Phase Two of Cannabis Licensing Opens Soon
Phase 2 of LA’s cannabis licensing program opens on August 1, for a period of 30 business days. (Phase 1, for pre-ICO dispensaries, has already closed.) During the Phase 2 time window, eligible people who were involved with cultivating, distributing, and/or manufacturing medical cannabis in the City of Los Angeles before 2016 can apply for City licenses to conduct any or all of these three non-retail activities. In order to apply in Phase 2, people need to rent or own property that is located in any of various specified zones, and is at least 600 feet away from any school. Under LA’s ordinance, all Phase 2 applicants also need to qualify under the social equity program. What does that mean?
People are Confused About Social Equity
We have noticed in our law practice, speaking with many people in different sectors of the cannabis industry, that there is a lot of confusion and misunderstanding about the social equity program. The social equity program is structured in a complicated manner, with differing requirements and definitions across three different “Phases” and three different “Tiers.” It does not provide any benefits based on race. The program is designed to give benefits to certain categories of people considered victims of the drug war, but notably, no one needs to be from any of these defined groups to apply for a cannabis license in the City of LA. Everyone can apply for a license, and if you do not fall under one of the defined categories, you will be able to qualify for the social equity program by either paying into a City fund or agreeing to provide a small portion of your physical space to help the beneficiaries of the program. So, while all Phase 2 applicants will need to “qualify” under the social equity program, the people who do not fall into the defined categories based on income, residency, and criminal record, will be able to pay an additional fee with their license and qualify this way.
The Social Equity Program Gives Benefits to People who have Past Cannabis Arrests or Convictions, are Low Income, and/or Lived in Communities with Many Cannabis Arrests
The social equity program is a part of LA’s new commercial cannabis licensing system that is intended to give a boost to people who suffered the most from the negative consequences of cannabis criminalization. LA deserves praise for creating an ordinance designed to give assistance and benefits to particular communities that were unfairly punished by the drug war – including through criminal convictions, incarceration, gang activity, and an informant culture. Some have criticized the program for rewarding past criminal activity and placing licenses in the hands of people who have shown they do not intend to follow the law. The ordinance, however, includes important protections to prevent dangerous people or ongoing criminals from obtaining licenses. The ordinance excludes anyone from the social equity program with a felony conviction within the past 10 years for violating any law involving violent crimes, sex trafficking, rape, crimes against children, gun crimes, or hate crimes, or with any conviction within the past 5 years for conducting any illegal commercial cannabis activity after April 1, 2018, illegal volatile cannabis manufacturing, wage or labor laws, or distributing cannabis to children.
The social equity program offers assistance including funding and physical space, and priority in the allocation of some licenses, for aspiring commercial cannabis licensees who fall into some combination of following three categories: (1) was arrested or convicted for a cannabis-related criminal charge before November 8, 2018 (the date Prop 64 was enacted); (2) lived for five or ten years (not necessarily now) in specified LA zip codes that had the most cannabis-related arrests; and (3) are considered low-income (with a household income of roughly $41,230 or less). The specifics are laid out in a description of three “Tiers” of social equity applicants in the LA ordinance. In order to be eligible for the benefits of the social equity program, the person meeting the requirements has to own at least one third (and in some cases 51%) of the business applying for the license. Those who do not meet the criteria to be a social equity beneficiary will be able to apply in Phase 2 by agreeing to provide funding (amount to be announced by the City) or at least 10% of their physical space to the beneficiaries.
Some Licenses will be Reserved for Social Equity Beneficiaries
Phase 3 of LA’s commercial cannabis licensing is when all new commercial cannabis operators will be able to apply for licenses, including retail and delivery outlets and new cultivation, distribution, and manufacturing operations. It is expected to open later in 2018. In this Phase for aspiring new operators, a certain portion of licenses will be reserved for those meeting the criteria for social equity beneficiaries. Specifically, applicants who qualify as beneficiaries based on their income, criminal history, and/or residency will receive “priority processing” for retail licenses on a 2:1 ratio with all non-social equity applicants, and will receive priority processing for other categories of licenses on a 1:1 basis. This means that two-thirds of the new retail licenses, and one-half of the new cultivation and volatile manufacturing licenses, will go to social equity beneficiaries. Notably, everyone will be able to apply in Phase 3, whether or not they meet the social equity criteria, and the effects of the social equity program on the allocation of retail, cultivation, and manufacturing licenses will depend on the numbers of applicants in each category. The allocation of delivery, distribution, and non-volatile manufacturing licenses will be less affected by the social equity program, as these categories are not subject to the “undue concentration” rules that limit the numbers of licensed dispensaries, cultivations, and volatile manufacturers.
In conclusion, no one should be intimidated by LA’s social equity program. Everyone with property in the right zone is welcome to apply for all of the categories. Phase 2 applications are scheduled to open on August 1, for a limited 30 days. If you do not meet the requirements for the social equity program, or have someone in your applicant group who does, you will be able to pay a fee to qualify for the program in Phase 2. In Phase 3, while some licenses are reserved for social equity beneficiaries, many licenses will also be given out to everyone else.
For more information, legal representation, and consultation on preparing your business for licensing, contact us with any questions or reach out to our cannabis attorneys at email@example.com.