F.A.Q.

• Apply for a local license with your applicable city or county. This requires the completion of any local permitting requirements and must be done before you apply for a state cannabis license.

• Learn the Regulations and Gather your Materials. The DCC has a robust set of regulations that lay out the requirements for how a cannabis business must be set up for operation and procedures for running the facilities. Familiarize yourself with these regulations. On their website, the DCC lays out the material requirements for completing an application.

• Create an Account with the DCC licensing system: Accela. Depending on your license type (there are three licensing systems), each Owner of the license will need to create an account with the Accela system. For each individual, this requires inputting your personal contact information, including your Social Security Number.

• Complete your Application. You will need to upload all necessary documents to the Accela portal. It’s important to properly disclose all Owners and Financial Interest Holders in this application.

• Pay for the Application Fee and Submit your Application. Once the application is complete, you will be required to pay the application fee before the DCC can process your application.

• Wait for Feedback from the DCC licensing Team. Upon review, if there are any deficiencies in your application, the DCC licensing team will email the applicant.

• Once Approved, Pay Your License Fee. You can pay your license fee through the licensing system via bank account/check, money order or credit card. You can also pay in cash by setting up an in person appointment with the DCC’s office. Once payment is received, the DCC will issue your license.
  – Apply for an Equity Fee Waiver, if applicable.
  – If you meet the equity fee waiver criteria, you may submit for a license fee waiver.

• Post your License at Your Business Premises in a Visible Place. Once the license is issued, you can download the license certificate from Accela portal. Print the license, and post it in a visible place near the entrance of your business.

• Cultivation (small, medium and large, both indoor and outdoor operations)
• Manufacturing (non-volatile solvents and volatile solvents)
• Distributor (Distributor and Distributor – Transportation only)
• Retail (Storefront and non-storefront Delivery only)
• Testing Laboratory
• Microbusiness (engages in at least 3 of the following: Cultivation, Manufacturing, Distribution, Retail)
• Event license (temporary license for cannabis consumption events)

Under CA Regulatory Rules the transfer of cannabis licenses is complicated and can be restrictive. Cannabis licenses are not transferable. Typically in order to effectuate a transfer of a license, the interested purchaser party must execute a stock purchase agreement and navigate the regulatory disclosure hurdles. This purchase will require amending the Ownership on the license and proper disclosure of all new Owners and financial interest holders of the license. These amendments to the license, informing of the change, must occur at both the local (city or county) level and with the State (DCC). The transfer of ownership is not official until it is formally approved by both local and state agencies.

1. Who is Defined as an Owner?

An applicant for a commercial cannabis license shall disclose all “Owners” of the commercial cannabis business. The DCC defines an owner of the commercial cannabis business in TWO important ways. 

1. Equity Owner of the Business. (Owner in the “traditional” sense)
   1. “A person with an aggregate ownership interest of 20 percent or more in the commercial cannabis business, unless the interest is solely a security, lien, or encumbrance.”
      1. “aggregate” means the total ownership interest held by a single person through any combination of individually held ownership interests in a commercial cannabis business and ownership interests in an entity that has an ownership interest in the same commercial cannabis business. 
      2. DCC hypothetical: “For example, a person who owns 10 percent of the stock in a commercial cannabis business as an individual shareholder and 100 percent of the stock in an entity that owns 10 percent of the stock in the same commercial cannabis business has a 20 percent aggregate ownership interest in the commercial cannabis business.”
2. Individual who Manages, directs or controls the operations of the business.
   1. A member of the board of directors of a nonprofit.
   2. A general partner of a commercial cannabis business that is organized as a partnership. 
   3. A non-member manager or managing member of a commercial cannabis business that is organized as a limited liability company.
   4. The trustee(s) and all persons who have control of the trust and/or the commercial cannabis business that is held in trust. 
   5. The CEO, president or their equivalent, or an officer, director, VP, general manager or their equivalent. 

Additionally, if the commercial cannabis business is owned in any capacity by an entity, the individuals who manage, direct, or control the operations of Owner entity shall also be disclosed as owners. 

1. 1. Who is Defined as a Financial Interest Holder?

In addition to disclosing all Owners, a commercial cannabis license applicant must also disclose all financial interest holders. 

A financial interest holder is defined by the DCC as:

1. A person with an aggregate ownership interest of less than 20%.
2. A person providing a loan to the business.
3. A person entitled to receive 10% or more of the profits of the commercial cannabis business, including:
   1. An employee who has entered into a profit share plan with the business.
   2. A landlord who has entered into a lease agreement with the cannabis business for a share of the profits.
   3. A consultant who is providing services to the commercial cannabis business for a share of the profits.
   4. A person acting as an agent, such as an accountant or attorney, for the commercial cannabis business for a share of the profits. 
   5. A broker who is engaging in activities for the commercial cannabis business for a share of the profits. 
   6. A salesperson who earns a commission.

Financial interest holders do NOT include any of the following: 

1. A bank or financial institution whose interest in the business is a loan;
2. An individual with a financial interest in the commercial cannabis business which is an interest in a diversified mutual fund, blind trust, or similar instrument;
3. An individual with only a security interest, lien, or encumbrance on property that will be used by the commercial cannabis business; and
4. Individuals who hold a share of stock that is less than 10% of the total shares in a publicly traded or privately held company.

1. Social Equity Program

The Social Equity Program is a major component of California Commercial Cannabis Licensing which means that many commercial cannabis businesses are required to comply with various social equity requirements in order to apply for a license. 

This is a very complicated policy and varies from city to city. Most programs require a portion of ownership by an individual that satisfies various elements. Those elements include but are not limited to, a) a cannabis related arrest or conviction b) low income c) cumulative residency in an area disproportionately impacted by the war on drugs. 

In California, the Department of Cannabis Control has ruled that State Provisional licensing will soon be limited to social equity applicants.

At the local level, several local jurisdictions in the State have officially approved equity ordinances in their local cannabis regulations. 

• County of Humboldt – Ordinance No. 2623
• City of Coachella – Resolution No. 2019-15
• City of Rio Dell – Ordinance No. 375-2019
• City of Long Beach – Ordinance No. ORD-18-0015
• City of Los Angeles – City of Los Angeles Municipal Code, Ch. 10, Art. 4, Sec. 104.20
• City of Oakland – Ordinance No. 13504
• City of Sacramento – Resolution No. 2018-0323
• City and County of San Francisco – City and County of San Francisco Police Code, Art. 16, Sec. 1604
• City of San Jose – Ordinance No. 30234

1. Properly Defining the Permitted Use. What type of cannabis activity will be allowed on the Premises?
   
2. Exclusion of the Federal CSA from “Applicable Law.” How does the lease address the federal illegality of cannabis
3. Secured Interests. Federal illegality could potentially impact the landlord’s mortgage on the property.
4. Asset Forfeiture and Indemnity. Due to the Federal illegality, a landlord may require a tenant to indemnify the landlord from civil forfeiture action under the CSA, meaning that the tenant will be responsible for defending the landlord AND covering the landlord’s losses in the event that the feds take enforcement action against the landlord for renting to a cannabis business.
5. Escape Clauses. Clause that allows for either party to terminate the lease early without penalty in particular to cannabis-specific situations. 
6. Notice and Cure Provisions. Typically set at 3 days, cannabis businesses need to negotiate, at the very least, a 30 day notice and cure period for non-monetary defaults. 
7. Landlord Access Rights. Typically a landlord is given the right to access a leased premises at any time with reasonable notice, however, this unfettered access is a violation of DCC regulations. The lease needs to account for this.  
8. Landlord Cooperation. Cannabis licenses are tied to the property and thus,  property owners need to be obligated to cooperate and assist with the licensing process, including signing affidavits in a timely manner. 
9. Landlord’s Consent for Assignment. If you are using an A.I.R. form, pay close attention to Paragraph 12.1 buried within the standard form lease.  This paragraph essentially boils down to the following standard: that a change in 25% control of the tenant’s business will constitute an assignment of the lease, which requires the landlord’s consent.
10.  

Relocation of a cannabis business is complicated and the strategy for such should be measured carefully. Depending on the local government’s rules, a cannabis business may or may not be able to relocate. At the state level, relocation generally requires a completely new application.

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