Los Angeles: Phase 3 Update

By Michael Chernis, December 17, 2019

The path towards a legal adult-use cannabis market in Los Angeles has been littered with obstacles and challenges, and in November 2019, another roadblock emerged, as the City announced an audit to its commercial cannabis program and suspended further licensing pending that audit.

After processing license application for certain pre-existing cannabis operators in Phases I and II, on a priority basis in 2018, for both retail and non-retail, Los Angeles first opened applications for new cannabis retailers with Phase III in September 2019. The Phase III round 1 application window started at 10 a.m., September 3, 2019 and ended September 17, 2019. 100 licenses were available in Round 1 to verified social equity applicants, first-come first-serve to those who were first able to submit a complete application on DCR’s Accela portal for a compliant location. The application was extremely competitive; 300 applications were received within 93 seconds of the Accela portal’s opening. 802 total applications were received for 100 available licenses.

After the close of the Phase III round 1 application window, stakeholders raised concerns about the fairness of the application process, specifically about alleged early access to the Accela portal and DCR’s response to these deficiencies. On October 24, 2019, DCR Director Cat Packer presented at the Cannabis Regulation Commission meeting about this issue, and reported that while all applicant access to Accela was supposed to have been disabled from August 28, 2019 until 10 a.m. on September 3, 2019, two applicants obtained several minutes’ early access to the Accela portal by resetting their passwords and were able to submit applications before 10 a.m.

Because these applicants received early access, DCR apparently adjusted their submission timestamps by adding the amount of time taken to submit their applications to a 10:00 a.m. baseline and reviewing those applications in the order they would have been reviewed after making the adjustment.

After the discovery that some applicants received early access, stakeholders became distrustful of DCR because DCR did not admit the early access or its adjustments. Concerns were raised that other applicants received early access, that timestamps were given arbitrarily, and that automated systems were used to submit applications. Demands were made for a do-over.

On November 18, 2019, DCR Director Cat Packer released a press statement about this issue, and reported that Mayor Eric Garcetti had called for an audit of Phase 3 Round 1’s application process and suspended future Phase 3 processing until the audit had been completed. According to the release, DCR will continue to review and process Phase 3 round 1 applicants in the released Review Order for eligibility to receive an annual license (e.g. whether the proposed location is acceptable for undue concentration and sensitive use), but will not move on to the annual application process until the audit is complete.

Then yesterday, on December 16, 2019, the Los Angeles Times printed an article https://www.latimes.com/california/story/2019-12-16/cannabis-activists-marijuana-licensing-applications-los-angeles  documenting at least a dozen other applicants who were able to access Acela early.  There is renewed outrage over the fact the DCR did not disclose this information sooner, and renewed demands for a “do-over.”

What this means for those persons seeking to apply for retail licenses, delivery-only licenses, and even non-retail licenses in Phase 3, is that the timing for those processes to begin are on an indefinite hold.  According to Ms. Packer, “the Department will not continue to the next phase of licensing until the audit process is complete.” The timing for completion of the audit is unknown, and then once the audit results are released there likely will be further delays while the results of the audit are processed and reviewed both by the City Council and the public.  There is also the possibility of lawsuits challenging the City Council decision, whichever way it goes.  Unfortunately, unless the City Council makes changes to the ordinance to allow non-retail aspects of Phase 3 to proceed, the whole process could be delayed at least 6 months, or longer should litigation ensue.

You are invited, however, to share your frustrations, and concerns, with the DCR by emailing them at cannabis@lacity.org.   In addition, the DCR ostensibly is exploring ways to make legislative changes to the application system and welcomes that feedback as well.

Obviously, this delay is a real setback, especially for those of you with real estate locked up.  One possible alternative is to seek licensing opportunities in other jurisdictions.

If we can help with this, or in answering any questions about Phase III, please let us know.

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