Archive for the ‘California’ Category

  • Unintended Partnerships: The Accidental Business Entity

    As the California cannabis industry comes out of the shadows and into the light, it is not surprising that technical details of California’s business laws have not traditionally been on a cannabis company’s radar. As the industry matures, however, laws that a business partner would never have before thought to enforce against another business partner will now become viable options in settling business disputes.

    On October 6, 2017, Governor Brown signed AB 1159 into law. The bill states that “commercial activity relating to medicinal cannabis or adult-use cannabis conducted in compliance with California law and any applicable local standards, requirements, and regulations shall be deemed to be: (1) A lawful object of a contract; (2) Not contrary to, an express provision of law, any policy of express law, or good morals; and (3) Not against public policy.”  In short, the California courts will enforce contracts for commercial activity relating to medicinal cannabis or adult-use cannabis.  It is only a matter of time then, before an agreement regarding commercial cannabis activity is hauled into the California courts and enforced to the same degree as an identical contract regarding any other industry.

    But given the “handshake mentality” that the cannabis industry in California has operated on, admittedly by necessity, for so long, many such contracts will not be in a signed writing. It is vital, however, that cannabis companies be aware that a signed writing is not always required for a contract to be enforceable. And that rule extends not only to small one-off agreements, such as a contract to sell some farming equipment or a promise to buy cannabis flowers next season, but also to an agreement regarding the very existence of a “business.”

    Cannabis companies often form business entities, such as corporations and limited liability companies, to protect their owners from personal liability for the vast array of liabilities that can arise when manufacturing and selling goods. Previously, most cannabis companies created informal alliances and partnerships in order to pool capital and resources with little regard to traditional business and even employment structures; it is expected that many cannabis companies will likely continue to operate in this fashion. Different entity types have different rules and many of the rules arise by default whether the business owners wish them to or no. Sometimes such rules can be waived if the proper corporate formalities are adhered to and business partners are encouraged to consult with an attorney to ensure that the business entity they choose to operate their business meets their expectations.  Critically, a business can arise based purely on the agreement of two or more people whether any corporate formalities (such as registering the business with the Secretary of State) are adhered to or not.

    Specifically, a partnership is considered a separate business entity from that of its owners and has its own special corporate rules that arise by default unless the partners take proper action. The question of whether a partnership was formed, and thus a business entity created, is decided based entirely on the conduct of the parties and it is immaterial that the parties may not have considered themselves to be creating a partnership. In fact, a partnership may be found to exist even if the parties expressly declared the contrary.[1]

    While parties must actually express their mutual intent to form a partnership, the word “partnership” or even “partners” is not required to be said at any point. Namely, if the arrangement the parties describe and agree to is what the law considers a partnership, then a partnership will be considered to have been created.[2] The key is whether the parties intended to “carry on as coowners a business for profit.”[3]

    An essential element of a partnership is the right of joint participation in the management and control of the business.[4] There are, of course, other factors to be considered as well though, including:

    • Sharing of profits;
    • Use of a fictitious business name statement (also known as a DBA (doing business as));
    • The maintenance of partnership books;
    • Written or oral declarations by one alleged to be a member of a partnership are admissible against the declarant to prove the partnership’s existence;[5]
    • Conduct of the parties;[6]
    • How title to real property is taken or held; and
    • Representation regarding partnership to third parties.[7]

    Whether a partnership has been formed is important for a multitude of reasons. Not only does status as a partnership affect one’s taxes, for example, but it also gives one’s partners the ability to demand accountings and hold one’s fellow partners to a high level of fiduciary duties in all business undertakings. Fiduciary duties include a duty of loyalty to the business (and therefore the other partner), a duty to avoid self-dealing (ie. to a certain extent, not to compete with the partnership), and so forth. Fiduciary duties are very easy to breach if one is not careful, and especially so if the actor is not aware that fiduciary duties apply.

    In its simplest form – parties who act as partners in conducting their business will likely be treated as partners for legal purposes, whether or not they formalize their relationship with a signed written partnership agreement. Cannabis companies should thus enter business relationships with great care and, whenever possible, with detailed written agreements expressly outlining the rights and obligations of each party.

    [1] Universal Sales Corp. v California Press Mfg. Co. (1942) 20 C2d 751.

    [2] There are multiple types of partnerships, rules for formation of a general partnership are set out in California Corporations Code §16202 and for a limited partnership in California Corporations Code §15902.01.

    [3] California Corporations Code §16202(a)).

    [4] See Spier v Lang (1935) 4 C2d 711, 716; Fritz v Gilbert (1936) 8 C2d 68; see also Zorich v Petroff (1957) 152 CA2d 806.

    [5] Blumenthal v Greenberg (1900) 130 C 384.

    [6] Weiner v Fleischman (1991) 54 C3d 476, 482; see also In re Marriage of Geraci (2006) 144 CA4th 1278, 1292; Love v The Mail on Sunday (CD Cal 2007) 489 F Supp 2d 1100.

    [7] Individuals may be subject to partnership liability and treated as “ostensible partners” as a result of misrepresentations to third parties that suggest that they are partners in a partnership. See California Corporations Code §16308 (regarding purported partnerships). Partners who consent to such nonpartner misrepresentations may also be bound by them. For further discussion of ostensible partnerships, in which the court states the requirements necessary to establish liability under that doctrine, see Armato v Baden (1999) 71 CA4th 885.

  • Sebastopol Issues Zoning Code Interpretation; Will Allow Delivery-Only Retail (and Other Medical Uses)

    On October 24, the Sebastopol Planning Commission approved a Zoning Code Interpretation (hereafter, the “Interpretation”) that allows certain commercial medical cannabis uses to exist in zones of the city where similar uses are already allowed to operate. Sebastopol’s Planning Director, Kenyon Webster, authored the Interpretation. The Law Offices of Omar Figueroa offered guidance in the form of emails and letters to staff and the Planning Commission suggesting the Zoning Code Interpretation.

    Sebastopol is a small, progressive city in Western Sonoma County, in California’s North Bay region.   It is the home of SPARC (formerly known as Peace in Medicine) one of the state’s premier medical cannabis dispensaries.  It happens to be where the Law Offices of Omar Figueroa is located, and where most of our staff resides. In contrast to most other jurisdictions throughout the state that are limiting their regulatory discussion to commercial medical cannabis activity, many members of the Planning Commission wanted to include adult use activities in the Interpretation as well. However, the Commission decided that a decision such as that would best be left to City Council.

    City staff is currently drafting a comprehensive ordinance–which could be heard as soon as November 25–that would include new regulations for both medical and adult use cannabis businesses within Sebastopol. The new Interpretation is an interim measure that was designed with the approaching state licensing process in mind.

    The Interpretation went into effect immediately once adopted. Under the Interpretation, the following medical cannabis businesses would be able to apply to the city of Sebastopol for a local permit: testing laboratories, non-volatile manufacturers, infused product manufacturers, delivery-only retailers, distributors, processors, and packagers & labelers. Such uses are either permitted in certain zones or are subject to a Use Permit.

    Sebastopol is one of the few cities across the state to issue permits for non-storefront medical retailers (i.e., “delivery-only” dispensaries). Most other jurisdictions that allow delivery require that it be attached to a storefront dispensary. Under the new Interpretation, an office for a delivery-only retailer is a permitted use in non-residential zones throughout the city. This is good news for many delivery operators who have been looking for somewhere to locate and get permitted.

    Sebastopol already has an ordinance regulating storefront dispensaries and has two such storefront dispensaries currently in existence. The Planning Commission asked the City Council to consider adopting an urgency ordinance that would allow the existing medical cannabis dispensaries to apply for adult use retail licenses.

    For more information, including application submittal requirements and the required forms, or for assistance obtaining a commercial cannabis permit in Sebastopol in order to be eligible for state licensing, please contact the Law Offices of Omar Figueroa at (707) 829-0215 or (415) 489-0420.

     

    The above information is provided as a public service. It is not intended as legal advice. For answers to your legal questions or legal assistance, including obtaining commercial cannabis permits and licenses in California, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • Recent Local Updates from Sonoma and Mendocino Counties

    Here is a “heads up” about some of the actions taken in Sonoma County and Mendocino County related to cannabis over the past month. Stay tuned for more detailed posts about each of these jurisdictions.

    SONOMA COUNTY

    Cloverdale

    Last month, the City of Cloverdale passed a comprehensive cannabis ordinance to regulate various cannabis uses in the city. The ordinance goes into effect today, October 26. The following types of cannabis operators will be able to obtain a local permit from Cloverdale: cultivation, testing laboratories, manufacturing (both volatile and non-volatile), distributors, retailers (both storefront dispensaries and delivery-only), and microbusinesses. Additionally, on October 24 the City Council passed a resolution adopting a tax rate of 4.5% on all cannabis businesses and also voted to revise the application and permit fee schedule in order to reduce the cost to operators. Applications for every other type of cannabis business besides dispensaries will be accepted soon, however the ordinance requires a complex request for proposals (RFP) and selection process for dispensaries that will take a few months longer. The City Manager said that the RFP for dispensaries will be released on November 14, but that dispensary permits will not be issued until March of 2018.

     

    Sebastopol

    On October 24, the Sebastopol Planning Commission voted to approve a Zoning Code Interpretation that would allow a number of commercial medical cannabis uses to exist within the City. The Interpretation would permit laboratory testing, non-volatile manufacturing, infused product manufacturing, delivery-only retailers, distributors, processing, and packaging and labeling in various zones of the city based on similar uses that are allowed there. The interpretation went into effect immediately. An application checklist is forthcoming soon. Sebastopol does not currently have a special cannabis tax.

     

    Sonoma County

    The Sonoma County Board of Supervisors voted on October 26 to extend the deadline for cultivators to pay their first quarter cannabis taxes by waiving all delinquency penalties until November 17, or until November 30 for cannabis cultivators who were located in an mandatory evacuation zone during the wildfires earlier this month. More information on Sonoma County cannabis taxes, including tax rates and forms, can be found here: http://sonomacounty.ca.gov/Cannabis/Taxes/

    Cultivators who have lost or damaged crops due to the fires may be eligible for an adjustment in the amount of taxes they owe to the county. In order to qualify for a crop loss adjustment, the following elements must be met: (1) the cultivation site must fall within the fire perimeter as determined by the Cal Fire map; and (2) the cannabis must be visibly damaged; and (3) the product must be destroyed to avoid resale (the destruction will be verified by the Department). Growers wishing to take advantage of this should contact the Sonoma County Department of Agriculture/Weights & Measures at (707) 576-2371 to schedule an inspection. The inspection costs $177/hour and there is a ¼ hour minimum.

    While the tax deadline has been extended slightly, the deadline to submit penalty relief forms for existing cultivators wishing to qualify for the transition period is still October 31, 2017. More information about the transition period and penalty relief application can be found here: http://sonomacounty.ca.gov/Cannabis/Permits/Temporary-Code-Enforcement-Penalty-Relief-Program/

     

    Santa Rosa (UPDATE AS OF 11/09/17)

    The City of Santa Rosa has been a leader in Northern California in terms of regulating medical cannabis activities, and now it is vying to become one of the leaders in regulating adult use cannabis activity as well.

    On November 9, the Santa Rosa Planning Commission agreed 5-0 to include adult use cannabis businesses in its comprehensive cannabis ordinance, which will be considered by the City Council on December 12. This is exciting news for anyone who’s been keeping an eye on the 5th largest city in the Bay Area. The city’s Planning Department and Medical Cannabis Policy Subcommittee have been working on developing the comprehensive policy for quite some time. If the Santa Rosa City Council approves the Planning Commission’s recommendation, the new policy would go into effect no later than February 2018.

    The comprehensive draft ordinance would set up a permitting process for cannabis cultivation, manufacturing (both volatile and non-volatile), testing, distribution, retail, and microbusinesses. Personal cannabis cultivation would be exempt from the permit process, provided that the city’s guidelines for size and plant count are followed. Santa Rosa voters already approved a cannabis business tax during a special election in June 2017. The tax rates are as follows: for cultivators, 2% of gross receipts or $5 per square foot of canopy; for manufacturers, 1% of gross receipts; for distributors, 0%, and for medical retailers, 0%.

    The City of Santa Rosa’s cannabis webpage can be found here.

     

    MENDOCINO COUNTY

    Willits

    The City of Willits passed a new comprehensive cannabis ordinance on September 27, which will go into effect on October 28. The ordinance would allow a number of different types of medical cannabis operations to exist in the city, including cultivation, processing, laboratory testing and research facilities, manufacturing (both volatile and non-volatile), infusion, distribution, packaging, and retail. A selection process for dispensaries/retailers is laid out in the ordinance, as well as application requirements for other cannabis businesses. The permit fee schedule was considered by the City Council on October 25. The initial and renewal permit fees will be scaled based on the type of business (and also based on size for cultivators).

     

    Mendocino County

    On October 17, Mendocino County passed a comprehensive ordinance  allowing the county to issue permits for numerous types of commercial cannabis uses other than cultivation, which is already included in a separate county ordinance passed earlier this year.  The new ordinance—which includes both medical and adult-use operations—will make local permits available for processing, manufacturing, testing laboratories and research institutions, retailers, distribution, and microbusinesses.  It will go into effect on November 16. The ordinance describes the application procedures as well as operational requirements. There is a special cannabis tax in Mendocino County, which for the current year is 2.5% of gross receipts for cultivators (some minimum amounts apply), 5% of gross receipts for dispensaries, and a flat rate of $2500 for other commercial cannabis businesses.

     

  • Cannabis Trade Secrets in California: Protecting Your Intellectual Property

    Trade secrets are valuable business assets that many cannabis companies have, perhaps without knowing that they are trade secrets.  For example, a cultivator may have developed proprietary cloning and tissue culture techniques, or proprietary growing methods, or proprietary drying and curing processes, blissfully unaware that California law may provide meaningful protection to valuable intellectual property so long as it is not generally known to the public and reasonable efforts are made to maintain its secrecy.

    Critically, the confidentiality of a trade secret must be protected in order to maintain its value. The State of California actually defines a trade secret as information that: (1) has economic value; (2) is not generally known to the public; and (3) subject to reasonable efforts to maintain its secrecy.

    Trade secrets are granted legal protection because they are valuable assets; indeed, the technological innovations of the modern era would not exist if the law did not recognize trade secrets, as there would be no incentive for organizations to pour tremendous resources into research and development if the law failed to provide sufficient protection.

    That is not to say that trade secrets cannot be shared with anyone—part of the value inherent in a trade secret is the ability to license its use to others for a fee or royalty. That said, care must be taken in all situations where a trade secret is made available to individuals or entities other than the secret’s owner if trade secret status is to be preserved.  Even accidental disclosures of trade secret information can destroy the “trade secret status” of that information.

    Trade secret status is important because it allows a company to take legal action in the event someone wrongfully gains access to its trade secrets. Moreover, some information does not qualify for any other form of intellectual property protection and is thus only protectable as a trade secret – for example, recipes (including “recipes” for soils, compost teas, fertilizers, etc.). Under the California Uniform Trade Secrets Act (“UTSA”), the owner of a trade secret that has been misappropriated can obtain an injunction (the right to stop the opposing party from taking certain actions, such as using a particular trade secret or from sharing such secret further) as well as monetary damages. While monetary damages are generally limited to the amount a party has actually suffered, in trade secret cases the court has discretion to award treble damages (i.e. an amount up to three times higher than the actual damages incurred). Attorneys’ fees and costs are also generally available to the prevailing party, including reasonable fees for independent experts. In certain cases, imprisonment or fines may also be imposed on the trade secret misappropriator. While cannabis companies tend to prefer state court, for obvious reasons, trade secrets are also actionable under federal law. For cases that arise after May 11, 2016, the Defend Trade Secrets Act (“DTSA”) is a federal statute that provides damages and injunctive relief comparable to California’s UTSA.

    While trade secrets are protectable, many businesses struggle with the requirement of treating the information as secret. A certain amount of disclosure is inevitable when using information as part of a business – especially to employees, but also when attracting potential investors – yet if a business fails to take reasonable steps to protect the information, the remedies outlined above will not be available. Thus, companies that have developed valuable information should also develop a trade secret plan for protecting that information. Having a written trade secret plan not only enables the company to better protect its secrets, but also acts as evidence in and of itself that reasonable efforts to protect the information have been implemented. (Merely having a trade secret plan will not be dispositive; the plan should, of course, be implemented and adhered to).

    Noted attorney James Pooley, author of the legal treatise “Trade Secrets”, has written that a trade secret protection plan should be based on four principles: inventory, simplicity, responsibility, and review.
    • Inventory – a company must, at the onset, know what it is the company wants to protect in sufficient detail to identify threats to its secrecy as well as establish its value.
    • Simplicity – an effective trade secret plan must not be complicated or overly burdensome, otherwise the plan is likely to be ignored by ownership and employees alike.
    • Responsibility – Pooley recommends that a specified individual or individuals be responsible for implementing every aspect of the trade secret protection program, including audits for effectiveness.
    • Review – as noted above, trade secret plans should be audited and reviewed to ensure that the plan is being consistently implemented and the trade secrets actually protected.

    An effective trade secret plan identifies the manner in which trade secrets are most likely to be compromised and creates protection policies accordingly. Consider the following situations and whether the proprietary information is adequately protected:

    • Employee Mobility – Non-competition clauses are not enforceable in the State of California; thus, one’s employees are generally free to leave one’s employment and work for a direct competitor at any time. Do employees know what information in their possession is considered confidential, proprietary, and/or a trade secret? Do they know what they are and are not allowed to do with that information when they leave your employment? If you have established a duty of confidentiality, both during and after employment, was it in writing?
    • Site Visitors (especially investors) – Potential investors, as well as other visitors, are also threats to a trade secret. When giving tours and explaining how your facility maintains a competitive edge, do you unwittingly reveal your processes? Are novel inventions capable of being observed during site visits by outsiders? Giving a facility tour without requiring Non Disclosure Agreements (NDA’s) presents a grave risk to successfully asserting the confidentiality of a trade secret in the future.
    • Lack of Document Security – Many businesses write out trade secrets during development and following so that they can be accessed, reviewed, and perfected; such may even be a necessity. Think of supplier lists, fertilizer recipes, customer lists, and so forth. Where do you store these documents containing trade secrets? Are they accessible by site visitors? Are they lying out in the open? Can all employees access them or only those employees who have a need to know the information? Are they stored in a locked area when not in use?
    • Lack of Electronic Security – In the same manner that many individuals write out trade secret information on physical paper, many individuals prefer electronic documentation. If there is a computer at your business location containing such documents, is it password protected? If so, do all employees know that password and have access to that computer, or only those that need to know the information to perform their job duties?
    • Government Submissions – Cannabis companies are required to submit a wealth of information about their business operations to both local and state governments in order to obtain a license for cannabis-related activities and portions of information requested by the government agency during an application process may well constitute a trade secret. Have you taken any steps during the application process to communicate to the government agency that you consider portions of the application to be a trade secret that needs to be protected from disclosure to non-regulators?

    In sum, by taking reasonably appropriate steps to protect its valuable trade secrets, a California cannabis company can protect critical segments of its intellectual property portfolio.

    The above information is provided as a public service. It is not intended as legal advice.

    For answers to your legal questions or legal assistance, including with establishing and implementing a trade secrets protection plan, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • CA Cannabis Licensing Agencies Release Responses to Public Comments

    On Friday, September 29, California’s three cannabis licensing agencies—the Department of Consumer Affairs’ Bureau of Cannabis Control, the Department of Food and Agriculture’s CalCannabis Licensing Division, and the Department of Public Health’s Manufactured Cannabis Safety Branch—released summaries of their responses to the public comments submitted for the draft medical cannabis regulations under MCRSA, which came out earlier this year.

    Even though those draft regulations were subsequently withdrawn after the Medicinal and Adult-Use Regulatory and Safety Act (MAUCRSA) unified the state’s medical and adult-use licensing systems earlier this year, the comments submitted by the public will still help guide the agencies as they develop the emergency regulations under MAUCRSA, which are expected to be published in November 2017. Temporary licenses will still be issued starting on January 1, 2018.

    A common response to public comments was that a particular requirement is mandated by statute, and thus the licensing agency does not have the authority to change that requirement. While the agencies have the ability to supplement and define the requirements included in the statutory requirements, where the statutory requirements are clear the agency will only have the authority to enforce, not interpret. Many other responses indicated that the agency is evaluating the requirement in question and may make modifications for the MAUCRSA regulations.

    Some of the summarized comments and the agencies’ responses are reprinted below:

    Department of Consumer Affairs – Bureau of Cannabis Control (“The Bureau”)

    • The regulations should permit shared premises, including multiple businesses of same and different license types, as well as permit multilevel or vertical stacking of the designated premises. The Bureau is developing regulations related to colocation of licensees on premises.
    • Security guards should be left as a business decision or local jurisdictional decision and only should be required for retailers. The Bureau is evaluating whether the security guard requirement should only be applicable to retailers.
    • The Bureau should consider permitting additional modes of transportation other than vehicles over the roadway. Specifically, bicycles should be permitted provided they use a lock box that is compliant with the Bureau’s security regulations. Business and Professions Code section 26070 requires all vehicles transporting cannabis and cannabis products for hire shall be required to have a valid motor carrier permit. Due to the express language in the law, the Bureau is determining the range of vehicles that can be issued a motor carrier permit.
    • Ten increments of manufactured edible samples for the homogeneity test, plus the primary samples and the duplicate samples, is excessive and an unreasonable burden. The Bureau should consider reducing the amount of sample mandated for testing. The Bureau is currently evaluating the requirements for homogeneity testing.
    • The Bureau should not require an additional resealable exit packaging due to additional costs for the dispensary and patient. Business and Professions Code section 26070.1 requires cannabis and cannabis products be placed in an opaque bag before leaving a retailer. The Bureau does not have the authority to change the requirement for an opaque exit bag contained in the law; however, the law does not require a resealable exit bag. The Bureau is evaluating the use of recycled or customer-provided opaque packages.
    • The regulations should permit free samples to be given to patients and employees as training tools. The Bureau is evaluating whether to allow samples and the possible methods by which samples could be provided.

    California Department of Public Health – Manufactured Cannabis Safety Branch (“CDPH”)

    • CDPH received a range of comments regarding the prohibition on certain products (§40300).
      • Alcoholic beverages: Clarification was requested as to whether the prohibition would extend to a prohibition on tinctures. This prohibition is not intended to restrict the production of tinctures. CDPH will make clarifying changes to the text for the MAUCRSA regulations. Clarification was requested as to whether the prohibition was applicable to just infusion with THC or included CBD as well. CDPH will continue to review the issue. Requests were made to allow THC-infused alcoholic beverages. CDPH continues to have concerns regarding the combination of THC and alcohol, and we will continue to review the issue.
      • Caffeine as an additive: Clarification was requested regarding the prohibition on caffeine as an additive. This prohibition is not intended to restrict the manufacture and cannabinoid infusion of products with naturally-occurring caffeine, such as coffee, tea, and chocolate. CDPH will make clarifying changes to the text for the MAUCRSA regulations. Requests were made to allow caffeine, perhaps a capped amount, to be added to products. CDPH will review the comments provided and remains committed to protecting public health.
      • Potentially hazardous foods as products: A majority of commenters expressed concerns regarding the prohibition on the manufacture of any product considered a potentially hazardous food. The most common concerns cited included: That the prohibition would eliminate a large segment of the existing industry, Many manufacturers and patients would turn to the black market, Patient needs and desires for these products would not be met. On the other side, local jurisdictions, public health organizations, and the California Medical Association expressed support for the prohibition, due to the decreased risk of foodborne illnesses. CDPH continues to have concerns about product safety. Because cannabis is still considered an adulterant under federal laws, the same food safety laws and levels of oversight are not applicable to cannabis products. CDPH will continue to review the issue to ensure public health concerns are addressed.
      • Potentially hazardous foods as ingredients: Clarification was requested as to whether this restriction would apply to ingredients used in manufacturing. The restriction on the use of potentially hazardous foods is not intended to apply to ingredients (such as milk, butter, eggs, or juice), as long as the final product does not need time temperature controls to maintain its quality and safety. CDPH will make clarifying changes to the text for the MAUCRSA regulations. Similarly, clarification was requested as to whether the prohibition on canned foods would prohibit the use of cans as a packaging option. The prohibition only intended to apply to low-acid canned products, the kind that pose a risk of botulism. CDPH will make clarifying changes to the text for the MAUCRSA regulations.
    • Shared Facilities. A request to allow for shared facilities or community kitchens (a shared facility is one in which multiple licensees share the same premises and equipment) was another common theme. Commenters expressed numerous potential benefits to shared facilities. However, because the definition of “premises” added to MAUCRSA limits a premises to only one licensee, CDPH does not believe it has the authority to permit shared facilities and that a statutory change would be necessary in order to do so.
    • THC Product Symbol. Comments on the THC product symbol recommended changes to be made to the symbol (changes to the color, requests for a pictorial element such as a cannabis leaf). CDPH will be revisiting the specifications of the symbol.
    • License Type: Ethanol. Based upon comments received, CDPH will further clarify the use of ethanol in manufacturing. Ethanol extraction, if used in a manner that creates a risk of explosion or fire, such as high heat or pressure, would be classified as a Type 7 license. Other uses of ethanol, such as tinctures or “winterization” to refine extracts, would be considered Type 6.

    California Department of Food and Agriculture – CalCannabis Licensing Division (“CDFA” or “CalCannabis”)

    • Indoor, Outdoor and Mixed-light cultivation: The Department received significant input on the proposed definition of ‘mixed-light,’ as well as the proposed definitions for ‘outdoor’ and ‘indoor’ cultivation. Stakeholders suggested that light deprivation practices should be permitted in the outdoor category. Recommendations were also made to reduce the watts per square foot threshold and clearly differentiate the use of supplemental light preventing plants from flowering from the use of high intensity lighting supporting flower production. Stakeholders suggested a separate tier license for light deprivation. It is clear to the Department that the cultivation category definitions will require further refinement.
    • Waiver of Sovereign Immunity: The Department received a number of comments on the waiver of sovereign immunity for federally-recognized tribes to participate in the licensed marketplace. Commenters questioned whether the Department has the authority to require an immunity waiver from sovereign nations and that the proposed regulation potentially infringes on tribal sovereignty. Recommendations included a removal of the proposed regulation in the interim. The Department, in collaboration with the Department of Consumer Affairs and Department of Public Health, will continue to work with stakeholders on this issue.
    • Commingling: The Department received comments from a number of concerned stakeholders regarding the proposed prohibition on commingling. Comments ranged from requesting clarification to asserting the regulation is prohibitive of small business practices. Many requested that commingling be allowed because the robust track-and-trace system should be able to link commingled flowers to the associated cultivation sites. The Department will continue to work with stakeholders on this issue.
    • Cannabis Waste Disposal: The Department received substantial feedback that the proposed cannabis waste disposal requirements were overly burdensome, would lead to excess waste being contributed to landfills, and that the five day holding period was too long and could lead to pest infestations. Commenters requested clarification on the allowance of composting onsite. There were also suggestions to introduce a new license type that could process cannabis waste off-site. Note, MAUCRSA exempts mature plant stalks from the definition of cannabis. This will be taken into consideration as the composting and waste disposal requirements are improved.
    • Generator Prohibition: The Department received input that the proposed prohibition of generators would be problematic for rural and off-grid cultivators. Commenters made recommendations to allow generators approved or permitted by other agencies and to include a phase-in approach for the regulation. Clarification about the definition of generator was also requested. The Department will continue to work with stakeholders to develop regulations that protect the environment while allowing existing operators to enter the regulated market.
    • 42% Renewable Energy Source: The Department received significant feedback on the proposed requirement to use 42% renewable energy sources for indoor license types. Commenters favored both reducing and increasing the percentage. It was recommended that this requirement be phased-in and also apply to mixed-light license types. Clarification about how this section would be implemented was requested. The Department is considering changes in renewable energy requirements to better align with current state energy goals using a phased-in approach and will revisit the renewable energy source requirement and provide further specificity regarding implementation for this requirement.

     

    You can read the agencies’ full responses to the comments here:

    Bureau of Cannabis Control (Distribution, Testing, Retail, Microbusinesses)

    Bureau of Cannabis Control (Testing Laboratories)

    CA Department of Food and Agriculture (Cultivation)

    CA Department of Public Health (Manufacturing)

    Be sure to visit the California Cannabis Portal at www.cannabis.ca.gov for more information and updates.

     

    The above information is provided as a public service.  It is not intended as legal advice.

    For answers to your legal questions or legal assistance, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • California to Issue Temporary Cannabis Licenses Starting January 1

    The Bureau of Cannabis Control (formerly the Bureau of Medical Cannabis Regulation)(hereafter the “Bureau”) released information today regarding temporary cannabis licenses, which will be available beginning on January 1, 2018. The Bureau is the primary licensing agency for cannabis distributors, testing laboratories, retail stores, and microbusinesses within California.

    Temporary state licenses will only be issued to applicants that have a local permit, license, or other authorization. What exactly this authorization looks like will depend on the local jurisdiction. No temporary license will be effective prior to January 1, 2018. Once issued, temporary licenses will be valid for 120 days (4 months), though they can be extended for 90 days and possibly longer if the Bureau takes longer than expected to issue permanent licenses. During this period, a company with a temporary license can and should be working to submit its full state license application. Companies that have received a temporary license will only be able to do business with other companies that have received temporary or permanent licenses.

    Applicants will be required to provide the following information for a temporary license from the Bureau:

    1. Local jurisdiction authorization – Applicants must provide a copy of a valid license, permit, or other authorization issued by the local jurisdiction where the business is operating that allows the applicant to conduct commercial cannabis activity at the location. The authorization must specify that the applicant is authorized to conduct cannabis activity.
    2. Name – Applicants must provide a name of the individual or entity requesting the license.
    3. License type requested – Distributor, Retailer, Microbusiness, or Testing Laboratory.
    4. License designation requested – A-license (adult use) or M-license (medicinal).
    5. Contact information – Applicants must provide a designated primary contact including first and last name, title, address, phone number(s), and email address(es).
    6. Owners – For each owner that meets the criteria of Business and Professions Code section 26001 (al), the owner’s name, mailing address, and email address.
    7. Physical address – Location of the proposed premises.
    8. Authorization to use the location – A copy of the title or deed to the land where the premises is proposed to be located. If the applicant does not own the land, a document from the landowner stating that the applicant has the right to occupy the property and may use the property for the commercial cannabis activity.
    9. Premises diagram – A diagram of the business’s layout at the proposed location.

    Lori Ajax, Chief of the Bureau, says that temporary licensees will receive approval via e-mail and will be able to print their temporary license from home. The final regulations for medical and adult use cannabis businesses will be released in November, and full-length license applications will be available soon after that.

    The Bureau and the other two California cannabis licensing agencies, the Department of Food & Agriculture’s CalCannabis Licensing Division and the Department of Public Health’s Manufactured Cannabis Safety Branch (formerly OMCS) plans to hold licensing workshops around the state starting in October. Be sure to check the Bureau’s website at www.bcc.ca.gov for more information and updates related to cannabis licensing.

     

  • Summary of Local Ordinances Released by Bureau of Cannabis Control

    The Bureau of Cannabis Control (Bureau), formerly named the Bureau of Medical Cannabis Regulation, is working on regulations pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to establish a licensing and enforcement program for commercial cannabis distributors, retailers, testing laboratories, and microbusinesses.

    As lead agency under the California Environmental Quality Act (CEQA), the Bureau has prepared an Initial Study/Proposed Negative Declaration (IS/ND).  The entire document can be downloaded by clicking the image below.

    The Initial Study/Proposed Negative Declaration (IS/ND) is huge at 491 pages; however, it contains three very helpful summaries.  These summaries have been extracted for your convenience and can be downloaded by clicking the image below or here.

    The summaries are:

    Table C-1: Summary of County Ordinances (as of August 17, 2017)

    Table C-2. Summary of Ordinances in the Ten Largest California Cities (by population) (as of August 17. 2017)

    Table C-3. Summary of Regulations in Other States that Have Passed Legislation Authorizing Adult Use of Cannabis (as of August 17, 2017)

    These official summaries provide helpful information to: 1) regulators seeking guidance from other local jurisdictions, 2) entrepreneurs looking for cannabis-friendly local jurisdictions issuing local permits, and 3) those who seek to understand cannabis policy in California and other states that have passed legislation authorizing the adult use of cannabis.

    NOTE: Ordinances, laws, and regulations are in a state of evolution, and change from day to day.  The official summaries are current as of August 17, 2017, meaning they are probably already out of date.  We cannot guarantee the accuracy of these official summaries, which are provided for informational purposes.

    Please check directly with the local jurisdiction (the city for activity within city limits, or the county for activity within the unincorporated area of the county) to find the latest ordinances pertaining to cannabis.

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    The above information is provided as a public service.  It is not intended as legal advice.

    For answers to your legal questions, or legal assistance in obtaining local permits and/or state licenses, please contact the Law Offices of Omar Figueroa at (707) 829-0215 or (415) 489-0420 to schedule a confidential legal consultation.

  • Summary of Expected Emergency MAUCRSA Regulations Released

    The Bureau of Cannabis Control (Bureau), formerly named the Bureau of Medical Cannabis Regulation, is developing regulations pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to establish a regulatory licensing and enforcement program for commercial cannabis distributors, retailers, testing laboratories, and microbusinesses. As lead agency under the California Environmental Quality Act (CEQA), the Bureau has prepared an Initial Study/Proposed Negative Declaration (IS/ND).  The entire document can be downloaded by clicking the image below.

    The Initial Study/Proposed Negative Declaration (IS/ND) is huge at 491 pages; however, it contains a very helpful Summary of Expected Emergency MAUCRSA Regulations.  The official summary can be downloaded by clicking the image below.

    The Summary of Expected Emergency MAUCRSA Regulations can also be downloaded here.  This official summary provides a helpful preview to those who want to plan to comply with the anticipated MAUCRSA regulations.

    Highlights of the expected regs:

    Applicants will be required to submit identifying information for every owner.  Applicants will also be required to provide information regarding their funding sources and owners’ criminal conviction histories.

    In the regulations, the Bureau will specify the types of records that licensees must keep, including financial, personnel, and security records; training records; contracts; and permits, licenses, and local business authorizations. The regulations will require that these records can be produced when requested by the Bureau.

    Licensees and persons acting for or employed by a licensee must display photo identification badges while engaging in any commercial cannabis activity. isitors to any licensed premises will be required to be escorted by an employee when visiting limited‐access areas of the premises.

    All licensees will be required to install and maintain a video surveillance system to record all entries and exits, as well as all areas where cannabis is received, processed, and stored, as well as security rooms. Retailers will also be required to record all point‐of‐sale areas and areas where cannabis is displayed for sale. Cameras must record 24 hours per day, and recordings must be kept for a specified period of time.

    Licensed premises will have an alarm system that is monitored and maintained by a licensed alarm company.

    Distributors are also the only license type that can transport commercial cannabis goods. Distributors may act as wholesalers or may charge other licensees a fee for conducting distribution on their behalf.

     

    The regulations will provide that distributors may package and label or repackage and relabel cannabis in the form of dried flower on behalf of a cultivator or another distributor. Distributors may not package, repackage, label, or relabel manufactured cannabis goods.

    Cannabis goods will be required to be transported inside commercial vehicles or trailers. Transportation may not be done by aircraft, watercraft, rail, drones, human powered vehicles, or unmanned vehicles.

    Vehicles used for transporting cannabis goods must contain a box that can be locked and that is secured to the inside of the vehicle or trailer. Cannabis goods must be locked in the box during transport.

    After taking physical possession of a cannabis batch, a distributor will contact a licensed testing laboratory to arrange for testing, unless the distributor plans to sell the batch to another distributor. At that point, a laboratory agent will come to the distributor’s licensed premises to take a sample. The sample selection will be recorded on video, and both the distributor and the laboratory agent must witness and attest to the sample selection.

    After the sample has been tested, the testing laboratory will provide the distributor with a certificate of analysis. If a sample passes testing, the distributor may transport the cannabis goods to one or more retailers for sale. If a harvest batch fails testing, it can be remediated for use in a manufactured product, if doing so would not result in harm to consumers.

    Cannabis goods may be displayed only in the retail area, and only during business operating hours. Cannabis goods may not be displayed where visible from outside the premises.

    Retailers may not provide free samples to anyone or allow representatives of other companies or organizations to provide free samples on the licensed premises.

    Retailers must receive cannabis goods only from licensed distributors. Cannabis goods must be packaged and labeled for final sale at the time the retailer receives them.

    Following a sale, the retailer must place cannabis goods in an opaque exit package before the customer leaves the retailer premises.

    Delivery employees may not consume cannabis during delivery.

    Vehicles used for delivery must have a dedicated, active GPS device that enables the dispensary to identify the geographic location of the vehicle during delivery.

    Retailers may receive shipments of inventory only from licensed distributors.

    Retailers must keep records of all sales transactions, including the names of the sales employee and the customer, the list and quantity of products sold and their price, and the date and time of the transaction.

    The Bureau’s regulations will include a grace period for compliance with packaging and testing requirements. During the grace period, retailers may package and sell cannabis goods that have not been packaged by a cultivator or distributor. In addition, during the same time frame, retailers may sell untested cannabis if they place a label on the package with the date of purchase and the statement, “This product has not been tested under the Medicinal and Adult‐Use Cannabis Regulation and Safety Act.”

    Laboratories will be required to test samples for cannabinoid content. The cannabinoids that are required to be tested for are tetrahydrocannabinol (THC), tetrahydrocannabinolic acid (THCA), cannabidiol (CBD), cannabidiolic acid (CBDA), cannabigerol (CBG), and cannabinol (CBN). For each of these cannabinoids, laboratories must report the concentration. They may also test for other cannabinoids at the election of the test requester.

    Laboratories will be required to analyze samples of manufactured cannabis goods for residual solvents and processing chemicals. Dried flower, kief, and hashish need not be analyzed for residual solvents.

    Testing laboratories will be required to test samples for residual pesticides.

    Laboratories will be required to test samples of cannabis and cannabis products for microbiological impurities, which will include Shiga toxin producing Escherichia coli and Salmonella spp. Laboratories must also test for the pathogenic species Aspergillus funigatus, A. flavus, A. niger, and A. terreus in all cannabis goods intended for consumption by inhalation, including dried flower, kief, hashish, oil, and waxes.

    Testing laboratories will be required to analyze samples for mycotoxins.

    Testing laboratories will analyze dried flower harvest batch samples for water activity and moisture content.

    Testing laboratories will be required to test samples for filth and foreign material. This includes, but is not limited to, mold, hair, insects, feces, packaging contaminants, and manufacturing waste and byproducts. Samples that contain these contaminants above the specified action levels will fail laboratory testing.

    Laboratories may be required to analyze samples for concentrations of heavy metals.

    After completion of testing, the testing laboratory will issue a certificate of analysis that details the results of each test. The certificate of analysis will also report whether the laboratory detected any unknown or unidentified substances or materials during analysis of a sample. If the laboratory finds a contaminant that is not listed in these regulations that could be injurious to human health at the levels detected, the laboratory must notify the Bureau within 24 hours. Samples found to contain synthetic cannabinoids will fail testing.

    A batch may not be retested unless it has undergone a remediation process. Before a batch can be retested, the distributor must provide a document to the laboratory specifying how the product was remediated.

    Testing laboratories will be required to develop and implement a laboratory quality assurance program

    A microbusiness license allows the licensee to cultivate cannabis in an area of less than 10,000 square feet and to act as a licensed distributor, Level 1 (nonvolatile solvent) manufacturer, and retailer. (Bus. Prof. Code §26070.) For both medicinal and adult‐use cannabis operations, CDFA is the licensing authority for stand‐alone cannabis cultivation activities and CDPH is the licensing authority for stand‐alone cannabis manufacturing activities.

    With regard to distribution and retail sale, the regulations applicable to those activities are anticipated to be the same for a microbusiness as for a standalone business. For cultivation activities, it is expected that applicants will be required to follow applicable provisions of the cultivation regulations that will be adopted by CDFA for cannabis cultivation, and CDFA is anticipated to provide assistance to the Bureau related to cultivation by a microbusiness. Similarly, it is expected that microbusiness applicants conducting manufacturing activities will be required to follow CDPH manufacturing regulations, and CDPH is anticipated to provide assistance to the Bureau related to manufacturing by a microbusiness.

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    Provided for informational purposes only; this is not intended as legal advice.  Please contact the Law Offices of Omar Figueroa for legal counsel or assistance regarding the Expected Emergency MAUCRSA Regulations, or other legal issues, at (707) 829-0215, at (415) 489-0420, or at info@omarfigueroa.com.

  • Marin County Releases Draft Ordinance for Medicinal Cannabis Delivery-Only Retailer (MCDORe) licenses

    Marin County has released its draft ordinance for issuing Medicinal Cannabis Delivery-Only Retailer (MCDORe) licenses.

    Highlights of the draft delivery-only ordinance:

    • “The MCDORe license is more restrictive than a State Retailer license because it requires the retailer’s premises to be closed to the public and to conduct sales exclusively by delivery.” Section 6.86.030, License Requirements.
    • Up to four MCDORe licenses may be issued for “premises within the unincorporated areas of Marin County for a medicinal cannabis retailer which is closed to the public and conducts sales exclusively by delivery.”  Section 6.86.032, Limitation on number of licenses.
    • A MCDORe “may only be located in the C1, CP, AP, OP, and IP” zoning districts.  One can look up zoning information for a particular location in unincorporated Marin County by clicking here.
    • A MCDORe must not be within a 600-foot radius of a playground, tobacco store, school, day care center, youth center, or “another cannabis retailer.”  Section 6.86.033, Limitation on location.
    • License applications will go through multiple phases: prescreening, lottery (if there are more than four applicants; lottery winners win the opportunity to continue to compete for a license), application pre-submittal, and application review based on a 100 point scale.  Section 6.86.041, Review of Applications.

    A public workshop and Question & Answer session is scheduled for Sep. 19 at 6:30 p.m. in the Marin County Board of Supervisors chamber, Suite 330, 3501 Civic Center Drive, in San Rafael.  The draft ordinance is set for a first reading by the Board of Supervisors on Sep. 26 and could be adopted as soon as October 10, 2017.

    The draft ordinance can be downloaded below.

    Marin County Draft Delivery-Only Ordinance

    More information about the draft ordinance is available at:
    http://www.marincounty.org/main/medicalcannabis

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    If you are interested in applying for a Marin County Medicinal Cannabis Delivery-Only Retailer (MCDORe) license, please contact the Law Offices of Omar Figueroa at (415) 489-0420 or (707) 829-0215. Due to the limited number of licenses, we are only able to represent one applicant for a Marin County Medicinal Cannabis Delivery-Only Retailer (MCDORe) license. Lawyer up quick!

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  • Amicus Brief Filed on Behalf of National Cannabis Bar Association

    You may have heard about the ongoing case involving a San Diego cannabis lawyer who is facing felony charges in what amounts to a vindictive prosecution from the local District Attorney’s office (which is notoriously unfriendly to cannabis).
    Today, we just filed an amicus curiae brief on behalf of the National Cannabis Bar Association and other amici in support of the defendant-lawyer, our esteemed colleague Jessica McElfresh, arguing about the far-reaching implications of this case not only on the cannabis industry, but also on the legal profession and the public at large.

    Download PDF version of Amicus Brief Here