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Los Angeles proposes ‘major course change’ for cannabis business licensing, social equity

| Jun 23, 2020 | News

Published June 22, 2020 | By John Schroyer, MJBizDaily

In a series of recommendations to the Los Angeles City Council, L.A.’s Department of Cannabis Regulation proposed an immense overhaul of its marijuana business licensing structure and social equity program.

The DCR’s proposals are set to be taken up Tuesday by a City Council committee.

The recommendations, if adopted, could be far-reaching for many marijuana entrepreneurs hoping to win a city business license. The recommendations were both hailed and derided by industry officials after their release.

Supporters say the DCR’s recommendations represent a fulfillment of the city’s widely criticized social equity program.

But critics argue they will wreak further havoc in the industry by disenfranchising legacy operators who don’t qualify for social equity and haven’t yet obtained city permits.

The recommendations, sent to the City Council on June 16, are the first major move made by the DCR since the completion of an independent audit in March of its latest licensing round for 100 retail licenses last fall. City licensing has been on hold since then.

The recommendations include:

    • Allowing applicants and businesses to relocate within the city; currently, applicants are required to find a location and stick with it through the licensing process.
    • Granting temporary approval for all social equity license applicants.
    • Limiting new storefront retail licenses and delivery licenses to social equity applicants until 2025.
    • • Improving processes to minimize

“predatory practices”

    in the social equity program.

The proposals must still be approved by the City Council before being implemented, and it’s unclear whether the council will choose to rubber-stamp the changes or approve some and reject others.

The recommendations will first be taken up on Tuesday morning by the council’s Rules, Elections and Intergovernmental Relations Committee.

The DCR declined interview requests from Marijuana Business Daily to clarify or explain many of its recommendations.

But, asked if the “temporary approval” for all applicants meant the DCR was suggesting an increase in the number of licenses available, an agency spokesman wrote in an email that “many licensing and social equity program stakeholders have expressed support for additional retail licenses to be made available, and the Department agrees that it’s an issue worth deliberate consideration by policymakers.”

Still, many observers believe that’s a nonstarter based on the political dynamics of the City Council, which has been reluctant to significantly expand the number of legal marijuana business permits.

The DCR’s recommendations were also announced on the heels of a motion that, if adopted, would restart the licensing process for the 100 retail winners from last September’s social equity retail permit round. The motion was submitted by L.A. City Councilman Marquees Harris-Dawson.

Those 100 have been in limbo for more than nine months while the licensing process has been on hold, meaning they haven’t been able to open their stores.

Harris-Dawson’s motion will also be considered Tuesday by the Rules Committee, making it unclear what the full council will do with the DCR’s proposals.

Spokespeople for Harris-Dawson and the other two members of the committee did not respond to a request for comment.

Mixed reactions

“I think it’s fantastic,” industry consultant Lynne Lyman said of the DCR’s recommendations. She’s been active for years in L.A. cannabis politics and now works with industry clients.

“It’s like this big omnibus fix for the whole ordinance, and it really re-creates the social equity program to make it work, because it has not worked.”

Others, however, said the recommendations would disenfranchise anyone who isn’t a qualified social equity applicant, since the DCR proposes to give all future retail permits only to social equity recipients.

That would leave out many legacy dispensary operators who have been waiting for more than two years for their chance at a permit, since the current licensing window – Phase 3 – was supposed to have a round open for the general public.“This is a major course change, because you’re saying, if you’re not a social equity applicant, you can’t get a license, at least until 2025,” said attorney Michael Chernis, who has clients both in the social equity program and outside it.Chernis emphasized he supports the social equity program but said this approach would “cut off any chance for anyone but a social equity applicant to get a retail license, a non-storefront retail license or, as far as I can tell, any license for five years.”“My initial reaction is it’s really unfair to people who are not social equity applicants, because there are a lot of people who were waiting patiently to be licensed … resisting the temptation to operate illegally in the hopes of becoming licensed,” Chernis said.Adam Spiker, the executive director of the Southern California Coalition, echoed Chernis’ point and said it would be unfair to ask legacy operators who had run medical marijuana dispensaries in the city for years before 2018 to give up at least 51% ownership in their companies in exchange for a social equity partner – a requirement to get a permit if the City Council adopts the DCR proposals.

If that’s the case, Lyman said she’s fine with it. She said much harm was done to minorities during the war on drugs, so granting permits only to social equity applicants would be tantamount to affirmative action.

“This is what affirmative action looks like in practice, and it’s the right thing to do,” Lyman said.

Lawsuit still a possible factor

Another issue the council might have to consider while pondering the DCR’s recommendations is an ongoing lawsuit from one of the social equity applicants who’s asking the courts to force L.A. to redo last fall’s licensing and throw out the 100 retail winners.

That suit has the potential to upend the licensing process in an even more disruptive way if the plaintiff in the case, actor Madison Shockley III, wins.

Currently, the case is set for a July 9 hearing for a requested preliminary injunction against the city, and an injunction could mean further licensing delays until the case is finished.

The case is scheduled for a trial conference in September.

“The fact that we have this injunction hearing is … the first recognition of our argument we’ve been making the last eight months – that this wasn’t a fair process,” Shockley said.