LA Approves Prop M; Here’s What Will Change

In a resounding vote of approval for cannabis regulation, Los Angeles voters yesterday approved Proposition M, with 79.4% of the tally in favor of the measure.

Proposition M will give the Los Angeles Mayor and City Council comprehensive oversight of commercial cannabis. After years of convoluted regulations, sporadic enforcement and an often-adversarial relationship between the cannabis industry and the City of Los Angeles, LA’s marijuana businesses are poised to undergo comprehensive taxation and regulatory reform.

Prop M will finally establish cannabis regs in the city of Los Angeles.

Prop M also sets tax rates for marijuana sales, transportation, cultivation and more, which combined, are expected to generate tens of millions of dollars for Los Angeles next year, said Jerred Kiloh, president of the cannabis industry group UCBA Trade Association. Formed in 2015 by 63 L.A. dispensaries, UCBA has spent the last six months working with L.A. City Council, cannabis industry leaders, government officials, as well as attorneys, to develop a game plan for marijuana regulation.

Although the trade organization initially wrote its own measure, Proposition N, the group later threw its support behind the City-sponsored Prop M. As voting opened yesterday, there were no parties supporting the opposition. One of the cannabis industry’s main concerns, said Kiloh, was finding the sweet spot between taxing cannabis businesses without overtaxing them.

“If you push it too far, when will cost get so high that it will continue to be a benefit to be in the black market?” said Kiloh.

With all eyes on Los Angeles, here are four major things to know about Prop M and how it will change the cannabis industry not only within the City of LA, but coast to coast.

1. LA may make more than $50 million in cannabis taxes next year. Proposition M implements new gross receipt taxes on every aspect of the Los Angeles cannabis industry. Starting with 1 percent taxes on cannabis transportation, testing and research, rates increase to 2 percent on manufacturing, cultivation and any other forms of commercialization. Medical cannabis sales will be subject to a 5 percent business tax and recreational cannabis will face a gross receipt tax of a whopping 10 percent. Prior to this measure, only medical marijuana sales were taxed and that was at a rate of 6 percent. In 2016, Los Angeles made more than $9 million from tax-paying dispensaries, said Kiloh, but under Proposition M, that revenue is expected to balloon to around $50 million in 2018. Taking into consideration that the cannabis industry remains a largely cash-based business, the new measure dictates that L.A.’s Office of Finance implement a method for businesses to be able to pay these taxes in cash.
2. Break the rules? The city can pull the plug on violators. LA’s regulation of local dispensaries has often been erratic and unpredictable. This new measure attempts to better outline enforcement strategies and gives the LA City Council and City Attorney power to implement penalties for cannabis businesses that operate illegally. Any business running without the appropriate City-issued license or permit will be considered a public nuisance and may be hit with an injunction, restraining order or any other court judgment the City secures against these law-breakers. For every day a violation exists, the offending cannabis business will be charged $20,000, with each day counting as a new and separate offense. If the business is renting property, the landlord will also be charged up to $20,000 per day for the violation. In addition to fines, the new measure also gives City Council the authority to shut off the water and power of illegal operations.
3. Current legal dispensaries will get first dibs on new licenses. As the city rolls out a new system of licensing, first in line will be the 135 dispensaries currently operating “legally” within the City under previously approved Proposition D. Passed in 2013 by L.A. voters, Prop D gave select tenured dispensaries (those that were up-and-running since 2007 or before) limited immunity to prosecution. These dispensaries will have 60 days to apply for a new permit once they’re made available under Proposition M. Up until this point, Prop D served as the main regulatory framework for dispensary operation, but Prop M’s framework will replace Prop D’s as of January 1, 2018.
4. LA will become the largest cannabis market to regulate. While Proposition M implements a clearly defined tax structure and regulatory framework, there’s a lot still unknown about the rollout. Public hearings will be held throughout 2017 to solicit stakeholder input on everything from how to regulate cannabis transport, to how to determine appropriate advertising techniques and update police training procedures so they can effectively enforce laws against driving while impaired.

The L.A. City Council hopes to have a complete structure for regulation by Sept. 30 of this year. The City itself isn’t the only one anxious to put together a blueprint. The rest of the country will be watching Los Angeles as it becomes the biggest marijuana market in the U.S. to implement a regulatory system, said Kiloh.

“LA alone is larger than two Colorado [markets]; the whole state, twice,” he said.