L.A. marijuana businesses unhappy with draft rules, but talks continue

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, L.A. marijuana businesses unhappy with draft rules, but talks continue

By John Schroyer

Newly released draft regulations that would govern Los Angeles’ licensed marijuana industry starting next year immediately created a firestorm among stakeholders, with some fearing they could force many companies to set up shop in other parts of the state.

But according to industry insiders, negotiations with city officials are ongoing.

“Is there room to negotiate? Yes, there absolutely is. We’re going into city hall in the next hour to continue the dialogue,” Adam Spiker, the executive director of the Southern California Coalition (SCC), said Tuesday afternoon.

The biggest sticking point many have with the new rules – released late last week – is that, aside from a handful of dispensaries, every existing plant-touching cannabis company in L.A. would be required to cease operations in January for an undetermined time until city permits become available.

The regulations now go to the full council for approval sometime in October, a council spokeswoman said in an email.

And, according to Spiker, there likely will be options for amending the regulations for weeks to come as the rules wind their way through the legislative process.

“The primary flaw in the draft regulations is it’s basically shutting down existing operators during the application process at exactly the time when the most responsible operators are pushing to pay taxes and join the legal market,” said Austin Hice, co-founder of Breez Mints, a Southern California edibles company. “The sum result is going to be tens of thousands of lost jobs and a thriving black market.”

Timeline issues

After L.A. voters approved Proposition M in March to pave the way for a municipal licensing system, the City Council gave itself a Sept. 30 deadline to finalize industry regulations. Then the council must wade through what likely will be thousands of business applications before California launches a fully regulated medical and recreational marijuana industry in January.

The first draft of L.A. regulations released in June was met with strong industry pushback, and many stakeholders say the council still hasn’t gotten the rules right with its second attempt.

Under the second draft:

  • The city’s existing MJ businesses – except for about 60 dispensaries – would be forced to close Jan. 2 or risk being shut out of the legal L.A. market.
  • Anyone convicted of running an illicit MJ company after April 1 would be banned from obtaining an L.A. cannabis business license for five years.

Even the UCBA Trade Association – primarily a group of longstanding dispensaries that were given priority licensing because they were legally compliant under L.A.’s former industry code, Proposition D – isn’t content with the council’s latest proposal.

“Even though (our) shops are like, ‘I’m glad we got what we asked for from the very beginning,’ we’re still not happy,” said Jerred Kiloh, president of the UCBA and owner of The Higher Path, an L.A. dispensary.

“We’re not happy to disenfranchise the rest of the industry, or to cut off half of where our businesses operate outside of just retail. … We have to find some way to transition.”

But Kiloh, along with Spiker and others in the industry, expressed confidence the new regulations will change yet again before the council finalizes them.

The question now is one of timing, the SCC’s Spiker emphasized.

“The city had a schedule in mind … to try to get an application process up and running so they could vet operators by the end of the year,” he said. “We obviously don’t have that time anymore.

“What it comes down to now is, the council (wants) to feel like they can vet operators before giving them the authority to operate within the city.”

Stakeholders said they believe a middle ground can be struck between now and January.

But how that will happen and what that middle ground will look like are unanswerable questions at this point, they said.

Spiker added that it’s now a reality many existing companies won’t receive licenses and will have to close – probably for months, if not permanently.

“Everyone in the city is not going to get a license by the end of the year,” he said. “It’s just not going to happen.”

Other options?

Cannabis attorney Meital Manzuri – who represents hundreds of diverse MJ businesses in L.A. – believes a possible compromise could involve granting existing businesses limited immunity from prosecution – while also giving the city legal cover.

“If (L.A. regulators) were to explicitly approve a business without inspecting them, and they’re violating fire codes, the city could be named in 100-plus lawsuits,” Manzuri said. “So if you think about all of these cultivations, they’ve never been inspected by the fire department.

“The city can’t affirmatively permit you or give you a provisional license without (an) inspection,” she continued. “So the options are some sort of immunity and/or look the other way and get those applications processed as quickly as possible.

“It’s not a perfect solution, and it’s a complicated situation, but you also have to keep in mind what’s reasonable and what’s doable by the city.”

Manzuri also noted that the April 1 deadline for businesses to cease operations before butting up against the five-year ban almost seemed like a wink-and-a-nod from city officials hoping to turn a blind eye to a continued status quo in L.A. while they’re processing business license permits.

“They’ve been doing it in that gray area, illegally, for ‘X’ amount of years already. This is an extension of that,” Manzuri said. “I’ve seen these businesses close up shop for 30 days and then restart for any number of reasons.”

That could work for some businesses. Others, however, may want a bit more security, which is why some are already considering possible relocation to more cannabis-friendly municipalities.

“We have cities pursuing us,” said one marijuana product manufacturer who requested anonymity.

So, depending on how Los Angeles’ regulations shake out, an exodus of growers, edibles makers and other plant-touching businesses isn’t out of the question.

John Schroyer can be reached at johns@mjbizdaily.com