Los Angeles, California has been the epicenter of corruption and disasters in the cannabis industry. The Department of Cannabis Regulations was created with poor executive hire while being severely underfunded. With the DCR seeming to do the right thing, Social Equity backfired and did the opposite of what was intended. The list of failures continues with it taking over a year for Business Tax Registration Certificate Holders to obtain licenses. The social equity program provides little resources and made the applicants pay and lock in property, in which case they have no money to do so. Therefore, they had to team up with investors. Some applicants were tied with political officials corrupting the system by accessing the application portal early. During this entire process, the DCR and city attorney lacked enforcement of the cannabis regulations in the City of Los Angeles.
New year, new laws, new taxes. Starting January 1st, 2020, two new cannabis laws went into effect. Both laws will change how the legal cannabis business will be taxed. These laws help clarify the state and federal tax laws.
The first of the two bills allows legally licensed cannabis retailers to donate free cannabis to medical patients who have a hard time accessing it through compassionate care programs. This bill was created to help give sick veterans and low-income people access to medical cannabis. Existing retailers must partner with compassionate care programs to dispense the donation of cannabis products to medical patients.
The second of the two bills is called Assembly Bill 37 and works to help equalize the treatment of taxpayers related to the Personal Income Tax Law with the Corporate Income Tax Laws of the state and the federal laws. Commercial cannabis businesses in California are not allowed to claim deductions and credits available to other legal businesses in the state of California due to existing IRS and federal income tax laws. This bill was presented to bring clarity and equality to the tax laws for California businesses involved.
According to the bill's author, Reggie Jones-Sawyer, representing the 59th district; "The cannabis industry has multiple barriers to entry – limited access to banking, compliance with complex state regulations and a high tax burden. In addition to these challenges, the federal government continues to treat our state's legal industry as a criminal activity. Current state law conforms to federal policies that disallow tax deductions for businesses that "traffic" controlled substances, resulting in higher taxes for legal cannabis businesses. Californians voted overwhelmingly to make cannabis a legal enterprise in our state and to benefit from the tax revenue brought in by this new industry. High taxes imposed on legal cannabis products are putting the legal industry at a disadvantage in competing with the illicit market, which results in less tax revenue for the state. AB 37 will ensure that cannabis businesses are taxed like any other legal industry in our state and will help legal businesses thrive in California."
The support for the bill included the sponsor of the bill, California Cannabis Industry Association, along with other groups including; CMG/Caliva, Osiris Ventures dba NorCal Cannabis, Rural County Representatives of California, Southern California Coalition, and State Treasurer Fiona Ma.
Governor of California, Gavin Newsom wants to combine multiple state agencies into one department to simplify the cannabis licensing processes and have oversight of all commercial cannabis activity. This new department which Governor Newsom calls the “Department of Cannabis Control,” will act as a centralized force as opposed to the current three which are the Bureau of Cannabis Control, Manufactured Cannabis Safety Branch, and CalCannabis. Newsom works to bridge the gap between cannabis license holders and local governments.
The Bureau of Cannabis Control (Bureau) is encouraging retailers open to the public to post a QR Code certificate that consumers may scan with their smartphone camera when visiting a commercial cannabis storefront retailer to confirm licensure. Participation in this effort by retail licensees will assist consumers in purchasing legal cannabis goods. Licensees are also encouraged to educate their customers on how to use the QR Code and the importance of shopping at a licensed retailer. The Bureau is providing licensees with an enlarged version of their individual QR Code (QR Code certificate). Storefront cannabis retailers are encouraged to assist the public by prominently displaying their QR Code certificate on the licensed premises in the following manner:
• The QR Code certificate should be visible and scannable from outside the premises.
• The QR Code certificate should be printed on paper not less than 8 ½” by 11”.
• The QR Code itself should not be less than 3.75” by 3.75”.
• The QR Code should be posted in the front window of the licensed premises or in a locked display case mounted on the outside wall of the licensed premises within three (3) feet of any public entrance to the licensed facility.
• The QR Code should be posted in a manner that is clearly visible from outside of the licensed premises by all persons entering the premises and shall be of sufficient clarity that the code can be read by a smartphone or device capable of reading QR Codes from a distance of at least three (3) feet.
Consumers can confirm that the retail location is properly licensed by using a phone camera or QR Code app to scan the QR Code certificate. Once scanned, the consumer will automatically link to a URL that confirms the cannabis retailer’s license status. The website will display the address and business license of the location to ensure that the retailer at that location is licensed. By providing commercial cannabis consumers with an easy method for verifying licensure status, the Bureau and its licensees can work together to reduce the potential risks that may come from the purchase of non-compliant cannabis goods from unlicensed retailers.
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To All Phase 2 Applicants:
Applicants who have not received Temporary Approval for Non-Retailer Commercial Cannabis Activity pursuant to Section 104.08(a) of the Los Angeles Municipal Code (LAMC) were required to pass a pre-licensing inspection by December 31, 2019. On October 22, 2019, the Department of Cannabis Regulation (DCR) notified applicants that the deadline to request an inspection from DCR would be on December 13, 2019.
Section 104.08 (f) of the Los Angeles Municipal Code authorizes DCR to grant applicants an extension to pass the pre-licensing inspection due to extenuating circumstances as determined by DCR in its sole discretion.
DCR recognizes that there are challenges associated with completing construction due to the complexity and high cost to comply with Building and Zoning Code requirements and other ancillary construction upgrades in the electrical, plumbing and mechanical systems of an existing building. Therefore, DCR grants an extension of time until March 31, 2020, to all Phase 2 Non-Retailer Commercial Cannabis Activity applicants who have not received Temporary Approval. Furthermore, Phase 2 applicants must request their pre-licensing inspection on or before March 1, 2020.
Phase 2 Applicants must submit the pre-licensing inspection in writing by email at , with the subject line "Request for Pre-Licensing Inspection. Application No. LA-C-18-XXXXXX-APP"
Department of Cannabis Regulation
Stanton residents recently voted on a tax that would tax commercial cannabis businesses (Measure A).
Oxnard will hold a hearing for a retail cannabis ordinance. The meeting will take place on December 3rd.
Benicia has approved an ordinance for delivery only cannabis activity.
Additionally, the city will remove the cap on micro businesses in the jurisdiction.
Thousand Oaks, CA (11-5-19)
Thousand Oaks has extended a moratorium on all commercial and industrial hemp
cultivation, processing, storing, retail and other commercial uses.
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On Monday, November 18th, Cat Packer, the head of Los Angeles’ Department of Cannabis Regulation, announced that the department will be audited by a third party. In the week prior, Mayor Eric Garcetti called for an independent investigation into how the Phase 3 Retail licensing process was handled. This audit will delay any next phases of the program until the review is complete.
With only 100 licenses available that round, the process involved a first-come, first-serve basis where applicants would upload the necessary files into the Department of Cannabis Regulations’ online portal. Hundreds of people applied in only the first three minutes.
Many applicants still remain enraged about the licensing process and how it was handled. Stating the entire process was unfair and did not cater to the needs of Social Equity candidates.
In order to help combat the war on drugs, Los Angeles officials made it a necessity that investors give a Social Equity applicant a percentage of the new business. Many found the entire process a failure from start to finish because all Social Equity applicants had to use up their time, money, and resources to be a part of the program with nothing guaranteed in return.
In a prepared statement last Monday, Cat Packer said, “The department is extremely empathetic to the concerns of the community and is working actively with city leaders and community stakeholders to seek, consider and recommend any legislative changes and policy amendments that may be necessary to ensure the fidelity of the nation’s largest cannabis licensing regime.”
It will be interesting to see what this third party with find with the upcoming DCR program audit. The longer these issues take to be sorted out, the more and more money is being lost not only by the investor but more importantly the Social Equity Applicant.
The Department of Cannabis Regulations will be holding a phase 2 cannabis compliance training workshop on Saturday, November 23rd, 2019 from 2 PM - 4 PM. Follow the link below to register!