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

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

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

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

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that is in compliance with all restrictions of Proposition D, notwithstanding those restrictions are or would have been repealed, including, but not limited to, either possessing a 2017 L050 BTRC and current with all City-owed business taxes, or received a BTRC in 2007, registered with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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Cannabis Home Grows in Washington State: The Jury is Still Out

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Washington homegrown cannabis

The Washington State Liquor and Cannabis Board recently issued a report on recreational cannabis home grows to the Washington State Legislature without making a specific recommendation as to whether the state should legalize recreational home cultivation. Instead, the LCB analyzed the following  three proposed option (which options we discussed here):

  1. Tightly Regulated Recreational Marijuana Home Grows. This option would impose a strict regulatory framework. Home cultivators would need a permit to grow legally. Permit holders could then purchase plants from licensed producers. Each household would be allowed four plants and all plants would be tracked in the same traceability system used to monitor commercially grown cannabis.  The LCB would impose requirements to ensure security and to prevent youth access and diversion. Both the LCB and local authorities would monitor home grows. Cannabis processing would be subject to the same restrictions as apply to medical cannabis (e.g., no combustible processing).
  2. Local Control of Recreational Marijuana Home Grows. Like Option One, this option would require a permit, require safeguards to prevent diversion, limit each household to four plants, and allow permit holders to purchase plants from producers. Option Two would not require home cultivators to use the State’s traceability system. It also would give greater authority to local jurisdictions to create more restrictions and to authorize, control, and enforce the homegrown program.
  3. Recreational Home Grows are Prohibited. The third option is to maintain the status quo and prohibit home cultivation.

The Board weighed the benefits and drawbacks of each measure. A tightly regulated system provided in the first option would address concerns over traceability and public safety but would require allocating significant resources to monitor home grows. The second option would allow local governments to control home cultivation but could result in inconsistent and confusing rules and regulations across the state. The third option would mean the state would not need to implement a new system but would continue allocating resources to prohibit home cultivation.

The LCB contacted cannabis regulators from Colorado, Oregon, and Rhode Island. Colorado and Oregon allow for recreational home cultivation (along with all other states that have legalized recreational marijuana) and Rhode Island permits medical home cultivation with tight regulations. Colorado’s constitution provides a right to home cultivation. The Colorado State Legislature expressed concerns about large home grows as the law originally allowed for up to 99 plants in a home and in 2017, Colorado limited that number to 12 plants per home. Oregon citizens can grow up to four plants generally but can grow more after obtaining a permit or a doctor authorization. Oregon recommended a low number of plants if recreational grows are allowed. Rhode Island expressed concerns over diversion and created a strictly regulated home grow system where all grows must be permitted and plants traced in the traceability system.

The Washington Board also spoke to the Association of Washington Cities, Washington State Association of Counties, the Washington Association of Sheriffs and Police Chiefs, the Department of Social and Health Services, Department of Health, Washington Healthy Youth Coalition, and received public comment through a public hearing and written comments. The LCB reports that law enforcement generally opposed implementing a home cultivation program as it could create public health and safety concerns, including diversion of legally grown product to the illicit market. Law enforcement officials also expressed concern over whether the state could regulate home grows as individuals are afforded privacy protections in their homes that can prevent law enforcement officers from inspections. Other state agencies expressed concerns about children accessing cannabis grown in their homes.

The report emphasizes Washington’s compliance with the Cole Memo through a tightly regulated system, stating that recent changes made by the legislature continue “to add public safety measures to the system rather than making it more lax.” It summarized the viability of home grows as follows:

If the maximum plant number is kept very low, the less of an overall impact there may be to a regulated system and diversion to feed the illicit market and marijuana being exported to other states. While the majority of people may likely follow the rules, there may be those who will intentionally not stay within legal requirements with the goal of engaging in the illicit market.

The Board also emphasized the need for clear regulation if the State allows recreational home cultivation:

The more clearly and simply the parameters are drawn – how many plants a person may have, definitions of a plant and the level of maturity of plants a person may have, restrictions on when a person is illegally growing vs. legally growing – the less overall impact to the regulated system and the greater the enforceability of home grows, thus supporting the tenets of the Cole Memo. This greater enforceability does not completely abate enforcement concerns.

The LCB’s analysis will now be used by the Washington State legislature to implement a program to legalize home cultivation or to uphold the status quo. Washington’s legislative session starts in January and we’ll continue to write about the status of homegrown cannabis in the Evergreen State.

Right now the jury is definitely still out.

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Cannabis Home Delivery Matures in Oregon

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Cannabis home delivery continues to expand in Oregon.

Recreational legal states are divided on whether to allow cannabis home delivery and just how to regulate it. For example, though cannabis delivery is legal in Oregon, it is still being debated in the Washington State legislature. And even though home delivery is legal in Oregon, that doesn’t necessarily mean it’s legal in every city. Portland, Oregon only lifted its ban on recreational cannabis delivery last December, and it has taken a while for the first delivery companies to obtain their state and city licenses, and to begin operating.

Considering that cannabis home deliveries are still prohibited in Washington, it may come as a surprise that home delivery has been a part of Oregon’s recreational cannabis regime since its inception. Section 27 of Measure 91 provided that licensed retailers would be able to make deliveries to “consumers pursuant to bona fide orders received on the licensed premises prior to delivery.” This language was adopted in HB 3400 without much change, and without any attempt to clarify the definition of a “bona fide order.” But home delivery was put on hold while the Oregon Liquor Control Commission (OLCC) worked out the details.

In 2015, the OLCC issued temporary rules to govern home delivery, and it has been tweaking those rules ever since. However, it wasn’t until February of this year that the OLCC finished working out the kinks and opened up delivery statewide.

Currently, Oregon Administrative Rule 845-025-2880 provides that a retailer may deliver cannabis directly to residential homes or apartments, but cannot deliver to hotels or other similar businesses. Any particular individual or address can only receive one delivery per day.

For the driver’s safety, each delivery vehicle must be equipped with an internal lock-box to store the cannabis during transport and each driver can carry no more than $3,000 worth of cannabis products at a time. Though not strictly required by the rules, a smart delivery company will use nondescript vehicles to further deter theft.

Assuming you are over 21 and you are not visibly intoxicated, you can receive deliveries of cannabis to your home or apartment as late as 9 pm, so long as you place an order by 8 pm. You will be asked to provide your name, date of birth, address, and the specific products you want to purchase. The delivery driver will arrive at your home, check your ID, and ask you to sign a delivery receipt so the retailer can fill out its delivery manifest.

These delivery manifests were the primary cause of the delay in bringing home delivery to the masses, as the OLCC needed to determine how to fit home delivery into Oregon’s seed-to-sale tracking system. Fortunately, the system is now up and running, and home delivery may already be available in your city.

As more states legalize cannabis in 2018, Oregon’s experience with home delivery will no doubt provide a valuable guide. In fact, if you are lucky, you may soon be enjoying commercials like this one.

 

Portions of this post were first published in the Portland Mercury and are republished with permission.

 

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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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California Cannabis Countdown: The City of Hayward

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

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

Today’s post is on the City of Hayward.

Welcome to the California Cannabis Countdown.

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

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

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

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

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

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

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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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Cannabis Won on Tuesday’s Election Day 2017


The recent election bodes well for cannabis.

By now you have probably seen a dozen articles about the blue tidal wave that hit Virginia, New Jersey, and almost everywhere else that held elections on Tuesday, November 7. The consensus seems to be that Democrats, who are usually apathetic about off-year elections, showed up in large numbers to express their displeasure with the Trump administration. But this election was also heavily tinged with green and it bodes well for the prospects of an eventual end to federal cannabis prohibition. It also had some immediate benefits for recreational cannabis in the short term.

We have often written about prominent Democratic presidential hopefuls (i.e. democratic members of Congress) speaking rationally on cannabis (here, here, here, here, and here). These comments dovetail nicely with recent polling showing public support for cannabis legalization is at an all-time high, with 64% of the public in support (71% among Democrats, 62% among independents, and breaching 50% among Republicans for the first time). On November 7, the age-old political rule that the president’s party gets clobbered in mid-terms seems to have held true yet again. We expect that federal prohibition’s time is short, and if Democrats take the Senate and/or the house in 2018, we expect Attorney General Jeff Sessions’ options will be limited when it comes to federal interference with state-level recreational regimes.

But no doubt before the results of this last election impact federal cannabis, they will more likely impact cannabis on the state level. For instance, the election of Phil Murphy (D) as the next Governor of New Jersey all but guarantees the Garden State will legalize cannabis soon. Shortly after the election, we reached out to our Garden State legal colleague, Paul Strauchler, an attorney at Post, Polak Goodsell and Strauchler and one of the leaders of the firm’s Hospitality, Alcoholic Beverages, and Cannabis Group, to get an on the ground view on what the transition from cannabis-hating Chris Christie to Phil Murphy will mean for New Jersey. Paul is optimistic about the results: “Since Phil Murphy’s very entry into New Jersey public life, he has been an advocate for the legalization of cannabis: for its medicinal value and potential; for its commercial and economic opportunities; and for its remediation of a full spectrum of social justice issues. We look forward to working with Governor-Elect Murphy and the Lt. Governor-Elect and their team as New Jersey prepares for a new era.” In other words, just about everything cannabis just took a sharp upward turn for New Jersey.

Governor-Elect Murphy campaigned on legalization and he has vowed to legalize cannabis in his first 100 days. If he succeeds with this New Jersey will be the first state to legalize cannabis through legislation, rather than via a public ballot initiative.

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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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Oregon’s Recreational Marijuana Tax: A Field Guide

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Oregon cannabis taxes

The Oregon Department of Revenue (“DOR”) imposes a point-of-sale tax called the Recreational Marijuana Tax on all Oregon recreational cannabis retailers. The DOR collects 17% of the value of all cannabis sold at each retailer location.

In theory, this tax burden is shared across the entire cannabis production line (producer, processor, distributor, and retailer) by depressing prices. Oregon law also allows cities and counties to impose up to an additional 3% point-of-sale tax, but this additional tax can only be implemented after a vote of approval from local residents. Local jurisdictions can opt to enter into an agreement with the DOR that allows the DOR to collect the tax their behalf, and most jurisdictions that have passed a 3% tax have elected to do so. In these jurisdictions, the DOR will collect a full 20%, and distribute the 3% to the local governments.

The DOR maintains a record of local jurisdictions that have implemented the 3% tax, as well the list of jurisdictions that have entered into a collection agreement with the DOR. In most cases, any local tax issues will be handled on your state tax filings (discussed below), but if you are located in one of the following jurisdictions you will need to contact the local government directly to arrange for payment:

  • Brookings
  • Columbia County
  • Coos County
  • Cornelius
  • Dundee
  • Dunes City
  • Gilliam County
  • Gold Hill
  • Gresham
  • Hines
  • Jackson County
  • Josephine County
  • La Pine
  • Lafayette
  • Rainer
  • Rockaway Beach
  • Sheridan
  • Tillamook (the city)
  • Tualatin
  • Veneta
  • Westfir
  • Wheeler
  • Yachats

At the state level, each month every retail location must submit an Oregon Marijuana Tax Monthly Payment Voucher along with payment for the prior month’s tax. The tax can be paid online through the DOR’s Revenue Online website or can be paid by check, money order, or by cash in Salem — with all of the various problems that arise from transporting large quantities of cash. Remember that you will need to submit a separate voucher and payment for each location, so if you have multiple retail cannabis locations you need to track sales separately for each location. In addition to the monthly vouchers, you also need to submit a quarterly return.

What does the State of Oregon do with your hard earned taxes? By law, the DOR distributes the state marijuana tax as follows (taken from the DOR’s Marijuana Fact Sheet):

  • 40 percent for education.
  • 20 percent for purposes for which money in the Mental Health Alcoholism and Drug Services Account may be used.
  • 15 percent for state law enforcement.
  • 10 percent to cities, based on population and number of licensees.
  • 10 percent to counties, based on total available grow canopy size and number of licensees.
  • 5 percent for alcohol and drug abuse prevention, early intervention, and treatment services.

Remember that cannabis businesses are still subject to any other general business taxes imposed by the state or local jurisdiction, and of course federal taxes as well (which you can read more about here, here, here, and here). Oregon’s Recreational Marijuana Tax should, therefore, be only one small part of your tax planning.