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BREAKING NEWS: City of Los Angeles (Finally) Passes Revised Cannabis Licensing and Zoning Ordinances

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The City of Los Angeles Passes Revised Cannabis Licensing and Zoning Ordinances

Today, the L.A. City Council finally adopted three ordinances (totaling over 70 pages) to regulate and zone the city of Los Angeles’s cannabis businesses pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). The ordinances are: Cannabis Procedures (adding Article 4 to Chapter X of the municipal code), Rules and Regulations for Cannabis Procedures (supplementing Article 4), and zoning for Commercial Cannabis Activity (adding Article 5 to Chapter X of the municipal code). Though these ordinances went through a huge number of tweaks and changes (see here and here), we finally know what L.A.’s regulated cannabis businesses will look like in 2018. This post focuses mainly on the licensing process and operational requirements for would-be licensees in L.A.

Proposition D-compliant dispensaries still get first dibs on the licensing process in L.A. under Prop. M, but the definition of an “existing medical marijuana dispensary” (“EMMD”) has changed somewhat under the revised ordinances. EMMD now means:

. . . an existing medical marijuana dispensary that is in compliance with all restrictions of Proposition D, notwithstanding those restrictions are or would have been repealed, including, but not limited to, either possessing a 2017 L050 BTRC and current with all City-owed business taxes, or received a BTRC in 2007, registered with the City Clerk by November 13, 2007 (in accordance with the requirements under Interim Control Ordinance 179027), received a L050 BTRC in 2015 or 2016 and submits payment for all City-owed business taxes before the License application is deemed complete.

L.A. will still have a local licensing system made up of the following licenses for both medical and adult use cannabis commercial activity: Type 10 (brick and mortar retail); Type 9 (delivery only, non-storefront retailer); Type 12 (microbusiness); Type 1A, 2A, 3A, 4, 5A, and 1C (indoor only cultivation licenses (Type 5s aren’t available from the state right now)); Processor license; Type 6 (non-volatile manufacturing license); Type 7 (volatile manufacturing license); Type P (infusion license); Type N (packaging license); Type 8 (testing); and Type 11 (distributor license). All license applicants in L.A. now need to pay attention to “Undue Concentration”. Undue Concentration means:

. . . the Applicant’s Business Premises is located within a higher cannabis license/population ratio within the community plan based on the 2016 American Community Survey, updated by each decennial census, than the following: ratio of one license per 10,000 residents for Retailer (Type 10); ratio of one license per 7,500 residents for Microbusiness (Type 12); ratio of 1 square foot of cultivated area for every 350 square feet of land zoned M1, M2, M3, MR1, and MR2 with a maximum aggregate of 100,000 square feet of cultivated area and a maximum aggregate number of 15 Licenses at a ratio of one License for every 2,500 square feet of allowable cultivated area for Cultivation (Types 1A, 1C, 2A, 3A, 4 and 5A); and ratio of one license per 7,500 residents for Manufacture (Type 7).

Importantly, an EMMD won’t be subject to the Undue Concentration analysis. A microbusiness involved in on­ site retail counts towards the Undue Concentration License limits applied to Type 10 Retailer licenses, and a microbusiness involved in cultivation counts towards the undue concentration limits applied to the cultivation licenses types. If you’re in a geographical area of Undue Concentration, you have to file with the City Clerk, on a form provided by DCR, “a request that the City Council find that approval of the License application would serve public convenience or necessity, supported by evidence in the record.” If the City Council does not act on your request within 90 days, it will be deemed to support “public convenience”. See here for the City’s calculations around Undue Concentration.

Outside of priority licensing processing for EMMDs, the basic gist of the general licensing process is as follows.

The City of L.A. Department of Cannabis Regulation (“DCR”) is your first stop for submitting your license application once the application window opens (we don’t know when that will be outside of EMMDs). Whether or not you ultimately get your license though is decided by the City of L.A. Cannabis Regulation Commission (“Commission”). Within 10 days of determining that your license application is complete, the DCR will instruct you to provide mailed notice of your application to the owner or owners of business premises, and to the owners and occupants of all property, within 500 feet of your proposed premises property line. Written notice must also be given to the closest neighborhood council, the closest business improvement district and the City Council office within which your proposed business is situated. And for any public hearings regarding your license application, you have to provide written notice of that hearing to all of the foregoing no less than 45 days prior to the date of the hearings.

For retail commercial cannabis activity (which is defined to include sales and distribution of cannabis to the public) and for non-retail commercial cannabis activity taking place in a space that’s more than 30,000 square feet, once your license application is complete and you undergo a mandatory pre-license inspection, the DCR must tell you within 60 days whether they will deny your license application or recommend you to the Commission for a license. DCR can deny your license application with no hearing and based only on written findings for several grounds as laid out in the Cannabis Procedures ordinance, including for being non-responsive, because of Undue Concentration (unless the public convenience exception is met), or because you made material misrepresentations in your application. If DCR recommends the Commission grant you a license, a public hearing must then be held “within the geographic area of the Area Planning Commission”. At this point, the Commission basically has all authority to consider the entire record, Undue Concentration, all public testimony, any public safety issues, and the recommendation of the DCR in deciding whether to issue a license.

For non-retail commercial cannabis activity taking place in a space that’s less than 30,000 square feet, the licensing process is simpler where the DCR can just deny or issue the license without a hearing within 60 days of receiving a complete application and completing a pre-license inspection.

Even though Prop. D. is repealed as of January 1, 2018, for Prop. M priority processing, an EMMD that, as of January 1, 2018, meets all Proposition D requirements will receive limited immunity up until the time it gets Temporary Approval (i.e., DCR-issued temporary approval of your license). This limited immunity terminates if the EMMD fails to seek or obtain a Temporary Approval. Once DCR deems a Proposition M priority processing application is complete and eligible for priority processing, DCR has to issue a Temporary Approval to the EMMD, which then allows the EMMD to maintain its Prop. D immunity (even after that immunity is repealed until it receives a license from the City). Before getting a Temporary Approval (or a license), EMMDs have to submit to a financial audit by the City’s Office of Finance and clear all City tax obligations.

An EMMD issued a license pursuant to Proposition M priority processing is not required to adhere to the zoning, distance and sensitive use restrictions posed by the new zoning laws on the condition that the EMMD operates and continues to operate in compliance with the distance and sensitive use restrictions of Proposition D and so long as it limits on ­site cultivation, if any, not exceed the size of its existing square footage of building space as of March 7, 2017, “as documented by dated photographs, building lease entered into on or before March 7, 2017, or other comparable evidence”. This limited grandfathering stops on December 31, 2022, after which all EMMDs must comply with applicable zoning laws.

Of course, there’s way more detail to the licensing process than the foregoing. If you haven’t had a chance to read the ordinances in full, don’t worry–here are the highlights:

  1. EMMDs can only apply for priority processing during the first 60 days after DCR opens license applications.
  2. Limitations on licenses are as follows: an applicant can only have up to THREE Type 10 or Type 9 retailer licenses, and cultivators aren’t limited in the number of cultivation licenses they can have but they will have a plant canopy cap citywide of no more than 1.5 acres per applicant (recall, the state no longer has any statewide plant canopy cap limitations). In addition, EMMDs may apply for a maximum of ONE Type 12 microbusiness OR a maximum combination of ONE Type 10 retail license, ONE “Delivery for Retailer License”, ONE Distributor License (Type 11 for self-distribution transport only), ONE manufacturer license (Type 6 only) and ONE cultivation license (Type 1A, 1C, 2A or 3A) identified in its original or amended Business Tax Registration Certificate (“BTRC”) and as “demonstrated in previous Commercial Cannabis Activity as of March 7, 2017.”
  3. There’s a list of folks who will be ineligible for certain periods of time (or completely ineligible) to receive a local license in L.A. which includes (but is not limited to) persons convicted of “illegal volatile cannabis manufacturing” in violation of the Health and Safety Code, anyone who’s violated state or local hour or labor laws, companies formed outside the U.S., and anyone convicted of violating any law involving distribution of cannabis to minors. And any non-cannabis drug felonies may also be grounds to reject a license application.
  4. A License is not transferable–there can only be a change of ownership for the licensee. And that change has to be submitted to and approved by DCR.
  5. A change from non-profit to for-profit status is allowed by an EMMD and it’s exempt from clearance by DCR if “no other ownership change is made in accordance with Proposition D’s ownership rules and notice is provided to DCR within five business days.” This exemption isn’t available after the license issues.
  6. Temporary approval is also available for those existing non-retail operators who qualify presumably to ensure that L.A. has a smooth transition period from gray market to fully regulated.  An applicant who applies for a license for non-retail commercial cannabis activity and who meets the following criteria as determined by DCR will receive Temporary Approval, which gives the applicant limited immunity to operate pending the review of its license application:
    1. the Business Premises meets all of the land use and sensitive use requirements of the zoning laws;
    2. there are no fire or life safety violations on the Business Premises; and
    3. the Applicant:
      1. was engaged prior to January 1,2016, in the same Non-Retailer Commercial Cannabis Activity that it now seeks a License for;
      2. provides evidence and attests under penalty of perjury that it was a supplier to an EMMD prior to January 1, 2017;
      3. passes a pre-license inspection;
      4. paid all outstanding City business tax obligations;
      5. indemnifies the City from any potential liability on a form approved by DCR;
      6. provides a written agreement with a testing laboratory for testing of all Cannabis and Cannabis products and attests to testing all of its Cannabis and Cannabis products in accordance with state standards;
      7.  is not engaged in Retailer Commercial Cannabis Activity at the Business Premises;
      8. attests that it will cease all operations if denied a State license or City License;
      9. qualifies under the Social Equity Program;
      10. attests that it will comply with all operating requirements imposed by DCR and that DCR may immediately suspend or revoke the Temporary Approval if the Applicant fails to abide by any City operating requirement.
  7. We finally have the social equity program codified in law. There are three tiers of social equity applicants based on an applicants’ low-income, previous California cannabis convictions, and cumulative residency in a “Disproportionately Impacted Area.” Tier 1 social equity applicants get priority processing for Type 9 and 10 and for Type 12 (that includes retail) licenses on a 2 to 1 ratio with all non-social equity applicants, and for all non-retail license types, Tier 1-3 social equity applicants get priority processing on a 1 to 1 ratio with all non-social equity applicants. There are multiple ownership and financier restrictions for social equity applicants so that the city can safeguard these applicants from hawkish and predatory business behavior and activities.
  8. The operational requirements for licensees in L.A. (found in the Rules and Regulations for Cannabis Procedures ordinance) pretty much track the emergency MAUCRSA rules, with a few notable exceptions (and this is not an exhaustive list) — no on-site consumption will be allowed in L.A., and no parties or special events (or even entertainment) of any kind may be held at any licensed cannabis business. And if any company wants to deliver within the City of L.A., it must also get a license from the DCR and/or Commission.

With this kind of comprehensive regulation, it’s not going to be easy to get through the gauntlet of DCR and/or the Commission to receive a local license, so license applicants should prepare themselves accordingly ahead of January 1.

 

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Lunch-Time Webinar Series: California Local Government, California MAUCRSA Licensing, and Cannabis Litigation

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Upcoming Cannabis Events

Over the next month or so, Harris Bricken will be putting on three lunch-time webinars relevant to starting and operating a cannabis business. All three will be from 12 to 1:15 pm Pacific Time.

The first of our webinars will be with Botec Analysis, a leading drug and crime policy research and consulting firm. This webinar, “Rights, Opportunities, and Responsibilities of California Municipalities Regulating Cannabis,” will be on Thursday, December 14. BOTEC’s Brad Rowe and Harris Bricken’s Hilary Bricken will discuss the legal and policy and regulatory issues California’s local governments need to know about MAUCRSA. To learn more about this webinar and to register for it, please go here.

Our second webinar, “What You Need to Know Now to Get Your California Cannabis License on January 1,” will be on Monday, December 18. Featuring two of Harris Bricken’s Los Angeles-based attorneys, Hilary Bricken and Julie Hamill, and two of our San Francisco-based attorneys, Alison Malsbury and Habib Bentaleb, this webinar will give listeners an overview of the recently issued emergency MAUCRSA rules governing medicinal and adult use cannabis licensing and operations in California. It will cover the licensing process for each license type, operational standards for all license types (including renewable energy requirements for cultivators), the 6-month “transitional” period for product and operations, major changes between the MCRSA and MAUCRSA rules, and key unknowns posed by the rules. You can register for this free webinar here.

On January 11, four of our cannabis lawyers from California, Oregon, and Washington will discuss both how to avoid cannabis disputes and how to prevail should you be involved in such a dispute. Will Patterson, John Mansfield, Hilary Bricken, and Vince Sliwoski will lead this webinar and they will cover the following topics:

  • The present state of cannabis litigation
  • Emerging trends in cannabis litigation
  • Disputes involving cannabis partnerships and other business entities
  • Intellectual property disputes involving cannabis
  • Cannabis product liability disputes
  • Federal law issues inherent in every cannabis case
  • Nuisance cases against cannabis businesses
  • Arbitrating and mediating your cannabis disputes
  • How disputes involving cannabis businesses differ from other disputes

To register for this free webinar, please go here.

All webinars will accept audience questions before, during, and after the presentation. For logistical questions or to send questions to presenters in advance of the webinars, please email firm@harrisbricken.com.

We look forward to having these discussions with you.

 

 

 

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Emergency MAUCRSA Regulations: California Cannabis Manufacturing in California

California cannabis manufacturing lawsWe wrote last week about the California Bureau of Cannabis Control’s (BCC) issuance of their much-anticipated emergency rules to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) in California. These emergency regulations, including those issued by the Departments of Public Health and Food and Agriculture, can be found here, here, and here.

The emergency rules are similar to the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA), but there are some important additions and gap-fillers with which applicants need to familiarize themselves. In the coming weeks, we’ll be summarizing some of the key rules with respect to each category of license, beginning with manufacturing. We will be discussing these regulations a bit at our Southern California Cannabis Investment Forum on November 30 in Los Angeles and it would also behoove you to stay tuned for an announcement setting the date for our next webinar, which will delve into the new regulations in detail.

The California Department of Public Health (CDPH) regulates cannabis manufacturing through its Manufactured Cannabis Safety Branch. The CDPH will issue temporary licenses allowing manufacturers to engage in commercial cannabis activity, effective January 1st. These temporary licenses will be valid for 120 days and may be extended for additional periods of 90 days if the business has submitted an annual license application.

For manufacturers, there are two license categories and four license types, a departure from the categories specified in SB 94. The two license categories are the A-License for the adult-use market and the M-License for the medicinal market. A single business may hold both an M- and an A- license at the same premises, so long as they submit separate applications for each.

The four license types are as follows:

  • Type 7: Extraction using volatile solvents (i.e. butane, hexane, pentane).
  • Type 6: Extraction using non-volatile solvents or mechanical methods (i.e. food-grade butter, oil, water, carbon dioxide). The rules also clarified the definition of “volatile” by expressly excluding ethanol, which is now deemed “non-volatile.”
  • Type N: Infusions (i.e. using pre-extracted oils to create edibles, beverages, capsules, vape cartridges, tinctures or topicals).
  • Type P: Packaging and labeling only

*Note that both the Type N and Type P licenses had been eliminated in SB 94, but have been reintroduced.

Each licensee will need to have written SOPs for inventory control, quality control, transportation, security, and cannabis waste disposal and must submit these SOPs with their license application. Extractions using CO2 or any volatile solvent must be conducted with a closed-loop system that has been certified by a California-licensed engineer, and volatile, hydrocarbon-based solvents must have at least 99% purity. Certification by the local fire code official will be required for volatile solvent, CO2, and ethanol extractions.

Many of the product standards from the repealed MCRSA rules have also made their way into the new MAUCRSA regulations. For example, products cannot be infused with nicotine or alcohol, or have added caffeine. Edibles cannot be shaped like a human, animal, insect, or fruit, and potentially hazardous foods like meat, seafood and other products requiring refrigeration are prohibited.

The potency requirements have changed slightly, although edibles are still limited to a maximum of 10 mg of THC per serving and 100 mg of THC per package. Other cannabis products, including tinctures, capsules, and topicals, may contain up to 1,000 mg of THC per package for adult-use products and 2,000 mg per package for medicinal-use products.

The MAUCRSA packaging and labeling regulations will require a significant departure from current practices for many existing manufacturers. Cannabis product packaging cannot resemble traditionally available food packages, and all edibles packaging must be opaque. Cannabis products and their packaging cannot be attractive to children, and packaging must be tamper-evident and child-resistant. Labels must include an ingredient list, nutritional facts, and the CDPH-issued universal symbol. Products cannot be referred to as “candy,” and must include mandated warning statements and the THC content.

Perhaps most promising to many small-scale manufacturers is CDPH’s statement that it is currently developing an additional license type, Type S, which would allow businesses to share facility space. Currently, the rules require a separate and distinct premises for each license, with the exception being that a licensee can hold both an M- and A- license of the same type on one premises. The Type S license would open the door to co-sharing of manufacturing facilities and possibly equipment, which would greatly reduce the barriers to entry for many small companies struggling to secure and build out their own manufacturing facility.

In the coming days, we’ll be delving into the new regulations for cultivation, retail, and distribution as well, so stay tuned.

 

 

 

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The Cannabis Laws of Los Angeles County: The San Gabriel Valley

San Gabriel Valley Cannabis LawsOur Los Angeles cannabis lawyers (of which I am one) are constantly being asked about the cannabis laws of various of the 88 incorporated cities in Los Angeles County.

Because it is both important and difficult to decipher each individual city’s local laws, we thought it would be helpful to provide you with charts to help. We divided the county into 4 regions and we will over the next few weeks trickle out the charts for each of these regions to keep you updated on each of the cities and their current laws. Part 1 was The Cannabis Laws of Los Angeles County: The 24 Cities in the Westside/South Bay Region (310).

This week’s post highlights the cities located in and around the San Gabriel Valley. Here is the chart showing the laws pertaining to cultivation, dispensing, distribution, and manufacturing in San Gabriel Valley Cities.

Before you can receive a California cannabis license you must have proof of local approval. Our charts in this series are intended to help you figure out whether such local approval is possible and, if so, what it takes to get it. Look for additional blog posts on remaining LA incorporated cities over the next few weeks.

 

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BREAKING: California Releases Its Emergency MAUCRSA Regulations

California’s Bureau of Cannabis Control (along with its Departments of Public Health and Food and Agriculture) dropped their much-anticipated emergency rules this afternoon (see here, here, and here) to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act in California. The agencies kept a lot of what we saw from the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA). (see here, here, here, and here), but there are also some new, notable additions and some interesting gap-fillers that now give us the foundation for operational standards across cannabis license types.

Though we can’t cover every single change or topic from these rules in one post (and because we’ll be covering the license types and application details in other posts in the coming days and weeks and at our SoCal Cannabis Forum), I will instead focus on the following highlights of the emergency rules:

  1. We now have a revised definition of “canopy,” which is “the designated area(s) at a licensed premise that will contain mature plants at any point in time.” In addition, canopy shall be calculated in square feet and measured using clearly identifiable boundaries of all area(s) that will contain mature plants at any point in time, including all of the space(s) within the boundaries. Canopy may be noncontiguous, but each unique area included in the total canopy calculation shall be separated by an identifiable boundary which includes interior walls, shelves, greenhouse walls, hoop house walls, garden benches, hedgerows, fencing, garden beds, or garden plots; and

    1. If mature plants are being cultivated using a shelving system, the surface area of each level shall be included in the total canopy calculation.
    2. “Nonvolatile solvent” has been further defined to mean “any solvent used in the extraction process that is not a volatile solvent,” which “includes carbon dioxide (CO2) used for extraction and ethanol used for extraction or post-extraction processing.”
  2. Temporary licensing has now been fully detailed to include online applications, the personal information for each owner that must be disclosed, contact information for the applicant’s designated point of contact, physical address of the premises, evidence that the applicant has the legal right to occupy the premises for the desired license type, proof of local approval, and the fact that the temporary license (which is good for 120 days) may be renewed and extended by the state for additional 90 day periods so long as a “complete application for an annual license” has been submitted to the state. No temporary license will become effective until January 1, 2018.
  3. For the full blown “annual license,” the application requirements are pretty much the same as under the MCRSA rules except that you must disclose whether you’re applying for an “M License” or an “A License” and you have to list out all of your financing and financiers which include: “A list of funds belonging to the applicant held  in savings, checking, or other accounts maintained by a financial institution, a list of loans (with all attendant loan information and documentation, including the list of security provided for the loan), all investment funds and names of the investors, a list of all gifts, and a list with certain identifying information of anyone with a “financial interest” in the business. “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.” The only exempt “financial interests” are bank or financial institution lenders, individuals whose only financial interest is through an interest in a diversified mutual fund, blind trust, or “similar instrument”, and those shareholders in a publicly traded company who hold less than 5% of the total shares.
  4. As part of your licensing application, you will still need to submit a premises diagram drawn to scale along with all of your security procedures and inventory procedures (and pretty much all corresponding operational SOPs) A $5,000 bond is still required for all licensees (as well as mandatory insurance) and all owners must submit their felony conviction criminal histories as specifically enumerated in the regulations, as well as rehabilitation statements.
  5. Several new licenses have been created (and/or brought back from the dead from MCRSA): the cannabis event organizer license (to enable people to take advantage of the temporary cannabis event license), the distribution transporter only license (which allows this licensee to only move product between licensees, but not to retailers unless what’s being transported are  immature plants or seeds from a Type 4 nursery), the processor license (a cultivation site that conducts only trimming, drying, curing, grading, packaging, or labeling of cannabis and non-manufactured cannabis products), the Type N and P manufacturing licenses are back, and there’s now a Type 9 delivery only Non-Storefront Retailer license.
  6. We also now have the non-refundable licensing fee schedules and though they vary depending on the license type they mostly are nominal, though some increase with increased gross receipts, and small and medium-sized growers will have to pay pretty robust fees.
  7. If you want to make changes after-the-fact to your premises or to your ownership structure, you first must secure state approval to do so.
  8. All growers are again limited to one Type 3 medium cultivation license each, whether it’s an M License or an A License.
  9. A retailer can sell non-cannabis goods on its premises so long as their city or county allows it (this excludes alcohol, tobacco, and tobacco products). Retailers can also sell non-flowering, immature plants (no more than six in a single day to a single customer). M-licensed retailers and micro-businesses can also give cannabis away free of charge to qualified patients or to their caregivers.
  10. Notably, until July 1, 2018, licensees may conduct commercial cannabis activities with any other licensee, regardless of the A or M designation of the license.
  11. The renewable energy requirements for cultivators have been revamped hopefully to the satisfaction of cannabis growers.
  12. Again, the licenses are NOT transferable, so we’re looking at folks only being able to purchase the businesses that hold them.
  13. Distributors will be able to re-package and re-label flower, but not infused cannabis products unless they hold a manufacturing license. Distributors also cannot store any non-cannabis goods at their premises. The state has laid out what must take place during a distributor’s quality assurance review and the chain of custody protocol with third party labs for testing.
  14. We have a detailed list of all permissible extraction types, including that any CO2 extractions must be done within a closed loop system.
  15. The prohibited products list is pretty much the same as it was under the  MCRSA rules (so, no nicotine or caffeine infused cannabis products).
  16. In regards to “premises,” the Bureau’s regulations mandate that a licensee may have up to two licenses at a given premises or the same license type so long as they’re owned by the same company and one is an A-License and  the other is an  M-License.
  17. In addition to other relatively onerous advertising requirements, licensees must “Prior to any advertising or marketing from the licensee involving direct, individualized communication or dialog, . . .  use age affirmation to verify that the recipient is 21 years of age or older.” Direct, individualized communication or dialog, may occur through any form of communication including in person, telephone, physical mail, or electronic. A method of age verification is not necessary for a communication if the licensee can verify that “the licensee has previously had the intended recipient undergo a method of age affirmation and the licensee is reasonably certain that the communication will only be received by the intended recipient.”
  18. Retailers and micro-businesses are now required to hire third party security to protect and watch their premises.
  19. To hold a micro-business license, a licensee must engage in at least three of the following commercial cannabis activities: cultivation, manufacturing, distribution, and retail sale. There are also now a slew of regulations surrounding each activity a micro-business can undertake.
  20. Live entertainment is now allowed at a licensed premises so long as it follows the bevy of regulations regarding content and presentation.

Overall, we have a close-ish copy of the withdrawn MCRSA rules that will lead us into 2018. Be sure to read the rules again and again before pursuing your California cannabis license. Applicants will have their work cut out for them on both the state and local levels.

 

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California Cannabis Countdown: The City of Hayward

California Cannabis HaywardCalifornia has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is waiting to see what to do with cannabis, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law, all to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on Alameda County, and before that Oakland, San Francisco, Sonoma County, the City of Davis, the City of Santa Rosa, County and City of San Bernardino, Marin County, Nevada County, the City of Lynwood, the City of Coachella, Los Angeles County, the City of Los Angeles, the City of Desert Hot Springs, Sonoma County, the City of Sacramento, the City of Berkeley, Calaveras County, Monterey County and the City of Emeryville.

Today’s post is on the City of Hayward.

Welcome to the California Cannabis Countdown.

LocationHayward is a city in Alameda County that borders the East Bay cities of San Leandro, Fremont, and Pleasanton. Though Hayward doesn’t have the worldwide recognition of San Francisco or Oakland, it is an affordable city near the water with a strong manufacturing base.

History with Cannabis and Current Cannabis Laws. Right now you might be asking yourself: Hayward? Sure Hayward at first might not seem like a jurisdiction in which to locate your California cannabis business, but in the other states in which we have cannabis lawyers (Oregon and Washington), we long ago learned that the most glamorous cities are not necessarily the most profitable ones.

Historically, Hayward’s stance towards cannabis probably aligns closer with U.S. Attorney General Jeff Sessions than with most Californians. Hayward’s unfriendly approach to cannabis — absolute prohibition through an exclusionary zoning ordinance — was even starker when compared to the other progressive cities in the East Bay (Oakland, Berkeley, and Emeryville). Hayward’s slow march towards progress began in November of 2016 when approximately 60 percent of Hayward voters supported Measure EE and 56 percent voted for the Adult Use of Marijuana (a/k/a Prop 64). Measure EE set up a tax structure allowing the city of Hayward to tax cannabis businesses up to fifteen percent of their gross sales. The Measure specified that the tax could apply to medical and adult-use cannabis businesses and cover seed to sale license types (cultivation, manufacturing, distribution, and retail). Let’s give credit when it’s due as Hayward’s city council took notice of their residents’ wishes and just recently proposed and voted on a new cannabis ordinance.

New Cannabis Laws: On September 14, 2017, the Planning Commission held a hearing to discuss regulations for cannabis business and on October 17, Hayward’s City Council introduced an ordinance amending their municipal code. The proposed ordinance removed Hayward from the dark ages of complete prohibition. On October 30th, the City Council approved a final version of their cannabis ordinance. Here’s a list of the some of the highlights (and some lowlights) of Hayward’s cannabis ordinance:

  • Allows medicinal and adult-use commercial cannabis businesses.
  • Will permit seed to sale license types, including laboratories. Commercial cannabis cultivation operations under 5,000 square feet will only need an administrative use permit, bigger operators will need to obtain a conditional use permit.
  • Outdoor commercial cannabis cultivation is prohibited.
  • Volatile manufacturing is prohibited.
  • Caps the number of retail dispensaries to no more than three.
  • Onsite consumption is prohibited although an exception could be granted for qualified medical patients.
  • Temporary special events that involve onsite cannabis sales and consumption may be allowed if the applicant receives a special event permit.
  • Multiple cannabis businesses can be permitted per site so long as the businesses are located on separate and distinct premises.
  • Creates an ancillary option for retail sales. The retail sale of cannabis and cannabis products is allowed only as a component of a microbusiness operation. The operator must hold a microbusiness (Type 12) license issued by the state Bureau of Cannabis Control. The cumulative floor area of the retail activity shall not exceed 10 percent of the first-floor area of the industrial building and all cannabis and cannabis products for sale must have been cultivated, produced and manufactured on-site.
  • All individuals that participate in the production of edible cannabis products must be state certified food handlers.
  • Security cameras will have to allow for remote access to be provided to the Hayward Police Department.
  • All cannabis businesses shall be subject to a 600-foot minimum setback from schools, day care centers, youth centers, and open space areas or designated parks used towards children’s activities. The setback for public parks and open spaces may be reduced by the Planning Commission.
  • Applications for a cannabis business permit will be evaluated by the City Manager.

As a whole, this is a pretty substantial first step by Hayward to regulate the cannabis industry. Sure, we’d prefer if there weren’t a cap on dispensaries but the city is showing some creativity by creating an ancillary sales option. This modified microbusiness model could be an attractive option for many California cannabis business owners. We’ll still have to wait to see how Hayward implements this ordinance, but it’s safe to say that you won’t find Hayward on this list anytime soon. Well done Hayward, well done.

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Santa Cruz County Takes Another Step Toward Adult-Use Cannabis Regulation

Santa Cruz cannabis regulations
Santa Cruz is in the forefront of California cannabis

We wrote last week about the City of Santa Cruz’s efforts in adopting and implementing adult-use cannabis regulations, and on Tuesday, the Santa Cruz County Board of Supervisors voted unanimously to allow the twelve existing legal medical marijuana dispensaries in the County to sell adult-use cannabis as well. The dispensaries will of course need a state license in addition to local approval, but this move by the County will position these dispensaries to be among the first in the state able to apply for adult-use retail licenses come January 1st.

Santa Cruz County now joins a very small list of California jurisdictions that have taken proactive steps toward implementing adult-use cannabis regulations. Most California cities and counties are still waiting for guidance from the state’s Bureau of Cannabis Control (BCC), which is not set to release proposed state rules governing both adult-use and medical cannabis until mid to late November. Without guidance from the state, local governments have been reluctant to put resources into drafting cannabis regulations when those state rules could necessitate substantial revisions.

Both Santa Cruz City and County have been working to stay at the forefront of cannabis industry development. I had the opportunity to attend the City of Santa Cruz Planning Commission meeting last week, and the Commission voted to propose that the City Council make certain amendments to the proposed ordinance:

  • Additional privacy protections for retail store managers, including removing the requirement that managers’ addresses be public information;
  • Clarification that multiple cultivation licensees can operate on the same premises, so long as they are separate and distinct, and meet all other state licensing requirements; and
  • Rather than prohibiting deliveries from outside the City of Santa Cruz, expanding this restriction to allow for deliveries from retail stores anywhere within Santa Cruz County.

There was some talk about opening up the downtown retail core to cannabis businesses, and reducing the buffer from 600 feet to 300 feet, but the Commission ultimately decided these would be changes to discuss down the road, after the licensing program had been established and operating. Santa Cruz’s City Council is scheduled to read its proposed ordinance on November 14th, after reviewing the Planning Commission’s recommendations. The City of Santa Cruz will cap the number of available retail licenses at five, with the two existing, legal medical dispensaries having priority for adult-use licenses. And Santa Cruz County, which has moved to give its twelve existing dispensaries priority for adult-use licenses, has authorized only fourteen dispensaries as eligible for licenses. According to the County, they do not anticipate licensing additional dispensaries for either medical or recreational cannabis at this time, although that could change with upcoming rules implementation.

 

 

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The More You Know: Top 5 Predatory Practices in California Cannabis

California cannabis lawyers
Cue California cannabis cautions

With temporary licensing on the horizon, California’s cannabis industry is obviously on the cusp of really big things. With this green rush, our California cannabis business attorneys have been brought on to work on all kinds of M&A deals and a bevy of MAUCRSA and local law regulatory compliance issues. These projects have exposed us to many who pitch various and sundry goods and services, claiming to offer “new paradigms” and “value adds,” but actually offering little to nothing.

In this post, I set out the five most common predatory practices we’re seeing in the Golden State cannabis industry so you can spot them when they’re coming at you and avoid them.

  1. Brokers. Whether it’s for M&A, financing, or finding real estate, many brokers are all too willing to sell cannabis companies down the river when it comes to compliance and just plain common sense. Far too many brokers neither know nor care about local or state law and they work only at cramming a deal down the parties’ throats to ensure they get their coveted commissions. Far too often we are getting brought into deals that involve unenforceable contracts or situations that will get one or both parties in trouble for failing to comply with local or state licensing, permitting, or operational laws or regulations.
  2. Lawyers. California cannabis businesses need to be careful in choosing their cannabis regulatory or business counsel. For twenty years there’s been no government oversight over medical cannabis operators and this has allowed some attorneys to unduly profit at the expense of their clients and their own ethical duties. And just because regulation is coming does not mean that some of these attorneys will stop their reckless, unethical, or incompetent ways. I’ve written before about how to avoid “OG legal advice,” but it goes further than that. If your cannabis attorney is willing to take a financial interest in your business but is not providing you with the requisite conflict waiver and opportunity for you to consult with outside legal counsel, that should be a huge red flag. If you know more about state and local regulations than your cannabis lawyer, that’s another red flag. If your cannabis attorney is trying to “lock” you into a long-term fee agreement that you can’t cancel at any time, that’s a massive red flag (yes, I have seen at least one self-proclaimed cannabis attorney with this sort of fee agreement). If your cannabis lawyer is encouraging you not to be transparent or not to get things in writing or is steering you away from basic business and corporate duties to try to hide things and/or assets, this is yet another red flag. These predatory attorneys will eventually be knocked out of California’s cannabis industry one or the other, but until then it’s buyer beware.
  3. Consultants. Out of all groups on this list, this one is generally the worst. Not only is it increasingly difficult to determine the value most cannabis consultants provide, there are way too many cannabis consultants running rackets because they themselves are blocked from pursuing licensure with the state or a given city or county. We also have seen more than our share of consultants trolling for cash by playing off the naiveté of would-be cannabis licensees. I recently reviewed a proposed agreement with a consultant who wanted seven figures per year for getting a company “through the political process” to receive a cannabis license, yet didn’t include any enumerated services nor any end date. Seeing as how California’s Bureau of Cannabis Control has made clear that state licensing procedures will not be a difficult undertaking, the idea of politicking for licenses makes no sense and paying for such politicking makes even less sense. Don’t be fooled.
  4. Accountants. There’s nothing like talking to a would-be client who has no clue what 280E is yet is working with an accountant/CPA who claims to know cannabis taxation issues and charges premium rates for that “specialized advice.” You need to make sure your accountant/CPA truly knows how to navigate 280E, but above all you want your accountant to be a competent tax professional. All too often we run into accountants who claim to be experts for cannabis businesses that do shoddy jobs on standard accounting or are impossible to reach when their clients need them. In other words, choose your accountant/CPA wisely.
  5. Cannabis conferences and trade groups. Every time we turn around, there’s a new cannabis conference or trade group in California (or elsewhere). Folks have figured out that they can make serious money off the “Green Rush” by throwing events in major cities without much knowledge about anything cannabis-related, or that they can better market themselves and their personal agendas through setting up trade organizations. Few of these conferences have any educational value and most choose their speakers based on who pays for “membership” or “sponsorship.” Having paid to play, the speakers use these conferences mostly just to shamelessly pitch themselves or their products. We have heard of many expensive yet wildly disorganized conferences with speakers who were super stoned and conveyed nothing of value or importance. On the trade group front, watch where you put your money since many of these organizations are neither unified or even organized when it comes to any kind of meaningful mission for change. Be especially wary of self-appointed and deceptively misleading “task forces” that are not actually compiled and appointed by a given city or county, but rather set up to showcase the goods or services of the person or people who formed them. In other words, do your due diligence.
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California Cannabis: What’s In Your Water?

California cannabis water requirements This past week the California Bureau of Cannabis Control (“BCC”), along with a number of other state regulatory agencies, held three cannabis business licensing workshops – the last one in Sacramento. These licensing workshops received a lot of attention but they weren’t as informative or as consequential to the California cannabis industry as the staff report and Cannabis Cultivation Policy (“Policy”) released by the State Water Resources Control Board (“Board”) on October 17, 2017 — the same day as the Sacramento workshop. For many, this might be the first you’re hearing of the Board’s report or perhaps of the Board’s involvement in cannabis regulation at all. If you need a little refresher, you’ve come to the right place.

After enactment of the Medical Cannabis Regulation and Safety Act (“MCRSA”), Governor Jerry Brown signed Senate Bill 837 (“SB 837”) into law. SB 837 added a number of environmental protection provisions to the MCRSA and tasked the Board with coming up with guidelines to protect the environment. When the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”) was enacted this past June, the Board’s role in regulating the cannabis industry was solidified. MAUCRSA specifically states that the California Department of Food and Agriculture shall include in any license for cultivation all of the following:

“Conditions requested by the Department of Fish and Wildlife and the State Water Resources Control Board to (A) ensure that individual and cumulative effects of water diversion and discharge associated with cultivation do not affect the instream flows needed for fish spawning, migration, and rearing, and the flows needed to maintain natural flow variability; (B) ensure that cultivation does not negatively impact springs, riparian habitat, wetlands, or aquatic habitat; and (C) otherwise protect fish, wildlife, fish and wildlife habitat, and water quality. The conditions shall include, but not be limited to, the principles, guidelines, and requirements established pursuant to Section 13149 of the Water Code (emphasis added).”

In its report, the Board divided California’s 163,696 square miles into fourteen regions — nine of which are identified as priority regions because they support salmon. The nine priority regions are: Klamath, Upper Sacramento, North Coast, Middle Sacramento, Southern Sacramento, North Central Coast, South Central Coast, San Joaquin, and South Coast. The Board is particularly concerned with the discharge of pesticides, fertilizers, fuels, and trash into California’s waters. The unfortunate truth is that not all cannabis cultivators are good stewards of our precious environment. Furthermore, when combined with years of drought, the practice of water diversion threatens water quality and aquatic habitat. The Board then listed the following twelve items of concern when addressing waste discharges:

  1. Site development and maintenance, erosion control, and drainage features;
  2. Stream crossing installation and maintenance;
  3. Riparian and wetland protection and management;
  4. Soil disposal;
  5. Water storage and use;
  6. Irrigation runoff;
  7. Fertilizers and soil;
  8. Pesticides and herbicides;
  9. Petroleum products and other chemicals;
  10. Cannabis cultivation waste;
  11. Refuse and human waste; and
  12. Cleanup, restoration, and mitigation

The Board’s Policy provides for a statewide-tiered approach for permitting waste discharges from cannabis cultivation, depending on whether the cultivation is for personal use, indoor commercial cultivation, or outdoor commercial cultivation. The criteria for outdoor commercial cannabis cultivators will vary depending on the size of the disturbed area, but they’ll mainly focus on the slope of the disturbed area and the proximity to a surface water body. The Policy also details the different ways for cultivators to register and establish their water rights.

The Policy comes in at a hefty eighty-nine pages and contains too many regulations for one blog post to cover it all. What’s clear is that the Board takes its role as an environmental steward very seriously. We’ll have to wait and see whether cannabis cultivators in California will be able to satisfy the Board’s proposed regulations. A cultivator’s state license will depend on it.

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Will California Be Ready For Adult Use Cannabis?

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Our California cannabis lawyers are constantly asked how big sales and tax revenues will be in California once adult use cannabis becomes legal there. With recent reports of increased sales in Colorado and Nevada, everyone is expecting California – with its population of nearly 40 million people – to dwarf the sales of other adult use cannabis states. Many see California sales exceeding Colorado and Washington sales (together!) by at least ten times. To say our law firm is bullish on California would be an understatement; we literally cannot find good lawyers fast enough for our two California offices (Los Angeles and San Francisco).

When Californians voted for the Adult Use of Marijuana Act (a/k/a AUMA or Prop 64), you could smell the enthusiasm. Our California offices were deluged with a flood of investors looking to invest in California cannabis businesses. Then Governor Brown and the California legislature removed Prop 64’s in-state residency requirement with the enactment of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (a/k/a MAUCRSA or SB 94) this past June. With residency requirements removed, my firm saw a significant increase in interest from clients outside California seeking to obtain cannabis business licenses in the Golden State.

Unfortunately, local legislators in California’s cities and counties have not kept pace with the enthusiasm on the business side. Prior to SB 94, the legal cannabis landscape consisted of California jurisdictions focused on their medical cannabis ordinances in step with the Medical Cannabis Regulation and Safety Act of 2015(MCRSA). The MCRSA was California’s first attempt at establishing a statewide regulatory and licensing regime. The MCRSA also allowed medical cannabis businesses to operate as for-profit businesses starting in 2018.

With most local jurisdictions playing catch-up with the MCRSA, it’s unlikely Californians will be able to purchase recreational cannabis on January 01, 2018. That’s because most California cities and counties are waiting on the state’s main cannabis regulatory agencies – the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health – to publish their emergency regulations before they enact their own adult use cannabis ordinances. The emergency regulations should be released in mid to late November and the Bureau of Cannabis Control has stated that cannabis businesses will be able to apply for temporary permits online in December.

Though it might take a little longer than expected before adult use cannabis sales in California become commonplace, we are seeing local regulators moving in the right direction. In our Cannabis Countdown series, we keep our readers apprised of cannabis ordinance developments on the local level and the below is an updated snapshot of what’s going on across the state regarding adult-use commercial cannabis activities:

Los Angeles: On March 07, 2017, Los Angeles residents came out in full force and voted for Proposition M, a much-needed effort at clearing up Los Angeles’s previously confusing, complicated, and unfriendly position towards medical cannabis businesses. On June 8th of this year, the Los Angeles City Council released draft requirements for commercial cannabis activities – which we covered here. After the release of these draft requirements, there was a 60-day comment period and on September 22nd, the City Council revised the draft requirements – which we covered extensively here. On September 25th the City Council Rules Committee requested the Los Angeles City Attorney prepare and present a draft ordinance addressing the changes made in the revised draft regulations. Though Los Angeles will authorize seed to sale license types (indoor cultivation, non-volatile and volatile manufacturing, distribution, and retail) it’s unlikely it will have an adult use cannabis permitting process in place by the start of 2018.

San Francisco: The city of San Francisco (where I am located) proposed draft cannabis legislation on September 26th of this year. The proposed legislation requires creating an equity program, authorizes the issuance of temporary local licenses for medical cannabis businesses, and will have seed to sale license types (including the microbusiness license). It also allows for medical and adult use cannabis licenses, but adult use licenses won’t be issued until the equity program is in place. The ordinance does not cap the number of permits to be issued citywide, nor does it limit the number of licenses a person can hold – except that testing licensees cannot hold other cannabis licenses. However at a recent stakeholder meeting I attended, it was discussed that the Board of Supervisors (BOS) may revisit the issue of licensing caps (at the individual applicant and citywide level). It’s paramount that cannabis supporters stay politically active and fight complacency — don’t let what happened in San Luis Obispo happen in your city. San Francisco’s Office of Cannabis is to provide the BOS with an equity report, a medicinal access report, and a proposed fee schedule by November 1st of this year. Much like Los Angeles, San Francisco has proposed a cannabis-friendly ordinance that likely will not be ready for 2018.

Humboldt County: As part of the famed Emerald Triangle, Humboldt County is a cannabis business-friendly jurisdiction. On September 7th, Humboldt County’s Planning and Building Department released a draft cannabis ordinance that provides for the following:

  • Licenses all seed to sale commercial activities (including non-volatile and volatile manufacturing);
  • Allows farm-based retail sales, subject to receiving a retailer’s license from the state (we’ll have to see what the Bureau of Cannabis Control has to say about that);
  • Authorizes temporary special events for cannabis sales and consumption;
  • Allows on-site consumption for retailers and microbusinesses (for persons 21 years of age and older); and
  • Allows for cannabis tours and cannabis farm stays.

This proposed ordinance cements Humboldt’s reputation as a place that thinks outside the box when it comes to attracting cannabis businesses. Humboldt’s proposed ordinance was up for review and public comment on October 18 and we expect its enactment by early December. We are not sure whether Humboldt will allow current medical cannabis businesses to convert over to adult use and for-profit enterprises before January 01, 2018.

Though some of California’s biggest population centers will take their time before enacting adult use cannabis ordinances, we envision some of the more sparsely populated (and tax-starved) California jurisdictions will be the first to move into the adult use cannabis marketplace.

We will be sure to keep you posted on new developments in our Cannabis Countdown series.