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LA Phase 3: Updates Derek Davis CPA and Founder, GreenGrowth CPAs Lauren Estevez, Esq. Attorney and Founder, LME Law
GreenGrowth CPAs About Us: 1000+ Prepared Annual Tax Returns for cannabis operators spread across all verticals: dispensary, distribution, ● cultivation, manufacturing, delivery and testing. 350+ Cannabis Business Clients ● 11+ States that our clients are spread across (CA, OR, WA, CO, MI, OH, OK, DC, HI, AZ, FL) ● 12+ Audit-related and valuation projects in 2018 ● 7 Digits in revenues in our second full business year (2018). ● Thorough and deep understanding of tax, compliance and assurance related requirements for the cannabis ● industry
Lauren Estevez, Esq. Lauren is an attorney who has been advising U.S. and international cannabis companies since 2017. She is nationally recognized as a subject matter expert in cannabis law and her work has been featured on CNBC, Cheddar, and in Law360. Lauren has completed over 100 legal matters for cannabis clients including brands, investors, and operators and she also advises on CBD and The Farm Bill. Lauren founded her own practice, LME Law, in 2018. Prior to her career in cannabis, Lauren graduated from Harvard Law School and worked at an AmLaw100 global law firm in London & New York in the Capital Markets and Banking groups, and at a start up, where she managed a multi-million dollar book of business and her clients included emerging and Fortune 500 life sciences and technology companies.
Disclaimer The information contained in this webinar presentation is for informational purposes only and is not professional legal or tax advice. Further, it does not give personalized legal, tax, investment, or any business advice in general.
Agenda ● Background on LA Commercial Cannabis Permitting Process ● Phase 1, 2, and 3 ● What is LA’s Social Equity Program ● Programs and Incentives the DCR is required to establish for SEP ● Problems that may occur in Phase 3 ● Proposed Options for Phase 3 ● Proposed Application Processing Methods ● Processing Restrictions for Proposed Processing Methods ● Applications Deemed Preliminarily Complete ● Additional Recommended Amendments
LA Commercial Cannabis Permitting Process The Department of Cannabis Regulation (DCR) is the regulatory body that oversees the City’s Commercial Cannabis Regulatory Program. This month, DCR proposed a series of amendments to the regulatory program that would make the licensing process more efficient, transparent, and equitable.
Background of LA Commercial Cannabis Permitting Process In March 2017, the voters of the City of L.A. passed Measure M, which authorizes the City to license, regulate and enforce commercial cannabis activity. The City Council Established the Department of Cannabis Regulation and the Cannabis Regulation Commission to implement and administer related laws and requirements as they were being established. The Established commercial cannabis licensing procedures require DCR to process application in a specified order, beginning first with two (2) phases of Priority Licensing.
Phase 1 and Phase 2 - now closed Phase 1: ● Required DCR to administer applications to determine eligibility for Proposition M Priority Processing (Existing Medical Marijuana Dispensaries or EMMDs - sometimes known as pre-ICOs) Phase 2 ● Required DCR to administer applications to determine eligibility for Non-Retailer Commercial Cannabis Activity prior to January 1, 2016 and to participate in the Social Equity Program . ● DCR processed eligible applicants and gave priority to those applicants that qualified for both Phase 1 and 2.
Phase 3 - New Cannabis Retail Applicants Phase 3 ● Phase 3 is the final licensing phase contemplated in LA’s commercial cannabis ordinance and will allow for new retail applicants to apply for licenses. ● Under the current proposal, Phase 3 will open first for social equity applicants . ● General applicants will be able to apply in a later phase, after the social equity licenses have been granted. ● If you yourself do not qualify for social equity, you can partner with a qualified applicant to obtain the status and priority licensing in Phase 3.
What is LA’s Social Equity Program (SEP)? ● SEP was created to promote equitable and employment opportunities in the cannabis industry in order to decrease disparities in life outcomes for marginalized communities and to address the disproportionate impacts of the war on drugs in certain communities affected by it. ● It aims to provide priority and certain benefits to qualifying program participants, including: ○ Equity ownership in licensed cannabis companies (33.3% for Tier 2 and 51% for Tier 1) ○ Business, licensing, and compliance assistance ○ Expedited renewal processing ○ Program site-specific conditions ○ Potential for fee deferrals from the City Council upon adoption of such a program ○ Access to and Industry Investment Fund, if established
Programs and Incentives DCR is required to establish for SEP 1. Recruitment and outreach support 2. Business, licensing, and compliance assistance 3. General Business Assistance 4. A registry for Incubator Projects that offer education and training to qualifying program participants
Problems That May Occur if Phase 3 Regulations Are Not Amended 1. Competition a. Another applicant within 700 feet gets licensed first 2. Over-Saturation a. Community Plans in which applicants are located reach undue concentration
Problems That May Occur if Phase 3 Regulations Are Not Amended 1. Underdeveloped SEP Program a. SEP MUST be fully established before most of the opportunities to participate in storefront retail licensing is awarded to General Public Applicants i. The DCR must identify vendors who can provide a suite of Business, Licensing, and Compliance support to Tier 1 and 2 applicants, whose services will be available to SEP applicants no earlier than July 2019 2. Total Number of Storefront Retail Permits- 200 a. If Phase 3 opens up in Spring 2019, and BLC services will not be available until July 2019, then many SEP applicants will not be able to obtain a permit.
Proposed Options for Phase 3 1. If Phase 3 opens up in the Spring, then DCR will issue 100 permits and process applications according to one of the following proposed methods in conjunction with a Pre-Application Verification Process to determine whether the applicant is Tier 1 or 2 2. Applicants will have to provide documentation that demonstrates that it has an individual owner, who meets either Tier 1 or 2 qualifications
Proposed Application Processing Methods Merit Based System a. Applications will be reviewed and scored based on criteria that the DCR will use to determine how viable and capable an applicant is to operate a commercial cannabis storefront retail business b. This system may take upto nine (9) months before any applicants can be selected to apply for an annual license.
First Come, First Served (Tier 1 and 2 Applicants) In order to determine applicant priority for processing, the DCR will require applicants to submit the following: a. Letter of Intent, Lease Agreement, or Property Deed at an address within the City, and Landowner Authorization, if possible b. Complete Premises Diagram c. Detailed radius map, including horizontal lines and labeling of any sensitive uses d. Complete ownership and financial interest disclosure form Date and Time Stamp: The DCR will provide a date and time stamp that will resolve any location conflicts once an application is received. Incomplete Applications: If an application is deemed incomplete, the DCR will provide the applicant with 10 days to provide the necessary missing documentation
Lottery for Verified Tier 1 and 2 Applicants ● After closing the verification window, a lottery drawing will be held for processing numbers. ● Applicants with processing numbers 1 through 100 will be part of the processing group. ● Any conflicts with the 700-ft. Buffer and undue concentration will be resolved by selecting the applicant with the earlier processing number. ● Applicants in the processing group with the numbers that were later will be given an opportunity to select another location. ● Each applicant will only be able to register with ONE location. ● Applicants not in the processing group will be placed on a waitlist and will replace any applicants who are denied a license.
Processing Restrictions for First Come, First Served and Lottery Methods The following restrictions would apply to the first come, first served and lottery methods of processing: ● A verified Tier 1 or Tier 2 applicant may only be associated with one application and may only apply at ONE address. ● The same address may not be associated with more than one verified Tier 1 or Tier 2 applicant. If two applicants produce a letter of intent from a landowner at the same address, then an executed lease agreement will be required before one of the applicants can move forward. ● The individual owner who allowed the applicant to be verified as Tier 1 or Tier 2 applicant must remain on the application with the requisite Equity Share during the entirety of licensing process; that individual owner may not sell or transfer his or her place in the application. ● The applicant cannot re-locate its application at any point during the licensing process.
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