The long-awaited proposed regulations under Proposition M for L.A.’s current and future medical (and recreational) marijuana operators are finally out. The 51 pages of initial regulations (that are now in a 60-day public comment period) cover the governance of cultivators, manufacturers, distributors, testing facilities, transporters, retailers, and microbusinesses in significant detail under Proposition M. If you forget what Proposition M is, see here. Though most of these initial regulations identically track initial state regulations under the Medical Cannabis Regulation and Safety Act (“MCRSA“), there are certainly some nuances that will affect medical cannabis businesses differently than in other jurisdictions. Equally important is that L.A. also issued its proposed zoning regulations, so we know where the city expects all operators to locate, which is incredibly important for those looking for eligible real property.
Here are the highlights from the proposed operator rules (we will cover L.A. zoning under Proposition M in a subsequent post):
- The City of Los Angeles Cannabis Department (“Department”) is going to issue Commercial Cannabis Activity Certificates of Compliance in four phases as follows: (1) Proposition M Priority eligible applicants (i.e., the ~135 Pre-ICO cannabis collectives currently operating in the City under Prop. D immunity from prosecution), (2) Non-Retail Registry eligible applicants, (3) a restricted phase “in which the number of Certificates of Compliance issued to General Public applicants may not exceed the number of Certificates of Compliance issued to Social Equity Program applicants”, and (4) an unrestricted phase “that commences after the Social Equity Program has been fully funded and implemented as determined by the City Council. City of Los Angeles Cannabis Department.”
This means Prop. D compliant dispensaries will have a lock on L.A.’s retail cannabis market unless and until general public applications are allowed in phase 3, which will only happen after non-retail applicants and social equity program applicants are approved, which could take years. And the number of additional Certificates that may issue in phase 3 is dependent upon and restricted by the number of Certificates that issue to applicants in the social equity program, which hasn’t been created yet.
- Prop. M Priority applicants or “Existing Medical Marijuana Dispensaries” (“EMMDs”) will have only 60 days from the date applications become available to get their applications into the Department and then that application window will forever close (if you don’t meet the 60-day deadline, you’ll be treated as a new retail applicant). Further, EMMD applicants will only be allowed to apply for Retailer Commercial Cannabis Activity, which may include Prop. D-compliant on-site cultivation. If one of these applicants also applies for on-site cultivation, it cannot expand its existing grow in any way and the current grow canopy size depends on its size documentation (if any) in the existing lease or in a Certificate of Occupancy issued to the applicant by the City prior to January 1, 2017. All on-site cultivation has to end on or by December 31, 2024 if the EMMD’s premises are not within a zone that allows for Indoor Cultivation Commercial Cannabis Activity. This combination of cultivation may also be problematic for EMMD applicants that don’t also apply for a Producing Dispensary permit from the state (where other combinations of cultivation and retail are not allowed under the MCRSA, though they will be under the Adult Use of Marijuana Act (“AUMA”) and if the Governor’s Budget Trailer Bill passes).
- EMMDs that can demonstrate “substantial compliance” with Prop. D will be allowed to continue operating at their one designated location while their application with the Department is pending, but they can’t make any changes at all to their structure or operations during that time. And “any mitigating circumstances due to gaps in operations, ownership change, location change or closure, tax payments, etc. must be described in detail for the Department to consider eligibility” for priority processing. If the City finds you’re not compliant with Prop. D. and, therefore, not eligible for priority processing, its decision is final.
- Retailers may possess up to three Certificates of Compliance, and that includes Certificates for Delivery. Though the City did not officially cap the number of dispensaries that may apply for Certificates from the Department in the future, that number will be curtailed by the number of approved Certificates issued to applicants in the social equity program, the rules for which haven’t been established by the City.
- All non-retail applicants “that were conducting Indoor Cultivation Commercial Cannabis Activity or Manufacture Commercial Cannabis Activity in the City of Los Angeles prior to January 1, 2016 . . . may continue to operate while their application is pending approval if a completed application is submitted to the [City of Los Angeles Cannabis] Commission within 30 days of the first date [on which applications are] made available to the public, the continuing operations of the applicant are the same activities in which the applicant is seeking a Certificate of Compliance for indoor cultivation or manufacture, the location or premises meets all of the adopted or proposed land use and sensitive use requirements of the City of Los Angeles and other eligibility requirements as listed, and the Department approves eligibility.” The Department will then close the Non-Retail Registry processing window permanently. To prove continuous operation by January 1, 2016, the City will ask for the same documentation as the state for priority licensing approval. Just like with EMMD applications, if the City makes a final determination that you’re not eligible for non-retail application processing, its decision is final. There’s no City cap on the number of Certificates a non-retail applicant can hold.
- There will be no volatile (Type 7) manufacturing in Los Angeles. Only non-volatile (Type 6) manufacturing will be allowed. And outdoor and mixed-light cultivation are also not allowed.
- There’s a robust list of background and financial information all applicants must supply to the City in their applications for Certificate of Compliance including, all “Owner” information, a list of all non-controlling owner information, your lease or right to occupy your real property for your license type, your hiring plan (which must include a plan for hiring L.A. locals), a premises diagram and security plan, and your business’s organizational structure.
- Any person convicted of illegal volatile cannabis manufacturing is banned for 10 years (from the date of conviction) from Commercial Cannabis Activity within L.A., and anyone who’s been convicted for violating any law involving wages or labor laws is banned for 5 years (from the date of conviction) from Commercial Cannabis Activity within L.A.
No foreign companies (i.e., out of state or international) can apply for a Certificate from the City.
- As for operational standards, no business can provide physician recommendations to anyone, there can be no on-site consumption, no special parties or events can be held on-site, there are strict records retention requirements (including retention for no less than 7 years for all financial records), all businesses must follow the track and trace system for seed-to-sale, and retailers can be open only from 6 a.m. to 9 p.m.
- L.A. is finally going to allow delivery (which has been a long embattled issue in L.A.), and its regulations basically track those of the state (i.e, a brick and mortar dispensary can be the only one to deliver under the MCRSA and no specific distinction was made for delivery under the AUMA — yet). Deliveries cannot take place outside of the City without the City’s express approval.
These initial regulations will certainly change (at least a bit) as a result of stakeholder feedback and debate. But though you can’t take these regulations to the bank yet, they do provide valuable insight into how the City of Los Angeles sees the future of its cannabis market. I still maintain that if the City does not allow significantly more retail dispensaries in the near future, it will not reach its maximum market potential.
We’ll see how things play out over the next two months and we will definitely keep you posted in the meantime.