ICYMI: LA Has Amended Local Commercial Cannabis Regs

The licensing of existing medical marijuana dispensaries (“EMMDs”) under Measure M has been a slow and opaque process, but Los Angeles is committed to the success of its cannabis program long-term and isn’t in any rush to act hastily when it comes to continued licensing by the Department of Cannabis Regulation (“DCR“) and Cannabis Regulation Commission. Indeed, just last week, the Los Angeles City Council adopted a handful of ordinances and made several recommendations to the City Attorney (and other City departments) to tighten, clarify, and technically fix its current commercial cannabis legislation. The amended regulations take effect on July 23, 2018.

Here are the major highlights:

• Off-site Advertising.Ordinance No. 185607 addresses commercial cannabis advertising in the City. We now have a 700-foot distance buffer for any off premises advertising for “Cannabis, Cannabis Products, or Cannabis Activity” in any “Publicly Visible Location” from “any School, Public Park, Public Library, Alcoholism or Drug Abuse Recovery or Treatment Facility, Day Care Center, and Permanent Supportive Housing,” except for those advertising signs that are located inside the licensed premises (unless it’s a window sign), or if the advertising sign is on any “commercial vehicle used exclusively for transporting or delivering cannabis or cannabis products.” The distance buffer also doesn’t apply to “the display of public service messages or similar announcements cautioning against the use of Cannabis or Cannabis Products or that are designed to encourage minors to refrain from using or purchasing Cannabis or Cannabis Products.” However, this exemption won’t be used “. . .to permit an advertisement that purports to caution against the use of Cannabis or Cannabis Products when that message is conveyed in conjunction with the display of a logo, trademark or name used by any person or entity engaged in any Cannabis Activity for marketing or promotion of Cannabis or Cannabis Products.” Lastly, the 700-foot buffer is measured as the crow flies from the property line of the prohibited facility to the “closest visible edge of the advertising sign face of the off-site sign.”
• On-site Advertising.Ordinance No. 185607 also tackles on-premises advertising. Only one on-site sign per street frontage is allowed. And that signage is included in the “maximum sign area” allowed for the property (this is in addition to any mandatory state signage under MAUCRSA). On-site signage is now going to be content controlled–you can only have the following information on the sign: “name of business; ‘logogram’ of business; and business’ address, hours of operation and contact information. Other than the foregoing information, no advertising for Cannabis or Cannabis Products shall be displayed on any sign in a Publicly Visible Location.” And here’s the list of all the fun signage you CAN’T utilize: Portable signs or sandwich signs located in the public right-of-way; Digital signs; Spinner signs; Monument signs; Illuminated architectural canopy signs; Pole signs; Marquee signs; Roof signs; Temporary signs; Moving signs and signs with moving parts; and Supergraphic signs.
• Ordinance No. 185609 addresses quality assurance testing in that licensees won’t have to have their products fully tested “until 120 days after City licensure, or until required under State of California Code of Regulations Title 16, Division 42, Chapter 5, Section 5715, whichever is sooner, after which all cannabis goods shall be labeled and tested.”
• Technical fix legislation.Ordinance No. 185608 is the first technical fix legislation for existing commercial cannabis regulations in L.A. Here are the need-to-knows:
  1. EMMDs that entered into a payment plan with the Office of Finance to become current on outstanding taxes owed will be considered fully paid up for priority licensure (which closed back in March).
  2. The Type 10 Delivery Retailer License has been deleted–Type 10’s under state law outright allow delivery anyway.
  3. Crimes that will bar you from applying from a license have been further amended to include: “A Person with a felony conviction for violating any State or local law involving violent crimes, sex trafficking, rape, crimes against children, gun crimes or hate crimes for a period of 20 years from the date of conviction or completion of a term of imprisonment, supervised release or probation imposed as a sentence for the conviction, whichever is later.”
  4. EMMDs can now be approved for the full type 11 distribution license (not just “self-distribution transport only”).
  5. Since the April 1, 2018 deadline for accepting “Non-Retail” priority applications has come and gone, the DCR’s new standard is that it will accept those applications for no more than 30 days after it opens that particular application window. There’s City-wide speculation that this window will open on July 1, but the City hasn’t made anything official yet.
  6. If a testing lab obtains and maintains an ISO/IEC 17025 accreditation, the DCR may issue temporary approval to the testing lab beforecompletion of a pre-licensing inspection.

What is probably even more interesting than the foregoing is that the City Council also asked (based on a June 5th motion) that the City Attorney, in conjunction with the DCR and other City offices, prepare and present an ordinance to make the following additional changes to existing cannabis regulations:

• Address and control cannabis management companies.The City proposed that “management company” be defined as “any person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity, or any person who participates in the management, direction or control of another person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity.” The City Council has also proposed that “a management company shall not hold equity ownership in the applicant licensee or have the authority to make major decisions impacting the corporate structure of the applicant or licensee or the license held by the applicant or licensee.” However, a management company would be able to “receive revenue or profit-based compensation, subject to limitations established by the DCR.” Of course, this would still make the management company a financial interest holder under MAUCRSA.

Social Equity Program applicants (“SEPs”) and regular licensees would also have to get written approval from the DCR before engaging with a management company. All SEPs and licensees would also have to disclose to the DCR all written agreements or contracts with a management company and all other documents the DCR requires to identify all persons who will act as the management company for the business premises. And if you can’t qualify for licensure from the DCR, the DCR may also stop you from acting as a management company. Or if you’ve violated any local or state cannabis laws, the DCR may also knock you out from acting as a management company to a SEP or licensee. SEPs and licensee will be responsible for all acts or omissions of its management company in connection with compliance with state and city laws. All management companies engaged in commercial cannabis activity within the City of Los Angeles would have to register and maintain appropriate records with the DCR. Finally, management companies would be limited to entering into management agreements for no more than 3% of commercial cannabis businesses within the City of Los Angeles, by license type. That percentage will increase 1% on July 1st of every year beginning in 2019 until a total of 7% is reached. Tier 1 and Tier 2 SEPs would be exempt from these management company license limits.

• More clarity on the social equity program and allowing more flexibility for Social Equity-licensed businesses. Among other tweaks and additions, Tier 1 andTier 2 SEPs would be able to apply for retail licenses under the 2:1 ratio already set by the City, and Tier 3 applicants won’t be able to apply for retail licenses. Tiers 1 through 3 applicants would though be able to apply for non-retail licenses under the 1:1 ratio set by the City. The City also wants to allow the DCR to license incubator projects with multiple licenses for the education, training, etc. for SEPs. The City also asked that SEPs be allowed to apply for licensure even if they do not have local land use authorization, but local land use authorization must be obtained prior to completing the licensing process. The City would also increase term of Social Equity Program agreements to five years, and would allow Social Equity-licensed businesses to terminate their agreement with the actual SEP after five years, all with the approval of the DCR. Interestingly, the City added that the Social Equity-licensed business would have the right of first refusal to buy out the SEP applicant (presumably at any time). The City is also planning to allow the Social Equity-licensed business to replace the SEP under certain criteria and conditions.
• Taxes and Cannabis Reinvestment Act.The City Council also asked the City Attorney to draft an election “Ordinance and Resolutions” to place a ballot measure before the voters at the November 6, 2018 State General Election entitled the “Cannabis Reinvestment Act,” and that the ballot measure would, among other revenue captures, implement a one percent gross receipts tax on all commercial cannabis activity to be “reinvested in the community with all funds going to a newly created Cannabis Reinvestment Trust Fund” earmarked for various City items and groups.

Without a doubt in the coming weeks we’re going to see even more legislation from L.A. regarding amending its current cannabis regulations (with specific regard to its much-anticipated Social Equity program), and these forthcoming changes will also directly affect would-be licensees’ ability to pursue licensure in the long run in what may end up being California’s largest cannabis marketplace. So, stay tuned!

(Hilary Bricken is an attorney and blogs at cannalawblog.com.

Since joining Harris Bricken in 2010, Hilary has earned a reputation as a fearless advocate for local businesses. Hilary’s clients—start-ups, entrepreneurs, and companies in all stages of development—value her bold approach to business.) 

-cw