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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 The agencies kept a lot of what we saw from the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA).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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BFD Alert: 2013 Cole Memo is Safe (For Now)

Attorney General Jeff Sessions seems to have made it his personal M.O. to potentially go after and take down state legal marijuana programs and businesses, medical and recreational alike (he’s made no bones about it that he’s not a fan of marijuana or its users). As of yesterday though, the state-legal marijuana industry can exercise a (slight) sigh of relief on the heels of Sessions finally providing some guidance from the Department of Justice–essentially, according to Sessions, this administration will follow the 2013 Cole Memo in its enforcement of marijuana-related crimes in states that have marijuana legalization and/or medicalization and corresponding regulatory systems.

During the House Judiciary Committee oversight hearing yesterday, Sessions stated on the record that,

Our policy is the same, really, fundamentally as the Holder-Lynch policy, which is that the federal law remains in effect and a state can legalize marijuana for its law enforcement purposes but it still remains illegal with regard to federal purposes.

Hopefully then, cannabis businesses in states with “robust regulation” that adhere to the eight enforcement priorities of the 2013 Cole Memo will be the lowest enforcement priorities for the DOJ. However, neither that Memo nor Sessions’ apparent acceptance of it do anything to change the federal Controlled Substances Act–marijuana remains illegal under federal law. Still, Sessions agreed with Representative Steve Cohen (derived from a line of questioning from the Congressman) that marijuana is not as dangerous as heroin (despite the Schedule I classification they share under the federal Controlled Substances Act). Despite all of Sessions’ anti-marijuana rhetoric (and his poking and prodding of states that have highly regulated recreational marijuana licensing systems), it seems he’s finally coming around to facts and science. Do not though expect this Attorney General to make any effort to reschedule marijuana anytime soon as he toes the Republican Party line on continuing the failed war on drugs.

Another big boon from yesterday’s hearing is that, despite the fact that Sessions requested that Congress essentially undo the state medical marijuana protections set forth in various Congressional budget riders (which have actually shown major teeth in the Ninth Circuit), Sessions ultimately kowtowed to the fact that the DOJ must respect those laws as long as they’re in place. What a shock that the DOJ must abide by current federal laws.

So, for now, the 2013 Cole Memo remains the DOJ’s current enforcement policy when it comes to state legal marijuana, and we can expect states to continue their democratic experiments with marijuana regulatory systems at a regular clip. Do not forget though that the 2013 Cole Memo is meaningless when it comes to the actual state of the law insofar as marijuana remains federally illegal. We’re glad to see that the DOJ will (hopefully) follow the 2013 Cole Memo, but we’re even happier that Sessions plans to respect the federal budget riders (as he should have done from the get go) and that he recognizes that marijuana is not as unsafe as heroin (which is an obvious no brainer at this point for anyone who respects science and empirical data).

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West Hollywood Introduces New Cannabis Ordinance

Hollywood CannabisFive hours into a marathon council meeting, following robust discussion among City Council members and some fine-tuning by the City Attorney, West Hollywood introduced its new cannabis ordinance on first reading. The ordinance is scheduled for a second reading on November 20, and if adopted, will become effective just in time for the State’s implementation of MAUCRSA in January. The original ordinance is available here, but the revised version has not yet been published.

West Hollywood’s cannabis ordinance creates five types of cannabis business licenses, implements a merit-based system to select the top operators, and limits the number of licenses in each category to eight (except for delivery services).

The Ordinance Allows Adult Use Retail, Medical Use Retail, On-Site Consumption, Delivery, Testing, Manufacturing, and Cultivation

The ordinance provides for the following licenses:

  • up to 8 adult-use retail business licenses
  • up to 8 consumption area (smoking, vaping, ingestion) with on-site adult-use retail (sales of products to be consumed on-site) business licenses
  • up to 8 consumption area (edible ingestion only) with on-site adult-use retail (sales of products to be consumed on-site) business licenses
  • up to 8 medical-use dispensary business licenses
  • up to 8 business licenses for cannabis delivery services located in West Hollywood.
  • an unlimited number of business licenses for cannabis delivery services that are located outside the City limits and deliver cannabis to customers within the City of West Hollywood.

In addition to these licenses, the ordinance allows the following uses without a separate cannabis business license:

  • Testing laboratories
  • Manufacturing and indoor commercial cultivation as ancillary uses to licensed retail use

A business may hold a combination of licenses, but may not obtain two of the same type of cannabis license within the City. West Hollywood expects most operators will obtain multiple licenses.

A City Manager-Appointed Committee Will Rank Applicants Based on Weighted Criteria

Following an initial 30-day application period, the City Manager-appointed evaluation committee, comprised of at least three people with demonstrated experience in city government or the cannabis industry and with no business interests in West Hollywood, will review and score each application based on the general criteria listed below.

The City has not yet determined the specific criteria or weighting of points per criteria for each license type, but it will do so prior to the initial application period and it will publicly post this information.

At present, there is no tiebreaking mechanism in the ordinance, so it remains to be seen how the City will select the top 8 applicants in a particular category if, for example, 15 applications end up with the same high score.

The following general criteria will be used to rank applicants:

  • Previous adult-use retail, medical-use dispensing, or consumption area operation experience that was subject to state cannabis regulation, or experience in a similarly state- regulated activity (by way of example and not limitation, alcohol sales).
  • Ability to demonstrate the quality of cannabis strains and derivative product offerings.
  • Employee training, standard operating procedures, online ordering systems and procedures for providing cannabis to disadvantaged or disabled persons.
  • Social equity in terms of provision of providing a living wage and employee benefits and compliance with local, state, and federal employee non-discrimination policies.
  • Security program.
  • Pre-existing West Hollywood Cannabis Business that has no outstanding code violations with the City and is in compliance with local and state laws.
  • Ability to meet City of West Hollywood Urban Design Standards.
  • Additional information that demonstrates the ability to operate in a safe and responsible manner in the City, including without limitation a review of the quality and thoroughness of application materials, connection to West Hollywood, ability to serve the West Hollywood community, familiarity with West Hollywood, and innovative boutique business models consistent with the West Hollywood community.

Four Existing Cannabis Collectives Are Entitled to Relocation, Temporary Licenses, and Exemption from Ranking

The ordinance provides substantial priority to the four authorized cannabis collectives currently operating in West Hollywood. During the hearing, City Council amended the ordinance to automatically grant existing businesses the first four available medical dispensary licenses, so long as they satisfy certain criteria.

If any of the existing four want to take advantage of priority without having to go through the ranking process, they cannot make a permanent change to adult use. In other words, an existing business would have to remain medical only, and/or obtain only a temporary license to engage in any adult use. An existing business wanting to take advantage of this priority would not be able to obtain a consumption license, because those are only compatible with adult use retail. It appears an existing business could potentially add delivery services, so long as the delivery involved medical use products only.

However, even if one of the existing four decided to add adult use and forgo the priority license, the ranking criteria includes a category for existing collectives in good standing, meaning the existing businesses are entitled to additional points that a new business could not obtain. Accordingly, the existing businesses have a significant advantage in obtaining licenses.

The ordinance further provides that any of the existing four collectives that do not meet location requirements of local or state laws can move to a compliant location and be considered an “existing medical cannabis location.” An existing business may also obtain a temporary use permit in its original, non-compliant location if the State will issue a license for the location. This language appears directed at an existing collective located within 600 feet of a school.

Under the ordinance, existing businesses may immediately apply for a temporary and annual state license and local business license to operate medical and adult use retail. A temporary use permit may be issued to the existing four collectives to engage in the sale of adult use on a temporary basis provided that the operator receives and maintains a valid temporary license from the State.

Further Changes to the Original Ordinance Include Eliminating the Double Driver Requirement, Expanding Consumption Areas, and Limiting Operating Hours

In addition to the changes discussed above, the City eliminated the requirement that at least two employees be present in a delivery vehicle at all times, expanded the maximum consumption space from 25% to 50% of the total floor area of the retail space, and added language expressly reserving the authority of the Business License Commission to limit operating hours and to institute a closing time earlier than 2:00 a.m.

Orientation Meetings Next Week; Ordinance Scheduled to Take Effect Before January 1, 2018

The City invited interested parties to an orientation meeting next week to discuss the ordinance and answer questions about specific requirements and the application process. If the second reading and adoption proceed as expected on November 20, the ordinance will become effective before January 1, 2018.

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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.

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California Cannabis Licensing Workshops

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California’s Bureau of Cannabis Control (the “BCC”) held public licensing workshops in three cities in California last week. If you didn’t get a chance to make it, don’t worry. We did and we’ve got you covered.

At the Los Angeles event, hundreds of people showed up to the point where most did not even get inside the building.The workshop focused on licensing information and resources available for people planning on applying for California state cannabis licenses. The BCC staff passed out flyers with the information required for temporary license applications. Temporary licenses will be effective starting January 1, 2018, and will allow businesses to engage in commercial cannabis activity for a period of 120 days.

Local jurisdiction authorization is still paramount to receiving a temporary license. If your business has not yet received this, it will delay your ability to receive a state temporary license. A license or permit issued by the local jurisdiction will be sufficient to show the applicant is allowed to conduct commercial cannabis activity at the location.

Other information required are names of the applicant (either individual or entity); license type; license designation; contact information; names of the owners; physical address and authorization to use the location for commercial cannabis activity; and a premises diagram showing the layout of the proposed location.

The last of the public licensing workshops was held in Sacramento this past Tuesday before a packed house at the Convention Center. Representatives from all of the state’s cannabis licensing agencies – California Department of Public Health (“CDPH”), California Department of Food and Agriculture (“CDFA”), and the BCC – were in attendance to answer the public’s questions. There were also representatives from the following departments:

  • California Department of Tax and Fee Administration;
  • California Department of Fish and Wildlife;
  • California Department of Insurance;
  • California Secretary of State;
  • California Employment Development Department;
  • California Department of Industrial Relations; and
  • Sacramento’s Office of Cannabis Policy and Enforcement.

The scene in the Sacramento’s Convention Center can be described as polite chaos as the public made its way through the tables staffed by these departments. Cannabis businesses, advisors, and investors were all hoping to gather as much information and clarification as possible in what is still an evolving California cannabis regulatory landscape. The lack of clarity is a source of consternation for many cannabis businesses worried about their business model going forward and I highly recommend California cannabis business owners (and all interested stakeholders) review the proposed medical regulations released in April of this year; you can find the BCC’s here, the CDPH’s here and the CDFA’s here. I then recommend you review how each department summarized and responded to public comments when the proposed medical regulations were withdrawn. You can find the BCC’s response here and here (the latter on testing facilities), the CDPH’s here, and the CDFA’s here. Get a pot of coffee brewing and delve into those weeds (too many puns I know but I just couldn’t help myself).

Lori Ajax, the Chief of the BBC, did speak briefly and reiterated that the state will issue emergency regulations in mid to late November and that the state’s licensing agencies will accept temporary license applications online in early December. Ms. Ajax was not able to say what the cost of the temporary permit would be (the fees will be released with the emergency regulations) but did stress that the temporary permit fee will be separate from the annual license application fee.

When the emergency regulations are released in November, our California cannabis attorneys expect a flurry of activity as cannabis businesses seek to gain temporary licensure and an early foothold in what will be the new California cannabis landscape. However, current cannabis businesses and new entrants should take this time to review their business model and entity structure. We’ll be sure to stay on top of this for you and we’ll continue with our popular California cannabis webinar series when the emergency regulations are released.

Stay tuned!

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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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The Incredible, Shrinking, Anti-Cannabis Administration

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Leaving on a jet plane

Tom Price, Secretary of Health and Human Services (HHS), resigned his post last week amid public health and personal travel debacles. Mr. Price’s resignation drew very little coverage from cannabis reporters, however, which was sort of strange because the HHS Secretary wields more influence over cannabis law and policy than any other public official besides Attorney General Jeff Sessions, and whomever the new DEA Administrator turns out to be. If marijuana is ever to be re- or descheduled administratively, it will have to go through HHS.

The federal Controlled Substances Act (CSA), at 21 USC §811, provides that the Attorney General may remove drugs from the CSA: (1) on “his” own motion; (2) at the request of the HHS Secretary; or (3) on the petition of any interested party. Number 1 will never happen and number 3 has often failed, but if a reasonable HHS Secretary were appointed, number 2 could get people talking. CSA §811 further provides that prior to the Attorney General moving drugs around, he must consult with HHS for scientific and medical findings. HHS recommendations to the Attorney General are binding, including any “do not control” recommendation.

HHS is also senior on its organizational chart to the Food and Drug Administration (FDA), a well-known agency with the power to conduct independent research on marijuana and to approve cannabis-based pharmaceuticals. The FDA is the agency that works with HHS whenever “any interested party” makes a petition to remove a drug from the CSA, as referenced above. In fact, the FDA made one such recommendation to HHS and DEA last year on marijuana. Unfortunately, it chose the status quo.

Tom Price was an old-school, War on Drugs hardliner, whose judgment as to cannabis was nearly as bad as his judgment on government travel. Cannabis advocates should be glad to see him go. Given the composition of President Trump’s cabinet, however, it seems unlikely we will have a fair-minded HHS Secretary anytime soon. Most of the candidates being floated as replacements have poor or unascertainable records on marijuana policy.

Ultimately, it seems more likely that marijuana will be re- or descheduled through Congressional action than administrative channels. And as it stands today, two of the three most critical cabinet posts on cannabis—the HHS Secretary and the DEA Chief—are oddly vacant. For cannabis professionals and consumers alike, it seems better to have these posts remain vacant, than occupied by the Chuck Rosenbergs and Tom Prices of the world.

Let’s enjoy it while it lasts.

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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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Oregon’s Josephine County Halts Effort to Eliminate Many Cannabis Farms

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On September 20, the Josephine County Board of Commissions held a public hearing on proposed zoning amendments that meant life or death for many small cannabis farmers.

At the end of last year, we discussed the successful efforts of Jackson County, Oregon to remove cannabis production as an allowed use in its rural residential zones. This led to an uproar among some growers, and a failed appeal before Oregon Land Use Board of Appeals (LUBA).

For the past several months, Josephine County has been following suit, moving full steam ahead towards severely curtailing cannabis cultivation as an allowed use in residential rural zones throughout the county. This spring, the Board of Josephine County Commissions (“Board”) placed Measure 17-81 on the Josephine County 2017 Special Election ballot, which asked voters to provide a non-binding advisory opinion: “In your opinion, should Josephine County prohibit the production of commercial, recreational marijuana in all rural residential zones?” Approximately 64% of voters said yes.

The Board listened, and in July 2017, the Board authorized the Josephine County Planning Director to invite applications for proposed language for amendments to the Josephine County zoning codes. The Rural Planning Commission held a public hearing at the end of August and issued draft language for the amendment. The language appeared designed to outright ban medical grow sites, and while it did not outright prohibit recreational cannabis cultivation, it did place severe restrictions that seemed to be written with the hope that no one would ever be able to comply.

Fortunately, over the weekend the Board threw out the planned draft language, thanks to the combined efforts of several licensed farms in the area, including East Fork Cultivars and Medicinal Roots, with the support of the Craft Cannabis Alliance.  (Full disclosure: Harris Bricken is a founding member of the Craft Cannabis Alliance).

This team utilized a savvy media strategy focused on educating Board members and the public. One lesson to be learned from this effort is the importance of engaging respectfully and eloquently at public hearings on any proposed cannabis regulations. For example, at the September 20, 2017 public hearing on these proposed amendments, Yusef Guient, of Medicinal Roots, spoke passionately about the effect the amendment would have had on his small family farm:

As family farmers, local business owners, neighbors and community members, we respectfully urge the commissioners to reject the proposed ordinance. The proposed amendments miss the mark by harming local family farms that are fully licensed and compliant and have invested tremendous resources in order to meet strict state regulations, as well as undermining the efforts of medical farms that are currently preparing to adapt to much higher levels of regulation and scrutiny. Further, the changes as written would expose the county to potential litigation costs without solving the issues raised by community members. Instead, we request that the county allow time for legislative changes to take effect, and to continue to bring community members together through the advisory committee process that is just now getting underway. We can create reasonable regulations that protect livability and public safety while supporting family farms, creating local jobs, and creating a lasting economic opportunity for Josephine County.

It appears the Board was swayed, at least in part, by these and other cogent arguments that the State legislature is aware of the prevalence of black market farming in southern Oregon and is taking appropriate steps. The team argued successfully that the recent changes set forth in SB 1057, including seed-to-sale tracking for medical operations, should be given time to work. However, the team and the Board still recognize the need for more precise regulations that target bad actors in Josephine County, and the Commissioners are going back to the drawing board.

Josephine County will not be the last county to attempt to reign in cannabis production with an axe instead of a scalpel, and the battle for common sense regulations in Josephine County is far from over. With that in mind, it is worth looking at the draconian draft zoning changes that almost became the law of the land. Under the draft amendment as previously proposed:

  1. Any OLCC licensed site would need a 300 ft setback on all sides. Currently the code requires a setback of 30ft in the front, 10ft on the sides, and 25ft in the rear.
  2. The property would need to be owned directly by the OLCC licensee. This would be problematic because many licensees lease land, or hold the land in a separate holding company for liability purposes.
  3. No OLCC site could be serviced by private road, easement, or owner maintained public right-of-way unless the OLCC producer owns all of the land adjacent to the right of way.

Any farm that couldn’t meet these requirements would have had thirty days from the date the ordinance went into effect to request a Determination of Non-conforming Use. To qualify for a non-conforming use determination, a recreational site needed to:

  1. Be in full compliance with the county codes as they existed prior to the amendments; and
  2. Either have obtained a LUCS prior to the adoption of the new ordinance amendment, or have applied for a LUCS prior to the adoption of the amendment that is being “actively processed by [the] OLCC with the intent to issue a license.”

The Board has recognized these kinds of broad brush regulations would do more harm that good, and are not appropriately focused on the few bad actors that are negatively affecting the community. Responsible cannabis cultivation can be a huge boon to local economies, but it always requires a genuine commitment to community engagement, like that on display down in Josephine County over the past few weeks.