PROCEED WITH CAUTION: NAVIGATING CALIFORNIA’S HIGHLY REGULATED CANNABIS SUPPLY CHAIN – PART 4

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PROCEED WITH CAUTION: NAVIGATING CALIFORNIA’S HIGHLY REGULATED CANNABIS SUPPLY CHAIN – PART 4

BY: DAVE MINER: LinkedIn

Licensing – Local & State

California has established a “dual licensing” protocol for ALL plant-touching businesses in the Cannabis Industry. To operate a legal cannabis business, you must have BOTH a municipal AND a state license. Each city in California has control over what cannabis business types are allowed and how many, if any may be licensed in their jurisdiction. Municipal license application requirements and costs vary widely from city to city, while state applications are more consistent. However, the state licensing process now has three (3) license designations; “Temporary”, which are no longer being issued and will not be valid after March 31st of 2019, “Annual” the primary license designation, and “Provisional”, a new designation meant to help manage the transition of Temporary License Holders to Annual License Holders, a process which has a serious backlog. One thing that’s certain, the California Cannabis Licensing process can be confusing, time consuming, and costly!

Step 1, Obtaining a Property:

In order to even apply for a Municipal License, one must first obtain a property. But, before you buy or lease a commercial property, you must determine which cities allow your type of business and whether they have any licenses available for that business type (e.g., Cultivation, Manufacturing, Distribution, Retail, MicroBusiness, or Laboratory Testing). The  two most effective ways to keep track of this highly fluid information  are the Face Book Group, CA City and County Regulation Watch, a free service, and CannaRegs.com, a popular online subscription service. Each of these track and report on the constantly changing regulations and license availability in 482 cities and 58 counties across the state. For all intents and purposes, controlling the property is step number one in the licensing process.

Each city that offers licenses will designate “Green Zones” or zones of the city that are designated as a suitable location for each of the various business types. There are typically a number of additional location restrictions beyond being located in the “Green Zone”. “L.A. recently unveiled a series of maps detailing exactly where pot shops can exist, given the city’s proposed buffer-zone rules that mandate that dispensaries must be 800 feet distance from schools, parks, libraries, churches, and other dispensaries. “ (Coble, 2017) Each municipality has its own restrictions that may or may not align exactly with the CA State License restrictions. Be sure to understand ALL zoning restrictions before you move on a property!

Step 2, Municipal Licensing:

Whether it’s called a municipal “license”, a local “permit”, or a “CUP” (Conditional Use Permit), once you have obtained a property, the next step is to obtain your municipal license; it’s required for CA State Licensing. Municipal Licenses all have five main required elements in common; proof of control of a property (owned or leased*), description of the business entity, identification and information on ALL owners (e.g., required “Live Scan” background checks), varying amounts of complex business documentation, and an application fee.

The Application from California City, for example, has 5 Parts; Principal (Owner) Background Information, Business Legal Structure and Status, Cannabis Business Description and Location, Required Supplemental Information, and Project Location Information. Licensing information can typically be found on each city’s home page with a search for, in this case, “California City Cannabis Business Licenses”. Please see below for detailed description:

As you can see there is a lot of information required regarding the business, the owners, and the property. Additionally, as in the California City example provided, many municipalities require up to 10 complex business documents which may include; a Business Plan, a Neighborhood Compatibility Plan, a Safety & Security Plan, an Enhanced Product Safety Plan, a Community Benefits Plan, an Environmental Benefits Plan, a Cultivation Plan, a Local Enterprise Plan, etc.

Another potential consideration regarding obtaining a municipal license is a Social Equity Plan. “The equity programs are the result of studies and reports that analyze in part, the disproportionate impacts of cannabis law enforcement in disadvantaged communities.” (BCC, 2018) Social Equity Plans are currently active in four California Cities; LA, San Francisco, Oakland, and Sacramento where the CORE Program was revealed last August. The Social Equity portion of the municipal license application is particularly complex in nature; I recommend hiring a consultant to guide you through the process.

Municipal License fees vary widely from city to city. California City, cited above, for example, charges $9,000 total for an application whereas the City of Vista requires a $100,000 deposit in order to be eligible to even apply (for a Dispensary License). Further, many city applications require Proof of Capitalization; this means disclosing a legal source of funds for start-up and potentially 3-6 months of operation expenses of your business. The Proof of Capitalization amounts should match the 3-Year Proforma Income Statement that will likely be required as a part of the Business Plan, a key document typically obligatory in a municipal license application.

Application fees and annual license renewal fees vary significantly from city-to-city, so do your research when seeking a location for your cannabis business!

Step 3, State Licensing:

The final step in licensing your cannabis business is to apply for your Annual CA State License. As mentioned previously, California now has three (3) license designations, Temporary, Annual, and Provisional. Temporary Licenses are no longer being issued and they will all expire by March 31, 2019! If you are a Temporary License Holder, act now to stay legal! To convert your Temporary License to an Annual License requires completing the submitting an Annual License Application and fees. Instead of being granted an Annual License immediately upon review, instead you will be granted a Provisional License once your Annual License Application has been acknowledged as received by the state, due to the aforementioned backlog issue.

“Some cities have come up with creative solutions to this problem. The Los Angeles Department of Cannabis Regulation (“DCR”), for example, issued a release stating that it would issue to applicants from the second phase of applications (which closed a few months ago) who have paid their application fees a local letter of authorization that could be taken to the target state agency. The letter would not authorize commercial cannabis activity in Los Angeles. It would authorize an applicant to simply move into the temporary license phase, in order to eventually secure the provisional license that would eventually get them operational faster. At least one state agency, in turn, has expressed that letters from localities may be sufficient. Earlier this year, the CDPH wrote that local authorization may take the form of a “letter of acknowledgement”.” (Thorne, 2018)

The license application process for the state is clear and well documented on the three (3) websites of the regulatory bodies that oversee each of the various business types. (See Part 1 of this Series for refresher.) There are links on each website for license applications, FAQs, guides, and even helpful videos for completing your application. Also required are a series of five (5) Standard Operating Procedures (SOPs) including; Transportation, Waste Disposal, Inventory Management, Quality Control, and Safety. These documents are technical in nature and complex. My recommendation is that you consult a professional to assist you with the development of these required and crucial SOP documents. Please see an example of the detailed requirements at the following link: Retail License Transportation SOP.

Application fees for State Cannabis Licenses are uniformly set at $1,000. Annual License Fees vary by BOTH license type AND projected* or reported annual revenue. For example, a Dispensary making $500K would only have to pay $4,000 for their annual License Fee, but a Dispensary making $8,000,000 would have to pony up $120,000.

Now you are equipped to tackle the daunting licensing process to become a legally operating Cannabis Business in the State of California. Remember to do your due diligence before locking down your property, a crucial first step. Be aware of “Green Zones” and how many of your type of business type licenses are available by referring to one of the sources mentioned above. Complete and submit your Municipal Application and Fees to obtain your local permit. Complete and Submit your CA State Annual License Application and Fees to obtain a Provisional License that will eventually become a full Annual License. If you currently hold a Temporary License, be aware that the clock is ticking, and your license will expire by March 31st; two short months! Act now to transition to a Provisional License by completing and submitting an Annual License Application and Fees for your license type. Take care and, as always, Proceed with Caution!

Stay tuned for Part 5 of our series: The Plant-touching Supply Chain

Dave Miner writes on behalf of Cannabiz Trusted Advisors

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