cannabis cryptocurrency bitcoin
Not just yet.

Two of the biggest buzzwords of 2018 have been cyrptocurrency and cannabis. Both industries have seen an tremendous influx of investment from people trying to capitalize on these new business ideas. Almost every week, I see a new event pop up for people who are interested in finding the synergies between these different industries. Everyone knows that banking is a huge problem for the cannabis industry (as we’ve discussed here, here, and here), and many see the obvious connection for how cryptocurrency could help resolve that. However, that connection will not likely occur anytime soon (at least not before the cannabis banking issue is resolved).

The cannabis industry is a highly-regulated industry at the state level, and marijuana remains a strictly controlled substance under federal law. In order to prevent theft, product diversion, and other criminal activity, states have required businesses to use state-run track-and-trace systems. This system also tracks the amount of money businesses are making and where that money is coming from.

Cryptocurrencies are peer-to-peer networks of decentralized currencies that are traded on a public ledger by using blockchain technology. A cryptocurrency platform could allow cannabis businesses to transact with digital currency instead of cash, making the business safer for all players, and bypassing the need for banks in many cases. It sounds like a natural fit. So, why won’t it work for now?

Combining cryptocurrency and the cannabis industry would join two extraordinary and rapidly changing industries. Although the federal government decided it would proscribe marijuana long ago, it has not decided how to manage cryptocurrencies. The underlying blockchain technology is also largely unregulated, and is overseen only by other users on the blockchain (see our articles on blockchain and cannabis here, here, and here). Both cryptocurrency and blockchain have been used by people for money laundering and evading taxes.

A growing number of recreational marijuana states have implemented stringent licensing and control programs to demonstrate the legitimacy of their respective industries to federal government. Bringing in a technology and a payment protocol that has been used for money laundering and tax evasion could delegitimize the progress that the cannabis industry has made. At the very least, if cannabis businesses start running transactions on cryptocurrency platforms, their businesses will see more government oversight from other federal bodies, like the SEC and IRS.

It will be interesting to see if a real crypto/cannabis relationship can emerge to help resolve the banking issue, but for now we have more faith in the underlying technology, blockchain. We will continue to monitor the possible synergies between cryptocurrency and cannabis and update on any developments.

california marijuana public consumption
Coming to a California locale near you?

As more cities begin to allow for and regulate commercial cannabis businesses, the State of California is seeing an influx of cannabis tourism. We’ve written before about the touchy relationships governments have with the idea of “cannabis lounges” (see here and here) and often questioned who will lead us in regards to cannabis tourism (our bets have often been on California).

Consumption of cannabis in public is illegal in the State of California, and many hotels and Air B&B’s do not allow smoking or “drug use” in their guest rooms. Nonetheless, MAUCRSA allows local jurisdictions to authorize the on-site consumption of cannabis by state-licensed retailers and/or microbusinesses, which gives tourists at least one legal way to consume. Specifically, so long as your city or county okays it, retailers and microbusinesses can have on-site consumption if: (1) access to the area where cannabis consumption is allowed is restricted to persons 21 years of age and older, (2) cannabis consumption is not visible from any public place or nonage-restricted area, and (3) the sale or consumption of alcohol or tobacco is not allowed on the premises. However, most local governments have explicitly prohibited “cannabis lounges” and on-site consumption by licensees (including the City of Los Angeles). Some cities, however, are capitalizing on the tourism potential in The Golden State. We have compiled a list of notable locales below.

The City of West Hollywood is the only city in the Los Angeles area that allows for on-site consumption. The City plans to permit eight (8) on-site consumption businesses for smoking, vaping, and ingesting, and it will also allow 8 on-site consumption businesses for edible ingestion only. The window for submission for on-site consumption applications (and for other commercial cannabis businesses) is expected during the month of May, so we may see on-site consumption up and running for the busy summer months. Los Angeles, which is an area already known for tourism, will see a lot of its cannabis tourism go to the City of West Hollywood.

San Francisco has been California’s leader when it comes to the cannabis lounge concept (and cannabis businesses in general). San Francisco’s regulations outright permit retailers and microbusinesses to allow customers to engage in on-site consumption. Unlike other cities that have placed strict limits on consumption lounges or outright banned them, San Francisco is fully embracing the cannabis lounge model.

The City of Oakland allows medical and adult-use cannabis dispensaries the opportunity to apply for and “obtain a secondary on-site consumption permit in order for cannabis to be consumed on the premises of the dispensary.” See Oakland Municipal Code §5.80.025. The City has not disclosed any limits as to how many on-site consumption permits may be issued, but the City has thus far only allowed eight dispensary permits and, as a result, there won’t be more than eight on-site consumption permits available (because only retailers and microbusinesses are allowed to undertake on-site consumption under state law).

The City of Alameda will only issue two dispensary/retailer permits. The City’s ordinance allows those retailers to have on-site use or consumption of cannabis or cannabis products in interior areas of the licensed premises. The City has made it relatively easy for those granted a dispensary/retail permit to also capitalize on on-site consumption.

Palm Springs has expanded its cannabis regulations to allow for cannabis consumer lounges. “Cannabis Lounge Facility” permits are available in the City, and those holding the proper permits may additionally sell medical and adult-use cannabis and cannabis products. With festival activities fast-approaching in the desert cities, many tourists will flock to the Palm Springs area looking to partake under California’s new cannabis laws. Palm Springs will likely see a high demand in cannabis and cannabis products from tourists looking to consume during festival time.

Other California cities that have explored the idea of cannabis lounges are Cathedral City and South Lake Tahoe, but nothing official has happened in either city as of yet. Over time, as legalized cannabis becomes more normalized (and socialized) in the state, California will likely see an increase in cities that allow cannabis lounges. For now though, on-site consumption is a rare occurrence and a political hot potato. And for the few on-site consumption lounges that exist, we expect nothing but success and increased tourism.

marijuana ireland cannabis
The Irish will celebrate with beer, not cannabis, on St. Paddy’s.

Happy St. Patrick’s Day!

Given the origin of the holiday, we write to update you on the regulation of cannabis in Ireland. Historically, Ireland has had a conservative cannabis policy due to the nation’s heroin epidemic, among other factors. In 1977, the government enacted the Misuse of Drugs Act (the “Act”) making it unlawful to produce, possess, and supply controlled substances, including cannabis. That remains the law today.

Violations of the Act distinguish between personal use and possession for sale or supply. Possession of cannabis for personal use is punishable by a fine for the first or second conviction, and then punishable by up to one year in prison for the third or subsequent offenses. Penalties for possession to sell or supply controlled substances are imprisonment based on the conviction. There are larger penalties in place for drug trafficking.

Interestingly, the Act grants the Minister for Health the authority to issue licenses to manufacture, distribute, and sell controlled substances. In 2002 and 2003, GW Pharmaceuticals were granted a license to perform medical trials for Sativex, a cannabis extract spray common in European countries. There have been other instances where individuals were granted a license for personal use for medical issues.

In 2017, a bill was introduced that would legalize cannabis for medical conditions. The bill would allow cannabis to be prescribed by registered doctors and remove cannabis from the Act. The government allowed the bill to progress through the legislature despite it having some flaws. The bill is still pending approval from the committee, but there does not seem to have been much movement since November.

Although Ireland lags behind some of its neighboring European countries in regards to cannabis legalization, in recent years, the country has seen some welcome progress. As an international law firm with offices in nearby Spain, we are always keeping tabs on new cannabis markets that arise in around the world.

Sláinte!

Our Barcelona office continues to keep tabs on Spain’s vibrant cannabis industry, which is different than anything going on in the United States, or anywhere else in the world for that matter. Last week, the 15th annual Spannabis conference showed that the country’s enthusiasm for marijuana has not diminished in the least, and that Spaniards continue to adapt and push forward within a unique state environment.

Spain’s lack of regulations for cannabis use, its criminal laws against cannabis, and the country’s failure to enforce those criminal laws, presents a unique view of use, possession, and cultivation of cannabis. Unlike the United States, Spain’s laws do not distinguish between medical and recreational cannabis use and/or possession. The Spanish Justice refers to substances listed in the 1961 Single Convention on Narcotic Drugs (the “Narcotics List”) as either banned or controlled. The Narcotics List contains most illegal drugs, including cannabis. According to the Spanish Criminal Code, it is considered a criminal offense to develop, produce, or sell any of the substances on the Narcotics List, or engage in any activity designed to encourage their consumption. A distinction is made between substances that cause serious damage to health and other substances that the law considers less harmful.

In Spain, it is illegal to sell cannabis; however, the government does not prosecute the personal and private consumption of cannabis. Case law has developed several factors to determine what quantity of cannabis amounts to personal use and therefore is not a crime. These factors include the quantity of the drug, whether the person is a regular consumer, the amount of cannabis the person has been consuming, previous criminal records of trafficking, etc. The consumption of cannabis in public places or public buildings is always considered illegal and those activities can elicit fines from 100 € to 600,000 € depending on the specific case.

The “public place” embargo has resulted in the creation of private cannabis social clubs, which are non-commercial entities that provide “members” with cannabis to meet their personal needs. Membership to these social clubs is gained either: (1) through invitation by two or more members or (2) by showing a medical report that states the person has an illness for which cannabis is recommended. Consumption in these social clubs is tolerated because this is considered consumption in a private setting.

At present, social clubs will not see interference from police or other government enforcement bodies as long as consumption remains in the private, closed setting, there is restricted access, and consumption is not visible for the general public. Social clubs have been raided in the past, but largely because they did not strictly follow those previously stated consumption guidelines. In that sense, compliance is not difficult.

Cannabis social clubs are allowed to possess cannabis because they are possessing what is considered necessary for personal consumption of their members. Social clubs are permitted to hold the amount of cannabis to supply their members’ demand and consumption. The social clubs must keep meticulous records, which are accessible and able to be produced upon government inspection. Clubs are subject to criminal penalties for failing to provide the necessary records.

Making things even more interesting, Spain is comprised of autonomous regions that may create separate regulations to govern their individual region. Recently, the region of Catalonia (in which the city of Barcelona is located) has been at the center of the cannabis market in Spain. In July 2017, the Catalonian government enacted a statute regulating cannabis social clubs, including: their form of entity, membership rights and obligations, self-sustainability, production and transport, publicity, zoning and building requirements, and special treatment of medical users. The statute was a large step towards legalizing and regulating the cultivation, consumption, and distribution of cannabis; however, the Spanish central government suspended the passage of the statue, claiming it was unconstitutional and the Catalonian Parliament lacked the authority to enact it.

It is an interesting time for cannabis in Spain, to say the least. We will continue to update periodically as things unfold.

marijuana cannabis los angeles
L.A. city licensing is moving like 101 at rush hour.

The City of Los Angeles has been slowly issuing temporary approval for Existing Medical Marijuana Dispensaries (“EMMD”). The deadline for EMMDs to receive Prop M Priority Processing is this Sunday, March 4th. Submitting an application prior to Sunday gives EMMDs “limited immunity” to keep their businesses open while the Department of Cannabis Regulation (the “DCR”) processes applications. Those dispensaries that have not submitted an application must close down.

It is no surprise the DCR is completely understaffed and unable to process the volume of applications that have been submitted thus far. On Wednesday, the City Council approved the creation of 21 new jobs for the DCR. For those EMMDs with a valid 2017 Business Tax Registration Certificate (“BTRC”), it has been a relatively easy process for submitting an application. However, Proposition D placed a halt on the issuance of 2017 BTRCs for cannabis businesses and has left confusion among those applicants that have been in business prior to 2007, but only have a 2015/2016 BTRC. The DCR is working to issue temporary 2017 BTRC numbers, so EMMDs who believe they qualify for Prop M Priority Processing have the opportunity to submit an application prior to March 4th.

Thus far, the DCR has approved 112 temporary licenses for the City of LA. Here is a chart showing the current retailer licenses available based on the approved temporary licenses listed on the DCR’s website and the City of LA’s undue concentration requirements. Neighborhoods that were previously anticompetitive, now only have limited licenses available. Businesses that seek to apply for licenses should take into consideration locations that still have many retail licenses available. If your business is located in a neighborhood with limited licenses, then you should prepare all the application information now and be ready to submit once the general public application window opens.

Because the DCR has been overwhelmed with Prop M Priority applications, it has not yet opened the application window, or issued applications, for non-retailer businesses. The City of Los Angeles ordinance states that applications for non-retailer cannabis businesses may be released at the discretion of the DCR, but that DCR may only process applications until April 1, 2018. It is unclear if the DCR will even begin accepting applications for these businesses prior to the deadline, or just make them wait to apply when the general public application opens.

Finally, there is still no date set for when the general public applications will be released, and despite the fact that some L.A. cannabis business are doing very well, the DCR has given no guidance on when the general public can expect to apply for a cannabis business license. In that sense, it will continue to be an uphill battle to receive licensure in the largest city in California. For now, all entrepreneurs can do is prepare their properties and corporate documents and be ready once the application period opens. We will be sure to update when that happens.

blockchain cannabis california

We have previously discussed blockchain technology and the effect it can have on the cannabis industry here and here. This post serves as a more detailed analysis of how blockchain can and may disrupt the tracking of cannabis from seed to sale, specifically within the new California adult use market.

Currently, cannabis businesses are spending significant amounts of money to implement track and trace systems compatible with Franwell’s Metrc. Metrc is a government-designed software that many states have elected to use, including California, that allows regulators to ensure that cannabis products are not being diverted to illegal markets. Cannabis products are given a radio frequency identification (“RFID”) tag, which licensees along the supply chain must input into their systems. This allows regulators to track the chain of custody of marijuana products. Under this system, however, licensees and regulators spend significant time ensuring compliant transfers.

Enter blockchain. In its simplest form, blockchain is a dispersed ledger. Transactions, or “blocks,” are added in a linear fashion, or “chain”, after they have been verified by other members of the blockchain as valid. All transactions on the chain are trackable to the initial entry. A blockchain platform can have various levels of supply chain information gathering, such as record keeping, tracking, assigning verifications, linking products together and sharing information.

Using blockchain technology, cultivators can input details about each crop: e.g., the date the flower was harvested, pesticide levels throughout the growth cycle, and information about cross-pollinated plants. The data can be stored and verified via blockchain, and instantaneously shared with all parties on the blockchain platform. These parties can be other members of the cultivation team, cultivators in different facilities, potential retailers or producers, and even end-use consumers. This data will travel with the flower from seed to sale.

When the product is ready for pick-up from a grow site, the blockchain platform can verify that a distributor is licensed. Implementing blockchain can therefore prevent unlicensed distributors with fabricated paperwork from stealing goods. The platform will also maintain all records of a transaction or series of transactions: e.g. shipping manifests, receipts, purchase orders, lab results, etc. Blockchain can also help ensure that products are being properly labeled. When a label is created, a photograph or file of the label can be uploaded to the blockchain. Members of the blockchain can verify that the label is correct before it reaches the product.

Because all information recorded in blockchain is verifiable by other members on the platform, blockchain will remove the need for tedious paperwork at each step in the supply chain. Cannabis will be able to move freely from licensee to licensee without any added hassle. Regulators will gain a streamlined audit tool, and customers will be able to ensure that they are only getting the best and safest products. Ultimately, blockchain can improve the overall integrity of the track and trace system, and minimize the time it takes for the product to get from seed to sale.

The million dollar question with all of this is whether and when blockchain will burst through and finally become mainstream enough for adoption by a state regulatory body, like California in the case of cannabis. There are a range of opinions on the inevitability and timing of blockchain (for just a few of the many examples, see here, here and here). In our view, blockchain and cannabis are a perfect marriage of emerging trends. We will continue to partner with individuals and businesses interested in this technology, and we foresee a bright future for blockchain and cannabis once the implementation and educational hurdles are cleared– hopefully, in a few years at most. In the meantime, California businesses and regulators will have to muddle along with Franwell’s Metrc product.

California marijuana businesses Culver City
Cannabis businesses are finally coming to the Heart of Screenland.

Culver City plans to release its commercial cannabis applications before the end of March. On monday, the City Council voted to adopt its proposed cannabis business permit application process. Based on the released draft application documents, getting a commercial cannabis permit in Culver City is not going to be an easy process.

Here is a breakdown the application processes per license type:

Storefront Retail Applications:

In the first phase of the application process, applicants must submit live scans, zoning verification documents, and their cannabis business application. City staff and the Culver City Police Department will review that information and, if sufficient and complete, applicants will move on in the process. A three-person panel of City staff members will review and rank the applications; reviewers will read business plans, security plans, and design/location documents and rank each application on a point scale.

The panel will then choose a minimum of three and a maximum of six applicants with the highest average ranking to proceed. Other applicants will be put on hold pending the outcome of the permitting process. A five-person review committee composed of City staff members will then interview the ranked applicants. At least two of the largest equity holders and the day-to-day operations manager of the applicant must be present for the interview. The three applicants with the highest average scores will then proceed in the licensing process. In the event of any tie amongst applicants, a lottery will be used to choose who moves on.

Only after interviews or the potential lottery will these 3-6 applicants finally apply for a Conditional Use Permit (“CUP”) and other required Los Angeles County permits. Upon applying for the CUP, applicants will present their building and operational proposals at a public City Council meeting, and the Council will either approve or deny the permits accordingly. If the Council approves, the applicants will then apply for their Culver City Business Tax Certificate (“BTC”), all required City permits, and begin moving forward with their build-outs. Applicants will then pay permit fees, complete their build-outs, and City staff will perform on-site inspections. If everything checks out, the CUP and BTC will finally issue to the applicant.

Non-Storefront Retail Applications (i.e., Manufacturing, Distribution, Delivery-only retail, Cultivation, and Testing Labs):

In the first phase of the application process, applicants must submit live scans, zoning verification documents, and part one of their cannabis business application. City staff and the Culver City Police Department will review that information and, if approved, applicants will move forward. If more than the maximum number of permits allowed (6 manufacturing, 6 distribution, 3 cultivation, and 4 testing laboratories) qualify, then the City will use a lottery to determine the applicants that will ultimately receive a permit.

Successful applicants will then apply for a BTC, all applicable permits from LA County Department of Public Health, all required City permits, and submit part two of their cannabis business application.

Without a doubt, Culver City will be one of the most competitive jurisdictions in L.A. County. In such a setting, potential operators need to prepare themselves by organizing their business and operational plans as well their communal impact and outreach plans and methods, which will take significant preparation. Because the City plans to release its cannabis permit applications as soon as the middle of next month, would-be operators should start organizing themselves now: it’s going to be an uphill (and expensive and time-consuming) process in the Heart of Screenland.

Expect lots of beer ads, but no cannabis ads.

Today, more than 100 million people will tune in to watch the Philadelphia Eagles and New England Patriots square off in Super Bowl LII. While the game is the main event, television networks will cash in handsomely on the revenue from selling advertising space. NBC is projected to earn approximately $500 million in revenue during this year’s Super Bowl. The network has nearly sold out all commercial space at a cost of $5 million per 30-second advertising spot.

We will likely see fast food chains and snack food companies advertising their “munchies”, and there are certain to be many ads for alcohol companies, but will we see cannabis businesses advertising brands and products? Unfortunately, not this year. The NFL has a strict policy that governs what type of commercial can be aired during an NFL broadcast. The 2017-2018 season marked the first year that the NFL lifted the ban on distilled spirits advertising, but cannabis and products related to its production or ingestion are still prohibited.

Beyond the NFL policy, there is still a larger grey area regarding advertising for cannabis. Under the Controlled Substances Act, violations of transmitting advertisements for Schedule I drugs is a felony offense. The Federal Communications Commission (FCC) could therefore pull, or not renew, the license of any broadcaster that chooses to air a cannabis commercial. For a fuller explanation of how this works, see our coverage here.

There is some irony in all of this, given the fact that Super Bowl LII features three states that have allowed and regulated commercial cannabis businesses. Massachusetts has legalized recreational and medical cannabis and will begin issuing commercial cannabis licenses in mid-2018. Pennsylvania and Minnesota (the host of the event) both allow medical cannabis businesses. This paradigm is nothing new: in 2014, the Seattle Seahawks and Denver Broncos faced off in the event dubbed the “Smoke-a-Bowl.” That particular Super Bowl was the first time two teams from states with legal cannabis collided, and media buzzed about potentially seeing a cannabis commercial during the Super Bowl. Even after the legalization of cannabis in the two teams’ states, however, the NFL refused to allow cannabis advertising.

Since then, cannabis legalization has seen a rapid uptick across multiple states. Looking ahead, Los Angeles, California is a top candidate to host the Super Bowl in 2022. That game will be held approximately four years after the City of Los Angeles and State of California opened their application processes for recreational and medical commercial cannabis businesses. Besides the football game (and the Cali sunshine), pot tourism will likely bring a significant amount of people to California.

This may not be the year for cannabis commercial during the Super Bowl, but as policy progresses, marijuana businesses may finally score with Super Bowl advertising sometime soon. Enjoy the big game.

san diego marijuana
San Diego is open for cannabis businesses.

In 2017, the City of San Diego adopted three ordinances that legalized adult-use and medical commercial cannabis businesses. The City allows for a total of 40 Marijuana Production Facilities (“MPFs”) and 36 Marijuana Outlets (“MOs”). MPFs include those “engaged in the agricultural raising, harvesting, and processing of marijuana; wholesale distribution and storage of marijuana and marijuana products; and production of goods from marijuana and marijuana products” (i.e. cultivation, distribution, and manufacturing facilities). MOs include retail establishments where marijuana or marijuana products are sold to the public. Since the City website was last updated, there have been approximately 22 MO applications and 63 MPF applications submitted. The City is still accepting applications for Conditional Use Permits for both MOs and MPFs.

Applicants must go through a three-step approval process in order to receive a Conditional Use Permit (“CUP”):

  • Initial Screening: This phase requires submission of the general application and other supporting documents like site plans and proof of ownership of the business. Specifically, the following documents must be submitted during this phase:
  1. General Application: The general application requires the applicant to share real property information and contact information with the City. The application further asks the applicant to disclose the contractor name and information for building out the premises. The general application requires signatures from the contractor, insurance carrier, building owner and applicant, so although the form is only two pages long, it may take longer than expected to actually complete given the logistics of any buildout.
  2. Deposit Account/Financially Responsible Party Form: This form is a simple declaration by the party who is funding the project that they’re financially responsible for the same.
  3. Ownership Disclosure Statement: The ownership disclosure statement requires the applicant and property owner to list their contact information and attest that the applicant has permission to use the property.
  4. Proof of Ownership/Legal Lot Status: The applicant must provide a copy of the deed that shows the property owner is the true owner of the land.
  5. Storm Water Requirements Checklist: This lengthy form helps assure the city that the build out of the location will be in accordance with the city’s performance standards for the same.
  6. Photographic Survey Photo and CD-R: The applicant must provide a hard copy and a digital copy of an areal view of the premises.
  7. Site Plan with Development Summary: The planning department provides this helpful guide that lists out the information necessary for the required site plan.
  8. Floor Plan: The applicant must provide a scaled diagram of the premises, including what each room will be used for, where facilities will be located, and where doors and windows will be located among other requirements.
  9. Elevations (if proposing exterior modifications): An elevations plan must show the sides the structure and must allow the City to see the vertical changes of the building.
  10. Historic Resources Information (if proposing exterior modifications): A historic review is required if the applicant is making any significant changes to the exterior of the premises. Information about this can be found here.
  11. Fees: Here is the information bulletin that lists all fees the applicant must pay depending on the nature of particular project.
  12. Climate Action Plan (“CAP”) Consistency Checklist: This lengthy document requires the applicant to walk through all building fixtures that may have an environmental impact (e.g. electrical vehicle charging, plumbing fixtures, etc.).
  13. 1,000-Foot Radius Map: A map of the surrounding area shows the City that the proposed premises is not within 1,000 feet of any resource and population-based city park, church, child care center, playground, city library, minor-oriented facility, residential care facility, schools, other MOs, or residential zones.
  14. Affidavit for MO/MPF for Conditional Use Permit: The applicant must declare that the proposed location is not within the distance requirements for any residential or sensitive use area. This form must be signed by both the property owner and the business owner.

If the City determines that you meet the requirements of the Initial Screening, your application will move on to step two.

  • Submitted Completeness Review: The City will take up to 30 days to extensively review all your submitted documentation to make a decision as to whether to allow your operation to move forward.
  • Full Submittal: In the final step, a Public Notice Package is required to be submitted to the City. See here. This step requires the applicant to collect information about the owners and occupants of surrounding buildings.

Assuming you clear all three phases, San Diego should issue you a coveted cannabis CUP.

The application process for San Diego will not close until the City has reached 40 MPF and 36 MO approvals. Therefore, those interested in opening a business in the City of San Diego still have an ongoing opportunity to set up shop since the City hasn’t yet met its numbers. Specifically, there are certain districts that have not received any MO applications, but 4 are allowed per district.

Even though it’s a conservative town, San Diego has been one of the pioneer cities in California for allowing both adult-use and medical cannabis. Although the City has been accepting applications for some months now, there is still a chance for business owners to gain access to this Southern California market.

california marijuana cannabis L.A.
Prop M priority applicants need to sit tight — for now.

We’ve received a lot of questions from existing City of L.A. dispensaries regarding whether or not they can make any corporate entity, location, or “ownership” changes before submitting their Prop M Priority Applications to the Department of Cannabis Regulation (DCR) pursuant to the Prop M ordinances. With MAUCRSA allowing for for-profit operations, many Prop. D dispensaries now desire to  leave behind the old “cooperative/collective” model and many want to leave their current locations for better digs. However, the DCR has made clear (at least to us based on our communications with them) that it likely will not honor or recognize those Prop. D dispensaries wanting to amend their business tax registration certificates (“BTRCs”) to reflect new corporate entities, “owners”, managers, or locations. Here is the rundown on key issues:

  1. Converting to a For-Profit: MAUCRSA provides that commercial cannabis businesses can organize as for-profit companies. The issue Prop. D dispensaries are facing is that their past BTRCs (certain ones of which are necessary for priority processing under Measure M) will not match their new for-profit entities where most Prop. D dispensaries are already some form of non-profit. The DCR has relayed that it will most likely not accept your application if the new entity does not match entity listed on the relevant BTRC, and that it’s best wait until after City licensure to convert to a for-profit company.
  2. Moving Locations: At this point, pretty much all cannabis businesses, especially retailers and deliveries, are hoping to capitalize on California’s robust tourist market and are seeking to open shops in high-traffic, popular areas. However, for Prop. D dispensaries, they’re likely going to have to wait on that real estate grab because of the BTRC issue–if you relocate before filing your Measure M application, and your new location fails to match the location listed on your old BTRCs, the DCR isn’t likely to recognize your City license application as valid. So, waiting to re-locate is probably wisest according to our communications with the DCR.
  3. Ownership Changes: Lots of existing Prop. D dispensaries have had massive “ownership” and management disputes over their storefronts. Even more are looking to take on new owners or “sell” all of the business to new buyers looking to cash in on L.A. cannabis. However, just like changing entities and re-location, any changes to ownership that don’t match up with past BTRCs or manager disclosures probably won’t be recognized by the DCR.

Fear not, though: all of the above changes will be doable eventually, just probably not before the March 4th filing deadline for existing dispensaries.

We should note that the City has not made clear whether businesses will be able to make the foregoing changes while waiting for their actual City license (post receipt of Temporary Approval), after they are granted the City license, or upon renewal of that license. In turn, where City and state commercial cannabis licenses are not transferable, if existing L.A. dispensaries want to apply for their state temporary and/or annual licenses as for-profits with new owners, at new locations, they’re going to have to wait on the City of L.A. to acknowledge those moves, or they’ll face jumping through the same administrative hoops with the state.