On June 8, 2017, the Los Angeles’ City Council released its proposed regulations to govern commercial cannabis activity in the city. Simultaneously, the city’s Planning Department released a draft ordinance that proposes land use and sensitive use requirements for commercial cannabis activity in Los Angeles. These releases mark the next step in the city’s effort to create a comprehensive framework to regulate cannabis businesses in the wake of recent voter-passed marijuana measures, including Proposition 64, which was passed by California voters in November 2016, and legalized recreational marijuana statewide.
The city’s regulations, whenever they are finalized, are expected to have a significant impact on local marijuana regulation throughout the state and across the country.
The initial public comment period on the proposed regulations and draft ordinance opened on June 8 and closes on August 8, 2017. The public comment period is mandated by Los Angeles’ Proposition M, which was passed by Los Angeles residents in March 2017 with more than 80 percent approval. The measure required the City Council to convene public hearings and engage in a robust deliberative process prior to enacting marijuana regulations. The council has urged residents, civic organizations, and business groups to provide public comments and recommendations to the council. As such, the council could extend the public comment and participation period beyond August 8.
A Short History of Cannabis Regulation in LA
In 2013, Los Angeles voters passed Proposition D, which prohibited marijuana businesses in the city but granted to certain qualifying businesses a “limited immunity” from the enforcement of the prohibition. Approximately 135 medical dispensaries qualified for the limited immunity. Hundreds of other businesses opened and operated illegally.
Proposition M repealed Proposition D and authorized the council to create a new cannabis regulatory regime. The measure called for the adoption of a “comprehensive regulatory process and structure for all cannabis related activity by September 30, 2017.” The proposed rules are the most significant step in creating this framework and replacing the much-maligned Proposition D.
Applying for a Certificate of Compliance
Under the proposed rules, to legally conduct and engage in commercial cannabis activity a business must first apply for and obtain a Certificate of Compliance from the city’s Cannabis Commission. Dispensaries operating legally under Proposition D, and certain non-retail cannabis businesses, are eligible to obtain a provisional certificate to continue operating while applications are being processed and reviewed.
An application for a certificate requires submission of the following information:
- Detailed financial information about the business and its owners.
- Detailed plan to hire local residents and transitional workers.
- A valid state license for Commercial Cannabis Activity.
- Describing how the business will meet track-and-trace, inventory, and other operational requirements.
- Providing a proposed community benefits agreement.
- Submitting to a pre-inspection of the premises.
Four Phases of the Application Process
Under the proposed rules, the City will issue Certificates of Compliance in four phases: (1) Proposition M Priority eligible applicants (i.e., medical marijuana dispensaries that operated in compliance with Proposition D), (2) Non-Retail Registry eligible applicants (i.e., indoor cultivation businesses and manufacturing businesses, that opened prior to Jan. 1, 2016, (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.
When deciding whether and how to issue Certificates of Compliance after Proposition M Priority and Non-Retail Registry processing, the City will consider the equitable distribution of businesses throughout Los Angeles prior to the issuance of additional Certificates of Compliance to the extent practicable.
Until the Social Equity Program is fully funded and implemented the number of certificates issued to the general public cannot exceed the number issued under the Social Equity Program. The proposed rules provide little guidance on how one becomes eligible to participate in the Social Equity Program, other than describing the program’s mission and objective, which are stated as follows:
[The Social Equity Program will] be based on a social equity analysis aimed at promoting equitable ownership 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 those communities.
Automatic Rejection of an Application
The proposed regulations call for the automatic rejection of certain applications, including those submitted by a foreign corporation or by a person employed by an agency that enforces and regulates cannabis. Applications submitted by individuals convicted of violating any wages or labor laws within the past five years also will be automatically rejected.
Restrictions on Retail Businesses
Under the proposed regulations, retail cannabis businesses are prohibited from doing any of the following:
- Sell alcohol or allow alcohol or marijuana consumption on the premises.
- Hold special events or parties on the premises.
- Provide free samples of cannabis goods.
- Display cannabis goods in a place visible outside the premises.
- Operate between the hours of 9 p.m. and 6 a.m.
- Sell cannabis through drive-through or walk-up windows.
- Provide any form of entertainment other than ambient music.
Retail cannabis businesses are required to do all of the following:
- Lock all cannabis goods in a safe or vault at all times when the business is not open.
- Limit the amount of goods on display to the average amount of cannabis goods sold during an average one-day period.
- Follow inventory-tracking requirements, including the use of electronic track-and-trace systems and point-of-sale terminals.
- Maintain records of all financial transactions for seven years.
Delivery Rules
One of the most significant consequences of the newly proposed rules is the legalization of marijuana delivery in Los Angeles. Until now, the city has prohibited the delivery of marijuana. In fact, the City Attorney aggressively pursued delivery businesses, such as Nestdrop and Speed Weed, and shut down the Los Angeles operations of these companies.
The proposed regulations would legalize cannabis delivery by licensed businesses that comply with delivery regulations, including:
- Delivery cars must contain a dedicated GPS device, not a phone or tablet.
- Delivery employees cannot carry more than $3,000 of cannabis goods at a time.
- Deliveries cannot be made outside Los Angeles or on publicly owned land.
- Deliveries cannot be made by unmanned vehicles.
Cultivator & Manufacturer Rules
The proposed regulations prohibit any business from engaging in outdoor cultivation or mixed light cultivation. Indoor cultivation must comply with environmental rules and limits on energy use among other requirements.
Manufacturers are prohibited from infusing marijuana into alcoholic beverages or products containing nicotine or caffeine. Cannabis juice, perishable bakery products, canned goods, dairy products, meat products and seafood products are all banned as well. The proposed rules would prohibit manufacturing cannabis products by applying cannabinoid concentrate or extract to commercially available candy or snack food items.
Under the proposed rules, THC levels in manufactured products cannot exceed 10 mg per serving and 100 mg per package. Manufacturers, like all cannabis businesses, must install air filtration and ventilation systems to neutralize odors to ensure no odor is present beyond its exterior walls.
Proposed Land Use Ordinance
The City Planning Department’s proposed land use ordinance restricts the location of various types of commercial cannabis activity. The ordinance limits the areas where commercial cannabis activity is allowed and requires separation between cannabis retailers and sensitive sites like schools, parks and libraries.
According to the Department, one of the purposes of the ordinance is to reduce the negative impacts and secondary effects associated with commercial cannabis activity in Los Angeles, including “neighborhood disruption and intimidation caused in part by increased transient visitors, exposure of school-age children and other sensitive residents to cannabis, cannabis sales to minors, and violent crimes.”
The proposed rules would restrict dispensary and retailer commercial cannabis activity to primarily commercial and manufacturing zones. Cannabis cultivation, manufacturing, testing and distribution activity would be primarily limited to the city’s manufacturing zones. Dispensaries and other retailers cannot, under the proposed ordinance, open within 800 feet of schools, public libraries, parks, drug and alcohol treatment facilities or other cannabis retailers. In connection with the proposed ordinance, the department released maps reflecting the areas in which cannabis retail, manufacturing and cultivation activities will be permitted.
What’s at Stake? Billions!
As the largest city in California, where the cannabis industry is estimated to become a $5 billion industry, Los Angeles has emerged at the forefront of marijuana policy and legislation. As municipalities throughout the state prepare to legalize sales of recreational cannabis under Proposition 64, industry experts predict that other cities in California will look to Los Angeles’ regulations as a basis for enacting their own laws. With Los Angeles’ City Council actively seeking public feedback for its proposed regulations, the ongoing public comment period marks a crucial time for the future of marijuana policy and legislation.