LA City Releases Phase 2 Guidelines!

Pressed for time and in need to keep the process moving, the Department of Cannabis Regulations has been pressured to open the licensing process for Phase 2, though is still planning to only hand out temporary licenses. To that end, Cat Packer on July 2nd said that the process to get a temporary license would be relatively straight forward, the guidelines released identify the three (yes, that’s ¼ of the original 12 requirements needed) to move forward with LA licensing. Note, this does not include the process for Labs, as they can apply as soon as LA starts accepting applications. The three requirements are:

1. The Applicant was engaged prior to January 1, 2016 in the same type of Non-Retailer Commercial Cannabis Activity for which it now seeks a License.
2. The Applicant supplied an EEMD (Pre-ICO, must have a current LA temp license) prior to January 1, 2017
3. Qualifies under the Social Equity Program

To that end, the City recognizes that many people did NOT have evidence of their businesses and has given several examples of how to prove these different aspects. However, they also allow a declaration under penalty of perjury that attests you fulfill all of these requirements.

Perhaps the juiciest bit is the further explanation that a Tier 3 Incubator can support a Tier 2 Social Equity Business. The original regulations was very unclear and had no specifics on the relationship between Tier 3 and Tier 2. It said:

A Tier 3 Social Equity Applicant shall enter into a Social Equity Agreement with the City to provide capital, leased space, business, licensing and compliance assistance to Persons who meet the criteria to be a Tier 1 or Tier 2 Social Equity Applicant.

However, the new guidelines state that, indeed, Tier 3 can build a relationship with a Tier 2 that satisfies the requirements.

An attestation, on a form provided by DCR, from a Tier 3 Applicant that it has identified a Tier 2 Applicant to support and that specifies the nature of the support that will be provided to satisfy the requirements of Section 104.20 and the Rules and Regulations.

In other words, they can enter as an incubator and own 100% of their business and support a Social Equity Business, but own 67% of it. Remember, for Tier 2, the business has to be only 33% owned by a qualified Social Equity Applicant. Thus, 67% of the business is up for grabs. This is a huge gain for incubators. Moreover, now that this is acceptable towards licensing and the City has given free range to incubators, I believe it would be wise to enter as two entities: Tier 3 and Tier 2.

If you are in need of locating a social equity partner or need help strategizing how you will get through Phase 2 of LA licensing, please do not hesitate to call me.

Sergio Ingstrom
Senior Consultant