Earlier this month, the California Legislature passed Assembly Bill 710, which will amend certain sections of the Business and Professions Code and the Health and Safety Code to account for any future changes in federal law regarding cannabidiol (CBD). The purpose of this bill is to ensure that patients are able to obtain access to CBD as a medical treatment as soon as federal law makes it available.
Under existing California state law, and pursuant to the California Uniform Controlled Substances Act, controlled substances are placed into one of five designated schedules, with the most restrictive limitations placed on controlled substances in Schedule I, and the least restrictive limitations placed on controlled substances in Schedule V. Cannabis, despite the passage of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), is still on Schedule I in California. Because CBD is a compound contained in cannabis, it is likewise designated as Schedule I.
Because of this designation, the prescription, furnishing, possession, sale, and use of CBD is restricted by existing law. AB 710 would, if one of certain specified changes in federal law regarding CBD occurs, deem a physician, pharmacist, or other authorized healing arts licensee who prescribes, furnishes, or dispenses a product composed of CBD in accordance with federal law, to be in compliance with state law governing those acts. And upon the effective date of a change in federal law regarding CBD, the prescription, furnishing, dispensing, transfer, transportation, possession, or use of CBD products in accordance with federal law would be for a legitimate medical purpose, and therefore authorized pursuant to state law.
Currently, the cultivation, processing, and sale of medicinal and adult-use cannabis in California, including CBD, is regulated by the MAUCRSA. AB 710 would expressly exclude from regulation under the MAUCRSA any medicinal product composed of CBD that has been approved by the federal Food and Drug Administration (FDA) and either placed on a schedule of the federal Controlled Substances Act (CSA) other than Schedule I, or exempted from one or more provisions of the MAUCRSA.
AB 710 is short and sweet:
“SECTION 1. The Legislature finds and declares that both children and adults with epilepsy are in desperate need of new treatment options and that cannabidiol has shown potential as an effective treatments option. If federal laws prohibiting the prescription of medications composed of cannabidiol are repealed or if an exception from the general prohibition is enacted permitting the prescription of drugs composed of cannabidiol, patients should have rapid access to this treatment option. The availability of this new prescription medication is intended to augment, not to restrict or otherwise amend, other cannabinoid treatment modalities currently available under state law.”
The legislation will add the following Section 26002 to the Business and Professions Code:
“This division shall not apply to any product containing cannabidiol that has been approved by the federal Food and Drug Administration that has either been placed on a schedule of the federal Controlled Substances Act other than Schedule I or has been exempted from one or more provisions of that act, and that is intended for prescribed use for the treatment of a medical condition.”
And the following Section 11150.2 will be added to the Health and Safety Code:
“(a) Notwithstanding any other law, if cannabidiol is excluded from Schedule I of the federal Controlled Substances Act and placed on a schedule of the act other than Schedule I, or if a product composed of cannabidiol is approved by the federal Food and Drug Administration and either placed on a schedule of the act other than Schedule I, or exempted from one or more provisions of the act, so as to permit a physician, pharmacist, or other authorized healing arts licensee acting within his or her scope of practice, to prescribe, furnish, or dispense that product, the physician, pharmacist, or other authorized healing arts licensee who prescribes, furnishes, or dispenses that product in accordance with federal law shall be deemed to be in compliance with state law governing those acts.
(b) For purposes of this chapter, upon the effective date of one of the changes in federal law described in subdivision (a), notwithstanding any other state law, a product composed of cannabidiol may be prescribed, furnished, dispensed, transferred, transported, possessed, or used in accordance with federal law and is authorized pursuant to state law.”
This legislation obviously won’t mean much unless and until federal law regarding CBD changes. But AB 710 signals that the California legislature is taking this issue seriously, and is prepared to pivot on a moment’s notice to ensure that patients have unfettered access to CBD once those federal laws do finally change.
We’ve received a lot of questions from existing City of L.A. dispensaries regarding whether or not they can make any corporate entity, location, or “ownership” changes before submitting their Prop M Priority Applications to the Department of Cannabis Regulation (DCR) pursuant to the Prop M ordinances. With MAUCRSA allowing for for-profit operations, many Prop. D dispensaries now desire to leave behind the old “cooperative/collective” model and many want to leave their current locations for better digs. However, the DCR has made clear (at least to us based on our communications with them) that it likely will not honor or recognize those Prop. D dispensaries wanting to amend their business tax registration certificates (“BTRCs”) to reflect new corporate entities, “owners”, managers, or locations. Here is the rundown on key issues:
Converting to a For-Profit: MAUCRSA provides that commercial cannabis businesses can organize as for-profit companies. The issue Prop. D dispensaries are facing is that their past BTRCs (certain ones of which are necessary for priority processing under Measure M) will not match their new for-profit entities where most Prop. D dispensaries are already some form of non-profit. The DCR has relayed that it will most likely not accept your application if the new entity does not match entity listed on the relevant BTRC, and that it’s best wait until after City licensure to convert to a for-profit company.
Moving Locations: At this point, pretty much all cannabis businesses, especially retailers and deliveries, are hoping to capitalize on California’s robust tourist market and are seeking to open shops in high-traffic, popular areas. However, for Prop. D dispensaries, they’re likely going to have to wait on that real estate grab because of the BTRC issue–if you relocate before filing your Measure M application, and your new location fails to match the location listed on your old BTRCs, the DCR isn’t likely to recognize your City license application as valid. So, waiting to re-locate is probably wisest according to our communications with the DCR.
Ownership Changes: Lots of existing Prop. D dispensaries have had massive “ownership” and management disputes over their storefronts. Even more are looking to take on new owners or “sell” all of the business to new buyers looking to cash in on L.A. cannabis. However, just like changing entities and re-location, any changes to ownership that don’t match up with past BTRCs or manager disclosures probably won’t be recognized by the DCR.
Fear not, though: all of the above changes will be doable eventually, just probably not before the March 4th filing deadline for existing dispensaries.
We should note that the City has not made clear whether businesses will be able to make the foregoing changes while waiting for their actual City license (post receipt of Temporary Approval), after they are granted the City license, or upon renewal of that license. In turn, where City and state commercial cannabis licenses are not transferable, if existing L.A. dispensaries want to apply for their state temporary and/or annual licenses as for-profits with new owners, at new locations, they’re going to have to wait on the City of L.A. to acknowledge those moves, or they’ll face jumping through the same administrative hoops with the state.
This week, the Bureau of Cannabis Control (the “BCC”) announced that as of January 9, 2019, Section 11362.775 of the Health and Safety Code (the “Code”) will no longer be in effect. The BCC notice ends the popular collective and cooperative models of cannabis cultivation, manufacturing and distribution in California. These models were promulgated through the use of “creative” legal advice in order to take advantage of the Compassionate Use Act’s multiple loopholes and ambiguities, and usually involved patients joining a “closed loop” membership system (sometimes a formal corporate entity and sometimes not) to receive medical cannabis from other patients in the collective who grow or process it for them.
California’s transition into a regulated commercial cannabis system left many operators, particularly those with non-profit mutual benefit corporations structured as collectives or cooperatives, uncertain as to just how much time they have left to operate. We’ve encountered some operators who, for a variety of reasons including the time and expense of the process, or their inability to comply with local zoning requirements at their current location, are reluctant to abandon the collective model in favor of receiving a state license under MAUCRSA.
Unfortunately, these operators will have no choice but to join the regulated system, and there are a laundry list of reasons why it makes sense to do that sooner rather than later. Given the recent dismantling of the federal government’s former cannabis enforcement framework, operators will be opening themselves up to much greater risk if they are choosing to operate outside of the state’s licensing framework. U.S. Attorneys now have full discretion to determine to what extent they can and should enforce federal law in the context of marijuana crimes, and we would be willing to bet that California’s U.S. Attorneys won’t be turning a blind eye to cannabis businesses that continue to operate in contravention of local law, or without a state license.
Following the implementation of MAUCRSA, qualified patients and their caregivers may continue to operate with limited criminal immunity without a state license, so long as: (1) the patients and caregivers operate in full compliance with state law, and (2) the local government does not prohibit the activity. See, H&S Code sections 11362.5, 11362.765, 11362.77, and 11362.7. But as we stated above, immunities for medical cannabis collectives (i.e., non-profit mutual benefit corporations, non-profit corporations, non-profit cooperatives, etc.) will expire on January 9th of next year.
And although MAUCRSA expressly exempts qualified patients and caregivers from licensure requirements, it does not allow qualified patients, their caregivers, or cannabis businesses to conduct commercial cannabis activity without a license. Any collective currently engaging in commercial cannabis activity that exceeds the strict qualified patient and primary caregiver limits is in violation of MAUCRSA and is operating illegally.
As a reminder, to be immune from prosecution under the Compassionate Use Act and MAUCRSA, a primary caregiver (or a collective) must operate within the following confines when acting without a state license:
Cultivation, possession, storage, manufacture, transportation, donation, or provision of cannabis must be exclusively for the personal medical purposes of no more than five specified qualified patients for whom the caregiver is the primary caregiver. (B&P section 26033(b));
The caregiver cannot receive remuneration for these activities other than for actual expenses, including reasonable compensation incurred for services provided to an eligible qualified patient or person with an identification card to enable that person to use cannabis, or for payment for out-of-pocket expenses incurred in providing those services. (B&P section 26033(b), H&S Code section 11362.765(c));
The caregiver cannot possess more than eight ounces of dried cannabis per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)); and
The caregiver cannot maintain more than six mature or twelve immature cannabis plants per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)).
In addition, everyone, including collectives and caregivers, must still comply with applicable local law. And collectives and cooperatives that opt not to apply for a state license right away will be limited in their ability to distribute their product. The bottom line is that commercial cannabis activity is only permitted among licensees, and once a business entity or individual receives and active temporary license or a full license from the state, they must immediately cease doing business with non-licensed entities, or they risk losing their license. See B&P section 26053(a). And for those licensees looking to “have their cake and eat it too” by obtaining a state license while maintaining a collective or cooperative, keeping that non-licensed entity will put the state license at risk.
With local license caps quickly being reached, stringent legal limitations on collectives and cooperatives, and an uncertain federal enforcement landscape, we cannot emphasize enough the importance of integrating into the regulated state system as soon as possible. Holding on to the collective model through the next year will make that transition much more difficult, and perhaps even impossible.
Last month, we hosted a webinar analyzing the emergency cannabis regulations released by the California state agencies in charge of administering the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). We had over 1,000 people sign up to find out what the California cannabis regulatory landscape will look like in 2018 for cultivators, manufacturers, distributors, retailers, and microbusinesses.
During the webinar, we took questions from attendees, but we couldn’t get to all of them due to the sheer number of questions asked. Alison Malsbury covered the webinar questions related to cannabis manufacturers, Habib Bentaleb handled the questions regarding cultivation, and I’ll cover the retail/distribution/microbusiness questions here.
Q: Please explain the logistics of distributors collecting excise tax from retailers. Is it collected at the time of invoice/delivery or can the retailer wait and not pay the distributor until up to 90 days later? If so, how the heck will distributors track all of this and what recourse do distributors have if a retailer doesn’t pay the excise tax?
A: The Distributor is the focal point in the California Cannabis and Excise Tax system. Cultivators and Retailers are prohibited from remitting Cannabis Taxes to the California Department of Tax and Fee Administration (CDTFA). The law intentionally places a serious burden on the Distributor to pay up. Although only a Distributor may remit taxes to CDTFA, all licensees in the supply chain are subject to a 50% late payment penalty if the tax is not paid when due. Accordingly, Distributors should receive payment of the Cannabis Excise Tax from the Retailer at the date of sale. This will likely be a serious point of contention as the Retailer will want to defer payment until product is sold to a consumer, so be sure to cover it in your distribution agreements.
Q: Do retailer Exit Bags need to be labeled?
A: 16 C.C.R. § 5413 requires an “opaque exit package” for all product leaving a retail storefront going into a consumer’s hands, but the regs say nothing about having to have a specific label on that exit packaging.
Q: What are the child resistant packaging requirements for retail sales in the first few months?
A: During the transition period (January 1 through July 1, 2018), cannabis goods in a retailer’s inventory at the time of licensure that are not in child resistant packaging may be sold if the retailer puts them into child-resistant packaging at the time of sale. “Child resistant” means designed or constructed to be significantly difficult for children under five years of age to open, and not difficult for normal adults to use properly.
Q: Can licensed dispensaries purchase manufactured material from nonlicensed manufacturers during the transition period?
A: No. Licensees may only conduct business with other licensees, even during the transition period.
Q: What is a microbusiness?
A: A commercial cannabis business engaged in at least three of the following activities: cultivation (less than 10,000 square feet), manufacturing (non-volatile or no solvnets), distribution, and retail sale.
Q: Do microbusinesses activities need separate addresses?
A: No. In fact, microbusinesses must conduct all cultivation, manufacturing, distribution and retail activities on the same premises.
Q: Can you clarify what adult use licensees and medicinal licensees are allowed to do during the transition period? Can an adult use licensee purchase products from a medicinal licensee? Can a medicinal retailer sell to non-patients?
A: During the transition period, from January 1 through July 1, 2018, licensees can transact business with each other regardless of the “M” or “A” designation. However, a medicinal retailer cannot sell products to “adult use” customers and vice versa. In other words, medicinal retailers can only sell products to qualified patients and caregivers. A medicinal retailer cannot act as an adult use retailer during the transition period, or ever, without an adult use license.
Q: Can you talk more about the distribution license and if you will have to package, test, etc.?
A: It depends. You could be a “storage only” or a “transport only” distributor that does not handle packaging and testing. Otherwise, a distributor may package, re-package, label and re-label cannabis flower for retail sale. A distributor cannot, however, package, re-package, label or re-label manufactured cannabis products unless the distributor also holds a manufacturing license and is packaging, re-packaging, labeling or re-labeling its own manufactured cannabis products. Testing and quality assurance services are also on the table for distributors. Regarding testing, after taking physical possession of a cannabis goods batch, the distributor must contact a testing laboratory and arrange for a lab employee to come to the distributor’s premises to select a sample for testing. The distributor also has duties and obligations for which it is responsible during the testing sample retrieval process.
Q: Is self-distribution considered a “transport only” distribution license or can businesses wishing to self-distribute do all distribution activities package/label/testing/quality assurance review?
A: To be clear, a testing licensee is totally separate from all other licensees. A distributor is responsible for the coordination and verification of testing, but cannot do the testing itself. An entity with a distribution license, so long as it is not “transport only” or “storage only,” can engage in any of the activities that a licensed distributor is authorized to do.
Currently, the licensing fee schedule divides the distributor license into three categories: Distributor, Distributor Transport Only Self-Distribution, and Distributor Transport Only. Obviously, if you apply for the Transport Only Self-Distribution license, you will be limited to transport only (and even that has certain limitations regarding what you can transport and to whom).
Q: Would a cannabis yoga and meditation business be OK?
A: It depends on the local government. If onsite consumption is authorized, and the location is zoned for yoga and meditation (as well as onsite consumption of cannabis), then such activity would presumably be allowed pursuant to a retail or microbusiness license so long as the following are met: (1) Access to the area where cannabis consumption is allowed is restricted to persons 21 years of age and older, (2) Cannabis consumption is not visible from any public place or nonage-restricted area, and (3) Sale or consumption of alcohol or tobacco is not allowed on the premises. Appropriate permits/licenses from your local government would need to be obtained for yoga or meditation as well.
Q: Are you able to start a cannabis lounge, like a Hookah lounge?
A: The foregoing rules apply for cannabis lounges, too. Be sure to check on whether your local government authorizes onsite consumption.
Q: Can you have entertainment and onsite consumption?
A: See above regarding onsite consumption. Entertainment is often restricted by local zoning codes, but as long as it is locally authorized, live entertainment is expressly permitted by the regs so long as there is no nakedness, no live sex and no nipples (male or female)! Basically no strip club/consumption lounges are allowed in this context. See 16 C.C.R. § 5807 for more on that.
Q: Can you cover which of these licenses can be held concurrently? Or, if it’s a shorter list, which licenses have restricted concurrent licensing?
A: All licenses can be combined, with the exception of testing (and Type 5 cultivation licenses, which are not yet available). A testing licensee cannot hold any other cannabis licenses.
Q: Can distributors use professional employment organizations (such as ADP) and have these count as employees for the purposes of transport?
A: No. 16 C.C.R. § 5311 specifically states that transportation shall only be conducted by licensed persons or their employees. Further, Business & Professions Code § 26070(c) says “[t]he driver of a vehicle transporting or transferring cannabis or cannabis products shall be directly employed by a licensee authorized to transport or transfer cannabis or cannabis products.” Employees are expensive, but distributors need to budget accordingly if they want to comply with MAUCRSA.
Q: Can autonomous vehicles distribute cannabis or manufactured goods?
A: No. Unmanned vehicles are prohibited per 16 C.C.R. § 5311(c).
Q: If a product has been tested by a lab and deemed clean or cleared to go to market, why is the liability on the distributor and not the lab, cultivator or manufacturer if something ends up being wrong with that product?
A: Distributors are statutorily obligated to oversee the quality assurance process. A distributor is responsible for ensuring that the certificate of analysis from the lab correctly corresponds with the batch, that the label is consistent with the certificate of analysis, the packaging complies with MAUCRSA and is tamper-evident, the weight or count of the batch comports with that in the track and trace system, and that all events prior to receipt have been entered into the track and trace system. That does not mean that the distributor will be solely liable if something is wrong with the product, but we believe we will see a lot of distributors named in lawsuits involving product liability issues because of their statutory duty to do everything mentioned in the previous sentence. This does not mean cultivators, manufacturers, and testing labs are not also liable. As a result, insurance and indemnity agreements are key here.
Q: Does an indemnification contract remove the liability for the distributor? Or only possibly?
A: An indemnity agreement is a good tool to use to shift liability, but as I mentioned during the webinar, an indemnity agreement only works if the other party is well-capitalized and/or well-insured. If you have an indemnity agreement with a party that goes bankrupt and never carried insurance, you will not recover your losses. Nothing, not even a great indemnity clause, can guarantee full insulation from liability.
Q: What type of permitting or licensing do I need for a compassion program that is currently running is not a storefront. We do not sell cannabis at all, host our donation day at a brick and mortar and deliver to homes at no cost to patients that are low income, disabled or suffering from an acute illness.
A: For an answer to this question, please see California Cannabis Licensing and The Collective Model: How Long Will That be Going On?
Q: Do I need to secure a location prior to applying for the license?
A: Yes. With your state application, you must submit the physical address of the premises, evidence of the legal right to occupy the premises, and a diagram of the premises, among other things.
Q: Is delivery considered a retail activity under the microbusiness license?
A: Yes. 16 C.C.R § 5500(e)(4) expressly contemplates non-storefront delivery as a retail element of a microbusiness.
One of the most common questions our California cannabis attorneys get asked is “where can I start or expand my cannabis business?” It can be a tough question: as we often say on this blog, every one of California’s 58 counties and 482 incorporated cities can decide whether or not they’ll authorize commercial cannabis activities in their jurisdictions. This means that California’s local jurisdictions are constantly discussing whether to regulate, amend, or prohibit commercial cannabis activities. Jurisdictions that had previously authorized medical cannabis businesses to operate are now considering how to regulate adult-use cannabis activities. This leads me to the recent (and positive) developments in Santa Rosa.
As part of our California Cannabis Countdown series we covered the city of Santa Rosa back in May. Shortly after our post, Santa Rosa residents overwhelmingly voted in favor of Measure D, which was a ballot measure setting tax rates for cannabis businesses. Santa Rosa takes its cannabis policy seriously, as the city has held over twenty (20!) meetings to discuss cannabis policy over the last two years. Many of the meetings were held by the city’s Medical Cannabis Policy Subcommittee (“Committee”).
Since inception, the Committee has solicited feedback from the community and interested stakeholders and provided guidance to the City Council. To its credit, the City Council and Planning Commission showed a willingness to incorporate the Committee’s findings into new cannabis ordinances. Specifically, the City Council passed ordinances that allowed medical cannabis cultivation (indoor only), non-volatile manufacturing, distribution, and laboratory testing in Santa Rosa. This was a welcome development after seeing what happened in Marin County, Santa Rosa’s southern neighbor.
While moving forward with regulating medical cannabis business activities, the next item on the Committee’s agenda was adult-use cannabis regulation. The Committee drafted a comprehensive cannabis ordinance that would regulate both medical and adult-use cannabis businesses. However, when the ordinance was first proposed at the end of June it did not include provisions for adult-use commercial cannabis activities. Though after the passage of Senate Bill 94 (a/k/a the Medicinal and Adult-Use Cannabis Regulation and Safety Act), the City Council added adult-use cannabis activities to the ordinance. The updated ordinance was first “noticed” in November, approved on December 19th, and will take effect on January 19, 2018.
Without further ado, then, here’s a breakdown of the types of medical and adult-use cannabis activities allowed in Santa Rosa:
Cultivation (only indoor for commercial cultivation although outdoor cultivation for personal use is allowed subject two a two plant limitation).
Manufacturing (non-volatile and volatile).
And here are some important things to keep in mind, under the new ordinance:
Cannabis businesses that have already received approval to conduct medical cannabis activities can incorporate adult-use activities into their permit with a zoning clearance.
Multiple cannabis business permits can be issued per site so long as there is a clear separation between license types.
The transfer of ownership or operational control of a cannabis business is allowed if the new owner/operator receives a zoning clearance from the city.
For cultivators square footage is determined by the size of the structure instead of by canopy.
Cannabis manufacturers that utilize a closed-loop system with will require approval from the city’s building and fire departments.
Only licensed cannabis retailers can conduct deliveries. The delivery-only dispensary model is currently not available.
Dispensaries may only operate between the hours of 9:00am and 9:00pm and are prohibited from having an on-site or on-staff physician to provide a cannabis recommendation.
On-site consumption and cannabis special events are allowed with the appropriate city approval.
Given Santa Rosa’s dedication to the conversation on cannabis, and the actual text of its new ordinance, we can safely way that the city is shaping up as a cannabis friendly jurisdiction (unlike these tough locales). Next, we will see how efficiently the city can administer its new marijuana ordinance come January 19th. We’ll be sure to keep you posted.
Yesterday proved to be a wild day, featuring Jeff Sessions single-handedly demolishing the federal government’s former cannabis enforcement framework. Now that 24 hours have passed since the news came out, we have had a chance to refine our analysis of the Department of Justice’s move.
Reactions in the media have ranged from treating the Sessions announcement as nothing more than an attempt to frighten the cannabis industry to claiming that it was the first step in an organized crackdown of the marijuana industry that could affect cannabis businesses and users. For now, we must treat both of those possibilities as plausible futures. Trump and Sessions may be gearing up for a wave of arrests, prosecutions, and asset forfeitures related to marijuana businesses —or Sessions may just be trying to put a fright into marijuana business owners and investors. Only time will tell.
The “Sessions Memo” was short on specifics. It didn’t contain an outright directive ordering U.S. Attorneys to go after marijuana businesses. Instead, it simply withdrew the earlier marijuana-specific guidance memoranda and directed U.S. attorneys to treat marijuana sales like any other federal crime. The withdrawn memos include, among others, the August 2013 Cole Memo that has underpinned federal marijuana policy for the past four and a half years; the February 2014 Cole Memo that extended low enforcement priority status to apply to banking activities; and the 2014 Wilkinson Memo that was a sort of Cole Memo for tribal lands.
So now, U.S. attorneys have full discretion to determine to what extent they can/should enforce federal law in the context of marijuana crimes in states with legalization and medicalization. Sessions referred to the principles of enforcement in the U.S. Attorneys’ Manual, but that document reinforces the level of discretion and authority that each U.S. attorney has already. The Cole Memo was useful in providing a consistent nationwide federal policy. Under the new Sessions Memo, we are back to the days of having potentially 93 different enforcement policies — one for each U.S. Attorney. Here’s what we know already about a selection of the U.S. Attorneys that will be making these decisions:
Robert Troyer, District of Colorado: Bob Troyer issued a statement yesterday saying that his office “has already been guided by [the U.S. Attorneys’ Manual’s] principles in marijuana prosecutions.” This statement implies that Troyer doesn’t see any difference in Colorado between prior policy and today’s policy.
Annette Hayes, Western District of Washington: Annette Hayes, who has served as either the Acting U.S. Attorney or an interim U.S. Attorney since October 1, 2014, also put out at statement, but it was significantly denser than Troyer’s statement. It wasn’t overtly negative, but it also wasn’t as direct as Troyer’s regarding enforcement policies remaining the same.
Joseph Harrington, Eastern District of Washington: Joseph Harrington is another Acting U.S. Attorney that is a holdover from the Obama administration. Harrington did not issue any specific statement in response to the Sessions Memo. When media outlets asked Harrington about his position, he responded by referring media requests to the Department of Justice in Washington D.C. Harrington, for now, is something of a black box on this.
Billy Williams, District of Oregon: Billy Williams was also appointed during the Obama administration, but Trump did nominate him to stay on as U.S. Attorney in December. Williams prosecuted two Oregonians for federal cannabis crimes in 2016, but there were Cole Memo priorities implicated, including sales to minors. More recently, Williams invited Sessions to visit Oregon to discuss Oregon’s cannabis market in September 2017. In response to the Sessions Memo, Williams issued a press release saying: “We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.” Again, this statement doesn’t read too poorly, but it is sufficiently vague enough to still be worrisome.
California: California is a bit of a mess in all of this. Oregon and Colorado only have one U.S. Attorney each. Washington has two, but they are neatly separated into eastern Washington and western Washington, which often feel like two different states anyway. California, on the other hand, has four U.S. Districts. And none of those four has or will have a U.S. Attorney with more than two months on the job.
Northern District: The U.S. Attorney for the Northern District of California, Brian Stretch, resigned yesterday to join a private firm. No replacement has been named.
Central District: The Central District is a populous jurisdiction that includes Los Angeles, Riverside, San Bernadino, Ventura, Santa Barbara, and San Luis Obispo. Two days ago, Sessions appointed a new U.S. Attorney for the Central District, Nicola Hanna. Hanna doesn’t seem to have much written history regarding his views on marijuana, but the fact that Sessions picked him and specifically called him out for “taking on drug traffickers” isn’t the most positive sign.
Eastern District: McGregor Scott, also a recently-named U.S. Attorney, has actually been a U.S. Attorney in the past, having prior experience in the Northern District of California. He did not earn positive marks from the cannabis community, as he did pursue aggressive marijuana prosecutions in the mid-2000s.
Southern District: Finally, Adam Braverman was named U.S. Attorney for the Southern District of California a couple of months ago in November. He is most well-known for international cartel work as well as other types of organized crime. Braverman made a statement in support of the Sessions Memo, saying: “The Attorney General’s memorandum today returns trust and local control to federal prosecutors in each district when it comes to enforcing the Controlled Substances Act.”
If we are reading the tea leaves to see what is going to happen next (and they are indeed tea leaves), Colorado appears to be in the safest position, but California could turn into a real mess with different enforcement standards in different counties depending on which judicial district a business is in. Banking will be a major unknown for some time as well. FinCEN’s 2014 Guidance heavily referenced the Cole Memo, which is now rescinded. If FinCEN withdraws that guidance, what kind of ripple effect will it have on other bank regulators?
It also remains unclear how all of this policy will work out. Cory Gardner, a republican senator from Colorado, appeared furious when he responded to the initial announcement of the Sessions Memo (video below). He went so far as to threaten to hold up DOJ nominations, which would include those newly appointed California U.S. Attorneys. Sessions’s actions, as well as those of the U.S. Attorneys, are not yet set in stone. Ultimately, political pressure from Congress may still have an effect on the final outcome.
It’s finally happening — Attorney General Jeff Sessions will, today, rescind the 2013 Cole Memo regarding federal enforcement in states that legalized cannabis. The Cole Memo, which came on the heels of marijuana legalization in Colorado and Washington back in 2012, set forth the Obama administration’s enforcement policies regarding state-legal marijuana. It set out eight main enforcement directives that essentially allowed states to move forward with legalization so long as they had “robust” regulations to control undesirable side effects. In turn, cannabis operators who consistently complied with hardcore state marijuana regulations basically saw themselves as off-limits to the Feds because of the Cole Memo. Nonetheless, the Cole Memo did not legalize or decriminalize marijuana and marijuana remains federally illegal today.
With this imminent shift in enforcement policies from the Department of Justice (DOJ), the question now becomes what will future DOJ enforcement look like?
Where the Cole Memo basically relinquished marijuana enforcement to the states under certain conditions, rescission of the Cole Memo likely will mean that federal prosecutors in cannabis legal states will now be free to decide how aggressively they wish to enforce federal marijuana laws. This means that a U.S. Attorney’s views on cannabis in a state where cannabis is legal will be critically important. It, therefore, behooves you — now more than ever — to familiarize yourself with the stances your particular U.S. Attorney has regarding cannabis. Though we do not foresee a return to high-level and consistent federal enforcement against cannabis — the DOJ lacks money and manpower to prosecute everyone — individual prosecutors will likely soon have sufficient means to target certain operators that get on their radar. Most U.S. Attorneys though (especially in the leading cannabis legal states) will see going after cannabis as political suicide and view themselves as having bigger fish to fry.
There will, however, likely be a ripple effect from this news. Namely, current access to banking, any tax reform progress, and investment are going to feel the chill of uncertainty and the threat of federal enforcement. Banks are only banking the cannabis industry because of a set of FinCEN guidelines from 2014 (and another DOJ memo on marijuana banking) that hinged on the Cole Memo. Banks are incredibly conservative and taking down the Cole Memo will almost certainly lead some banks to stop providing banking services to cannabis businesses. Institutional investors do not like this kind of uncertainty and we fear this will lead to a slowdown in cannabis investments, at least until we see how U.S. prosecutors handle the new enforcement protocol.
And what about the Rohrabacher-Blumenauer amendment (“Amendment”)? It’s still in play as valid federal law until January 19th, when it comes up for renewal. Be mindful though that the Amendment applies only to states with medical cannabis; it does not provide any protection to adult use marijuana operators. Plus, that Amendment has only served to protect medical cannabis operators in the 9th circuit based only on the McIntosh case.
Sessions’ move will increase confusion for both U.S. Attorneys and states, but I have been representing cannabis businesses in California and Washington for eight years now and I am confident that Western States like California, Colorado, Oregon, and Washington are not going to back down in the face of Jeff Sessions’ overzealous pursuit of his personal war on marijuana. Indeed, these (and other) states’ positions may ultimately speed up bonafide legal challenges that finally call into question in a real way the constitutionality of marijuana’s current scheduling and states’ rights to legalize and be left alone.
On December 31, L.A. established its long-awaited Department of Cannabis Regulation (“DCR”) website. The website details L.A.’s three licensing phases (of which general public processing is in the last category) and an FAQ page about the licensing process.
Today, DCR released applications for priority processing of those qualifying Pre-ICO/Prop. D dispensaries–see here. This means that existing medical marijuana dispensaries (“EMMDs”) in compliance with the city’s limited immunity provisions (i.e. dispensaries that received 2017 L050 BTRCs or that received a BTRC in 2007, registered with the City Clerk by November 13, 2007 (in accordance with the requirements under Interim Control Ordinance 179027), and received a L050 BTRC in 2015 or 2016), and that are current with City taxes are now eligible to apply for temporary approval and a city license to operate under MAUCRSA. Temporary approval is different from actual licensing–it allows the EMMDs to operate with limited immunity while their licensing applications are pending.
Importantly, EMMDs only have 60 days from today to submit their applications, which is not as simple as it sounds. Los Angeles’ license application is very similar to the State of California under the Bureau of Cannabis Control regulations, which means applicants need to be prepared for an information dump to the DCR and Cannabis Regulation Commission in the form of corporate and operational information and plans.
Here are select highlights of what the EMMD license application requires (again, EMMD temporary approval is a different process):
General information about the business applicant, including a copy of the articles of incorporation (since most if not all EMMDs are non-profits of some kind).
Disclosure of all other licenses, permits or authorization the applicant has received and disclosure of whether the applicant and/or its directors/managers had ever been denied the right to conduct commercial cannabis activity anywhere.
Provision of all the same financial information that is required by the state under MAUCRSA. This includes listing all funds belonging to the applicant, all loans made to the applicant, all investments made to the business, and all gifts of any kind given to the applicant for conducting commercial cannabis activity. Furthermore, details like information of money sources, dates of transactions, terms of deal, etc. are also required to be submitted.
Proof of the applicant’s legal right to occupy the business premises, which means either providing an affidavit from the landowner or a copy of the title or deed. General information about the property is also required, which can mostly be found in the lease agreement (which is also required to be provided if the property is being leased).
Security plans must be submitted that explain the premises’ video surveillance system, access points to the business, description of fire-proof safe and practices for allowing access to limited-access areas of the business. The applicant will also have to provide detailed descriptions for how they will meet standards for track-and-trace, inventory, returns, destruction of products, waste management, environmental sustainability, records retention and operational requirements.
A complete and detailed premise diagram is required for submission.
Representation that they have received, or are in the process of getting, insurance and/or a bond.
A proposed Community Benefits Agreement as required by the DCR.
Most importantly, all applicants, including EMMDs, in addition to a pre-license inspection of the business premises, must submit to a public hearing before the Cannabis Regulation Commission (which is the government body that ultimately determines if the EMMD is licensed) before they can receive their license. Once the DCR determines that an application is complete, applicants must notify all owners and occupants of all property within 500 feet of the property line of the lot where the business is located. All of these folks are entitled to notice that an application has been filed near them, and all of them are entitled to show up at the public hearing.
Getting a license in the City of Los Angeles is not going to be easy (or cheap), but it is necessary for any dispensary to continue to operate under MAUCRSA and undertake adult use sales. (Only two L.A. County cities have allowed recreational sales so far, so that’s a significant development). Note that any EMMD that does not submit an application within the next 60 days will be stuck in the third-phase general public bucket. That’s not a great place to be: there is still no starting deadline for those applications.
Our Los Angeles cannabis lawyers, including me, are constantly being asked about the local cannabis laws of the various 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 showing the same. We divided the county into 4 regions, and over the next few weeks we will publish charts for each of these regions to keep you updated on each of the cities and their current laws.
This week’s post highlights the cities located in and around the Long Beach Area. Here is the chart showing the laws regarding cannabis cultivation, dispensing, distribution, and manufacturing in the Long Beach Area Cities.
Before you can receive a California cannabis license (temporary or annual) you must provide the state with 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. Please note that although we hope you will find this research useful, local cannabis zoning ordinances tend to evolve, so you will want to confirm these findings and run related due diligence, prior to taking action.
Be sure to look for additional blog posts on the remaining incorporated L.A. County cities over the coming weeks.
Happy New Year’s Day to all of our readership! We want to again thank everyone for your continued interest in the blog and we hope that, if nothing else, our content is helpful and constructive when it comes to your cannabis business legal needs and curiosities.
2017 was an interesting year for the cannabis industry across the U.S., full of ups, downs, near misses, but mostly good progress. ICYMI, here are our top ten highlights from 2017:
Jeff Sessions backs off (sorta). 2017 was a somewhat scary time for the state-legal cannabis industry because one of the worst cannabis-haters of all time became the top prosecutor in the U.S. under President Trump. Yes, the industry was pretty paranoid about Sessions. We wrote many times (see here, here, and here) about Sessions and his attempts to energize the failed war on drugs by undoing the states’ democratic experiments with cannabis legalization. Ultimately though, Sessions took a bit of a u-turn in November when he basically kowtowed to the 2013 Cole Memo testifying in a House Judiciary Oversight committee hearing 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.”
Constitutionality of Schedule I gets challenged in court. Former NFL player Marvin Washington is one of five plaintiffs that filed suit against Attorney General Jeff Sessions, the DOJ, and the DEA in 2017, alleging that classifying cannabis as a schedule I controlled substance under the 1970 Controlled Substances Act is so absurd as to be unconstitutional. Currently, 29 states and the District of Columbia have legalized some form of medical cannabis use, and recent studies suggest cannabis actually helps get people off dangerous drugs, like cocaine, meth, and opioids (which are listed as less dangerous than cannabis). While we’d love to see this lawsuit undo cannabis prohibition altogether, it’s a long shot at best.
California finally regulated its cannabis marketplace. While it’s not going to be pretty or smooth, California finally convened legislation to combine and regulate its cannabis marketplace. (It also made huge strides in the cannabis trademarks department. If you want to know more about the Medicinal and Adult-Use Cannabis Regulation and Safety Act, see our blog posts here, here, here and here. California is hugely important to the overall progress of legalization, because it’s so large and so impactful to the U.S. economy. As of today at 6 a.m., legal sales have begun in The Golden State, and our California attorneys could not be more excited to witness history being made.
The FDA continued its campaign against CBD and it may start dabbling in state-legal marijuana health claims. It’s no secret that the FDA is in relatively hot pursuit of CBD makers who make medical claims about it (see here, here, and here), and 2017 was no exception. Essentially, the FDA has said that CBD is not a supplement exempt from drug trials under the Food Drug & Cosmetic Act and, as a result, if you want to medical claims about it (regarding either humans or animals) you have to put it through drug testing first. In addition, the FDA’s commissioner “hinted” that it may start to explore the validity of health claims made about actual medical cannabis.
Blockchain and cannabis may end up making a good marriage. 2017 really brought on an analysis of whether blockchain and cannabis commercialization could make good bedfellows. We wrote extensively about the melding of the two here and here. Without a doubt, blockchain could change the face of the industry and make everyone’s lives a little easier when it comes to reporting and business logistics.
Marijuana banking is slowly and steadily keeping on. This past summer, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued its newest Marijuana Banking Update. This update provides information regarding the number of banks and credit unions that are providing services to marijuana businesses and are complying with their Bank Secrecy Act compliance obligations and reporting those services to FinCEN. The data from the report showed that at the end of March 2017, nearly 300 banks and around 50 credit unions were providing banking services to marijuana related businesses. In Washington, there are 5 to 10 financial institutions that openly provide banking services to marijuana businesses, close to the same number in Colorado, and far fewer than that in Oregon and California.
Canada dropped its marijuana legalization bills. In April, making good on Prime Minister Justin Trudeau’s 2015 campaign promises, Canada’s Liberal Party-led government announced a suite of bills to legalize recreational marijuana use throughout Canada. While Canada is taking a predominantly different tack with recreational cannabis by having government-owned retail outlets, it’s still a huge development for cannabis legal reform that Canada decided to legalize on a federal level.
2017: the year of cannabis commercial litigation. With the maturation of the state-legal cannabis industry comes more litigation. 2017 really represented a significant ramp up with litigation, from RICO lawsuits, to counterfeit challenges with ancillary products, to a nuisance lawsuit filed against an Oregon cannabis farmer by a neighboring vineyard, we saw all kinds of fights emerge across the industry in multiple states. We also wrote endlessly about cannabis litigation and how to deal with it (some examples are here and here). Without a doubt these unique and interesting fights will continue as the industry continues to develop.
Bankruptcy still isn’t (and never was) an option for marijuana businesses. Back in 2014, we wrote that bankruptcy is not an option for marijuana businesses. That issue has been litigated here and there since then, but as of today, cannabis businesses are no better off than before. The hard reality is this: all bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code. Those courts have held that it would be impossible for a U.S. Trustee to control and administer a debtor’s assets (cannabis) without violating the federal Controlled Substances Act. All of this was confirmed in 2017 via an article authored by the Director and Trial attorney for the Executive Office for U.S. Trustees.
Congress continually renewed medical cannabis protections. If you don’t know what the Rohrbacher-Farr/Rohrbacher-Blumaneaur amendment is, go here. In the Ninth Circuit and elsewhere, it’s the single most important protection for medical marijuana businesses, as confirmed by this case. (The Amendment does NOT apply to recreational marijuana businesses or legislation). Fortunately, despite the fact that A.G. Sessions has requested that Congress repeal this amendment, Congress has continued to renew it throughout 2017. Currently, the amendment’s protections have been extended by Congress through January 19, 2018.