Council hears DCR study recommending higher cannabis surcharges amid possible $10.5 million grant repayment

Los Angeles City Council received a presentation from the Department of Cannabis Regulation (DCR) on a 2024 comprehensive surcharge study recommending increases to commercial cannabis application, licensing, inspection and regulatory service surcharges to reach full cost recovery.

DCR officials told the council the recommended increases would generate about $7.8 million for the general fund and that the department’s cash balance is projected to be roughly $3 million at the end of the fiscal year if current policies remain unchanged. Councilmembers and vendors questioned whether the city can rely on state grant money after DCR said a state audit found the city’s grant coordinator did not follow agreed terms and the state may require returning approximately $10.5 million in local grant funds.

The study, DCR staff said, compares current charges on the books (last adopted in 2020) with the departments’ actual costs to provide licensing and regulatory services in the later period. Jason Clean, assistant executive director for the Department of Cannabis Regulation, summarized that DCR has not increased surcharges since 2020, that DCR added positions during the transition to annual licensing, and that the department has used a mix of deferred surcharges and grant proceeds to cover staffing and other costs.

Robin McSwinie, who identified herself as a social equity cannabis vendor at Dope Sugar and Melrose, urged the council to stabilize fees and called the current approach exploitative: “nos prometieron que, íbamos a estar seguros en este programa de equidad social,” she said during public comment, adding that operators face large renewal surcharges and financial barriers.

Council members pressed DCR for more detail on several topics the staff report did not fully address, including: - The source and use of the local grant funds that DCR said are the subject of the state audit and the estimated $10.5 million that the state may seek to recover; DCR said parts of those grant receipts were later reclassified by the state as ineligible for grant use. - Historical surcharge revenue and comparators: DCR noted roughly $3–4 million in annual application surcharge collections in past years and that some surcharges were deferred when the city transitioned many temporary approvals to annual licenses in 2023. - Vacancy and timeline policy: Council members asked about a policy that suspends processing timelines when the department’s vacancy rate reaches 20 percent; DCR explained the 20 percent metric was chosen by a policy committee and that suspensions have occurred when vacancies rose, but councilmembers asked for a clearer, staffing-based metric tied to licensing capacity. - Department-by-department cost allocations: Councilmembers requested a line‑by‑line breakdown of how surcharges flow to supporting departments (police overtime, finance collections, municipal prosecutor positions, IT and others). DCR said some costs have been borne by other departments and that about $6.38 million has been allocated to costs not strictly inside DCR in recent budgets.

At the meeting’s close on the item, council members did not adopt the surcharge increases. Instead the council directed the Department of Cannabis Regulation, with assistance from the City Administrative Officer (CAO), to return with a revised packet that includes: the 2021–22 column for staffing tables showing positions actually filled and salary levels; an itemized cost for each surcharge and each department role; the policy timeline for each step and the department’s actual processing time; and clarifications about how grant dollars were used and the state audit’s findings. Council members said they want those materials before considering ordinance or fee changes.

The council took two related procedural actions earlier in the meeting: it approved consent calendar items 1–9, and it voted to reconsider and approve a modification to agenda item 8 as read into the record. The surcharge study (agenda item 10) was presented for discussion and continued for follow-up; no fee adoption vote occurred.

Why this matters: If the council does not adopt surcharge increases, departments that provide licensing support could require a general‑fund subsidy to continue current service levels. If the state requires repayment of grant funds, the city may need to decide whether to return money, seek alternative budget offsets, or contest the audit findings. Councilmembers said those possibilities could affect social equity applicants who were transitioned under the earlier grant terms.

DCR staff and the CAO will return with the requested breakdowns and clarifications; the council scheduled further review rather than immediate action on surcharge adoption.