L.A. cannabis businesses face regulations, uncertainty with new ballot measures

Just Released! Get realistic market forecasts, state-by-state insights and benchmarks with the new 2024 MJBiz Factbook member program, now with quarterly updates. Make informed decisions.

By John Schroyer

“Trust us.”

That seems to be the Los Angeles City Council’s message to cannabis businesses, given that a new regulatory ballot measure approved by the council for March includes few details on how the industry will be governed.

The types of business licenses – from dispensaries to cultivators to testing labs – aren’t spelled out in the initiative. It also doesn’t address areas such as delivery or certain aspects of cultivation and manufacturing.

That ambiguity is disconcerting to some in the Los Angeles marijuana trade. But others say the current city government has indicated a desire to establish a workable system to allow the medical marijuana and upcoming adult-use industries to thrive in the largest cannabis market on Earth. And the council’s initiative is expected to pass when it goes before voters in the March 7 municipal election.

Power to the … city

A change in local law is needed for L.A’s market to conform to the state’s upcoming rules for the MMJ and recreational industries – the Medical Cannabis Regulation and Safety Act (MCRSA) and Proposition 64.

That’s where the next Los Angeles election comes into play: The city council’s initiative is competing with one written by a group of dispensaries, the UCBA Trade Association, which wants a regulatory scheme allowing MJ businesses to become fully legal in both Los Angeles and California. (Update: UCBA Trade Association decides to support L.A. measure.

The council’s ballot measure gives the legislative body considerable regulatory powers, while failing to offer specific industry rules for voters to consider.

“It gives everyone a very uneasy feeling going forward,” said Steven Lubell, a cannabis industry attorney involved in ongoing negotiations with the council. “If this passes, then the city can do whatever they want. … And they’ve burned me in the past. But it’s a different tone in City Hall now.”

Aaron Justis, owner of MMJ collective Buds and Roses, said he’s “very optimistic” about what he’s heard from city officials. He’s been working with the council as a board member of the Greater Los Angeles Collective Alliance.

The city councilors “do seem very pro-cannabis business, and they do seem open to licensing everything under the MCRSA and then Prop 64. But when it’s all said and done, it’s the city council that has to vote for it,” Justis said. But, he added, “This still has to be voted on and further discussed by neighborhood councils.”

The UCBA Trade Association is even considering abandoning its measure and supporting the council’s, the group’s president, Jerred Kiloh, wrote in an email to Marijuana Business Daily.

“What remains to be seen is the actual implementing ordinances for this new permitting system,” Kiloh wrote. “Once those draft ordinances are produced by the city, and it can be determined that the legally operating dispensaries are allowed to operate and their patients are protected, UCBA is prepared to orphan its measure and support the city’s measure.”

A spokeswoman for L.A. Council President Herb Wesson wrote in an email to Marijuana Business Daily, “The City Council-supported initiative returns industry regulation back to local government, which is why the language is intentionally broad – for now. … This is the beginning of the City Council’s process and everything is on the table and open to discussion. … The City Council intends to fully comply with all state laws.”

Effects of the initiative

The council’s initiative is widely expected to prevail with voters. That would make the UCBA measure superfluous and enable the city to control the future of Los Angeles’ marijuana businesses.

The city’s initiative:

  • Gives the Los Angeles City Council nearly total authority to promulgate industry regulations.
  • Gives dispensary licensing priority to “existing medical marijuana dispensaries operating in compliance with current city law.” (This is viewed as a concession to the UCBA, which is made up of dispensaries compliant with Proposition D, the city’s only law currently governing the MMJ trade.)
  • Hints at a licensing schematic that would include at least six different permits that potentially could be awarded to cannabis retailers (medical and recreational), transporters, testing labs, researchers, manufacturers and cultivators – even one for those “engaged in business relating to the commercialization of cannabis.”
  • Establishes a tax rate for each of the permits based on gross receipts.
  • Sets a timeline for regulations to be established: The city’s deadline for a “comprehensive regulatory process” would be Sept. 30, 2017; the rest of the initiative would go into effect Jan. 1, 2018.
  • Makes clear that public hearings and stakeholder input will play significant roles in crafting industry rules.

Questions remain

The council’s initiative says nothing, however, about a cap on business licenses. The current law, Proposition D, allows only for “limited immunity” from prosecution for up to 135 dispensaries, and it doesn’t address cultivators, edibles makers or other types of cannabis businesses.

Lubell listed a few of the questions left unanswered by the council’s initiative:

“How many dispensaries are you going to allow? Will you allow delivery? What type of manufacturing and where? What type of cultivation, and where, and by whom?”

Austin Hice, a co-founder of Southern California edibles company Breez Mints, said the initiative’s lack of specifics leaves officials with more flexibility over the coming year.

“They left it vague but in ways that I think were pretty smart,” Hice said. “These are decisions that we don’t need to rush to make. We need to take in everybody’s input, from the citizens to the operators and everyone in between.”

John Schroyer can be reached at johns@mjbizdaily.com