1604(c) Equity Incubator

The following rulemaking applies to the implementation of Section 1604(c).

Definitions

1. Equity Applicant - an Owner applying for a Cannabis Business Permit under Section 1604(b) of the Police Code. 
2. Equity Operator - an Owner applying for a Cannabis Business Permit independently, without the assistance of an Equity Incubator. 
3. Equity Incubator - an Applicant that does not meet the equity criteria in Police Code Section 1604(b) but that partners with an Equity Incubatee for the purpose of supporting their business development, through onsite or offsite rent-free space or technical assistance as described in Police Code Section 1604(c). 
4. Equity Incubatee - an Equity Applicant that has been verified by the Office of Cannabis, meeting no less than three of the six established equity criteria in Police Code Section 1604(b), and who partners with an Equity Incubator.

Rules

1. All Equity Incubators must satisfy the following criteria:
   1. Business Registration: Equity Incubators must certify that they have complied with any requirement to register as a business with the Office of the Treasurer and Tax Collector.
   2. Community Investment Plan: A community investment plan demonstrating engagement with businesses and residents located within 500 feet of the proposed cannabis business site. 
   3. Good Faith Negotiations: Equity Incubators that seek a cannabis permit from the City and County of San Francisco are required to negotiate in good faith with verified Equity Incubatee to implement the terms of the Equity Incubator Agreement described in Police Code Section 1604(c). The Agreement must materially represent the full legal and business relationship between the Equity Incubator and the Equity Incubatee.
   4. Attestation of Workforce Provisions: Equity Incubators must attest, under penalty of perjury, that:
      1. At least 30% of all Equity Incubator business work hours will be performed by local residents. 
      2. At least 50% of Equity Incubator employees will meet the equity applicant criteria stipulated in Police Code Section 1604(b)(4).
   5. Verification: The Office of Cannabis shall have the authority to verify all information provided by an Equity Incubator in connection with an application for a permit. Failure of an Equity Incubator to comply with information requests from the OOC, or the provision of false information in connection with an application or in response to such requests, may result in the denial, suspension, or revocation of a permit, or other civil or criminal enforcement action.
   6. Privacy Requirement: Equity Incubators are required to keep the personal information of potential Equity Incubatees and Equity Incubatees confidential unless Equity Incubators have received written consent from the potential Equity Incubatee or Equity Incubatee authorizing the release of personal information.
       
2. Onsite or Offsite Provision of Space: Equity Incubators providing an Equity Incubatee with rent-free commercial space owned or leased by the Equity Incubator in which the Equity Incubatee intends to conduct its Cannabis Business are required to comply with the following conditions:
   1. An Equity Incubator must provide commercial space that is no less than 800 square feet for offsite, or no less than 10% of the square footage of the Equity Incubator’s Premises if onsite.
   2. Submit the following to the Office of Cannabis:
      1. The full legal name of the verified Equity Applicant
      2. The City issued identification number provided to the verified Equity Applicant
      3. The location of the premises being provided, as identified by address, block and lot number.
      4. A deed or lease reflecting the Equity Incubator’s proof to occupy and providing consent necessary for the Incubatee to conduct the activities for which he/she is seeking a permit.
         1. The lease or contractual agreement with Equity Incubatee must provide rent-free commercial space for no less than 3 years.
         2. The terms of the lease or contractual agreement must include:
            1. Number of rent-free square feet.
            2. If onsite, the overall amount of space, in square feet, of the Incubator’s premises.
            3. If offsite, the overall amount of space, in square feet, of the Incubator’s real or proposed premises.
            4. Rent amount not being charged.
            5. Amount of security deposit paid, if required.
            6. Length of Lease
            7. What, if any, tenant improvement obligations are required.
            8. Description of property, e.g. if bathrooms are available for customers and employees, use of common areas and storage, etc.
            9. Interior and exterior signage requirements.
            10. Special Contingency Provisions in Lease or Contractual Agreement if:
                1. the Equity Incubatee needs to close the business prior to the end of the lease or contractual agreement, or
                2. the Equity Incubatee has outgrown the incubated space and needs to relocate.
                3. the Equity Incubatee has violated non-monetary terms of the lease during the equity term and is in default of the lease terms. 
      5. The amount of space, in square feet, being provided to the applicant, and
         1. if onsite, the overall amount of square feet of the Incubator’s premises.
         2. if offsite, the amount of space, in square feet, of the Incubator’s proposed premises.
   3. The Equity Incubator and Equity Incubatee must both sign the lease or contractual agreement before the Equity Incubator applies for a land use approval and/or seeks a building permit. The Equity Incubatee must be identified and included in the conditional use application by the Equity Incubator.
   4. Equity Incubators offering onsite or offsite rent-free space for cannabis activity are responsible for providing the support necessary for complying with Police Code, Article 16, Section 1609(b)(19), all of which ensure a secure premises.
   5. Equity Incubators offering onsite or offsite rent-free space for cannabis activity are responsible for providing the resources necessary to comply with Police Code, Article 16, Section 1609(b)(11).
   6. Equity Incubators offering onsite or offsite rent-free space for cannabis activity are responsible for paying inspection fees incurred by the Incubatee. 
       
3. Equity Incubator Plan (“Plan”): Equity Incubators not providing Equity Incubatees with rent-free commercial space owned or leased by the Equity Incubator in which the Equity Incubatee or conducts its Cannabis Business but that intends to encourage and support the establishment and growth of Equity Incubatees through the submission of an Equity Incubator Plan are required to submit this Plan to the Office of Cannabis for review and consideration.
   1. The Plan must include, but shall not be limited to the following:
      1. The full legal name of the verified Equity Applicant.
      2. The City issued identification number provided to the verified Equity Applicant.
      3. A description of the partnership Agreement between the Equity Incubator and the Equity Incubatee.
      4. A description of the technical services that will be provided and the enumeration of each activity with an associated financial value. The value of these services shall be based on current local market value and must, at a minimum, be equivalent to what the financial commitment would be to meet the requirements associated with Section 1604(c)(5)(B).
         1. Services may include, but are not limited to the following:
            1. Accounting
            2. Business Services (Marketing, Operations, General Consulting, etc.)
            3. Financial Support
            4. Human Resources Support
            5. Information Technology Support
            6. Legal Services
            7. Regulation Compliance, including both local and state regulations
            8. Tax Services
            9. Transitional Planning, to support equity applicant business development after the agreement concludes.
      5. A timeline associated with the provision of technical assistance including a start date and, if necessary, an end date.
         1. This timeline may be no less than three years and may only be amended with the agreement of the Equity Incubator and Equity Incubatee. Commencement date may occur only after review by the OOC Director or his/her designee.
      6. Conditions for dissolution of a Plan between Equity Incubator and Equity Incubatee.
   2. Equity Incubators providing technical assistance through their Plan have the option of subcontracting with third parties for the provision of technical service as long as the third parties meet the conditions outlined in 2(a-e).
   3. Equity Incubators may not require Equity Incubatees receive technical assistance provision from a specific provider.
   4. The Plan must materially represent the full legal and business relationship between the Equity Incubator and the Equity Incubatee(s).
   5. The Plan must be signed by the Equity Incubator and the Equity Incubatee(s).
   6. Dissolution of Equity Incubator Plan: If the business relationship between the Equity Incubator and Equity Incubatee(s) dissolves, both parties to the Equity Incubator Plan are required to notify the Office of Cannabis within 10 business days.
      1. If the business relationship between an Equity Incubator and Equity Incubatee(s) dissolves before three years, the Equity Incubator will be required to provide the OOC with a new Equity Incubator Plan with a verified Equity Applicant within a reasonable period of time, and no more than one year after noticing the OOC of the dissolution. 
      2. A new Equity Incubator Plan shall, at a minimum, confer the remaining time of the original Plan to the new Equity Incubatee, and this time shall commence only after the review and approval of the OOC Director or his/her designee.
      3. If an Equity Incubator is unable to identify a new Equity Incubatee within a reasonable amount of time, the Equity Incubator may provide prorated financial support through technical assistance to existing Equity Applicants.

1606(c)(2): Equity Applicant Permit Priority

The following rulemaking applies to the implementation of Section 1606(c)(2).

1. The Office of Cannabis proposes evaluating and processing Equity Incubator applications in the following priority order:
   1. Equity Incubators providing rent-free space, offsite.
   2. Equity Incubators providing rent-free space, onsite.
   3. Equity Incubators providing technical assistance.

Comment period start date

March 28, 2018

Comment period end date

April 9, 2018