(Amended by Ord. No. 186,703, Eff. 7/10/20.)
(a) Program – Original Eligibility Verification. Except for Tier 3 Applicants, as defined in Section 104.20(a)(1)(iv), an Applicant that submitted an Application subject to Section 104.08 by September 13, 2018, or submitted an application for program eligibility verification during the verification period between May 28, 2019, and July 29, 2019, and/or met the criteria in this subsection for a Commercial Cannabis Activity License pursuant to Section 104.06.1(b), shall comply with Section 104.20(a)(2) when a License is issued or renewed. (Amended by Ord. No. 187,095, Eff. 7/1/21.)
1. Social Equity Individual Applicant – Individual Eligibility Verification. An individual subject to this subsection shall be verified as Social Equity Individual Applicant. A Social Equity Individual Applicant may be further verified as a Tier 1 Social Equity Individual Applicant, Tier 2 Social Equity Individual Applicant, or a Tier 3 Applicant in accordance with the definitions and criteria in this subsection.
(i) The following definitions shall apply in this subsection:
(1) "California Cannabis Arrest or Conviction" means an arrest or conviction in California for any crime under the laws of the State of California or the United States relating to the sale, possession, use, manufacture, or cultivation of Cannabis that occurred prior to November 8, 2016. An arrest, prosecution or conviction for a violation of Proposition D, as codified in former Article 5.1 of Chapter IV of the Los Angeles Municipal Code, notwithstanding that Proposition D has been repealed, is not a California Arrest or Cannabis Conviction. A Social Equity Applicant with a California Cannabis Arrest or Conviction shall be ineligible to apply for a License in any of the circumstances specified in Section 104.03(a), subject to the time restrictions therein.
(2) "Disproportionately Impacted Area" means eligible zip codes based on the "More Inclusive Option" as described on page 23 of the "Cannabis Social Equity Analysis Report" commissioned by the City in 2017, and referenced in Regulation No. 13 of the Rules and Regulations, or as established using the same methodology and criteria in a similar analysis provided by an Applicant for an area outside of the City.
(3) "Low-Income" means 80 percent or below of Area Median Income for the City based on the 2016 American Community Survey and updated with each decennial census.
(4) "Tier 1 Social Equity Individual Applicant" is an individual who meets the following criteria at the time of applying for a license: (1) Low-Income and prior California Cannabis Arrest or Conviction; or (2) Low-Income and a minimum of five years' cumulative residency in a Disproportionately Impacted Area.
(5) "Tier 2 Social Equity Individual Applicant" is an individual who meets the following criteria at time of applying for a license: (1) Low-Income and a minimum of five years' cumulative residency in a Disproportionately Impacted Area; or (2) a minimum of 10 years' cumulative residency in a Disproportionately Impacted Area.
(6) "Tier 3 Applicant" is a Person who applied for a Commercial Cannabis Activity License under Section 104.08 and does not meet the criteria of a Tier 1 Social Equity Individual Applicant or Tier 2 Social Equity Individual Applicant.
2. Social Equity Applicant – Entity Eligibility Verification. A Social Equity Applicant shall comply with the Equity Share criteria in this subdivision before a License is issued or renewed. Upon a Social Equity Applicant's request, DCR may conduct an Equity Share review under this subsection for the Applicant entity prior to the filing of a complete Temporary Approval Application, subject to the payment of the Equity Share Documents / Social Equity Agreement Review Fee pursuant to Section 104.19. This Equity Share review may replace the required Equity Share review during the Temporary Approval Application process, provided that the Social Equity Applicant attests that there are no changes to ownership since the original Equity Share review was conducted and that there are no additional or new agreements that were not previously disclosed to DCR during the original Equity Share review. DCR may conduct a new Equity Share review if there are changes to ownership, operating agreements, bylaws, and/or other agreements or material facts related to compliance with this subsection that were not disclosed during the original review. (Amended by Ord. No. 187,459, Eff. 4/15/22.)
(i) Ownership Percentage. A Tier 1 Social Equity Individual Applicant shall own no less than a 51 percent Equity Share in the Person to whom the License is issued. A Tier 2 Social Equity Individual Applicant shall own no less than a 33 1/3 percent Equity Share in the Person to whom the License issued.
(ii) "Equity Share" means all of the following:
(1) Unconditional ownership of the Equity Share. The Equity Share shall not be subject to conditions precedent, conditions subsequent, executory agreements, voting trusts, restrictions on or assignments of voting. (Amended by Ord. No. 187,095, Eff. 7/1/21.)
(2) Profits, dividends, and distributions. Social Equity Individual Applicants shall receive all of the following:
(A) At least their Equity Share percent of the distribution of profits paid to the owners of the Social Equity Applicant or Licensee;
(B) 100 percent of the value of each share of stock, member interest, partnership interest, or other equivalent owned by them in the event that the stock, member interest, or partnership interest is sold; and
(C) At least their Equity Share percent of the retained earnings of the Social Equity Applicant or Licensee and 100 percent of the unencumbered value of each share of stock, member interest, or partnership interest owned in the event of dissolution of the corporation, limited liability company, or partnership.
(3) Voting rights and control. Social Equity Individual Applicants shall receive the following at all times:
(A) At least their Equity Share percent of the voting rights on all business decisions, including, but not limited to, long-term decisions, daily business operations, retention and supervision of the executive team, managers, and management companies, and the implementation of policies.
(B) The highest officer position in the Social Equity Applicant or Licensee, such as the position of chief executive officer, unless another natural person is appointed to that position by mutual agreement of the parties. (Amended by Ord. No. 187,095, Eff. 7/1/21.)
(4) Successors. The Equity Share shall not be subject to arrangements causing or potentially causing ownership benefits in the Social Equity Applicant or Licensee to go to another in any circumstance other than after death or incapacity. In the case of death or incapacity, a Social Equity Individual Applicant shall identify a natural person(s) as his or her own successor in interest or assignee of their Equity Share. If a Social Equity Individual Applicant dies, the Social Equity Applicant or Licensee will continue to qualify under this section with the requisite Equity Shares so long as the successor in interest of the deceased Social Equity Individual Applicant inherits or otherwise acquires all of such individual's ownership interest in the Social Equity Applicant or Licensee. The natural person(s) may subsequently identify an entity, such as a trust, to hold the interest. Upon the death of the Social Equity Individual Applicant or Licensee, the Social Equity Applicant shall notify DCR within 30 days of their death. The Social Equity Applicant shall provide a certified copy of the death certificate and update the contact information on file with DCR within 60 days of the death. (Amended by Ord. No. 187,879, Eff. 6/2/23.)
(iii) Additional Equity Share Requirements.
(1) All Owners shall: (1) comply in all respects with the Equity Share criteria and requirements in this section ("Equity Share Requirements") in dealings with one another; (2) keep records evidencing their compliance; and (3) on the other party's reasonable request, provide these records of compliance to the other party.
(2) Any action or inaction taken by a party in violation of the Equity Share Requirements shall entitle the other party to initiate a legal action in the Superior Court of Los Angeles, including, but not limited to, an action for specific performance, declaratory relief, and/or injunctive relief, to enforce the Equity Share Requirements against the other party.
(3) Any annual License(s) issued to a Social Equity Applicant may be suspended or revoked, or a License renewal denied, if it can be shown, by a preponderance of the evidence, that any provision in an operating agreement, contract, business formation document, or any other agreement between Owners of the Social Equity Applicant violates any of the Equity Share Requirements and is not cured within the time allotted by DCR. (Amended by Ord. No. 187,095, Eff. 7/1/21.)
(4) All Owners are required to incorporate the following addendum into operating agreement documents to evidence compliance with Equity Share Requirements: "To the extent that any provision of this agreement, or part thereof, is or may be construed to be inconsistent with or in violation of the "Equity Share" requirements set forth in Los Angeles Municipal Code section 104.20, such provision(s) shall be ineffective, unenforceable, and null and void."
(b) Program – Expanded Eligibility Verification. An individual seeking to participate in the Social Equity Program shall meet the criteria and requirements in this subsection
1. Social Equity Individual Applicant – Individual Eligibility Verification. An Applicant subject to this subsection shall be verified as a Social Equity Individual Applicant in accordance with the definitions and criteria in this subsection.
(i) "Social Equity Individual Applicant" means an individual who meets two of the following three criteria: (1) Low-Income; (2) a prior California Cannabis Arrest or Conviction; (3) ten years' cumulative residency in a Disproportionately Impacted Area. For the purposes of Section 104.06.1(c), "Social Equity Individual Applicant" means an individual with a prior California Cannabis Arrest or Conviction and who also meets one of the following two criteria: (1) Low-Income; or (2) ten years' cumulative residency in a Disproportionately Impacted Area.
(ii) The following definitions shall apply in this subsection:
(1) "Asset" means net assets at, or below, four times the Low-Income thresholds based on Household Size. Examples of liquid accounts that shall be disclosed include but are not limited to, saving accounts, checking accounts, certificates of deposit, money market accounts, stocks, trusts, and gifts. Qualified retirement accounts and an applicant's primary residence shall be excluded for purposes of the calculation, but other forms of real estate shall be included. Such retirement accounts are limited to accounts that are intended for retirement and that would incur a penalty if withdrawn before a specified retirement age per each account.
(2) "Household Size" means the number of individuals that meet any of the following criteria: (Amended by Ord. No. 187,879, Eff. 6/2/23.)
(A) All spouses or domestic partners must be included in the household and must appear in the submission content.
(B) All household members who are under 18 years of age must be the legal dependent of an adult household member, except in the case of emancipated minors, as claimed on the most recent income tax return, or legal minor children of title holders. All household members who are under 18 years of age must be the legal dependent or emancipated minor of an adult household member, as claimed on the most recent income tax return.
(C) Pregnant Applicants will be counted as two household members only with verifiable medical documentation.
(D) Temporarily absent household members who intend to live in the residence upon return may be considered, if verifiable documentation supporting their absence is provided. Such household members include, but are not limited to, household members serving temporarily in the armed forces, or who are temporarily institutionalized.
(E) Neither live-in assistants nor foster children will be counted toward Household Size. Individuals not listed on the Social Equity Individual Applicant's most recent tax return, such as elderly relatives, live-in assistants, and foster children will not be counted toward Household Size.
(3) "California Cannabis Arrest or Conviction" means an arrest or conviction in California for any crime under the laws of the State of California or the United States relating to the sale, possession, use, manufacture, or cultivation of Cannabis that occurred prior to November 8, 2016. An arrest, prosecution or conviction for a violation of Proposition D, as codified in former Article 5.1 of Chapter IV of the Los Angeles Municipal Code, notwithstanding that Proposition D has been repealed, is not a California Arrest or Cannabis Conviction. A Social Equity Applicant with a California Cannabis Arrest or Conviction shall be ineligible to apply for a License in any of the circumstances specified in Section 104.03(a), subject to the time restrictions therein.
(4) "Disproportionately Impacted Area" means Police Reporting Districts as established in the Expanded Social Equity Analysis, or as established using the same methodology and criteria in a similar analysis provided by an Applicant for an area outside of the City.
(5) "Low-Income" means both of the following definitions are met: (1) the Social Equity Individual Applicant meets the low-income thresholds established in the annual U.S. Department of Housing and Urban Development (HUD) income limits based upon the Area Median Income (AMI) for Los Angeles County based on household size; and (2) the Social Equity Individual Applicant does not have Assets in excess of the amount as defined in this subsection. For the purpose of assessing whether the low-income threshold has been met, DCR shall calculate the Household Size based the criteria in Subsection (b)(1)(ii)(2)(A) through (E).
2. Social Equity Applicant – Entity Eligibility Verification. An Applicant must comply with the Equity Share requirements in this subsection before a License is issued or renewed. Upon a Social Equity Applicant's request, DCR may conduct an Equity Share review under this subsection for a the Applicant entity prior to the filing of a complete Temporary Approval Application, subject to the payment of the Equity Share Documents / Social Equity Agreement Review Fee pursuant to Section 104.19. This Equity Share review may replace the required Equity Share review during the Temporary Approval Application process, provided that the Social Equity Applicant attests that there are no changes to ownership since the original Equity Share review was conducted and that there are no additional or new agreements that were not previously disclosed to DCR during the original Equity Share review. DCR may conduct a new Equity Share review if there are changes to ownership, operating agreements, bylaws, and/or other agreements or material facts related to compliance with this subsection that were not disclosed during the original review. (Amended by Ord. No. 187,459, Eff. 4/15/22.)
(i) Ownership Percentage. One or more Social Equity Individual Applicants shall own no less than an aggregate 51% Equity Share in the Person to whom the License is issued. A sufficient number of Social Equity Individual Applicants, individually and/or through an entity, shall be disclosed to evidence that the owner(s) of the Applicant or Licensee meets the aggregate 51% Equity Share requirement. Social Equity Individual Applicants with less than a 20% aggregate ownership stake or equity interest in the Applicant or Licensee may be included in the aggregate total. Aggregate means the total ownership interest held individually or through an entity. For example, an individual owning 50% of an entity that owns 50% of a Licensee has a 25% aggregate ownership interest in the Licensee. (Amended by Ord. No. 187,724, Eff. 1/30/23.)
(ii) "Equity Share" is defined in Subsection (a)(2) and incorporated herein by reference.
(iii) Additional Equity Share Requirements in Section 104.20(a)(2)(iii) which are incorporated herein by reference. (Added by Ord. No. 187,095, Eff. 7/1/21.)
(c) Programming – Benefits and Requirements.
1. Programming – Ownership and Disclosure Requirements. Social Equity Applicants shall comply with the requirements in this subsection and in the Rules and Regulations.
(i) Social Equity Applicants may only transfer control or ownership to Persons who meet the same Equity Share requirements, and only upon the prior written approval of DCR. DCR shall promulgate Rules and Regulations for the transfer of control or ownership.
(ii) Social Equity Applicants shall provide to DCR bylaws or operating agreements which specify the percentage of ownership and control by each Person.
(iii) Social Equity Applicants shall disclose to DCR any management or employee staffing agreements it has or will enter into during the period of the License.
(iv) Social Equity Applicants shall disclose any options to purchase equity or control in the Social Equity Applicant.
(v) At the time of requesting an annual license renewal pursuant to Section 104.12, Social Equity Applicants shall provide to DCR a financial statement for its most recently completed fiscal year.
(vi) On or before March 1 of each year, Licensees subject to Section 104.20 shall submit to DCR an annual "Equity Report" signed by all Owners that describes the business plan guidance, services, consulting, training, and/or other technical assistance that encourages and supports the establishment and growth of the Social Equity Licensee, and the estimated dollar value of those services, that were provided by the Owners to the Social Equity Individual Applicant Owner during the past calendar year. As part of the Equity Report, all Owners must execute an affidavit under penalty of perjury confirming compliance with all requirements set forth in Section 104.20, and acknowledging the requirements to disclose agreements about the management, control or direction of the licensed entity, profits, and/or loans. (Added by Ord. No. 187,459, Eff. 4/15/22.)
2. Programming – Workforce Requirements. Social Equity Applicants and Tier 3 Applicants shall comply with the workforce requirements in this subdivision.
(i) Definitions.
(2) "Transitional Worker" means an individual who, at the time of starting employment at the Business Premises, resides in an Economically Disadvantaged Area or Extremely Economically Disadvantaged Area, as those terms are defined in Section 11.5.6 of this Code, and faces at least two of the following barriers to employment: (1) being homeless; (2) being a custodial single parent; (3) receiving public assistance; (4) lacking a GED or high school diploma; (5) having a criminal record or other involvement with the criminal justice system; (6) suffering from chronic unemployment; (7) emancipated from the foster care system; (8) being a veteran; or (9) over the age of 65 and financially compromised.
(ii) Social Equity Applicants. A Social Equity Individual Applicant shall make a good faith effort to have no less than 50 percent of the weekly hours of the Licensee's workforce performed by Employees whose primary place of residence is within a 3-mile radius of the Business Premises location. Of those Employees, 20 percent shall be Social Equity Workers and 10 percent shall be Transitional Workers.
(iii) Tier 3 Applicants. A Tier 3 Applicant shall make a good faith effort to have no less than 50% of the weekly hours of the Licensee's workforce performed by employees whose primary place of residence is within a 3-mile radius of the Business Premises. Of those employees, 30% shall be Social Equity Workers and 10% Transitional Workers. At a minimum, a Licensee is required to contact local community-based organizations, City of Los Angeles Work Source Centers, and other similar organizations to facilitate job outreach, development, and placement services. A Licensee is required to provide a detailed annual report no later than the last day of February that provides evidence of its outreach efforts, including the number of persons interviewed, and details on who was hired to satisfy the good faith requirement. (Amended by Ord. No. 187,879, Eff. 6/2/23.)
3. Programming – Social Equity Agreement Requirements. Tier 3 Applicants shall comply with the requirements in this subsection.
(i) Prior to the issuance of a License, a Tier 3 Applicant shall enter into a Social Equity Agreement with the City to provide to a Social Equity Individual Applicant for a period of three years: (1) Ancillary Business Costs; (2) Property; and (3) Education and Training. Social Equity Agreements shall be processed and approved by DCR.
(1) Ancillary Business Costs. Tier 3 Applicants shall provide security, management, equipment and other ancillary business costs to a Social Equity Individual Applicant.
(2) Education and Training. Tier 3 Applicants shall provide a minimum of 50 hours per year in business development education and training to a Social Equity Individual Applicant. Education and Training provided by Tier 3 Applicants may include: accounting, inventory management, payroll practices, tax preparation, employee recruitment, retention and workforce outreach, or reporting requirements training.
(3) Property – Onsite. Tier 3 Applicants shall provide floor area, at no cost and inclusive of utilities, within their Business Premises location, or at an off-site location, pursuant to Subsection (c)(3)(i)(4), established as a separate Business Premises for a Social Equity Individual Applicant, for a period of three years to engage in a Commercial Cannabis Activity in accordance with Article 5, Chapter X of this Code. The minimum requirements of the floor area provided shall be: (1) Cultivation - minimum 500 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater; (2) Manufacturing - minimum 800 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater; (3) Testing - minimum 1,000 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater; (4) Distributor - minimum 1,000 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater; (5) Non-storefront retail - minimum 1,000 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater; (6) Storefront retail - minimum 1,000 square feet or 10 percent of Tier 3 Applicant's entire Business Premises, whichever is greater.
(4) Property – Off-site. A Tier 3 Applicant shall provide floor area meeting the minimum requirements under Subsection 104.20(c)(3)(i)(3), at no cost and inclusive of utilities, to a Social Equity Individual Applicant at a different off-site Business Premises location in the City, unless property is provided on-site as specified in this section, subject to the following conditions:
(A) The Social Equity Individual Applicant can conduct the Commercial Cannabis Activity for its License type at the off-site location without violating any of the land use or sensitive use requirements in Article 5, Chapter X of this Code.
(B) A Tier 3 Applicant shall be responsible for all costs to bring the off-site location into compliance with all site specific and property related regulations, including, but not limited to, Building Code and Fire Code regulations.
(C) The Social Equity Individual Applicant has the legal right to occupy and use the new location for Commercial Cannabis Activity.
(D) DCR finds that the facilities at the off-site location are substantially similar to the facilities at the Tier 3 Applicant's Business Premises.
(5) Property Support. In lieu of providing the minimum property requirements in Subsections (c)(3)(i)(3) and (4), a Tier 3 Applicant may provide property support directly to the Social Equity Individual Applicant equal to the greater of the following:
(A) The actual monthly cost per square foot of leased space at the Tier 3 Applicant's Business Premises multiplied by the amount of space required by this subsection multiplied by 36 months; or
(B) The arithmetic mean of the cost per square foot of leased space for a total of 10 commercial cannabis businesses within a one mile radius, and authorized by DCR for the same Commercial Cannabis Activity, of the Tier 3 Social Equity Applicant's Business Premises multiplied by the amount of space required by this subsection multiplied by 36 months. If there are less than 10 commercial cannabis businesses within the one mile radius, the radius shall be increased in 100-foot increments until a total of 10 businesses are included.
(6) A Tier 3 Applicant shall provide property support directly to the Social Equity Individual Applicant in one of the following manners: (1) in full upon the first effective day of the Social Equity Agreement; (2) in three equal payments on dates determined by DCR within the first 24 months of the term of the Social Equity Agreement; (3) in 36 equal monthly payments during the term of the Social Equity Agreement; or (4) as agreed upon by the Social Equity Individual Applicant and the Tier 3 Applicant, and approved by DCR.
4. Programming – Benefits. Social Equity Applicants verified in accordance with Subsections (a) and (b) may receive benefits outlined in this subsection. Tier 3 Applicants shall not be processed under this subsection but shall be afforded priority processing as described in Section 104.08.
(i) Processing.
(1) DCR shall process Applications for Social Equity Applicants in accordance with Section 104.06.1.
(2) DCR shall provide priority processing to Social Equity Applicants applying for a Non-Retailer License on a 1:1 ratio with all non-Social Equity Individual Applicants.
(3) DCR shall process Applications or renewals from Social Equity Applicants in accordance with Subsections (a) or (b) before processing an Application or renewal from non-Social Equity Applicants.
(ii) Fee Deferral Program. DCR shall administer the Fee Deferral Program based on requirements and restrictions established in the Rules and Regulations. Participation in the Fee Deferral Program may be subject to the availability of resources.
(iii) Business, Licensing and Compliance Assistance. DCR shall provide Business, Licensing and Compliance Assistance through programming and curriculum development and training in the areas of state and local licensing requirements, commercial cannabis regulations, general business development, cannabis-specific business development and workforce development.
(iv) Financial Grant Program. DCR shall administer the Financial Grant Program based on requirements and restrictions established in the Rules and Regulations. Participation in this Financial Grant Program may be subject to the availability of resources.
(v) Ancillary Business Costs. Social Equity Applicants may receive security, management, equipment and other ancillary business costs provided by a Tier 3 Applicant pursuant to a Social Equity Agreement as defined in Section 104.20(c)(3). Participation may be subject to the availability of resources.
(vi) Education and Training. Social Equity Applicants may receive a minimum of 50 hours per year in business development, education and training provided by a Tier 3 Applicant pursuant to a Social Equity Agreement as defined in Section 104.20(c)(3). Education and training provided by Tier 3 Applicants may include: accounting, inventory management, payroll practices, tax preparation, employee recruitment, retention and workforce outreach, and reporting requirements training. Participation may be subject to the availability of resources.
(vii) Property. Social Equity Applicants may receive Property as specified in Section 104.20(c)(3) provided by a Tier 3 Applicant. Participation may be subject to the availability of resources.