March 13, 2019

Estimated Number of Licensed Cannabis Retailers Expected to be Far Below the Number of Storefronts Prior to Amendment 64


In February, Los Angeles regulators were reported to have begun issuing licenses to non-retail businesses who applied for local permits as part of the city’s “Phase 2” application period, which took place in late summer 2018. An account from Canna Law Blog (CLB) describes efforts by Los Angeles cannabis officials to reform certain aspects of Phase 3 of the city’s licensing process, which has not yet gotten underway. The CLB report also provides insight into how many additional retail storefronts might open in Los Angeles once the local permitting process has been completed.

It is important to note that, to this point, only cannabis businesses that were able to prove that they were operational prior to legalization, as well as meeting certain other criteria, have been able to apply for and gain local licenses in Los Angeles. Phase 1 of the city’s licensing process resulted in about 170 Existing Medical Marijuana Dispensaries (EMMDs) gaining municipal permits of various kinds. Phase 2 of the licensing process allowed previously existing non-retail businesses to put in for city permits. Only a handful of licenses have been issued to Phase 2 applicants, while about 400 more are reportedly still being processed.

Phase 3 will be the first opportunity for the general public to submit applications for a cannabis business license in Los Angeles. However, according to CLB’s analysis, zoning restrictions put in place by city regulators will likely result in available licenses being snapped up by individuals and entities that qualify under Los Angeles’ social equity program. Furthermore, “undue concentration” rules put in place by the city have led the Los Angeles Department of Cannabis Regulation (DCR) to estimate that an additional 200 licenses for retail storefronts will be able to be given out under current regulations.

If this estimate is borne out, Los Angeles will be home to less than 400 licensed retailers once its local permitting process is complete. That figure is a far cry from estimates that speculated over 1,000 storefronts – which included both illegal operations, as well as medical dispensaries permitted under Los Angeles’ prior cannabis ordinance, Proposition D – were operational in the city prior to adult-use licensing and regulation. This suggests that even as Los Angeles’ licensed cannabis market expands over the course of this year, the regulated system may not capture a sizeable portion of the metropolitan area’s latent demand.

The Union Democrat reported recently that the city of Sonora, located between Sacramento and Yosemite National Park, will sue the state Bureau of Cannabis Control (BCC) over rules adopted earlier this year that permit deliveries of cannabis anywhere in California, regardless of local regulations. Some have interpreted the new rule as conflicting with provisions granting local control over commercial cannabis activity contained in Amendment 64, the ballot measure that legalized cannabis for adult-use in California.

How the legal battle plays out remains to be seen. It is also unknown at this point how the allowance for statewide delivery might have expanded access to the regulated market and whether it has resulted in additional portions of the state’s latent demand being captured by the licensed system.