California and New Jersey Cannabis Updates
California Jurisdiction Round-Up
Nearly five years since the legalization of recreational cannabis in California, almost two-thirds of California municipalities ban cannabis facilities within their borders. To date, only 182 of California’s 482 municipalities and 31 of 58 counties allow any form of legal commercial cannabis activity within their borders. Of the municipalities that license commercial cannabis businesses, many of them set up selective regulatory structures to ensure they license only the best-in-class cannabis operators. Due to the resulting legal patchwork across California’s municipalities, Global Go presents this local jurisdiction series to simplify the complicated and take a deeper look at how emerging jurisdictions are structuring their rules for cannabis operations.
As local jurisdictions develop plans to provide funding to public services in the midst of a global pandemic and economic downturn, several cities in California are making strides towards opening or expanding adult-use cannabis business licensing. Here’s a round-up of some jurisdictions we’re keeping our eyes on:
Costa Mesa
The City of Costa Mesa will begin accepting applications for cannabis retail licenses this Thursday, August 12th. While the City has not set a cap on the number of licenses it will issue, several factors like wait lists, zoning, setbacks, and sensitive use distance requirements will effectively limit the number of qualifying properties and licenses available. Retail applications will be accepted in a two-step process:
Phase 1: August 12, 2021 @ 830 AM – September 10, 2021 @ 530 PM PT will accept applications for the following applicants only:
Business owners/entities in the Green Zone with approved conditional use permits (CUPs)*, conditional business permits (CBPs)* and business licenses who wish to establish a storefront (dispensary) use in a commercial zone (Pre-application review required).
Business owners/entities in the Green Zone with approved CUPs, CBPs and business licenses pursuant to Measure X who wish to apply for a modification to the existing permits to include a non-storefront retail (delivery) component at the existing business location (MCUP application required).
Applicants who have filed CUPs for cannabis businesses in the Green Zone that are currently under review by the City may amend their applications, if desired, to add a non-storefront (delivery) use to their existing application.
Equity Applicants who are eligible to file an application pursuant to the Cannabis Equity Program. Refer to the City’s cannabis webpage for more information on the Equity Program. Eligibility for the Equity Program is determined through the Pre-Application process. Potential Equity Applicants may also submit one of the following cannabis applications concurrently with an application for eligibility:
Pre-application review for a retail storefront cannabis business (dispensary); or
CBP application for a standalone non-storefront (delivery) cannabis business with NO storefront
*Please note that the City will only process 15 retail CUP applications and 15 retail CPB applications at once. Applications receive in excess will be added to a waitlist.
Phase 2: beginning on September 13, 2021 @ 830 AM PT, the City will accept applications for all other retail cannabis applicants.
Daly City
Daly City, located south of San Francisco, approved two ordinances this past April to permit the licensing of six retail licenses as well as testing labs. Staff is currently developing the application materials and expects the application window to open by the end of September. Once applications are accepted and reviewed, eligible applications will be placed in a lottery and choose one winner per Eligibility Zone.
Hemet
The City of Hemet, located west of the Coachella Valley, passed its first ordinance to establish cannabis licensing within its borders this past April. The City anticipates an aggressive timeline with the application, scoring, and evaluation process to conclude by the end of 2021, allowing for permit issuance in 2022.
Madera
The City of Madera is expected to award 8 retail permits, with 2 of those being set aside for social equity applicants. The evaluation process and scoring criteria are still in the works.
Ventura
With the City of Ventura’s first application period is set to end tomorrow, applicants located in the Coastal Zone are patiently waiting for the second application period to open before they are allowed to submit applications. The City is waiting for a final decision from the CA Coastal Commission regarding whether commercial cannabis businesses will be permissible in the Coastal Zone. If permissible, the City will open up the second application period for two additional retail permits and any unfilled retail and industrial-type permits from round 1 (for a maximum of 5 retail and 10 industrial permits in total for both rounds).
If you are thinking about opening a cannabis business in any of these jurisdictions, then contact us to start working on your application and set it apart from the rest.
Local Governments: How to Handle Local Impediments to Cannabis Legalization
By Ryan Fingerhut
With the passage of adult-use cannabis in New Jersey last November, along with the legalization of medical or adult-use cannabis in multiple other States, many of us in the cannabis industry were extremely excited. Not only had New Jersey, a high population State in the middle of the densely populated Eastern Seaboard, legalized adult-use cannabis for its citizens and tourists, but the ballot initiative had passed with flying colors, with over 60% of the vote in every single county. Then, the law passed by the State’s legislature to enact that ballot initiative revoked all local cannabis moratoriums, requiring that each community re-establish them prior to the promulgation of State regulations, which are expected August 21st, 2021. This was done, ostensibly, because the legislature took note of the overwhelming support cannabis legalization had in every area of the State. “Surely,” the thought went, “the knee-jerk moratoriums many communities put up in response to medical cannabis legalization, which had much less widely distributed public support at time of passage, would mean that few if any communities would move to ban cannabis businesses again?”
The reality, unfortunately, did not meet with expectations. It is now expected that around half of all municipalities in New Jersey will have a moratorium in place by the August deadline. While State legislators and many New Jersians are probably shocked by this, those of us in the industry were disappointed but, unfortunately, not surprised at all. Whether it was because cities felt rushed to get their own zoning and local regulations in place by the deadline or simply that local officials felt their constituency wanted cannabis to be legalized but not-in-their-neighborhood (two actual reasons given multiple times in interviews with local New Jersey officials), this type of reaction to State legalization is depressingly common.
A dirty little secret in the cannabis industry is that, while State competitive licenses often grab the press and generates public interest, often the real gate keepers of the cannabis industry are local governments. From the very beginning of regulated commercial cannabis in 2014 in Washington and Colorado, local governments banning cannabis facilities or making zoning and local licensing requirements expensive and difficult, has set the standard for where cannabis facilities will be located, what populations will have access to cannabis, what competitive advantages and disadvantages different businesses will have, and, effectively, how many cannabis businesses will actually be operational in the State. A perfect example of this phenomenon is the State of California, whose cannabis program is faced with a similar ban by approximately 50% of local communities, creating massive cannabis “deserts” and a continuing thriving black market. Add to this that many cities have created expensive, complicated local licensing and zoning requirements, a trend that other States have followed and which is not likely to alleviate in the near future, and it isn’t surprising that the value of a cannabis company often has more to do with its location than its operational performance.
So the question then becomes, with these local issues have a such a massive impact on a company’s ability to exist and perform, how is a new cannabis market entrant supposed to navigate them? Those of us in the cannabis industry have found a few solutions:
Political Evaluation: I cannot overemphasize this enough – in the cannabis industry, a property search always starts and ends with a political evaluation. Is commercial cannabis even allowed and, if so, how friendly or unfriendly is the local community? The elected officials? The City Staff? You need to find out what the regulatory lay of the land is in any potential location, and what potential changes are likely to occur in the near to mid-term. Further, as a highly regulated business whose local regulations might impact who you can hire and how quickly, your hours of operation, etc., you need to create political relationships with your local city elected and senior appointed officials as you will need to regularly work and lobby them. Remember, laws and regulations can be changed. You need to know if how likely that change is and get out ahead of it whenever possible.
Zoning Evaluation: Once passed, review the zoning and speak with a real estate broker as soon as possible – often zoning regulations are so difficult to meet that only a few locations will actually comply. I have seen multiple companies work towards a cannabis license, only to not have a compliant facility location at the time of application. Do not assume that you will be able to find one – that is often not the case.
Community Outreach: All of us had it taught to us in schools, were inundated with television and magazine anti-cannabis propaganda, and have listened to speeches where leading politicians spoke of it as evil. While we laugh about it now, the damage done is often pervasive and makes it easy for politicians to find political cover for anti-cannabis policies. The way to short circuit this is to make sure the community sees you as a normal business, not the boogie man these politicians make you out to be. Meet your neighbors, join the local Better Business Bureau, and do other things to engage the community as an active, responsible member.
Evaluate Local Regulations Competitively: As mentioned above, local regulations can drive major business decisions. If an extra security guard is required at all times, that can cost upwards of $250K per year (3 8-hour shifts per day for 365 days). Beyond increased operating costs, some communities will limit your hours, your ability to deliver, and other activities that will impact your ability to compete in the marketplace. Finally, municipalities and counties often tax differently then others, including in some unexpected ways. While New Jersey has a cap on local taxes at 2% of gross receipts, many cities and towns may have additional hidden costs, which they will require to be paid for construction permitting, through development agreements, or through competitive processes that award points for a willingness to make “voluntary contributions”.
Does the Jurisdiction Impact your Business Model: Many jurisdictions love to set up expensive, complex cannabis licensing and permitting requirements, often requiring highly competitive and extensive applications in order to do business there. While this is common and expected by many cannabis entrepreneurs, the fact is often neither the City or the business owner stops to ask – does this kind of an investment in the license make sense? First, the vast majority of cannabis licensees are not-customer facing wholesale producers or distributors. For these businesses, their location within the State has almost no impact on their ability to operate. So, if you’re not a retailer, why put yourself through the cost, risk, and heartburn of locating in a highly competitive jurisdiction or one that requires you accept sever competitive disadvantages? For Retailers and Delivery, location does indeed matter – however, if a municipality requires your zoned in a non-commercial area or creates serious operational disadvantages, then perhaps your competitors the next district over is going to siphon off your business. Communities seem to take the attitude that if they offer a license people will jump through any and all hoops to get it. This has actually been true for most of the industries brief history. However, the other dirty secret is that many of these facilities in not-so-friendly jurisdictions are either making almost no profit or are going out of business to better located competitors.
