenses per EMMD will be allowed.
  1. An 800-foot sensitive use buffer will be required for storefront dispensaries – but no buffer will be required for any other business type. On September 7th, the Department of City Planning released a proposed zoning ordinance containing a separate set of rules restricting where exactly businesses can operate within the city.   Under the draft ordinance, retail storefront dispensaries must be located at least 800 feet away from K-12 schools, public parks, libraries, drug and alcohol treatment centers and other dispensaries. Zero buffer will be required for all other business types.
  1. Greenhouse cultivation and volatile manufacturing will be allowed.   Mixed-light cultivation (Types 1B, 2B and 3B) will now be allowed in the agricultural zones of the city and volatile manufacturing (Type 7) will now be allowed in the industrial zones.

Los Angeles is listening to our concerns with every public comment letter written, every committee hearing held and every meeting that has taken place. Let us know how Manzuri Law can help your business and the city move in the right direction!

[1] Under the city’s first draft of Prop M regulations, which were released months ago, the city was going to issue businesses “certificates of compliance” in lieu of actual licenses.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.