Small-scale caterers and boutique bakers sometimes share the amenities—and costs—of a commercial kitchen to help keep overhead manageable. In California, a new type of business license could allow small-scale and startup cannabis companies to do exactly the same thing.
So-called Type S licenses, issued by the California Department of Public Health, allow small cannabis businesses to operate in co-working spaces rather than requiring each business have its own secure premises. The arrangement can minimize costs on multiple fronts—from rent to equipment and operating expenses—which CDPH says is meant to provide an opportunity for craft manufacturers who may not otherwise have the investment capital to get up and running.
The state opened the application process for Type S licenses on April 13, but for businesses in jurisdictions that don’t offer the associated permit, the opportunity is moot. In Los Angeles, for example, the local Department of Cannabis Regulation doesn’t offer this permit type.
“Shared spaces are particularly important in Los Angeles, where caps, sensitive uses and the withdrawal of available land meant that people would have to share things like commercial kitchens,” Sarah Armstrong, director of industry affairs at Americans For Safe Access, said in an email. Since subleasing is illegal under state and local law, she said, the S license is a “clever way” to allow for flexibility but still maintain regulatory control by the state.
“I meet with women, veterans, young people with brilliant ideas ... but they don't have access to the market.”
When state regulators released emergency regulations around S licenses in March, Armstrong and other industry advocates took action at the local level, submitting letters to the Los Angeles City Council, the head of the city’s Department of Cannabis Regulation, and others. They asked the city simply to follow the state’s lead.
According to the CDPH, the Type S license category was designed in “response to demand from cities and counties wishing to implement equity programs.” Without S licenses, many in Los Angeles are concerned a key piece of the city’s ambitious social equity program—designed to help make up for the disproportionate consequences of the drug war—will be impossible.
“The way the Social Equity Program is currently structured, established operators are supposed to allocate space in their businesses to social equity applicants,” Armstrong explained. “This requires an S license or something equivalent to it.”
State regulations dictate that there must be a single “primary licensee” who operates the location. That licensee must secure a California cannabis manufacturing license for the entire space, registering it as a shared-use facility. Businesses wishing to use the space can then simply apply for S licenses. There’s no limit to how many operators can use the space, but only a single business is allowed on the premises at a time, a step meant to ensure the separation needed to comply with state track-and-trace rules.
In a recent letter to city officials, Adam Spiker, executive director of the Southern California Coalition, an industry group, warned that without S licenses, the city may not be able to move forward with the city’s social equity mentoring program, designed to take place in a shared facility.
So far, not a single Type S licenses has been issued anywhere in the state. Oakland, which unveiled the first cannabis equity program in the state, only recently approved them, and a handful of California cities, such as Santa Rosa, are considering adopting them into local rules, cannabis attorney Ariel Clark said in an email.
Los Angeles, meanwhile, has yet to move forward with any official consideration of Type S licensing. Multiple city officials contacted by Leafly declined to comment.
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But Clark warned that the city should feel compelled to act before the industry becomes dominated solely by “well capitalized” people.
“I meet with women, veterans, young people with brilliant ideas, [and] ‘mom and pop’ type cannapreneurs who are so excited to partake in all the great things this emerging market could offer, but they don’t have access to the market,” she said. “S licenses will afford smaller manufacturers access to the regulated market. L.A. needs it.”
Because the economics of commercial cannabis create a significant barrier to entry, Spiker told Leafly, programs that reduce cost have become a key goal of both LA and Oakland’s equity programs. Assistance might include low-interest loans or reduced fees, but in population-dense cities like LA, property is hot a commodity—and a major obstacle for cannabis businesses.
Zoning restrictions and skyrocketing rents in the city have created a formidable environment for small and startup cannabis businesses, one exacerbated by a “speculative bubble” that’s driven property rates up to triple or quadruple the market rate, Spiker said. That barrier comes on top of the approximately $100,000 businesses can pay in state and local licensing fees, as well as the costs of hiring attorneys and experts to help.
“Los Angeles has greatly restricted the land available for cannabis businesses,” said Spiker in his letter. “Without the issuance of ‘S’ Licenses, scarce land cannot be shared.”