Recap Cannabis Committee Report August 10th 2018

The Cannabis Committee met to report in front of President Ahn, who was voted in at the inaugural meeting back in July. The Agenda items were as follows, and this email will try to capture the important bits of information shared.

Public Comment

There were several public comments for the DCR to create a fund for Social Equity Applicants. Moreover, some spoke on the effect of taxes and the black market and how legit businesses are being killed. I spoke and gave the Committee the following observations:

– The website has an Indemnification Agreement which is required by Sec 104.08 to qualify for Phase 2, but there’s nowhere to upload such a form. Available here (http://www.cannabis.lacity.org/sites/g/files/wph1081/f/DCR%20Indemnification%20Agreement.pdf)
– There are two upload options for the same form which is the general Attestation for Non-Retail Applicants (http://www.cannabis.lacity.org/sites/g/files/wph1081/f/DECLARATION%20-%20LAMC%20104.08%20PHASE%202%20PROCESSING.pdf)
– Within the Phase 2 manual (http://www.cannabis.lacity.org/sites/g/files/wph1081/f/Department%20of%20Cannabis%20Regulation%20-%20Phase%202%20Quick%20Reference%20Manual%20-%20Cannabis%20Business%20Application.pdf) there is no reference to how to submit the Owner Submittals. Indeed, this point was clarified… Owner Submittals MUST be submitted from the Owner’s original account. Here’s a link the account registration (http://www.cannabis.lacity.org/sites/g/files/wph1081/f/Account%20Registration%20Manual_0.pdf)
– There are several upload option for documents such as Compliance with State of California Regulations which have vague titles and no description, neither in the manual or in any of the videos.

Agenda Item 1 – Phase 1 Processing

The Phase 1 applicants will soon be asked for annual licensing. As such, they will go through inspections. The Committee clarified that it is trying to conduct inspections for Phase 1 and Phase 2 applicants at the same time. This is important to note, because it could mean delays in becoming operational. The longer you take to pay the application fee, the longer you will wait for inspections as the City seems strained as is. The remaining Phase 1 applicants that have not been granted licenses have had disputes between owners which must be settled in court before the DCR gives any licenses.

Agenda Item 2 – Phase 2 application

The Phase 2 applicants will have their place held once their fee is paid. Therefore, it is imperative to get the invoice complete and paid in order to hold your spot. As of yesterday, the applications received by the department are as follows:

Medium Cultivation – 6
Small Cultivation – 43
Specialty Indoor Cultivation – 35
Distributors – 70
Manufacturing Level 1 – 64
Total: 218 paid license invoices

The Committee also said that any delays to the procurement of documents could mean applicants will have to complete Surveys of Undue Concentration should many businesses be located in that neighborhood or the soft cap of a license type has been reached by a neighborhood. Thus, it’s imperative to pay the invoice and complete the application as soon as possible.

Agenda Item 3 – Appeals Procedure

The Committee was told that applicants who are DENIED a temporary license will have to pay a fee and have 15 days from when the letter is sent to Appeal the decision. The Committee was also told that if an applicant’s reason for denial is found invalid, that does NOT automatically grant a license.

Agenda Item 4 – Enforcement of Unlicensed Cannabis Activity

The Committee made it clear that they will try to stamp out the black market, including now a new complaint service. Within this complaint service, anonymous tipsters can report and illegal business. Therefore, if you are a legal business and you’d like the DCR to investigate, please fill out a form here: http://cannabis.lacity.org/#submitcomplaint

General Public Comment

Several people spoke, including Guy Rocourt, my client and one of the co-founders and Chief Production Officer of Papa & Barkley, one of the largest topicals manufacturers in California. Below is the public comment we drafted, which contains the main points of what was spoken. Below is also the public comment I made to help establish a fund for the Social Equity Program in lieu of incubation.

Guy Rocourt

Thank you commissioners and the City of Los Angeles for helping establish this program that will allow an industry that has helped so many people overcome illnesses. I am the Co-founder and Chief Production Officer of Papa & Barkley, one of the leading topical manufacturers in the State of California. Our company was founded in Los Angeles. We took the first opportunity to be compliant and moved all our manufacturing to Eureka, CA and hold temporary state licenses in manufacturing and distribution.We supply most of the legal dispensaries in Los Angeles and across the State.

I want to raise some concerns regarding the requirements for Social Equity, which have not yet been clearly defined or clarified. As an applicant seeking licensing in distribution, we are required to provide incubation to a business deemed suitable by the commission or wait until Phase 3, which has no date. I, as an African American male in the cannabis industry who risked arrest and conviction, personally understand the role the War on Drugs STILL has on communities of color. We, at Papa & Barkley, are committed to helping change that. We have been pioneers of cannabis decriminalization for many years. In an effort to help the City, we want to offer our expertise as successful business owners on how to create social equity.

The current regulations place too much strain on companies like ours to provide for extensive programs. Incubation is a practice that has caused a lot of strain on resources, since it puts all of the expectations and responsibilities on the incubator. We therefore humbly ask that policymakers consider establishing an “In Lieu” fund, which it could use for grants or microloans. This will take strain away from incubators to provide space and capital. Moreover, we ask that a City-Sponsored academy should be established to help with compliance and technical assistance. This could be funded by the prospective fund.

Not only will this be beneficial to Tier 3s, but also to Tier 1s and 2s as they will have access to funds regulated by the DCR or the Commission, without having to share a space with another business. Furthermore, regulators will save time by not having to review agreements between incubators and incubees. Finally, we ask the City to invite companies like ours that can afford to participate in this program to the table to discuss effective ways to create Social Equity and business education.

Sergio Ingstrom

My name is Sergio Ingstrom, and I work for cannabislicense.com. I want to take the time to thank everyone today for making it possible to bring this market to regulation and I want to thank all of the regulators and policy makers who have taken the time to build this program. I’ve a couple of concerns regarding the Social Equity Program, namely the relationships that are formed out of stress and desperation between the incubators and the incubees while policy has not made it clear yet what the requirements will be.

I ask the City to consider two routes. First, if incubation is to happen and the cost of the incubation is considered, that participants of the program are exempt from City taxes or given a reduced rate in order to finance the incubation. Second, and more desirably, we hope the City considers establishing an “In Lieu” fee that will feed into a fund. With this fund, I ask the City to consider establishing a microloan program like Accion Texas, which has data since 1994 and has established several small business along the US-Texas border for people who do not have access to traditional financial services. Indeed, as of November 2010, Accion USA had a 97% business survival rate. The national branch is one of the largest micro loan providers, with over 3,000 borrowers in 46 states.

In the article Incubating Microfinance: the Texas Border Experience the author explains that, “Between 1994 and 2005, Acción Texas estimates, its $11.7 million in microloans created nearly $19 million in sales revenue and household spending, nearly $6 million in additional income and 244 new jobs.” Accion Texas not only provides micro loans but also business and technical assistance and education. Indeed,there is historic precedent. In 1977 the Community Reinvestment Act, the Community Development Banking and Financial Institutions Act during the Clinton administration, and the American Recovery and Reinvestment Act in 2009 are all government efforts to pump microfinance in the US economy.

I believe that, given the success track record of programs such as this not only in the US but around the world, the committee should consider a micro loan program from a fund created by the “In Lieu” fee.

Sergio Ingstrom