LA Cannabis Licensing: Retail Round Two is Here!

After many delays, controversies, and changes to the regulations, Los Angeles is getting closer to opening its second (and last) round of retail licensing.

Based on the timeline laid out by the LA Cannabis Regulations, Retail Round Two will open either around the end of 2022 or sometime in early 2023. This round will be very different from the last round – certain applicants (more on that below) will have a 30-day window to apply, followed by a lottery selection of winners.

Winning applicants will have a year from the date they are notified to complete their applications for Temporary Approval. This timeline is going to be a crunch because of the state’s deadline for provisional licensing for local equity applicants. Per state regulations, local equity applicants have until June 30, 2023 to apply for a state provisional license, and can renew on a yearly basis until January, 2025. The big issue is that if Round Two opens in January 2023, chances are many if not most applicants won’t have Temporary Approval by June 30, 2023. Unless LA is willing to offer selected applicants letters for them to apply for state licenses (as it has done in the past) some applicants may be stuck having to seek the full annual licenses.

I know you’re already wondering, so here’s some of what is needed to prepare for this round of retail licensing. Keep in mind that the city can and probably will supplement or even change this process as time goes on.

1. Obtain social equity eligibility verification (or find a social equity partner)

In order to apply for Retail Round Two, an applicant must qualify as a Social Equity Individual Applicant. If you are new to the game, the Social Equity program aims to “acknowledge and repair” the harm caused by the War on Drugs by leveling the playing field and offering priority licensing to qualified applicants. What many people may overlook is that individuals who qualified as Social Equity Individual Applicants in the 2019 verification will need to apply again.

The LA Department of Cannabis Regulation (DCR) opened its application for Social Equity Eligibility Verification on May 26th and will close the application on July 25th at 4 PM pacific. This is a hard cutoff time. DCR’s decision is not appealable, so anyone who misses that time window or is deemed not to qualify will almost certainly have no remedy.

To qualify, an applicant must submit documentation showing that it satisfies the following:

  1. Cannabis arrest or conviction in California for any crime prior to November 8, 2016; AND
  2. Either:
    1. 10 years of cumulative residency in a Disproportionately Impacted Area.
    2. Qualify as low income in the 2020 or 2021 calendar year:
      1. Meet the low-income thresholds for 2020 or 2021 established  by the U.S. Department of Housing and Urban Development.
      2. Show that it do not have assets in excess of four times the AMI amount for their household

After the July 25th deadline, DCR will spend 90 days processing the verification applications, until about mid-October.

If an applicant doesn’t qualify for social equity, it may consider partnering with someone who does and who was verified in this process. A social equity applicant must own and control certain thresholds of a business in a multi-owner situation. This is dictated by LA’s cannabis ordinance, which is byzantine and changes frequently.

2. Register for the retail round two lottery

DCR will give applicants who have received Social Equity verification a 30-day window to register for the lottery before it begins. We don’t know exactly when this will happen but expect either late 2022 or early 2023. The lottery itself will only take one (1) day, and DCR is supposed to notify the public at least 15 days before it starts. Per the code, it looks like the lottery will be livestreamed. An applicant won’t need property or even a business to apply. The aim of the lottery is to select Social Equity Individual Applicants for further processing.

The number of applicants chosen for the lottery depends on the number of available licenses. LA regulations limit the number of retail businesses per community plan (e.g. South Los Angeles, Hollywood, etc.) until each community plan area reaches “undue concentration.” So far, there are about 230 retailers with pre-approval and 200 still waiting for application processing. We aren’t sure how many licenses will be issued in this phase but the ordinance will allow the city to host subsequent lotteries (and go through this whole thing again) if more licenses are on the table.

3. Wait for the results (and maybe try again via PCN)

If an applicant is selected in DCR’s lottery, the real hard work starts: it has a year to submit a completed application for Temporary Approval. This sounds like a long time, but it’s not. Our Los Angeles cannabis attorneys have worked with numerous cannabis businesses in LA and know how complicated this process is. It could take a lot longer than a year for a business to get ready for Temporary Approval – especially if they do not move quickly.

If an applicant is not selected, there’s still hope, though not much. As noted, there could be subsequent lotteries, but they are not likely to involve that many licenses. Alternatively, if an applicant wants to apply for a retail license in a community plan that reached its cap, it can file a Public Convenience and Necessity application with DCR and seek the approval of the City Council member for that district. But that too is a tough process with no guarantees.

There’s more to come, so stay tuned to Canna Law Blog for regular updates on Retail Round Two and the future of Los Angeles cannabis licensing.