Archive for the ‘Medical Cannabis Regulations’ Category

  • 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 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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  • SB-162 Would Bar Cannabis Licensees from Using Branded Merchandise (and is Probably Unconstitutional)

    California Cannabis Industry Alert!

    Senate Bill 162 (hereafter “SB162”), currently making its way through the state legislature, would impose draconian restrictions on cannabis marketing. Specifically, it would prevent cannabis licensees from advertising or marketing cannabis products using merchandise, such as clothing, hats, t-shirts, or other items branded with the name or logo of the product. The bill already passed through the California Senate unanimously, but its constitutionality is questionable.

    The bill is intended to limit marketing of cannabis products in ways that were already conceptually prohibited by AUMA in that a licensee may not advertise a cannabis product in a way intended to encourage people under 21 years of age to consume or purchase cannabis. However, the bill goes beyond just requiring that merchandise may not be made attractive to children and bars, presumably, any branded merchandise.

    The language of the proposed law is extremely broad.  SB162 would amend Section 26152 of the Business and Professions Code to read:

    26152. A licensee shall not do any of the following:

    (a) Advertise or market in a manner that is false or untrue in any material particular, or that, irrespective of falsity, directly, or by ambiguity, omission, or inference, or by the addition of irrelevant, scientific, or technical matter, tends to create a misleading impression.

    (b) Publish or disseminate advertising or marketing containing any statement concerning a brand or product that is inconsistent with any statement on the labeling thereof.

    (c) Publish or disseminate advertising or marketing containing any statement, design, device, or representation which tends to create the impression that the cannabis originated in a particular place or region, unless the label of the advertised product bears an appellation of origin, and such appellation of origin appears in the advertisement.

    (d) Advertise or market on a billboard or similar advertising device located on an Interstate Highway or on a State Highway which crosses the California border.

    (e) Advertise or market cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products. This prohibition includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.

    (f) Publish or disseminate advertising or marketing that is attractive to children.

    (g) Advertise or market cannabis or cannabis products on an advertising sign within 1,000 feet of a day care center, school providing instruction in kindergarten or any grades 1 through 12, playground, or youth center.

    (Emphasis added.)  The entire bill is available on the Legislature’s web site, at:

    https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201720180SB162

    As of August 1, 2017, the Legislative Counsel’s Digest for the bill states, “This bill would specify that advertising or marketing cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.”

    You read that right—if this becomes law, then cannabis licensees would be prohibited from advertising their brands on any merchandise, even if it was not designed to appeal to minors or even made available to people under the age of 21. The bill cites a case related to tobacco advertising restrictions (Commonwealth Brands, Inc. v. United States, 678 F.Supp.2d 512 (2010)) in support of the legislature’s position that such a restriction on speech for cannabis would be constitutional. However, there are problems with that comparison.

    First, Commonwealth Brands dealt with a federal law that placed restrictions on advertising, whereas AUMA is a state law. The federal district court’s holding in Commonwealth Brands is not binding on courts in California.

    Second, tobacco and cannabis are not the same thing, nor do they have the same effect on the human body. The court in Commonwealth Brands made only passing references to the government interest being served by the federal law at issue in that case citing the Act’s aim as being “to curb tobacco use by adolescents” (at 519) and reducing tobacco use by minors” (at 522). However, even interests that some may consider intuitively worthy are not self-validating under the law. Rather, the government must prove that the interest is substantial (or, in some cases, compelling). In this instance, the interest put forth in tobacco regulations is substantial because it has been widely accepted, through substantiation of numerous studies, that tobacco use is inherently dangerous in its causation of cancer, heart disease, and other serious health effects. This interest is explicitly referenced in the act regulating the tobacco advertising at issue and therefore implicitly accepted by the court in Commonwealth Brands. That said, there is simply no evidence that the potential harm and therefore the same interest in curbing cannabis use. The government lacks the same or even comparable body of evidence demonstrating that cannabis is carcinogenic or otherwise harmful to one’s health. In fact, a number of recent studies comparing tobacco smokers and cannabis smokers found that cannabis smokers had better long-term health and were less likely to suffer from cancer than tobacco users.

    In addition, unlike in Commonwealth Brands, where the government provided “extensive documentation” to show that marketing of tobacco products had a causal connection on consumer behavior of children, the legislature does not provide any proof that restricting advertising of cannabis products will affect youth behavior. Rather, the current version of SB162 simply states:

    Research by The RAND Corporation indicates that adolescents who are exposed to advertising of cannabis were more likely to report using cannabis or say they planned to use the substance in the future. The American College of Pediatricians’ research has found that cannabis has adverse effects on the adolescent brain and is associated with psychiatric illness and negative social outcomes.

     The bill does not provide any specific studies from either the RAND Corporation or the American College of Pediatricians to support this position, or to demonstrate that restricting speech in this broad way will achieve the desired outcome. Failure to provide the studies presumably demonstrating the government’s interest not only leaves the public in the dark as to what the government posits its substantial interest to be, but also creates a lack of accountability in the manner such interest was substantiated should the public infer or otherwise guess at what the interest might be.

     

    Commercial v. Non-Commercial Speech

    The First Amendment prohibits the government from making any law abridging the freedom of speech. Commercial speech is speech where the speaker is more likely to be engaged in commerce, where the audience consists of actual or potential customers, and where the content of the message is commercial in nature. Admittedly, commercial speech is afforded less protection by the First Amendment than non-commercial speech.

    The test to see whether a restriction on commercial speech violates the First Amendment is outlined by the U.S. Supreme Court’s decision in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557 (1980). First, in order to be protected by the First Amendment, commercial speech must be truthful and not misleading. If the answer is yes, the speech can only be constitutionally regulated if (i) the government has a substantial interest in regulating the speech; (ii) the regulation directly advances the governmental interest asserted; and (iii) the regulation is not more extensive than is necessary to serve that interest. Central Hudson at 565.

    Additionally, any regulation of speech is void if it is vague, meaning it does not give reasonable notice of what is prohibited, or overbroad, meaning it regulates substantially more speech than is necessary to serve the government interest at stake.

    The government has the burden of demonstrating that the challenged regulation advances its interest in a direct and material way; mere speculation or conjecture that the regulation may serve the interest is not sufficient. There must be a “reasonable fit between the legislature’s ends and the means chosen to accomplish those ends, a means narrowly tailored to achieve the desired objective.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 561 (2001).

    The Commonwealth Brands case seems to rely on the idea that branded merchandise when utilized by the public, even if only those members of the public aged over 21 years, such individuals become walking advertisements to which minors will be inevitably exposed.  While there is some logic to the concept, if taken to its logical conclusion, absolutely no brand affiliated products intended for adults should be visible in the public domain given the likelihood that a minor might encounter them – this ban would include not only tobacco, cannabis, and alcohol, but also to clearly illogical extremes such as pharmaceuticals, cars (which are not to be driven except by individuals aged 16 and older), military careers, and more. Certain, more conservative, portions of the population may well include many more items to such a list.

    In either event, even if such items may seem easily forgone by some, the Supreme Court has already rejected such logic, not only with substantial interests but even the higher bar of compelling interests, and for good reason.  In Lorillard, the Court held that even retailers and manufacturers of adult-oriented products have an interest in conveying truthful information about their products to adults, and adults have a corresponding interest in receiving truthful information about such products. Lorillard at 564. In fact, the Court has reiterated several times that the level of discourse reaching the public simply cannot be limited to that which would be suitable for a sandbox, despite the presence of minors and their inevitable exposure to such discourse. To hold otherwise would be to reduce the adult population to reading only what is fit for children. Id (citing Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 74 (1983) and Butler v. Michigan, 352 U.S. 380,  383 (1957)).

    Purely political speech is given the full protection of the First Amendment, and restrictions on political speech are judged using strict scrutiny, which is the most difficult burden for the government to uphold. There must be a compelling government interest at stake and the government restriction on speech must be narrowly tailored to achieve that interest. A law is not narrowly tailored if it is over-inclusive, meaning it restricts even speech that does not implicate the government’s interest, or if there is a less restrictive means available to serve the government’s interest. Additionally, government restrictions on the content of speech are judged using this strict scrutiny analysis.

    The constitutionality of non-commercial, content-neutral restrictions of speech are assessed using intermediate scrutiny. This means that the law or restriction must advance an important government interest, and the means chosen must be substantially related to that interest. As is the case with content-based, purely political, or commercial speech, the law cannot be vague or overbroad.

    Additionally, there can’t be what’s called a “prior restraint” on speech, which is a governmental action that prevents speech or expression before it occurs. Prior restraints are typically found to be unconstitutional.

     

    Prohibition on Cannabis Advertising of Bands

    Cannabis companies advertising their brands or products on merchandise would likely fall under the purview of commercial speech, though certain messages could be construed to be non-commercial or even purely political given the fact that the legality of cannabis is currently a topic of political discussion.

    Yet, even if a court were to find that cannabis and cannabis product advertising on merchandise was commercial speech, the restriction would not withstand Central Hudson review. Specifically, the government would not be able to meet the first and final prongs of the test—that the government have a substantial interest to be served and the regulation be not more extensive than necessary to achieve that interest. Here, the State of California may well posit an interest in ensuring that children do not have access to cannabis products made for adults in much the same way that the State has an interest in ensuring youth do not have access to alcoholic beverages; however, the scientific data is entirely lacking to put cannabis on par with tobacco given the severe and undisputed health effects associated with the latter but not the former.

    In addition, prohibiting all cannabis licensees from advertising their company or products on branded merchandise is more extensive than is necessary to serve that interest given the plethora of valid and easily implemented alternatives. There is not a “reasonable fit” here between the objective and the means chosen. Instead, the legislature could restrict marketing that is specifically designed to be attractive to children, or could prohibit cannabis licensees from distributing branded merchandise at locations where children are present. Additionally, self-regulation of the industry is also an option. This method works quite well in the beer industry, where industry-created guidelines exist for branding and marketing by brewers and have thus far prevented the need for outside, legislative restrictions.

    Interestingly, the prohibition on advertising cannabis or cannabis products through branded merchandise would only apply to licensees. This means that someone without a state-issued cannabis license, such as a headshop or unpermitted operator, both of which are more easily accessible by someone under the age of 21, could advertise cannabis products through branded merchandise without repercussion, but someone with a license would be in violation of the law if they did so. This does not seem equitable or in line with the goal of reducing child exposure to branded cannabis merchandise.

    Lastly, the restriction on speech in SB162 is overbroad, as it would regulate substantially more speech than is necessary to achieve the government’s interest in restricting advertisements to minors. Speech that is not targeted in any way towards children, is not sold or distributed in places where children are present, and is not attractive to children would be included in the prohibition. This would impede the ability of cannabis companies to engage in constitutionally protected truthful commercial speech.

    If you’re concerned about this, we encourage you to contact your state assembly member today and tell your representative to vote “NO” on SB 162 unless amended.

    Please contact the Law Offices of Omar Figueroa to learn more about proposed restrictions on cannabis branded products and constitutional challenges thereto.

  • Trinity County Licensing Up and Running, But Durational Residency Requirement Susceptible to Constitutional Challenge

     

    While California continues to dial in the details of state licensing for cannabis companies, local jurisdictions have also been hard at work doing the same. State law allows individual counties to draft and implement individualized ordinances controlling cannabis licensing and regulations. While this creates a far more complicated system that in many ways forces local business owners to navigate, research, and choose amongst many different potential counties, it also creates a land of opportunity for those willing to relocate. If, for instance, a prospective business owner found the regulations of their local jurisdiction too restrictive, with enough research they may well find another county with more desirable or easily accomplished requirements.

    One county that has not only drafted but also finalized, passed, and implemented an ordinance for local cultivation licensing is Trinity County. Currently licensing is only available in Trinity County for cultivation, but licenses for dispensaries, nurseries, and distributors are all said to be in the works as well. Moreover, Trinity County’s commercial cannabis cultivation ordinance applies to both medical and adult-use cannabis operations. The application for Trinity County comes ready with a handy checklist detailing the necessary application materials, eligible zoning, setback requirements, and much more.

    Currently, the cultivation licenses available within Trinity County are as follows:

    • Type 1 for outdoor cultivation up to 5,000 sq. ft. or 50 plants;
    • Type 1B for mixed-light cultivation up to 5,000 sq. ft. or 50 plants;
    • Type 1C for “Cottage” cultivation up to 2,500 sq. ft. or 25 plants;
    • Type 2 for up to 10,000 sq. ft.; and
    • Type 2B for mixed-light cultivation up to 10,000 sq. ft.

    A “Tier 3” license that would allow cultivation in excess of 10,000 sq. ft. is not yet available, but is being contemplated by the county.

    Applications will not be accepted for projects located within the Trinity County jurisdiction of the Whiskeytown-Shasta-Trinity National Recreation Area or within the legal boundaries of Ruth Lake Community Service District. Nor will applications be accepted for properties zoned Residential 1 (R1), Residential 2 (R2), Residential 3 (R3), Agricultural Forest (AF), Commercial (C), Open Space (OS), Public Facility (PF), Village (V) land use designation, or Timber Production Zones (TPZ) (though there will be exceptions made for certain qualified Applicants (Phase 1)). Areas zoned as Unclassified (UNC) may be accepted depending on the land use designation. For qualifying zones, prospective applicants must still comply with setback requirements. Specifically, a commercial cannabis location must be:

    • Three-hundred fifty feet (350 ft.) from any habitable dwelling on a neighboring property;
    • Thirty feet (30 ft.) from any property line;
    • One-thousand feet (1,000 ft.) from a youth-orientated facility, a school, any church, or residential treatment facility;
    • Five-hundred feet (500 ft.) from an authorized school bus stop;
    • Out of view from any public right-away; and
    • Though not stated within the ordinance, it is recommended to be at least three-hundred fifty feet (350 ft.) from any public or commercial building or business.

    In addition to the above and other requirements, there is also a constitutionally suspect roadblock for the nomadic growers who are ready to migrate to Trinity County and start the application process immediately. Currently, per Ordinance No. 315-816 (implementing the cultivation licensing program), applicants are required to prove residency in the county for a period of at least one (1) year prior to application. Thus, newcomers would be forced to wait for at least a year before even beginning the application process, a high disincentive for those hoping to get a jump on state licensing.

    This type of requirement is generally referred to as a “durational residency requirement.” Durational residency requirements have traditionally been used by one state to deny benefits to residents who have recently moved from another state. For example, California might wish to deny certain unemployment benefits to individuals who have lived within the State of California for at least one (1) year before receiving such benefits. For those still interested in moving to a ready-to-license jurisdiction, there is still hope even in Trinity County however. Durational residency requirements have repeatedly been ruled unconstitutional by the Supreme Court unless the government entity can prove that the requirement is “necessary to promote a compelling government interest” and the requirement is narrowly tailored to promote that interest without overreaching (Shapiro v. Thompson, 394 U.S. 618, 634 (1969)).

    In fact, the Supreme Court case establishing the illegality of durational residency requirements, Shapiro v. Thompson, bears a fair amount of resemblance to the Trinity County requirement. In Shapiro v. Thompson, the State of Connecticut denied welfare benefits to anyone who could not prove that they had lived within the state for at least one (1) year prior to applying for such benefits. In each instance, a government entity (county or state) demands that an individual reside in the state for at least one (1) year prior to applying for a particular benefit; there, welfare benefits, and here, commercial licenses. In the latter case, the court held the requirement unconstitutional because it in appropriately inhibited travel by United States citizens among the various states and denied certain government benefits to citizens of one state to those of another (which is considered a violation of the Privilege and Immunities Clause as well as the Equal Protection Clause). The court did not say that such requirements would always be unconstitutional however, rather a durational residency requirement could be enforceable if it was shown to be a narrowly tailored restriction addressing a compelling government issue.

    In Shapiro v. Thompson, the state claimed that it had an interest in discouraging especially needy individuals from moving to the state for benefits so that it could protect its finances from an influx of such individuals in need of benefits. The state also argued a need to efficiently budget its resources, something it claimed to be unable to do since there was no way of anticipating how many needy individuals might move to the state and apply for benefits. The court found neither motive to be sufficiently “compelling” however and rejected the state’s arguments.

    Here, Trinity County’s durational residency requirement also seems to lack a narrowly tailored and compelling government interest. According to a local media outlet, upon passing the ordinance, the Board of Supervisors indicated that the durational residency requirement was intended as a protection “for their local communities.” Specifically, Carson Anderson, the Senior Planner for Trinity County, stated that “[t]he board recognize[d] the land rush phenomenon in other jurisdictions” that legalized cannabis production and that they, Trinity County did not “want to see a lot of outsiders pouring in.” (See http://kymkemp.com/2016/09/01/trinity-supes-pass-marijuana-ordinance-one-year-residency-500-permit-cap/.) These statements seem to clearly indicate an understanding that the license constitutes a benefit as well as the county’s an intent to limit the offering of that benefit to individuals who have resided in their particular jurisdiction for a minimum length of time – just like in Shapiro v. Thompson. It seems unlikely that such an interest would be deemed compelling since it is clearly intended, just like in Shapiro v. Thompson, to discourage outsiders seeking a benefit from moving to the jurisdiction.

    As such, the one (1) year residency requirement may well be vulnerable to attack for those willing to forge the path. Anyone interested in making such a challenge would require what is referred to as “legal standing” – in other words, someone who has a legal basis to contest the requirement in a court of law. Generally speaking, someone has standing when they have been directly harmed by the law being challenged. In this instance, a valid challenger would be someone who has moved to Trinity County, applied for the license, and already been denied based on the residency requirement. Someone who was close to the one (1) year residency at the time of denial also shows the sheer arbitrariness of the requirement and would thus be ideal. If you believe that you fit this description and are interested in challenging the requirement, we invite you to contact our office using the information below.

    The above information is provided for informational purposes only and is not intended as legal advice.  Please contact a lawyer for legal counsel. If you would like legal assistance with regards to California cannabis compliance and laws from the Law Office of Omar Figueroa, please contact us at (707) 829-0215.

     

  • Governor Brown Signs SB-94; MAUCRSA Becomes California Law

    On June 27, 2017, Governor Brown signed SB-94, a budget trailer bill that makes significant changes to California’s commercial cannabis regulatory scheme. The new law, called the
    combines the medical and adult-use cannabis systems into one licensing structure with the same regulatory framework governing medical and adult use facilities.

    The license types for both medical and adult-use cannabis businesses will be as follows:

    1. Type 1 – Cultivation; Specialty outdoor; Small.
    2. Type 1A – Cultivation; Specialty indoor; Small
    3. Type 1B – Cultivation; Specialty mixed-light; Small
    4. Type 1C – Cultivation; Specialty cottage; Small
    5. Type 2 – Cultivation; Outdoor; Small
    6. Type 2A – Cultivation; Indoor; Small
    7. Type 2B – Cultivation; Mixed-light; Small
    8. Type 3 – Cultivation; Outdoor; Medium
    9. Type 3A – Cultivation; Indoor; Medium
    10. Type 3B – Cultivation; Mixed-light; Medium
    11. Type 4 – Cultivation; Nursery
    12. Type 5 – Cultivation; Outdoor; Large
    13. Type 5A – Cultivation; Indoor; Large
    14. Type 5B – Cultivation; Mixed-light; Large
    15. Type 6 – Manufacturer Level 1 [non-volatile solvents]
    16. Type 7 – Manufacturer Level 2 [volatile solvents]
    17. Type 8 – Testing Laboratory
    18. Type 10 – Retailer
    19. Type 11 – Distributor
    20. Type 12 – Microbusiness

    Licenses will be designated as either “M” (medical) or “A” (adult-use), except for testing laboratories which will be able to test both medical and adult-use cannabis products. The requirements for “M” and “A” licenses are the same unless otherwise specified. As currently written, the cross-licensure restrictions from MCRSA were mostly removed, so a person or entity can hold two or more licenses in different categories except for testing laboratories, which must be totally independent. Also, large cultivators, which will not be allowed until 2023, cannot hold distribution or testing licenses but can hold all other license types. Additionally, the premises of each license must be separate and distinct. A person can also hold both “M” and “A” licenses, but it is unclear at this point whether co-location of M and A licensees will be allowed.

    A big victory for small farmers is the removal of an independent distributor requirement. Distribution is still a required process, but now any license holder (except testing labs and large cultivators) can apply for a distributor license.

    One of the most significant changes relates to local control. Under MCRSA, an applicant was not eligible for a state license until they had a local permit or approval. Under AUMA, an applicant did not have to first obtain a local permit, but could not be in violation of any local ordinances or regulations. MAUCRSA adopts a method similar to AUMA, where an applicant may voluntarily provide proof of a license, permit, or other authorization from their local jurisdiction, but this is not required. Instead, the burden is on the local jurisdiction to provide the state with its ordinances and regulations related to commercial cannabis and to designate a contact person who will contact the state if local ordinances or regulations change, and on the state licensing agency to check with the local jurisdiction to see whether an applicant is in violation of local law. If the local jurisdiction does not respond within 60 days saying the applicant is violating local law, then the licensing agency will presume the applicant is in compliance.

    You can read the full text of the new law here: Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)

    For more details about the changes in MAUCRSA, check out our previous post, “Legislature Consolidates MCRSA and AUMA into MAUCRSA”: http://www.omarfigueroa.com/posts/

     

  • Legislature consolidates MCRSA and AUMA into MAUCRSA


    On Thursday June 15, the California Senate and Assembly passed two bills, SB-94 and AB-110, which are the state legislature’s versions of Governor Brown’s Trailer Bill. The Trailer Bill is the administration’s effort to reconcile the medical and adult use cannabis systems in California. Now that these bills have passed, Governor Brown has until July 1 to sign them into law, which he is expected to do. The law would then go into effect immediately once signed.

    We contacted the Bureau of Medical Cannabis Regulation to ask what would happen next. Their official response was:

    “The bureau will withdraw the proposed MCRSA regulations and propose a new set of regulations consistent with the changes in the law. However, public comments on the proposed MCRSA regulations are still very important. Many of the provisions in the MCRSA proposed regulations will carry over to the new regulations. Public comment from the MCRSA proposed regulations will provide information for the bureau to use when crafting any new regulations.”

    The emergency rule-making process will most likely be used for the next round of proposed regulations.

    Below are some of the main changes coming soon to California cannabis.

     

    Name of the Law and Rebranding of Regulatory Agency

    The new name for the combined medical and adult use cannabis regulatory systems is the “Medicinal and Adult Use Cannabis Regulation and Safety Act” (MAUCRSA–we think this would be pronounced MAO-KUR-SA) (BPC §26000). The Bureau of Medical Cannabis Regulation will be renamed the “Bureau of Cannabis Control” (BPC §26001(e)).

     

    License Types and Combinations

    The license types for medical and adult use cannabis operations will be the same. There will be no transporter or producing dispensary licenses. Licenses will be identified as medical or adult use with an “M” or “A,” respectively, except for testing laboratories which shall not be designated as either. The requirements for M-licenses and A-licenses shall be the same, unless otherwise specified (BPC §26050(b)). Regarding which combinations of licenses a person may hold, the law removes MCRSA’s limitation on holding licenses in more than two separate categories. Large cultivators, which will not be allowed until 2023, cannot hold distribution or testing licenses but can hold all other license types.

     

    Definition of “Owner”

    The new law eliminates the distinction between public and private companies; the threshold is 20% interest in the company to be an owner; and the CEO of a company (if applicable) ; and all members of the Board of Directors of a nonprofit (if applicable); and anyone who exercises direction, management or control of the company (if applicable) (BPC §26001(al)).

     

    Delivery

    Deliveries may only be made by a licensed retailer or microbusiness (BPC §26090). However, retailers are allowed to conduct business exclusively by delivery. Such a retailer must still have a licensed premises, but the premises may be closed to the public (BPC §26070). Deliveries includes the use of technology platforms that are either independently licensed or owned and controlled by another licensee (BPC §26001(p)).

     

    Volatile Solvents

    The definition of “volatile solvents” has been completely changed, and no longer includes references to specific compounds. Instead, a volatile chemical is defined by MAUCRSA as “a solvent that is or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures.” (HSC §11362.3(b)(3)).

     

    Lab Testing

    The bureau will issue testing laboratory licenses, but these licenses will not be designated as “M” or “A” (BPC §26050(b)). Holders of a testing laboratory license may not hold a license in any other category (BPC §26053(b)). Testing laboratories are responsible for obtaining samples and transporting them back to the laboratory

     

    Distribution

    Transportation of cannabis can only be done by licensed distributors (BPC §26070(a)(2)), but anyone, except testing laboratory license holders, can apply for a distributor license (BPC §26110).

     

    No More Prohibition on ABC Licensees Holding Cannabis Licenses

    MCRSA and AUMA prohibited a holder of an alcohol license from obtaining a license for commercial cannabis. The new legislation does away with that prohibition. Instead, the law would prohibit any cannabis licensee from serving alcoholic beverages or tobacco on the licensed premises (BPC §26054).

     

    Special Events

    Temporary event licenses that would allow on-site consumption may be available, if all participants are licensed and the local jurisdiction allows it (BPC §26200(e)).

     

     

  • Message from the State Water Resources Control Board

    State Water Resources Control Board Releases Forms to Comply with CalCannabis Licensing

    If you are planning to obtain a California Department of Food and Agriculture Cannabis Cultivation (CalCannabis) License beginning on January 1, 2018, you must provide documentation of your water supply source with your cultivation license application. Certain water diversion types require completion and submittal of special forms to the State Water Resource Control Board (State Water Board) by June 30, 2017. Some water right types, including Small Irrigation Use Registrations and existing Water Right Permits do not require information to be submitted to the State Water Board by this date. Please review the Cannabis Cultivation licensing requirements for additional information.

    In accordance with the Business and Professions Code Section 19332.2 (b), CalCannabis requires cultivators to provide documentation to the State Water Board – Division of Water Rights by June 30, 2017 for the following situations:

    1. Water is already being diverted under a riparian right. An Initial Statement of Diversion and Use must be on file with the Division of Water Rights.

    2. Pending application to appropriate water.

    3. Water is planned to be diverted and used under a riparian right and no diversion occurred in any calendar year between January 1, 2010 and January 1, 2017; Form 19332.2 (b)(5)

    4. The water diversion is from a spring that does NOT flow off the property on which it is located. The aggregate diversions from this person do not exceed 25 acre-feet in any year; Form 19332.2 (b)(4)

    5. A notice is on file with the State Water Board for the recordation of groundwater extractions and diversion of Los Angeles, Riverside, San Bernardino and Ventura Counties; Form 19332.2 (b)(4)

    6. A diversion is regulated by a Watermaster appointed by the Department of Water Resources and included in annual reports filed with a court or the State Water Board by a Watermaster, which reports identify the persons who divert water and describe the general purposes and the place, the use, and the quantity of water that has been diverted from each source; Form 19332.2 (b)(4)

    7. A diversion is included in annual reports filed with the court or State Water Board by a Watermaster appointed by a court or filed pursuant to statute to administer a final judgment determining rights to water, for which reports identify the persons who have diverted water and give the general place of use and the quantity that has been diverted from each source. Form 19332.2 (b)(4)

    If you are unsure which category your water source belongs, or need further assistance, please visit our Cannabis webpage or contact Division of Water Rights staff at WB-DWR-CannabisReg@waterboards.ca.gov or 916-341-5300.

  • Challenging Proposed Regulations for Lack of Necessity

    One way to challenge California’s proposed medical cannabis regulations is to argue that the record of rule making fails to establish the need for a particular regulation.


    California Government Code § 11349(a) defines necessity in the context of proposed regulations:
    “‘Necessity’ means the record of the rulemaking proceeding demonstrates by substantial evidence the need for a regulation to effectuate the purpose of the statute, court decision, or other provision of law that the regulation implements, interprets, or makes specific, taking into account the totality of the record. For purposes of this standard, evidence includes, but is not limited to, facts, studies, and expert opinion.”

    In other words, if the record of the rule making proceeding fails to show, by substantial evidence, the need for a particular regulation, that regulation is susceptible to a necessity challenge.

    For an example of a proposed California medical cannabis regulation which may be susceptible to a necessity challenge, the manufacturing ISOR does little to establish the necessity of the categorical prohibition on cannabis-infused caffeine products set forth in proposed Section 40300. The ISOR states:


    “The recommendation that caffeine not be allowed as an additive comes from the FDA determination that caffeine (stimulant) in certain alcoholic (depressant) beverages is an “unsafe food additive” due to the unpredictable negative effects of the two substances. The mixing of stimulants with depressants may lead to dangerous cardiac events. A similar lack of definitive information exists as well for the safety of caffeine as an additive to cannabis.”

    The ISOR cites no facts, studies, or expert opinions to establish the necessity of the ban on caffeine, and the record of the rule making proceeding at this juncture appears insufficient to establish by substantial evidence the necessity of a categorical prohibition on caffeine.

    You can easily find Section 40300 of the regulations proposed by the Office of Manufactured Cannabis Safety as well as the corresponding ISOR on the Regulations page of the Law Offices of Omar Figueroa web site:
    http://californiacannabisregulations.com
    http://http://www.omarfigueroa.com/wp-content/uploads/2012/07/OMCSCombined.pdf

    The California Office of Administrative Law has a very informative web site collecting written decisions disapproving of agency regulatory actions.  These decision identify proposed regulations which were rejected as defective. An example of a recent Disapproval Decision is the disapproval of the Department of Alcoholic Beverage Control’s proposed regulatory action for “failure to comply with the “necessity” and “clarity” standards of Government Code section 11349.1 and failure to follow all required procedures under the California Administrative Procedure Act (APA).”

    http://www.oal.ca.gov/publications/disapproval_decisions/

    https://oal.blogs.ca.gov/files/2017/04/2017-0213-01S_ABC_Disapproval-Decision.pdf

     

    The above information is provided for informational purposes only and is not intended as legal advice.  Please contact a lawyer for legal counsel.

    If you would like legal assistance in advocating for changes to the proposed regulations, please get in touch with us at (707) 829-0215 or at (415) 489-0420.

  • Draft Regs: Potential Issues Related to “Ownership”

     

    The proposed medical cannabis regulations released by California’s medical cannabis regulatory agencies — the Bureau of Medical Cannabis Regulation (BMCR), the Department of Food and Agriculture (CDFA), and the Department of Public Health (CDPH) — would require licensees to submit a new application any time there is a change in ownership or organizational structure.

    This is potentially problematic for cannabis companies for two reasons. First, the definition of “owner” is very broad, and it includes the following: 

    For public companies, an owner is anyone holding 5% or more interest in the company.
    For private companies an owner is any of the following:
    Someone holding an aggregate ownership interest (other than a security interest, lien, or encumbrance) of 20% or more interest in the cannabis business;
    The CEO and all members of the board of directors of any entity that holds an aggregate ownership interest of 20% or more in the cannabis business; or
    Any other person who participates in the direction, control or management of the commercial cannabis business.

    (BMCR § 5004; similar provisions are contained in CDFA’s and CDPH’s proposed regulations.) All individuals and entities considered to be “owners” must disclose personal and financial information about themselves. 

    Each individual named on this list shall submit the following information:
    (A) The full name of the owner.
    (B) The owner’s title within the applicant entity.
    (C) The owner’s date of birth and place of birth.
    (D) The owner’s social security number or individual taxpayer identification number.
    (E) The owner’s home address.
    (F) The owner’s telephone number. This may include a number for the owner’s home, business, or mobile telephone.
    (G) The owner’s email address.
    (H) The date the owner acquired an ownership interest in the applicant entity.
    (I) The percentage of the ownership interest held in the applicant entity by the owner.
    (J) If applicable, the number of shares in the applicant entity that the owner holds.
    (K) Whether the owner has a financial interest in any other licensee under the Act. For purposes of this section “financial interest” means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.
    (L) A copy of the owner’s government-issued identification. Acceptable forms of identification are a document issued by a federal, state, county, or municipal government that includes the name, date of birth, physical description, and picture of the person, such as a driver license.
    (M) A detailed description of the owner’s convictions. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of nolo contendere. Convictions dismissed under Penal Code section 1203.4 or equivalent non-California law must be disclosed. Juvenile adjudications and traffic infractions under $300 that did not involve alcohol, dangerous drugs, or controlled substances do not need to be included. For each conviction, the owner shall provide the following:
    (i) The date of conviction.
    (ii) Dates of incarceration if applicable.
    (iii) Dates of probation if applicable.
    (iv) Dates of parole if applicable.
    (v) A detailed description of the offense for which the owner was convicted.
    (vi) A statement of rehabilitation for each conviction. The statement of rehabilitation is to be written by the owner and shall contain all evidence that the owner would like the bureau to consider that demonstrates the owner’s fitness for licensure. Supporting evidence may be attached to the statement of rehabilitation and may include, but is not limited to, a certificate of rehabilitation under Penal Code section 4852.01, and dated letters of reference from employers, instructors, or professional counselors that contain valid contact information for the individual providing the reference.
    (N) A copy of the owner’s completed application for electronic fingerprint images submitted to the Department of Justice.
    (O) Attestation to the following statement: Under penalty of perjury, I hereby declare that the information contained within and submitted with the application is complete, true, and accurate. I understand that a misrepresentation of fact is cause for rejection of this application, denial of the license, or revocation of a license issued.
    (P) The following information regarding an individual with a community property interest in the commercial cannabis business under Family Code section 760 shall be provided by the owner:
    (i) The full name of the individual.
    (ii) The individual’s date of birth and place of birth.
    (iii) The individual’s social security number or individual taxpayer identification number.
    (iv) The individual’s mailing address.
    (v) The individual’s telephone number. This may include a number for the owner’s home, business, or mobile telephone.
    (vi) Whether the individual has a financial interest in any other licensee under the Act. For purposes of this section “financial interest” means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.

    (BMCR § 5006; similar provisions are contained in CDFA’s and CDPH’s proposed regulations.) As noted, the draft regulations would require submitting a new license application any time the ownership of a cannabis business changed. It seems excessive to require a new license to be obtained whenever a single individual who may be considered an “owner” is added to or removed from the company. For example, let’s say an LLC held a 25% interest in another company that has a commercial cannabis license. If one member of the LLC’s board of directors changed, then the other company would have to re-apply for an entirely new license to continue operating the way it had been, even though its board may not have changed and even though the LLC still holds a 25% interest.

    Second, the requirement that a new application be submitted whenever there is a change in the organizational structure of a commercial cannabis business is troubling. For  years in California, many medical cannabis businesses have structured their entities as nonprofit mutual benefit corporations (MBCs) or nonprofit cooperatives. This is because Senate Bill 420 stated it did not authorize “any individual or group to cultivate or distribute marijuana for profit,” and that qualified patients and primary caregivers who “collectively or cooperatively cultivate cannabis for medical purposes, shall not solely on the basis of that fact be subject to state criminal sanctions under Section 11357, 11358, 11359, 11360, 11366, 11366.5, or 11570.” In 2008, California’s state Attorney General Edmund Brown issued “Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use” which talked about statutory cooperatives (agricultural and consumer) and non-statutory collectives as being two types of options for medical cannabis patients and caregivers to “collectively or cooperatively” grow cannabis.

    Now, however, the tide has shifted. Under the Medical Cannabis Regulation and Safety Act (MCRSA), a “person” is defined as an individual or corporate entity, and it is implied that medical cannabis businesses may no longer have to operate on a not-for-profit basis under this new regulatory scheme. To clear this up, there is a bill pending in the state legislature, AB64, which would explicitly state that medical cannabis licensees may lawfully operate on a for-profit basis. (AB 64 would do a number of other things as well, such as allow for cannabis-specific state trademarks and place certain restrictions on cannabis advertising.) Thus, the need for nonprofit cooperatives and collectives will be largely gone soon (not to mention the collective and cooperative provision, Health & Safety Code § 11362.775, has a sunset clause which will likely take effect in early January of 2019, 12 months after the state licenses are issued), and many of these existing cannabis companies that are set up as MBCs or statutory cooperatives will likely want to restructure their entity in a way that makes sense for their business. It seems unnecessary and overly burdensome to require a cannabis company to submit a new license application whenever its organizational structure changes, especially since licensees are already required to notify their licensing agency when there is a change in any item listed in the application, which would include the list of owners and entity structure.

    This could also create problems between local jurisdictions and the state. If the state requires one to obtain a new license every time ownership changes, then the local permit that was issued to the company before its change in ownership may no longer be valid, triggering the need to go back and get a new local permit as well. However, a local jurisdiction may not be issuing any new cannabis permits, meaning the company that previously had a local permit and state license would suddenly be without a valid local permit or authorization, simply due to what could be a minor change in ownership or entity structure.

    Additionally, the proposed regulations explicitly do not allow for the transfer of licenses, and the requirement that a new license be obtained whenever there is a change in ownership or organizational structure effectively prohibits the transfer of licenses as well. For example, let’s say Dispensary A is licensed. Mr. B wants to buy Dispensary A, because he wants a licensed dispensary. Mr. B makes the arrangements and buys Dispensary A, but Dispensary A’s license becomes invalid as soon as the transaction is complete since there is now a new owner who must apply for a new license. This is likely not how most investors and operators in the cannabis industry envisioned an industry-friendly license transfer process.

    If you have concerns with any of the proposed regulations, please make sure your comments are submitted by 5:00pm on June 13/14/20 (depending on which license type), 2017. Information about submitting a public comment can be found here: BMCR, CDPH, CDFA. You can comment in writing or in person at one of the scheduled public hearings.

     

    The above information is for informational purposes only, may become outdated, and is not intended as legal advice.  Please consult with a lawyer for legal counsel.  Please contact the Law Offices of Omar Figueroa if you have questions about the regulatory process or would like the assistance of counsel in advocating for changes to the proposed regulations.

    Photo by Nik MacMillan on Unsplash.