This month, the city council of Los Angeles, California released its proposed regulations for recreational marijuana retailers, cultivators, and manufacturers. For most businesses hoping to enter the market when it opens next month, the road to get a license to operate looks like it will be an uphill climb.
But first, let’s back up a bit and put this story into perspective. Marijuana businesses were banned from operating in Los Angeles in 2013 as part of Proposition D (medical marijuana dispensaries granted immunity), but that law will be repealed as of January 1, 2018 based on the proposed regulations developed by the Los Angeles City Council If the mayor signs off on the proposal, the new regulations would go into effect immediately according to the Daily News.
Now, consider these statistics. The adult population of Los Angeles City (a 469 square mile area) is approximately 3.06 million. That means more adults live in Los Angeles than in 24 other states in the country. In other words, more adults live in Los Angeles than live in Alaska, Arkansas, Connecticut, Delaware, the District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.
What does this tell us? The market potential in Los Angeles is massive, and businesses want to get in early so they can capture market share quickly. But there’s a problem. Getting a new license to enter the Los Angeles marketplace won’t be easy for everyone.
Key Licensing Restrictions in Los Angeles
If the new regulations are signed by the mayor and go into effect, adult residents of Los Angeles will be able to purchase marijuana within the city limits for the first time since 2013 when Proposition D banned it. For decades, Los Angeles has been at the center of the country’s war on drugs, and the new regulations are intended to adjust the social inequities that came with that war.
The proposed Los Angeles regulations include a “social equity” program that provides an advantage to communities which have been negatively affected by the war on drugs. The program would allow marijuana businesses that meet the “social equity” criteria to jump to the head of the license application line. This criteria includes things like having a low income status, having a marijuana-related conviction, and being located in an area that has had a high number of marijuana-related arrests.
For retailers, the city would process applications from two qualifying “social equity” businesses for each one application from a non-social equity business. The 2-to-1 ratio would not apply for cultivator or manufacturer licenses. That means “social equity” businesses will have a distinct advantage to enter the retail market.
Another barrier to fair competition in the proposed regulations is that businesses which already have medical marijuana licenses or business tax registration certificates will be allowed to continue operating after the new regulations go into effect. They’d also be given the first chance to apply for recreational marijuana licenses in the first 60 days after the laws go into effect. Furthermore, they’ll be able to keep their medical marijuana dispensary licenses by simply applying for a “provisional” license.
These businesses are being referred to as “priority businesses,” and they’ll be allowed to apply for licenses to act as cultivators, distributors, and manufacturers. Non-retail businesses (i.e., cultivators, distributors, and manufacturers) will also be able to get provisional licenses if they can show they’ve been in operation since before January 1, 2016 and are suppliers to the priority businesses.
Keep in mind, businesses would still need to be approved by local agencies, such as the city of Los Angeles, to apply for state licenses when they’re available in 2018.
What’s Next in Los Angeles?
While these new regulations are intended to make it easier to penalize businesses that are operating illegally with harsh fines and/or jail time, they’re also limiting competition. Any time you limit competition, problems will arise in the marketplace. We’ll have to wait and see if the mayor approves the regulations and if so, what happens in Los Angeles. However, the massive size of the market guarantees this is a story a lot of people will be watching closely.