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California Cannabis Contracts and the Attorney-Client Privilege: A Legislative Update

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We previously explored enforceability problems presented by commercial cannabis contracts in California, as well as some examples of how courts have strained to reconcile state-legal conduct with federal illegality. On October 6, California Governor Brown signed into law AB 1159, a short bill with important implications for commercial cannabis operators, service providers, and investors relating to the enforcement of commercial cannabis contracts in California.

Section 1 of 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.”

California statutory law requires contracts have a lawful object, but until now it was not clear whether this legality requirement encompassed federal as well as state law. And since cannabis is illegal under federal law, both state and federal courts wrestled with how and whether to enforce contracts that involved cannabis. Even though California law allows for commercial cannabis activity, the law pertaining to interpretation and enforcement of contracts in California remained ambiguous, and as noted in the Senate Floor Analysis of the bill, many California cannabis companies have been reluctant to litigate meritorious claims for fear the courts would not enforce their contracts. AB 1159 changes that by making clear that parties to contracts involving commercial cannabis activity can now rely on statutory law in making sure those contracts are enforceable—provided that the underlying activity complies with California state and local laws and provided the contract is interpreted under California law.

This will make it crucial you think carefully about the jurisdiction and the choice of law provisions you put into in your cannabis contracts.

The second section of AB 1159 is essentially an amendment to the California Evidence Code that solidifies the attorney-client privilege for “legal services rendered in compliance with state and local laws on medicinal cannabis or adult-use cannabis, and confidential communications provided for the purpose of rendering those services … provided the lawyer also advises the client on conflicts with respect to federal law.” The general rule in California (as elsewhere) is that the attorney-client privilege does not apply to legal services sought or obtained to enable or aid a crime or fraud. Because cannabis activity is still a crime under federal law, some thought this jeopardized the confidentiality of the attorney-client relationship in the event of an indictment or litigation. AB 1159 changes that by securing the attorney-client privilege where it pertains to cannabis activity, but only if the legal services were rendered in compliance with California state and local law and only if the lawyer advises the client on conflicts regarding federal law.

Bottom Line: California is making serious and productive moves to normalize things for its cannabis businesses. But for California cannabis businesses to take advantage of these new opportunities, they must be sure to comply with California state and local laws.

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California Commercial Cannabis: Beware the Residential Farm Purchase

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With California’s cannabis real estate market red hot right now, many cannabis businesses are looking at buying rural farms with family farmhouses as sites for their marijuana business. This though can be a risky approach. Businesses hoping to become legitimate licensed operators under California’s Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) should consider the following before signing on the dotted line on this sort of real estate deal:

  1. Government approval contingencies. One of the most important differences between a residential and a commercial Purchase and Sale Agreement is that well-crafted commercial agreements (especially in the cannabis industry) usually contain business-specific contingencies, including a contingency for local and state government approval that the buyer will be able to confirm that it can legally use the property for its intended use. Residential real estate Purchase and Sale Agreements (even those with an agricultural addendum) rarely include these specific contingencies, leaving the buyer to investigate and bear the risk. Because local law is king under MAUCRSA, you need a contingency in your real estate Purchase and Sale Agreement that will allow you to stop the deal if your local government is not going to let you conduct cannabis business on the property.
  2. Zoning. If a seller is using a residential Purchase and Sale Agreement because a house is included with the land purchase, chances are good that the property being bought is zoned residential. This sort of zoning increases the likelihood commercial uses will be disallowed altogether or restricted by local ordinance — many of which will roll out in the months and years to come as MAUCRSA licensing tees up. Even rural properties that look suitable for farming must be closely scrutinized for land use restrictions of all kinds, including zoning. A buyer cannot simply rely on the appearance of the property or on general knowledge about a past use.
  3. Nuisance. California’s Right-to-Farm laws generally work against neighbors seeking to bring nuisance claims against farming uses abutting a residential development. But those laws do not (at least as of yet) make cannabis an explicit agricultural product that landowners have a right to farm. Add that to probably the most common complaint about cannabis — odor — and you can see why that family farm could end up creating a NIMBY problem that would not be there with your typical cornfield. See California Cannabis NIMBYs and Land Use Disputes.
  4. Civil asset forfeiture. Even state-legal cannabis businesses are at risk of federal civil asset forfeiture actions and that sort of action could be even harsher for cannabis operators living in a house on their cannabis farm — the federal government could take their house as well as their land.
  5. Conservation Easements. California’s Williamson Act allows localities to enter contracts with landowners that restrict the use of their property to only agricultural purposes and not build any improvements on the land in return for local tax breaks. Some California localities (even those with medical cannabis licensing ordinances) will often decline to waive prohibitions on federal illegality in agricultural conservation easements to allow cannabis operations on those parcels because federal funding is directly tied to these conservation programs, and it is much easier for the federal government to turn off a locality’s funding spigot than to pursue a civil asset forfeiture against individuals and their land. This means you should carefully examine all land use restrictions on any parcel you are considering buying.
  6. Water rights. California’s water rights laws are complex and contentious (see, e.g., Chinatown). A California landowner’s right to use a nearby water source can flow from a number of different legal sources, such as riparian rights (land is adjacent to water source), appropriative rights (first in time, first in right), prescriptive rights (akin to adverse possession), overlaying groundwater rights, adjudicated rights, contractual rights, statutory rights, etc., etc., etc. What’s more, these various rights frequently compete with each other in priority for finite water sources, particularly during droughts. A potential buyer of a residential farm will need to look closely not only at the existing water rights associated with the property, but also at the potential for those rights to be augmented, especially if the intended use is cannabis cultivation, which is water-intensive. Commercial properties, especially those with past manufacturing or large scale agricultural uses, usually have greater established water rights than a small family farm. Furthermore, though the California Department of Food and Agriculture has not yet issued its final cannabis cultivation rules (those will come in November), MAUCRSA will require government approval of any water diversion for cultivation purposes (and water board approval by certain fast-approaching dates for some water sources), which is something that can be included in a government approval contingency but that would not typically be included in a residential Purchase and Sale Agreement, so amend accordingly.

The above list highlights just some of the key land use issues you should consider before you do any residential land deal involving cannabis.

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Reading the Cannabis Leaves: California’s Bureau of Cannabis Control Releases Responses to Summarized Public Comments

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Last week, California’s Bureau of Cannabis Control (“BCC“) finally announced the withdrawal of the MCRSA retailer, transporter, and distributor rules in light of the passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94) this past June. With that announcement also came some insight from the BCC on what we can expect in the emergency MAUCRSA rules that will drop this November. Specifically, the BCC posted on the California Cannabis Portal website that:

The three cannabis licensing authorities are in the process of drafting emergency regulations based on the new law for the commercial medicinal and adult-use cannabis industries. The licensing authorities will consider the public comments received on the draft medical cannabis regulations and use the feedback to inform the draft emergency regulations. The emergency regulations are expected to be published in November 2017.

And with that website post, the BCC also included a “high level” stakeholder-focused summary telling the public what it learned from the public comments to the MCRSA rules and how it will address those comments in the forthcoming retailer, microbusiness and distributor MAUCRSA rules.

Ultimately, it appears that the majority of public comments will be squared away automatically by MAUCRSA. For example, one summarized public comment was that specialty licenses for “delivery only” or “special events” should be created under the MCRSA (Medical Cannabis and Recreation Act). MAUCRSA takes care of both of these by allowing delivery for only retail and by providing “a state temporary event license at a county fair or district agricultural association event in local jurisdictions that authorize such events.”

There were though some summarized public comments where the BCC’s responses tell us what to expect in the future:

  1. One summarized public comment was that “The regulations should specify which party in the supply chain of transactions (manufacturer, transporter, or dispensary) bears the risk of loss and how much liability should attach.” And the BCC’s response was that liability pretty much has to be negotiated between licensees, which is 100% the right answer. We’ve blogged multiple times about the dangers of product liability (and Prop. 65 violations) in the industry and how to prepare for and shift that risk in your goods and services contracts.
  2. There were several comments about changing the definition of “owner,” lowering the 600-foot buffer requirement, and removing the mandatory labor peace agreement if you have 20 or more employees, dropping the minimum bond requirement, and other MAUCRSA-mandated operational standards, but the BCC made clear that its hands are tied because they must follow SB 94 as written.
  3. The public requested the BCC convene a hotline for assistance with applications, and the BCC replied that “The Bureau will have a call center available to help answer applicant’s questions, as well as materials on its website with information to assist applicants, licensees, and the public.”
  4. Another comment was that “The regulations should provide applicants a streamlined process for converting a business from a not-for-profit business to a for-profit business,” and the BCC punted in its response by stating that MAUCRSA doesn’t require any particular business structure for operation (again, the old collective model is not mandatory for compliance with MAUCRSA, so, if your local jurisdiction permits it, you should begin to think about corporate conversion as application time ramps up).
  5. Colocation of multiple licenses at the same “premises” is still up in the air and the BCC will address it in the emergency rules. Helpfully, AB 133 removed the “separate and distinct” requirement for multiple licenses and licenses of different types.
  6. Regarding comments about continued operations to ensure no disruption of services and goods to qualified patients, the BCC’s response is that temporary licensing should serve to prevent that disconnect.
  7. The public commented that licenses should themselves be transferable and the BCC responded that “By law, each owner must meet certain requirements to hold a license, therefore, a new application is needed. The Bureau is evaluating if a notification, rather than a new application, is appropriate when changes in persons with a financial interest in the business do not include a new owner, who is required to submit fingerprints.” Given that the withdrawn MCRSA rules rendered licenses non-transferable, we’re likely to see that again in the MAUCRSA rules, which means business purchases will likely be the only way to get a hold of a license — as long as you notify the BCC beforehand and the BCC approves that ownership change request. In any event, you should be aware of California’s M & A red flags.
  8. Summarized public comment wanted the distributor license eliminated or small businesses be able to self-distribute. The BCC responded it can’t get rid of the distributor license because it’s required under MAUCRSA, but that it is considering creating another distributor license for transportation only. Not to worry folks, you can self-distribute and you don’t need to contract with a distributor anymore to make a sale to a retailer.
  9. The BCC is reviewing whether cannabis licensees will be able to engage in “other [non-cannabis] activities.” This review came from a summarized public comment that distributors should be able to store and distribute non-cannabis related products. In all other states, licensees are restricted to only commercial cannabis activity for their license type so it would be groundbreaking if California were to go against that norm by allowing California cannabis licensees to take on other lines of business.
  10. The BCC isn’t going to allow for delivery or transport of cannabis other than by enclosed motor vehicle with sufficient GPS tracking despite summarized comments that the BCC should relax restrictions to allow for bike couriers and other modes for transporting cannabis product.
  11. On delivery, public comments asked that the BCC allow delivery by third party contractors or couriers. The BCC batted back, citing to MAUCRSA, which only allows delivery by “an employee of a licensed retailer, microbusiness, or non-profit.”
  12. Summarized public comments also leaned towards asking BCC fees for licenses be set according to a sliding scale of total net revenue. In response, the BCC stated that “Business and Professions Code section 26180 requires that fees are set on a scaled basis based on the size of the business. The Bureau is examining what method is most appropriate to determine the scaled fee, including total net revenue.”

All in all, the BCC has its work cut out for it as it goes back to the drawing board on the MAUCRSA regulations. Many issues will be out of the BCC’s control because MAUCRSA requires certain unchangeable operational standards and restrictions. November will fill in many of the outstanding “don’t knows” that still remain for California cannabis rule-making, so stay tuned.

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Is California Cannabis Coming to a Place Near You?

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Attend your local california cannabis hearings

One of the first questions clients usually ask our California cannabis lawyers is “where can I operate or expand my cannabis business?” That is because even though Californians voted for the Adult Use of Marijuana Act (a/k/a AUMA or Prop 64) California counties and cities are free to enact their own restrictions on cannabis businesses operating within their jurisdiction.

If you’ve been reading our California Cannabis Countdown series you know that to get a California State cannabis license you first need a license from your local city or county. Further complicating things is that prior to enactment of the Medical Cannabis Regulation and Safety Act of 2015 (MCRSA), many cannabis businesses were operating in an unregulated gray market or with tacit approval from their local government because few jurisdictions had their own medical cannabis ordinances and permitting processes in place. When the MCRSA and AUMA passed, most local jurisdictions created their own licensing processes so as to be able to receive a portion of California’s cannabis licensing fees and taxes.

Last week I spoke to the Marin County Bar Association on cannabis ordinances in Marin County and its municipalities. Except for Fairfax, the rest of Marin is generally not friendly towards medical cannabis. If you’re asking why I’m not talking about adult-use cannabis it’s because you’ve got to crawl before you can walk and Marin’s still figuring out how to crawl when it comes to cannabis. Both Marin County and its cities are still contemplating whether to allow medical cannabis; adult use cannabis is most likely quite some time away.

When a California city or county is trying to decide whether to allow cannabis businesses within their jurisdiction, the first thing they do is hold public hearings, with notice of the hearing made online or in the local paper. If your local government has a relevant listserv, I recommend you sign up as that’s the easiest way to stay informed. Our California cannabis attorneys regularly attend public hearings to advocate for our clients and for the cannabis industry and here is our top five list of what you should do if you would like to see your jurisdiction adopt reasonable/favorable cannabis regulations:

  1. Show up. You know the old saying about how 80% of life is showing up? Well, if you want your local jurisdiction to adopt reasonable cannabis regulations you need to show up to these hearings and voice your support – in large numbers.
  2. Be reasonable. Talk to your neighbors and local businesses. Maybe you’ll find out that a dispensary will be heavily opposed but the community is open to manufacturing, testing, and deliveries.
  3. Know your facts. Your local councilman or supervisor probably has a full-time job; most are volunteers with family obligations and work deadlines. They don’t have time to delve into the weeds (pun intended) of the cannabis industry. They want to be informed so let them know what they can expect in tax revenue. How about crime statistics in similar localities? What percentage of local residents voted for Prop 64? They probably don’t have this information so provide it to them. Help them so they can help you.
  4. Parking and traffic. Besides parking garage owners, no one likes a shortage of public parking. If you’re hoping your jurisdiction adopts a dispensary ordinance make sure you address parking and traffic.
  5. SHOW UP! I mention it twice because it’s that important. Time and time again, we’ve seen local legislators get cold feet because naysayers show up to public hearings in full force while proponents stay at home. You need to be there to balance the scales.

The California state agencies that will issue licenses (Bureau of Cannabis Control, Department of Food and Agriculture, and Department of Public Health) can only do so if your local jurisdiction allows it. Don’t take for granted that your local legislators will allow cannabis businesses in your town. Activism has been a hallmark of the cannabis industry for a long time and if you want to see cannabis businesses (either medical or adult-use) in your jurisdiction of choice, it could very well be up to you to help achieve that.

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Top Five Red Flags for California Cannabis M & A

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Ah, California. The land of tech innovation, wine country, and endless coastline. Also the land of shysters, hucksters, and snake oil salesmen, far too many of whom have migrated to the booming cannabis industry to ply their trade. With the lead up to full implementation of the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94), mergers and acquisitions of existing cannabis entities and locally approved cannabis operators are happening at a rapid pace. And with this run-up in California cannabis M&A, we are seeing all kinds of bad behavior by sellers of cannabis business looking to generate a quick buck by selling little more than vapor.

Here are my top five red flags for California cannabis business purchases so as to avoid getting lost in the smoke:

  1. Refusal to engage in due diligence. With any other business purchase, a failure by the seller to answer each and every due diligence question is a massive warning sign. Especially in California, where strange and illegal behavior has run rampant under Prop. 215, anyone looking to buy an existing operator “collective” needs to conduct due diligence to make sure they do not purchase an entity that has been suspended by the Franchise Tax Board, that’s facing massive tax penalties or an IRS audit, that doesn’t have rights to the real property on which it seeks to operate, or that doesn’t even have the authority to sell you the entity because of corporate governance issues. See also The Great Eight California Marijuana Industry Pitfalls. All too often, existing California cannabis operators claim they have no business history in writing to review and you should just “trust them.” Don’t.
  2. Paranoia about talking to regulators. The cannabis business lawyers in my firm represented a buyer in a California cannabis business purchase where the sellers became visibly angry and scared upon learning that our buyer client had reached out to local government regulators to ensure the sellers had actually secured local approval for medical cannabis commercial activity and to confirm the local government was on track to permit adult use cannabis activity sometime in 2018. Potential buyers bear the bulk of the risk in the purchase and sale of a business and they are entitled to verify that local entitlements are on track and if a seller trying to prevent that is a red flag.
  3. Bogus assets with a great pitch. Way too often, California cannabis business sellers try to pitch buyers with business assets that either do not exist or are legally impossible. Countless times, I’ve had existing operators tell my buyer clients they have a state license to operate under MAUCRSA. This cannot be true because no state license has yet to issue for cannabis activity in California; the regulatory agencies in charge of implementing MAUCRSA haven’t even issued the initial rules yet. I’ve had other existing operators claim to have access to countless contracts with future retailers (which are really just Prop. 215 collectives) for future sales or to have contracts to sell massive quantities of cannabis products to researchers or major hospitals These claims and contracts are all likely unenforceable or nonexistent, but they can sound great to a seller who doesn’t know California’s cannabis laws or marketplace. I’ve also had sellers claim they can sell their cannabis businesses without local approval issues which is also untrue almost all of the time. The name of the game in California cannabis mergers and acquisitions should be buyer beware and then some.
  4. Overvaluation. The majority of California cannabis operators seem to believe their California cannabis businesses are worth millions of dollars even though they’ve never faced regulated competition, their non-profit structures don’t grant equity to their members, or they are in a city or county that only allows for medical cannabis (which reduces the ability to maximize sales and therefore profit). We’ve blogged before about how difficult it is to truly value a cannabis business for a variety of reasons, but California is on another level with the wild numbers being pumped out without any verifiable data to support them.
  5. “Exclusive Opportunities” on the hustle. Many existing California operators try to sell potential buyers by claiming theirs is “the only opportunity” to undertake certain commercial cannabis activity in a given local jurisdiction. Rarely is this claim true. Sometimes this claim is based on the seller having a lease or sublease with proper zoning. That lease interest is indeed valuable, but it is not a once in a lifetime shot. And with this “exclusive opportunity” comes an absurdly short closing date where the seller needs the money now, now, now. If you’re a seasoned businessperson, you know that good deals take time to vet and close.
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BFD ALERT: Los Angeles Drops Revised Prop. M Regulations for Cannabis Businesses

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Los Angeles just came out with new cannabis regulations

California has lately been on its game with progressive changes to is cannabis laws. Last week, AB 133 passed, making needed technical fixes to the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94). And then last Thursday, California’s Bureau of Cannabis Control publicly revealed details behind its temporary licensing program (see here for the Bureau’s brochure on that process). And now the City of Los Angeles just released its 42-page revised draft regulations under Proposition M and they contain some interesting, comprehensive, and important changes from the original draft (if anyone forgets what Prop. M is, go here).

Here are some of the highlights from the revised ordinance if you’re looking to have a cannabis business in Los Angeles:

  1. Remember the controversial certificates of approval? Those have been eliminated in favor of a straight licensing program that includes provisional and permanent City licenses. This new licensing program will give applicants greater and better-protected rights to operate within the City’s borders. Upon initial approval, you will receive a provisional license and once you get your state license to operate, the City will issue you a permanent City of Los Angeles license.
  2. Under the original Prop. M draft regulations, certificates of approval were set to issue in four waves in this particular order: Prop. D-compliant existing medical marijuana dispensaries (EMMDs), non-retail registrants (i.e., growers and manufacturers), the social equity program, and then the general public. Formerly, non-retail registrants were only eligible for a certificate of approval in that second wave if they could show they were operating in the City before January 1, 2016. That’s all changed as there is no longer any non-retail registry priority.
  3. The City of Los Angeles Department of Cannabis Regulation will still give first priority in processing EMMD applications that “demonstrate to the Department the EMMD has operated in compliance with the provisions of the limited immunity and tax provisions of Proposition D.” Note that in the previous draft rules, the City required “substantial compliance” with Prop. D. Once applications become available, these EMMD applicants will have only 60 days to get their applications in and, after that, that application window closes indefinitely. And, just like in the original rules for EMMDs, “any mitigating circumstances due to gaps in operations, location change or involuntary closure, ownership, tax payments, etc. must be described in detail for the Department to consider eligibility.”
  4. EMMDs will only be allowed to apply for Retailer Commercial Cannabis Activity (including delivery), which may include on-site cultivation as allowable under Prop. D. On-site cultivation in this scenario may not exceed the size of the EMMD’s existing canopy or square footage of building space as documented by a lease or Certificate of Occupancy prior to January 1, 2017. A maximum of three Licenses per EMMD with a valid Business Tax Registration Certificate will be allowed–the example the City gives is: One Type 10 (retailer), One Type 10 (retailer with delivery) AND one Type 2A OR Type 3A (on-site cultivation if applicable).
  5. One of the biggest boons for EMMDs (and for any cannabis applicant in the city of L.A.) is that “changes in ownership status from non-profit status to for-profit status are allowable.” Now is the time for all LA operators to get away from their precarious non-profit mutual benefit corporations and other bizarre corporate setups and convert to a legal, for-profit business entity that lines up with the California Corporations Code.
  6.  The City of Los Angeles is still working on its social equity program. It is expected that will be finalized and made part of the Prop. M rules sometime in October.

  7.  The general public will be allowed to apply for licenses at the same time as the social equity program opens up. The most positive change for the general public is that they are no longer limited to the number of licenses that will issue in the social equity program. Without a doubt, the general public now has a much better chance to participate in L.A.’s cannabis scene.

  8. Here’s the deal on license caps in the City: all retailers and microbusinesses in the City will be limited to three licenses at the most. There are no license caps for cultivators so long as a given business does not have more than 1.5 acres of plant canopy within the City. Type 7 volatile manufacturing is now allowed (previously it wasn’t), and there are no set caps on manufacturing licenses within the City. There also is no licensing cap for distributors.
  9. As part of the application process, applicants must provide a site diagram to the City. The premises must be a contiguous area and may only be occupied by one business. However, multiple businesses may be located on the same property (as established by an assessor’s parcel number) if each premises has “a unique entrance and immovable physical barriers between unique premises.” Our cannabis lawyers have dealt with these sorts of restrictions in other states and they are usually not a problem and should be dealt with in your lease.
  10.  Applicants must provide a detailed description and plan for hiring “local residents, including making an ongoing good-faith effort to ensure that at least 30 percent of hours of their respective workforce be performed by residents of the City of Los Angeles, of which at least 10 percent of their respective workforce shall be performed by Transitional Workers whose primary place of residence is within a 3-mile radius of the proposed Business.”

  11. An applicant with ten or more full-time equivalent employees must enter into a labor peace agreement.

  12. On the M & A front, neither the City licenses nor the businesses are transferable once a provisional or permanent license issues, but you can still apply to the City to change the business structure, which does allow for you to sell the business so long as the City of Los Angeles approves the sale. See here for more on buying cannabis businesses in Los Angeles.
  13. No licensed retailer of alcoholic beverages or tobacco products can apply for a City of Los Angeles cannabis license.

  14. Foreign companies from outside the U.S. are not allowed in the City, but the City specifically states that this prohibition “does not preclude out-of-state investment in a Business proposing to conduct Commercial Cannabis Activity.” If you are thinking about investing in a California cannabis businesses, you should be sure to join us at our September 28th California Cannabis Investment Forum in San Francisco. But do NOT wait because we must limit the number attendees to 250 and we are getting dangerously close to that already.
  15. The City is still discussing what to do about zoning for cannabis businesses and changes to that proposed ordinance are sure to affect your ability to secure an eligible property.

All in all, Los Angeles is finally starting to embrace comprehensive cannabis control and oversight with a regulatory system that should catapult it into its rightful place as a cannabis powerhouse with serious operators.

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BREAKING NEWS: California Will Begin Issuing Temporary Commercial Cannabis Licenses by January 1st

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Yesterday, at the California Cannabis Business Conference in Anaheim (attended by our Southern California cannabis attorneys), the California Bureau of Cannabis Control (the “Bureau”) released information regarding temporary license applications under the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”), which we now know will start to issue on January 1, 2018–see the Bureau’s brochure on temporary licensing details here. The Bureau will likely begin accepting applications prior to that date, but no temporary license application will be effective before January 1, 2018. Additionally, the Bureau expects that the next round of draft (temporary) rules pursuant to MAUCRSA will issue sometime in mid to late November, coinciding with the release of the temporary license application.

A temporary license is a conditional license that will allow a business to engage in commercial cannabis activity for a period of up to 120 days (i.e., 4 months). Within that 120 day period, the business with a temporary license must apply for their full state license. If the operator is unable to finalize their state license within that period (through no fault of their own), the state will grant extensions to the temporary licensee until the full license is issued.

The requirements for obtaining a temporary license to engage in commercial cannabis activity are as follows:

  1. Local jurisdiction authorization. Applicants must provide a copy of a valid license, permit, or other authorization to operate issued by the applicable local jurisdiction that allows the applicant to conduct commercial cannabis activity at their proposed location.
  2. Name. Applicants must indicate the name of the individual(s) or business entity applying.
  3. License type requested. Applicants must specify which of the license types (Distributor, Retailer, Manufacturer, Etc.) they are applying for.
  4. License designation. Applicants must indicate whether they are applying for an adult use (A-license) or medicinal (M-license) license.
  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. Applicants must provide the name, mailing address, and email address of each “owner” that meets the criteria of Business and Professions Code Section 26001 (i.e., you own 20% or more of the company, you’re the CEO, you’re a director on the board of a non-profit, or you exercise any direction, control, or management of the company).
  7. Physical address. Applicants must provide the physical address of the location at which they intend to operate.
  8. Authorization to use location. Applicants must provide a copy of the title or deed to the land where the proposed premises is located, or a document from the landowner, such as a lease agreement, stating that the applicant has the right to occupy the property and may use the property for commercial cannabis activity.
  9. Premises diagram. Applicants must provide a diagram of the business’s layout at the proposed location.

It is important to note that local approval still reigns supreme–without the necessary city or county permits and/or licenses, applicants will not be able to obtain temporary or actual state licenses.

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No Bankruptcy, No Problem? Receivership and Cannabis.

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Receiver time?

Back in 2014, we wrote that bankruptcy is not an option for marijuana businesses. That issue has been litigated here and there since then, but as of today, cannabis businesses are no better off than before. The hard reality is this: all bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code. Those courts have held that it would be impossible for a U.S. Trustee to control and administer a debtor’s assets (cannabis) without violating the federal Controlled Substances Act.

Bankruptcy laws are designed to afford a fresh start to honest but unfortunate debtors, while providing equal treatment to creditors. Without recourse to bankruptcy, parties can only: (1) liquidate without court supervision, or (2) explore state court receivership. Liquidating without court supervision offers no protection to pot business creditors. State court receivership does afford protections, but adds complexity because states closely regulate who is allowed to possess and sell marijuana (through licenses). For a while, it was an open question as to whether a state court receivership would actually work in the cannabis context. Recently, one actually did.

In the case at issue, a landlord (creditor) had leased space to a licensed marijuana business tenant (debtor). The tenant failed to pay rent, and the landlord evicted the tenant and acquired a judgment for unpaid rent. Because RCW 7.60.010 et seq. provides that a Washington state court may appoint a receiver over a marijuana business, the landlord convinced the court to issue an order appointing a receiver to sell the tenant’s cannabis and satisfy the judgment. The landlord then successfully navigated the licensure issue with the Washington State Liquor and Cannabis Board, sold the pot, and collected on its judgment.

Washington is not the only pro-cannabis state with statutes and administrative rules that seek to bridge the bankruptcy gap by allowing creditors to seize and sell cannabis. In Oregon, OAR 845-025-1260 provides “Standards for Authority to Operate a Licensed Business as a Trustee, a Receiver, a Personal Representative or a Secured Party.” Our Oregon and Washington cannabis lawyers have assisted numerous clients in acquiring and perfecting security interests under the relevant rules. We expect California to adopt a similar regime.

One of the reasons creditors get such high rates of interest for loans to cannabis businesses—in addition to the fact that banks won’t lend to them—is because many pot businesses lack lienable collateral. For many of them, the net worth of the business is mostly tied up in the cannabis itself. It is now clear that, at least in Washington, the cannabis can be liquidated by a third party, whether or not the pot was initially proferred by the debtor as collateral for a loan. In that way, cannabis businesses are being treated by progressive states much like non-pot concerns.

That we finally have had one successful state court receivership probably won’t nudge circumspect lenders to reach out to the cannabis industry. However, cannabis businesses can feel encouraged that their number one asset (their cannabis) may have marketable value when looking for loans; and lenders can feel hopeful that if everything falls apart, there may be liquidation value in the cannabis crop. None of this “solves” the bankruptcy issue, but it’s a step in the right direction.

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California Hashish Countdown: Alameda County

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California has 58 counties and 482 included cities throughout the state, every with the choice to create its personal guidelines or ban marijuana altogether. On this California Hashish Countdown collection, we cowl who’s banning hashish, who’s ready to see what to with hashish, and who’s embracing California’s change to legalize marijuana — permits, laws, taxes and all. For every metropolis and county, we’ll talk about its location, historical past with hashish, present regulation, and proposed regulation to provide you a clearer image of the place to find your California hashish enterprise, the best way to maintain it authorized, and what you’ll and gained’t be allowed to do.

Our final California Hashish Countdown submit was on Oakland and earlier than that San Francisco, Sonoma County, the Metropolis of Davis, the Metropolis of Santa Rosa, County and Metropolis of San Bernardino, Marin County, Nevada County, the Metropolis of Lynwood, the Metropolis of Coachella, Los Angeles County, the Metropolis of Los Angeles, the Metropolis of Desert Scorching Springs, Sonoma County, the Metropolis of Sacramento, the Metropolis of Berkeley, Calaveras County, Monterey County and the Metropolis of Emeryville.

At present’s publish is on Alameda County.

Welcome to the California Hashish Countdown.

Location.  Alameda County is the seventh most populous county within the state of California. Its county seat is in Oakland and it occupies a lot of the East Bay area. It’s house to the Alameda County Truthful and the Alameda County Fairgrounds, which may boast to being the residence of the oldest one-mile horse racing monitor in America. Hope that tidbit is useful on trivia night time.

Historical past with Hashish and Present Hashish Legal guidelines. Again in 2005, Alameda County (this submit is addressing solely Alameda County and never the Metropolis of Alameda) started regulating hashish by passing a medical hashish dispensary ordinance. Although we’re all the time completely satisfied to see cities and counties embrace hashish companies with smart and affordable laws, Alameda’s first foray ought to be described as a really timid one. Alameda’s ordinance solely addressed medical hashish dispensaries and it capped the variety of dispensary licenses at three and it additionally restricted the quantity of hashish a dispensary might carry on its premises.

With friendlier laws in Oakland, Berkeley, Richmond, and Emeryville, this primary ordinance put Alameda at a aggressive drawback with potential hashish companies when in comparison with these cities. With the passage of the Medical Hashish Regulation Security Act (MCRSA), Alameda County (together with a lot of different California jurisdictions) determined it was time to amend their hashish ordinance. In June of 2016, the Alameda County Group Improvement Company and the Castro Valley Municipal Advisory Council held a gathering to start the method of updating Alameda’s hashish ordinance. In case you’ve ever adopted a hashish ordinance because it winds its means via your native jurisdiction you’re nicely conscious that after one assembly comes many others – supervisor conferences, planning fee conferences, citizen advisory committee conferences, and interdepartmental working group conferences, simply to call a number of. Like Gremlins, the conferences simply proceed to multiply. Let me not be too harsh on Alameda as a result of sluggish progress is best than no progress and undoubtedly higher than these options.

Proposed Hashish Legal guidelines: On August 1, 2017, the Alameda County Board of Supervisors carried out the primary studying of its proposed amendments to their hashish ordinance and on September 12th of this yr (we wish to maintain you updated right here on the Canna Regulation Weblog) the Board held a second studying of their hashish ordinance. Right here’s an inventory of the a number of the highlights of Alameda’s hashish ordinance:

  • Will increase the variety of dispensaries allowed from three to 5.
  • Permits supply of medical hashish from permitted dispensaries inside the county and from outdoors jurisdictions from 9:00am to 9:00pm.
  • Permits the sale, distribution, and supply of edibles.
  • Removes the 100-pound restrict on the quantity of hashish that may be saved by a dispensary on its premises.
  • Implements a two-year pilot program authorizing medical hashish cultivation. This pilot program will authorize as much as six cultivation permits – as much as two indoor cultivation operations and 4 mixed-light operations. Outside cultivation is prohibited.
  • Nurseries could also be permitted the place cultivation is permitted.
  • Cultivation websites should be a minimum of one thousand ft from any pre-Okay to 12th grade faculty, licensed youngster or day care facility, public park or playground, drug or alcohol restoration facility or public recreation middle.

Though the caps imposed on medical hashish dispensaries and cultivators will restrict the innovation, funding, and tax income generated by Alameda County hashish companies, that is nonetheless a step in the suitable path and we should always not let good be the enemy of the great. We’re additionally optimistic that Alameda County will proceed on its path in the direction of elevated legalization – maybe with fewer conferences subsequent time.

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AB 133 is the Hashish Technical Repair Invoice California Wants

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Having begun my hashish authorized profession in Washington State, which is a hashish market that began with a unfastened collective mannequin after which morphed into the closely regulated medicinal and grownup use market it’s at the moment, I do know firsthand that it is going to be no small activity to get proper on hashish regulation right here in California now. As everyone knows by now, hashish laws are always altering and in California such modifications appear already to be hitting us almost each month. California appears hellbent on getting revising (and re-revising) its laws in order to get a robust regulatory grip over what is going to quickly be the most worthwhile and dynamic authorized hashish market on the planet (by far).

Cue AB 133, which is probably the most vital and reasonable technical repair invoice to California’s hashish market since passage of SB 94 this summer time. SB 94 represents a regulatory union between medical and grownup use hashish from the get-go. Most different states which have legalized leisure hashish already had a strong (although unregulated) medical hashish market that they let stay for some time to the detriment of regulated operators, however California has determined from the outset that the 2 hashish industries (medical and leisure) can be mixed underneath one regulatory regime. Nevertheless, there are flaws in SB 94 and plenty of gaps and ostensible impossibilities in relation to logistics and operational requirements. Although regulating businesses (like California’s Bureau of Hashish Management) may usually be anticipated to interpret and fill within the blanks on laws by way of rule-making, California isn’t leaving something to probability with its proposal of AB 133.

If handed, AB 133 would make SB 94 much more business-friendly for operators and shoppers. AB 133 would do the next:

Although passage of AB 133 isn’t a cure-all for all that ails us in SB 94, it’s a good begin towards making certain that a number of the wider gaps in California’s present hashish laws are headed off on the move of rule-making. Most significantly, California continues to be on monitor to be one of the business-friendly regulatory states, however we’ll see what future rule-making (and native restrictions) do to that standing as fall approaches.