Can the Department of Cannabis Regulation Suspend a Temporary Approval Without a Hearing?

This entry was posted on Thursday, August 19th, 2021 and is filed under Cannabis Law, Consumer Protection, Corporate Law.

Los Angeles Municipal Code (“LAMC”) § 104.06(d), entitled “Temporary Approval” states that, “Temporary Approval does not waive or otherwise circumvent other City or State requirements or necessary permits from the City, State, or other public agencies, including, but not limited, to, a Certificate of Occupancy, permit or authorization of the Los Angeles Fire Department, health permit from the County of Los Angeles, or authorization from the State.”  

Ordinance No. 187095 recently amended § 104.06(d)(1) of the Los Angeles Municipal Code to allow the City of Los Angeles Department of Cannabis Regulation (“DCR”) to suspend a Temporary Approval without hearing based upon “notice to DCR or DCR’s discovery that the Applicant is conducting commercial cannabis activity without all necessary permits, inspections or similar clearances to operate from another City, State or other public agency.” 

Who is Affected?

This amendment affects licensees in the post application processing phase, who have already been issued Temporary Approval, but may not be in compliance with all other City permit requirements. For example, if a licensee does not have a Certificate of Occupancy (“CoO”) or the issued CoO requires a change of use, DCR may suspend the licensee’s Temporary Approval and application processing for an annual license. Simply being issued a CoO does not satisfy the requirements of § 104.06(d). The CoO must be issued for the specific use that the licensee is engaging in at the premises (i.e., storefront retailer must have a CoO for retail use).

Practically speaking, once an applicant’s Temporary Approval is suspended, the applicant may not conduct commercial cannabis activity until DCR reinstates the Temporary Approval. In order to have the temporary approval reinstated, the applicant must provide evidence of the relevant license, permit, inspection, or clearance to operate.

Issues and Business Risks Arising from 104.06(d)(1)

LAMC § 104.06(d)(1) has the potential to create several issues for cannabis operators in Los Angeles. First, because there was no legal process for priority Measure M and Phase 1 applicants to obtain a CoO to operate, prior to the enactment of the existing regulatory framework, a number of those applicants do not have the correct CoO. This could be problematic because obtaining the CoO requires inspections from the DBS who “ultimately determines whether the construction was done according to the requirements of the code for the given occupancy to be housed in the building.” (See https://www.ladbs.org/faq/lists/inspection-faqs/what-is-the-certificate-of-occupancy). Such inspections could lead to challenges in complying with parking requirements for certain uses, costly retrofitting or other unforeseeable construction expenses for cannabis operators who, at their conception, did not have a legal avenue to obtaining a CoO.

An additional issue arises for cannabis operators who have been operating with a CoO, but one for a “different use.” Given the different uses that can be housed inside various buildings, the building code requirements also vary per use e.g., an office space has different inspection and building requirements than an industrial warehouse or a retail storefront. For cannabis operators, if a building contains a storefront retail, then a CoO for an office space will not suffice – there must be a CoO for a retail use. Like the discussion above, obtaining the CoO to match with the actual use of the building may require new inspections with different compliance requirements and potential retrofitting. 

Potential Solutions 

Given this recent change, licensed cannabis operators in Los Angeles should thoroughly check their records and see if they have a valid CoO and that the CoO matches their actual use(s) of the building. Licensees who either (1) do not have a CoO; or (2) have a CoO for a different use, must diligently obtain a valid CoO in order to avoid a potential interruption in their business operations. Moreover, licensees must ensure that they are in compliance with all other requirements for operating a business in the City of Los Angeles. Such compliance includes undergoing the necessary fire inspections from the Los Angeles Fire Department and obtaining a health permit from the Los Angeles County Department of Public Health, when and if the City enters into a contract with the Los Angeles County Department of Public Health.  

Licensees who have questions or need assistance obtaining a CoO or complying with any other City of state requirements should reach out to KVK. We work with a variety of land use consultants and related industry professionals who can assist with this process and ameliorate the potential pitfalls of application processing or Temporary Approval suspension.  

By: Nathan Elyasi, August 19, 2021