Photo of Hilary Bricken

Since joining Harris Bricken in 2010, Hilary has earned a reputation as a fearless advocate for local businesses. Hilary’s clients—start-ups, entrepreneurs, and companies in all stages of development—value her bold approach to business strategy.

Buying a Los Angeles Cannabis dispensary
Buying a Los Angeles cannabis Dispensary? Due diligence is key.

With California’s recent passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA“), we finally know California will be combining its regulatory oversight of medical and adult use cannabis. We also know potential licensees no longer need to prove prior compliance with local laws to receive a state cannabis — which was the case under MCRSA, which has been repealed. This does not mean state licensees get to violate local laws. Instead, MAUCRSA lays out a sort of local vigilance program where the state notifies local governments of incoming licensees and the local governments then have to let the state know whether those licensees are complying with local cannabis laws. Local law is still king in California.

If you’ve been following the situation in Los Angeles, you know LA has an embattled history with its medical marijuana dispensaries. In addition to other enforcement measures, one of the City’s biggest battles has been enforcing Proposition D (a mere immunity-from-prosecution ordinance), which was essentially replaced this past March with ballot initiative Measure M that will finally regulate cannabis businesses within the City’s borders. Among other directives, Measure M ensured that Proposition D-compliant dispensary collectives would receive “priority” status for whatever local approval mechanism the City would design under Measure M. Despite the passage of Measure M, the question remained as to whether the City would increase the number of dispensaries and how exactly the City would regulate its cannabis operators.

Last month, Los Angeles released proposed Measure M regulations. Under those regulations (which are in a 60-day comment period), dispensaries that can prove “substantial” compliance with Proposition D will receive priority processing in the first round of the City’s issuance of “certificates of approval.” Though there has already been a fair amount of stakeholder dissent surrounding the use of certificates of approval and backlash against the proposal of a non-retail registry for cultivators and manufacturers, what has not been discussed as much is whether Proposition D-compliant dispensaries can essentially “flip,” or partner with third parties on, one or more of their certificates of approval (which include delivery and cultivation).

Even before institution of Measure M, folks were looking to “buy” Proposition D-compliant dispensaries, but ever more so now that owning such a dispensary gets priority processing from the City and because L.A. may not actually increase its number of dispensaries based on some restrictions in the proposed Measure M regulations.

If you are looking to get in on a Los Angeles cannabis dispensary you need to be thinking about due diligence. Due diligence on Los Angeles dispensaries is difficult because California’s existing MMJ laws under Prop. 215 do not require much operational or corporate accountability or tracking on either the state or local level. Also, because most of these entities are non-profits, there’s no equity to buy or sell. So you need to check the entity’s bylaws to make sure you can either take over the entity by paying a membership fee or that you can do some kind of director swap with an attendant asset purchase and that the entity will not need to give notice to thousands of patient members for you to do so. Given the unregulated nature of existing operators on a state level, you also need to make sure that the dispensary has been paying its taxes to the IRS (under 280e) and that it has been paying the Board of Equalization. Lastly, many Los Angeles dispensaries are not compliant with Proposition D and this too could cause you all sorts of problems. What makes for a compliant Proposition D dispensary? This is not entirely clear. Some believe that being on the 2013 City-issued list (which shows 134 dispensaries) proves compliance. Others believe the June 2017 map of dispensaries issued by the City Controller (which shows 139 dispensaries) is the proof you need. Proposition D says that to prove compliance, a Los Angeles dispensary must show the following:

1. Was operating as a medical marijuana dispensary in the City by or before September 14, 2007;
2. Had a business tax registration certificate (“BTCR”) or tax exemption from the City by or before September 13, 2007;
3. Was registered as a medical marijuana dispensary with the City Clerk by November 13, 2007. pursuant to the then existing pre-interim control ordinance number 179027;
4. Notified the City Clerk by February 18, 2011 of its intention to register under the city’s Medical Marijuana Ordinance 181068, as amended by temporary urgency ordinance 181530;
5. Has not ceased operations at its identified location for any of the following reasons: (1) court or government enforcement order to shut down or (2) lack of a lease or utilities (in the name of the dispensary or one of the managers/directors of the dispensary for the benefit of the dispensary) to the property. There are exceptions to this requirement if the dispensary ever relocated (which they were allowed to do) or if it temporarily closed down because of a shutdown letter from the Feds or the City prior to the temporary urgency ordinance 181530 but then re-opened;
6. Obtained its BTRCs for 2011 and 2012 (and has continued to renew those BTRCs with the City);
7. Has no outstanding or unpaid tax liability with or to the City (including any fines, penalties, etc.). There are some exceptions here on payments during the 2011 and 2012 tax years, and settlement agreements with the City are also exempt;
7. Has continuously complied with the various operational requirements in Proposition D;
8. Has had all dispensary managers over the years submit to the City livescan checks; and
9. From property line to property line, is at least 1,000 feet away from any schools and at least 600 feet away from any parks, churches, child care facilities, public libraries, youth centers, rehab facilities, and other dispensaries.
Under Measure M proposed regulations, the City will allow the dispensaries to explain any mitigating factors for non-compliance with Proposition D, but that’s definitely not a guarantee the dispensary will receive a certificate of approval.
If you are contemplating buying into or joining as an owner in any Los Angeles dispensary business, due diligence will be key. Proposition D compliant-dispensaries are valuable as they may end up being the only dispensaries in Los Angeles for a number of years. But don’t get sucked into investing in a Los Angeles dispensary that will not be able to prove its immunity under Proposition D–avoid this problem by doing proper due diligence.

California CannabisThere have been countless reports of how California’s medical and adult use cannabis markets under the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act (now, combined under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“)) will generate billions of dollars in revenue. Unless more California cities and counties allow commercial cannabis activity within their borders, these numbers will prove far too high.

Our California cannabis clients are constantly asking us questions like, “where in California should I set up my cannabis business? Which California cities and counties are the friendliest towards cannabis? Who is regulating now for what I want to do?” And though the list of “welcoming” cities and counties continues to change, it seems the worst cities and counties for cannabis continue to remain the same, despite the will of the voters and the actions of the California legislature.

When it comes to cannabis the below is my list of the five worst California cities and counties for commercial cannabis activity — not shockingly, most on this list are in Southern California:

  1. Los Angeles County. The most populous county in the United States has for a long time had a complicated relationship with cannabis. Though at one point Los Angeles County passed comprehensive regulations for medical marijuana dispensaries, (which remain in the County Code to this day) it has since instituted a ban on dispensaries and, as of 2016, it has also banned all commercial marijuana activities within unincorporated areas of the County. In March of last year, the County voted to shut down all illegal dispensaries and it has vigorously pursued those shutdowns. It also adopted an ordinance that makes it explicitly illegal for landlords to rent to any marijuana operators. And just this month, the County again voted to extend the ban for an entire year on all marijuana-related business activity, though with this vote the County for the first time also outlined “reasonable regulations” for personal use of marijuana for medical purposes by individual patients. There is though some light at the end of the tunnel since the County expects eventually to pass comprehensive regulation for marijuana businesses. Though the MAUCRSA does not require local government approval of your cannabis business before you receive a California state license, eventual compliance with local laws is still required in the state licensing process. What this means is that unless and until L.A. County sets up its regulatory scheme, we shouldn’t expect a lot (or any) state-licensed or locally permitted commercial marijuana activity in the County.
  2. City of Riverside. In 2013, the City of Riverside won a landmark case before the California Supreme Court upholding its right to ban medical marijuana collectives within its borders under Proposition 215. And since the MAUCRSA does not prohibit cities and counties from banning marijuana businesses, Riverside is keeping with its prohibitions against cannabis businesses within city limits. City of Riverside voters rejected a 2015 ballot measure that would have allowed and regulated a small number of dispensaries in the City and since 2007, Riverside has shuttered 118 dispensaries — giving it the supposed distinction of being the only California city with a 100% closure rate. Riverside is keeping its ban on medical marijuana businesses in place for now, and though it has yet to make a decision about adult-use marijuana businesses, we can fairly safely predict that too will be a no-go.
  3. Orange County (and most of its cities). Though beloved cannabis reformer (and author of the Rohrabacher-Farr Amendment) Congressman Dana Rohrabacher hails from the OC, his home county and most of its cities are pretty bad when it comes to allowing for/regulating commercial cannabis activity. Orange County banned dispensaries (and all other medical marijuana activity) in 2010 after the Sheriff’s Department submitted a report to County supervisors stating that “dispensaries [were] responsible for an uptick in robberies, burglaries, weapons violations and money laundering.” Though some OC cities allow for small home grows for qualified patients and their primary caregivers, most OC cities (including its largest city, Anaheim)do not allow any commercial cannabis activity or they charge an arm and a leg for it (see Costa Mesa‘s approximately $94,000.00 price tag for cannabis permitting). And let’s not forget that botched dispensary raid in Santa Ana in 2015. Back in January of this year, the County did begin talking about regulation of marijuana businesses after passage of Proposition 64 but so far nothing has come of that discussion and OC cities mostly continue to opt for prohibition.
  4. Marin County. When it comes to cannabis business regulation and Marin County, two words come to mind: drama and disappointment. In December 2015, Marin County passed an ordinance (effective in February of 2016) giving its Board of Supervisors authority to license medical cannabis dispensaries in unincorporated Marin. This ordinance allowed up to four dispensaries in two zoned areas. Ten applications were submitted to the Marin County Board of Supervisors and open to public hearings. The County Administrator, Matthew Hymel, rejected all ten of the applications pretty much over substantive concerns with each application and because residents were concerned about having an over concentration of brick and mortar dispensaries within the county. Eight of the ten applicants appealed that decision and Hymel rejected all of those appeals. To date, the County hasn’t picked up the torch again on a revised approach to regulating marijuana dispensaries or other commercial cannabis activity.
  5. City of Pasadena. If you can’t beat ’em, take away their resources. This is what Pasadena has done in a concerted effort to choke out and shut down illegally operating cannabis businesses within its city limits. It was reported that, as of May of this year, “. . . there are 12 shops in Pasadena that sell marijuana . . . None of them have permits to operate. One of two dealers with numerous citations for illegal distribution said through it attorney that it will not stop selling pot until ordered to do so by a court. Even after sending cease and desist letters and suing half of the operators, these shops still are not closing their doors. In response, Pasadena decided through an ordinance to shut off utilities to illegal operators to force them to close (not surprisingly, Anaheim and L.A. have also used this tactic). Pasadena makes my list not because it is trying to enforce its own laws but because it has not given immediate or emergency regulation a shot. Instead, it’s choosing to waste additional time and tax payer dollars shuttering operators it could have re-located, regulated and taxed.
California cannabis seminar: june 22 and 23
California cannabis seminar: June 22 and 23

On June 22nd and 23rd in Santa Monica, Canna Law Blog’s own Hilary Bricken will be chairing and presenting at a day and a half long continuing legal education (CLE) event called “Medical and Recreational Cannabis in Southern California.” This will be Hilary’s third year heading up and presenting at this event. Robert McVay from our firm will also be speaking there. The roster of speakers lined up for this CLE is better than any previous year and everyone, including non-lawyers, would be well served to attend. For a full event description, including topics, speakers and registration links, go here.

Hilary’s talk will be on how California has borrowed from Washington and Oregon in creating its new cannabis regime. Hilary is particularly qualified to discuss this topic as she is licensed in both Washington and California and she often consults with our Portland, Oregon office on high level cannabis regulatory matters. Hilary began her career as a cannabis lawyer way back in 2010 in Seattle and she now heads up our California practice out of our Los Angeles office.

Robert’s talk is entitled, Investing in the Cannabis Industry, and it is described as follows:

How to raise money in California’s marijuana industry? Can entrepreneurs even raise funds under the current MCRSA or Proposition 64 regulatory rules? If they can, how do they do that? What should a solid marijuana PPM contain? What should the “Disclaimer” section disclose? What liability exists for investors? What kinds of questions should investors be asking? How should an investment deal be structured in the marijuana industry? Is that deal the same in every state? Are Kickstarter or other crowd funding sources possible for the marijuana industry? If not, why not?

It is amazing to see the pace at which California is attacking regulation of commercial cannabis activity under its Medical Cannabis Regulation and Safety Act. Even though the state is just beginning to take public comment on its initial rules, those rules already show great attention to detail. For our take on what you need to know and do now in California if you are looking to start a cannabis business there, check out 10 Reasons Why You’re Already Behind on California Medical Cannabis Licensing.

California cannabis attorneys and potential license applicants alike need to familiarize themselves with California’s unique regulatory concepts and industry dynamics and this seminar will help with that. These concepts include the licensing schemes under the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act (with an analysis of Governor Brown’s Trailer Bill), an analysis of the licensing models in Oregon and Washington from which California has already borrowed, government relations, emerging litigation trends and topics, and practical approaches to working with and in the cannabis industry through contracts. All of these issues will be addressed at this event and if you want to know what is happening and what is likely to happen with California’s cannabis industry, you shouldn’t miss it.

Please join us in Santa Monica on June 22nd and 23rd for a day and a half survey of California medical cannabis that will be both broad and deep. And if you are a Harris Bricken client, a friend of our firm or a steadfast Canna Law Blog reader, click here to request a promotional discount code, which can be applied to either the webcast, or to your in-person attendance.

We are proud to have so many clients among the pioneers in California’s brave new world of regulated medical cannabis (and, eventually, adult use cannabis) and we hope to see you soon in Santa Monica.

Los Angeles Cannabis rulesThe long-awaited proposed regulations under Proposition M for L.A.’s current and future medical (and recreational) marijuana operators are finally out. The 51 pages of initial regulations (that are now in a 60-day public comment period) cover the governance of cultivators, manufacturers, distributors, testing facilities, transporters, retailers, and microbusinesses in significant detail under Proposition M. If you forget what Proposition M is, see here. Though most of these initial regulations identically track initial state regulations under the Medical Cannabis Regulation and Safety Act (“MCRSA“), there are certainly some nuances that will affect medical cannabis businesses differently than in other jurisdictions. Equally important is that L.A. also issued its proposed zoning regulations, so we know where the city expects all operators to locate, which is incredibly important for those looking for eligible real property.

Here are the highlights from the proposed operator rules (we will cover L.A. zoning under Proposition M in a subsequent post):

  1. The City of Los Angeles Cannabis Department (“Department”) is going to issue Commercial Cannabis Activity Certificates of Compliance in four phases as follows: (1) Proposition M Priority eligible applicants (i.e., the ~135 Pre-ICO cannabis collectives currently operating in the City under Prop. D immunity from prosecution), (2) Non-Retail Registry eligible applicants, (3) a restricted phase “in which the number of Certificates of Compliance issued to General Public applicants may not exceed the number of Certificates of Compliance issued to Social Equity Program applicants”, and (4) an unrestricted phase “that commences after the Social Equity Program has been fully funded and implemented as determined by the City Council. City of Los Angeles Cannabis Department.”

This means Prop. D compliant dispensaries will have a lock on L.A.’s retail cannabis market unless and until general public applications are allowed in phase 3, which will only happen after non-retail applicants and social equity program applicants are approved, which could take years. And the number of additional Certificates that may issue in phase 3 is dependent upon and restricted by the number of Certificates that issue to applicants in the social equity program, which hasn’t been created yet.

  1. Prop. M Priority applicants or “Existing Medical Marijuana Dispensaries” (“EMMDs”) will have only 60 days from the date applications become available to get their applications into the Department and then that application window will forever close (if you don’t meet the 60-day deadline, you’ll be treated as a new retail applicant). Further, EMMD applicants will only be allowed to apply for Retailer Commercial Cannabis Activity, which may include Prop. D-compliant on-site cultivation. If one of these applicants also applies for on-site cultivation, it cannot expand its existing grow in any way and the current grow canopy size depends on its size documentation (if any) in the existing lease or in a Certificate of Occupancy issued to the applicant by the City prior to January 1, 2017. All on-site cultivation has to end on or by December 31, 2024 if the EMMD’s premises are not within a zone that allows for Indoor Cultivation Commercial Cannabis Activity. This combination of cultivation may also be problematic for EMMD applicants that don’t also apply for a Producing Dispensary permit from the state (where other combinations of cultivation and retail are not allowed under the MCRSA, though they will be under the Adult Use of Marijuana Act (“AUMA”) and if the Governor’s Budget Trailer Bill passes).
  2. EMMDs that can demonstrate “substantial compliance” with Prop. D will be allowed to continue operating at their one designated location while their application with the Department is pending, but they can’t make any changes at all to their structure or operations during that time. And “any mitigating circumstances due to gaps in operations, ownership change, location change or closure, tax payments, etc. must be described in detail for the Department to consider eligibility” for priority processing. If the City finds you’re not compliant with Prop. D. and, therefore, not eligible for priority processing, its decision is final.
  3. Retailers may possess up to three Certificates of Compliance, and that includes Certificates for Delivery. Though the City did not officially cap the number of dispensaries that may apply for Certificates from the Department in the future, that number will be curtailed by the number of approved Certificates issued to applicants in the social equity program, the rules for which haven’t been established by the City.
  4. All non-retail applicants “that were conducting Indoor Cultivation Commercial Cannabis Activity or Manufacture Commercial Cannabis Activity in the City of Los Angeles prior to January 1, 2016 . . . may continue to operate while their application is pending approval if a completed application is submitted to the [City of Los Angeles Cannabis] Commission within 30 days of the first date [on which applications are] made available to the public, the continuing operations of the applicant are the same activities in which the applicant is seeking a Certificate of Compliance for indoor cultivation or manufacture, the location or premises meets all of the adopted or proposed land use and sensitive use requirements of the City of Los Angeles and other eligibility requirements as listed, and the Department approves eligibility.” The Department will then close the Non-Retail Registry processing window permanently. To prove continuous operation by January 1, 2016, the City will ask for the same documentation as the state for priority licensing approval. Just like with EMMD applications, if the City makes a final determination that you’re not eligible for non-retail application processing, its decision is final. There’s no City cap on the number of Certificates a non-retail applicant can hold.
  5. There will be no volatile (Type 7) manufacturing in Los Angeles. Only non-volatile (Type 6) manufacturing will be allowed. And outdoor and mixed-light cultivation are also not allowed.
  6. There’s a robust list of background and financial information all applicants must supply to the City in their applications for Certificate of Compliance including, all “Owner” information, a list of all non-controlling owner information, your lease or right to occupy your real property for your license type, your hiring plan (which must include a plan for hiring L.A. locals), a premises diagram and security plan, and your business’s organizational structure.
  7. Any person convicted of illegal volatile cannabis manufacturing is banned for 10 years (from the date of conviction) from Commercial Cannabis Activity within L.A., and anyone who’s been convicted for violating any law involving wages or labor laws is banned for 5 years (from the date of conviction) from Commercial Cannabis Activity within L.A.
  8. No foreign companies (i.e., out of state or international) can apply for a Certificate from the City.
  9. As for operational standards, no business can provide physician recommendations to anyone, there can be no on-site consumption, no special parties or events can be held on-site, there are strict records retention requirements (including retention for no less than 7 years for all financial records), all businesses must follow the track and trace system for seed-to-sale, and retailers can be open only from 6 a.m. to 9 p.m.
  10. L.A. is finally going to allow delivery (which has been a long embattled issue in L.A.), and its regulations basically track those of the state (i.e, a brick and mortar dispensary can be the only one to deliver under the MCRSA and no specific distinction was made for delivery under the AUMA — yet). Deliveries cannot take place outside of the City without the City’s express approval.

These initial regulations will certainly change (at least a bit) as a result of stakeholder feedback and debate. But though you can’t take these regulations to the bank yet, they do provide valuable insight into how the City of Los Angeles sees the future of its cannabis market. I still maintain that if the City does not allow significantly more retail dispensaries in the near future, it will not reach its maximum market potential.

We’ll see how things play out over the next two months and we will definitely keep you posted in the meantime.

How to knock down all the pins to get a California cannabis license
How to knock down all the pins for a California cannabis license

Since I moved to our firm’s Los Angeles office, I’ve been getting calls nearly non-stop from existing and potential clients looking to take advantage of California’s soon-to-be highly regulated medical cannabis marketplace under the Medical Cannabis Regulation and Safety Act (“MCRSA“). Nearly all of these callers are already behind when it comes to what they need to know and do to secure a California medical cannabis license in 2018.

Even though California’s rules are still in their initial draft form, they provide great insight into what to expect from the future adopted rules. Surprisingly though, few cannabis stakeholders interested in California’s massive medical cannabis industry have read the rules and this means most have no concept of how important local law compliance is.

The following is the minimum you should know for positioning yourself for a California medical cannabis license:

  1. Priority review. Turns out priority review will actually net you a temporary state license to operate this fall, but you can only get priority review if you were “in operation and in good standing with [your] local jurisdiction by January 1, 2016.” What this really means is that a good number of pre-existing non-profit collectives are going to get first dibs on temporary licenses while all other license applicants will have to wait until January 2018 to begin receiving their licenses. Many of these pre-existing non-profits want to know whether they can go for-profit now and still receive priority review from the state since part of the analysis of priority review is whether your “ownership or premises are currently the same” as they were on or by January 1, 2016. Though existing operators need further clarity from the state on the non-profit to for-profit transition in the context of priority review, new operators can likely forget priority review status altogether.
  2. Prop. 215 is still alive and that’s a problem for for-profit cannabis companies. I am always getting asked whether California allows for-profit cannabis companies now, and the answer is still “no.” Though for-profit entities are allowed to be license applicants under the MCRSA, if you are servicing groups of patients now, the State still encourages you (from a 2008 State Attorney General memo) to form a non-profit collective (if you’re going to form an entity at all) because neither the MCRSA nor the Adult Use of Marijuana Act repealed Prop. 215, which prohibits for-profit sales of medical cannabis. In addition, many local ordinances still require “commercial cannabis activity” to take place within non-profits. The complicating factor is that some California cities and counties are allowing for-profits to apply for local permitting right now. This, combined with the fact that the state is going to allow for-profit applicants, has led some operators to bite the bullet and go for-profit ahead of state licensing in spite of Prop. 215. These operators are betting that the risk of state and local law enforcement interference is lower if local governments are allowing for-profits, and they don’t want to take the chance that the state may not allow for-profit mergers or conversions after state licensing. Since most local ordinances do not allow for transferring cannabis permits after-the-fact, deciding now whether to use a for-profit or non-profit is an immensely important decision.
  3. Local law is king (and always will be in California). The MCRSA requires you show you have local approval to receive a state license. If you don’t have local approval and you try to open despite a local ban or even if you are simply operating under a local government’s tacit approval without any formal recognition, you’re going to suffer in California. California’s cities and counties seemingly constantly change their minds and their laws on what MCRSA businesses and which operators they’re going to allow within their borders (for example, check out our San Fransisco office’s reports here and here on what happened in Marin County). And the local regulation that does exist is rife with zoning limitations, intense deadlines, high fees, property buffers and setbacks, and all kinds of operational standards.
  4. You can’t manufacture just anything. Many do not realize that when California cannabis regulation hits, product choices immediately will get taken away from cannabis manufacturers and consumers because of consumer safety issues and policy choices. Section 40300 of California’s cannabis manufacturing rules sets forth all products that will be outlawed if these rules are adopted. Should this version of the rules be adopted, products that would be barred include cannabis-infused alcoholic beverages, nicotine, or caffeine; any canned cannabis product; any juice; cream or custard-filled pies; pies or pastries which consist in whole or in part of milk or milk products, eggs, or synthetic fillings; meat-filled pies or pastries; dairy products of any kind; meat products of any kind; and seafood products of any kind. Most regulated states have gone further than California when it comes to banning entire product lines — it’s now nearly impossible to find cannabis gummy bears in many cannabis regulated states. All of this means that creative food makers and infusers are likely to be mostly sidelined from California’s cannabis game.
  5. Ownership and investment. California’s medical rules do not contain any hardcore residency or financial minimums or liquidity requirements (yet) for owners and financiers. Under the initial rules, the basic background and corporate information submissions to the state are pretty much identical across license types. Each license applicant will need to submit to the state required background information on all owners. An “owner” is the CEO or any person or entity within a publicly traded company that has, in aggregate, greater than a 5% ownership interest and, for all other business entity applicants, “owner” means any individual who has, in aggregate, greater than a 20% ownership interest — excluding the ownership of a security interest in, lien on, or any other encumbrance of the business entity applicant. And if there’s a business that has an ownership stake of greater than 20% in the entity applying to the state for a cannabis license, its CEO and all of its directors will be considered owners. Lastly, an individual is considered an owner if he or she participates in directing, controlling, or managing the applicant, which includes “discretionary powers” to, among other things, direct and/or control the hiring and firing of personnel, contracting for the sale of goods on behalf of the applicant, and making policy decisions on behalf of the applicant.  All owners must be disclosed to the state, along with their stated ownership interest in the applicant. All owners also must disclose if they (or their spouse) have a “financial interest” in any other licensee applicant, which includes any “investment in a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.” For now, only retailers, distributors and transporters will face the highest level of financial scrutiny as California is going to require that these entities submit the following:
    • A list of funds belonging to the commercial cannabis business held in savings, checking, or other accounts maintained by a financial institution;
    • A list of investments made into the commercial cannabis business; and
    • A list of all gifts of any kind given to the applicant for its use in conducting commercial cannabis activity.

    Note though that no California rule prohibits out-of-state companies from applying for California cannabis licenses so long as they are registered to do business in the State of California. In other words, California’s medical cannabis industry is going to be open to out-of-staters and even to companies based outside the United States. Needless to say, many out of state and even out of country companies are in the midst of preparing to do cannabis business in California.

  6. Can I flip my license? No, but there’s likely a catch. California has made clear in its initial rules that its medical cannabis licenses are not transferable — and most local governments are not going to allow for transferring cannabis permits either. What this has meant in other states and what it likely will mean in California as well is that even though you cannot sell your cannabis license as personal property, you can sell the company that holds those licenses as part of a membership unit or a stock purchase and sale. I have little doubt that there will be a large and healthy market for people selling their licensed cannabis businesses right after licensing, and questions of sufficient due diligence, valuation, and the types of purchase and sale agreements that need to be in place will become hot topic issues.
  7. Prohibitions on vertical integration and licensing limitations. People forget that California’s initial rules stem from a statute, and that statute sets the baseline for the rules. In the MCRSA, we have a deliberate prohibition on combining certain types of licenses, and people need to keep those restrictions in mind as they decide the licenses they will seek, especially when local laws come into play. Under the MCRSA, a license applicant can hold up to two licenses in separate categories as follows:
    (1) Type 1, 1A, 1B, 2, 2A, or 2B licensees may also hold either a Type 6 or 7 state license.
    (2) Type 6 or 7 licensees, or a combination thereof, may also hold either a Type 1, 1A, 1B, 2, 2A, or 2B state license.
    (3) Type 6 or 7 licensees, or a combination thereof, may also hold a Type 10A state license.
    (4) Type 10A licensees may also hold either a Type 6 or 7 state license, or a combination thereof.
    (5) Type 1, 1A, 1B, 2, 2A, or 2B licensees, or a combination thereof, may also hold a Type 10A state license.
    (6) Type 10A licensees may apply for Type 1, 1A, 1B, 2, 2A, or 2B state license, or a combination thereof.
    (7) Type 11 licensees shall apply for a Type 12 state license, but shall not apply for any other type of state license.
    (8) Type 12 licensees may apply for a Type 11 state license.

    In addition, the cultivation rules contain strict ownership restrictions on Type 3 (medium cultivation) licenses. Unless a person has a Type 10A Producing Dispensary license, that person shall be limited to one Medium Outdoor, or one Medium Indoor, or one Medium Mixed-Light license. The 10A is limited to no more than three dispensaries and all cultivators are limited to a maximum of 4 acres of plant canopy in total.

  8. Medical and recreational are not the same. Though the MCRSA and the AUMA have a lot in common they also have notable differences, including different models on local approval, residency, vertical integration, and distribution. The differences between the MCRSA and AUMA are highlighted by the fact that though some local governments are embracing medical cannabis, they are rejecting adult use cannabis commercial activity at the same time. Should Governor Brown’s trailer bill pass this summer, those differences will become moot and California medical cannabis will become much more business friendly. Until then though, cannabis stakeholders need to realize the differences between these two laws and plan accordingly. For now, you can still undertake both medical and recreational cannabis operations so long as they are completely separate and not commingled in any way.
  9. Location, location, location. Securing viable real estate for your California cannabis business is going to be one of the toughest pieces of the regulatory puzzle. The initial regulations make clear that you will need to show you have a right to use some piece of real property for your commercial cannabis use and the owner of this property is aware of this. For local law compliance, you will need to have that real estate ready to go anyway and, with some of the deadlines being imposed by local governments, you may be in a serious race to find a viable property that fits all local and state buffer requirements and all applicable zoning laws (and that won’t attract the wrath of any NIMBYs). Given that many landlords are still gun-shy on cannabis leases (in large part because of federal law and asset forfeiture), you better start looking for your viable property now since it could takes months to locate and lock it down.
  10. Cannabis is still federally illegal. All too often investor clients bring us a Private Placement Memorandums or a Confidential Information Memorandum for a cannabis investment in California that nowhere mentions the risk of federal law enforcement or even that cannabis remains federally illegal. Just because most U.S. states have legalized medical cannabis and eight states have fully legalized cannabis, it doesn’t mean a thing under federal law. Yes, we have the appropriations riders that should work to protect state-law compliant MMJ operators from facing shutdown by the Feds, but if Congress ever fails to renew those riders, even that protection will go out the door. And those riders never did nor do they now apply to adult use cannabis operators. With notorious pot-hater Jeff Sessions as our country’s Attorney General, with a Cole Memo that can change or go away at any time, with a lack of access to banking, and with the negative tax impacts of 280e, ignoring federal illegality is a mistake in pretty much any context.

Cannabis litigationCalifornia is in the process of transitioning from its gray market of medical cannabis collectives to a full-blown, heavily regulated regime under the Medical Cannabis Regulation and Safety Act (“MCRSA“). At the end of April, California dropped more than 200 pages of regulation for retailers, distributors, transporters, manufacturers, and cultivators, and it’s now taking public comment on the initial rules. Note that our firm will be hosting a free webinar on June 1 to discuss how applicants can secure licenses under the new regime. Though these rules will no doubt change before (and even after) they are finalized, what won’t change are NIMBYs  who don’t want cannabis businesses near them.

When cannabis businesses come into a community, there can and often will be all kinds of local impact and chaos. We’ve written in the past about various NIMBY lawsuits and how quickly local governments can flip when it comes to non-conforming uses and land use disputes, and that will be the case in California as well, just as it has been the case in all regulated cannabis states.

The entry of the cannabis industry to a state means an influx of entrepreneurs and, with them, an increase in rents in the areas in which they locate. And always there are the angry neighbors who don’t want to smell cannabis harvests every six weeks or so. Most cities and counties zone for growers and manufacturers to be on the outskirts of town or in industrial or agricultural zones and retailers to be in commercial or industrial areas. Occasionally, cities and counties will allow cannabis home farms, but that’s more the exception than the rule.

One of the first notable land use disputes since passage of the MCRSA took place in Santa Rosa, though it’s surely not going to be the last. Most importantly, there is much to be learned from that case. The city of Santa Rosa has welcomed California’s to-be regulated cannabis economy by allowing cultivators and manufacturers to operate in industrial zones. But at least one land developer cried wolf because the city is allowing medium-scale cultivation to move in next door to a long-time planned (but not yet built) residential development.

In February of this year, Fleuron, Inc. applied to and secured approval from the city (through a use permit) to build a 10,000 plus-square-foot cannabis cultivation and processing facility in an industrial zone (on Maxwell Court), part of which was supposed to transition into a residential area. A land developer, who pursued development of apartments for the past 13 years next to where Fleuron wants to build, opposed and appealed the city’s decision and went on record stating that “[i]t is impossible for housing to be built in an area with cannabis uses.” This developer also cited a variety of alleged issues attendant to cannabis grows, like nuisance, public safety, environmental and economic issues. Another nearby apartment land developer said that his investors are “nervous” at the prospect of having a marijuana cultivation site as a neighbor. And a nearby auto-body shop claims to have seen a recent 15% increase in rent attributable to cannabis operators coming in.

Just this week, the city council unanimously rejected the land developer’s appeal against the issuance of Fleuron’s use permit. The city’s mayor even stated that, right now, cannabis seems more “viable as a business than housing.” And council members touted Fleuron’s ownership as “well-regarded, professional businessmen following the rules Santa Rosa established.” Chalk this up as a clear victory for the cannabis industry. But there will no doubt be many more such fights as neighbors in the past have brought nuisance lawsuitsRICO actions, and lawsuits claiming bad odors. Our cannabis lawyers are aware of cases brought against cannabis businesses for creating “marred mountain views,” for making horse riding “less pleasant” during cannabis harvest time, and for loss of business at a hotel where guests allegedly cancelled their reservations upon finding out they were located next to a cannabis business that had not yet even opened.

Though many (most?) NIMBY lawsuits against cannabis businesses have little basis in reality or fact, this does not seem to stop determined NIMBYs from suing neighboring cannabis businesses to try to stop them from ever getting off the ground. NIMBYs are a fact of life in the cannabis industry (our cannabis litigation lawyers have defended enough of these to know this), but smart planning, transparency, and running a compliant business are usually enough to beat them.

California cannabis retailer rules
California medical cannabis retailer rules

This post is on California’s initial rules governing medical cannabis retailers as part of our ongoing series analyzing California’s initial medical cannabis rules pursuant to the Medical Cannabis Regulation and Safety Act (“MCRSA“). For information regarding the licensing rules for California cannabis manufacturers and cultivators, go here and here.

The MCRSA defines “dispensary” as “a facility where medical cannabis, medical cannabis products, or devices for the use of medical cannabis or medical cannabis products are offered, either individually or in any combination, for retail sale, including an establishment that delivers, pursuant to express authorization by local ordinance, medical cannabis and medical cannabis products as part of a retail sale.” There are  two kinds of dispensary licenses under the MCRSA: Type 10 for a general dispensary and Type 10A, defined as just a “dispensary.”

The MCRSA restricts vertical integration of cannabis licenses by limiting applicants to one or two licenses in certain separate licensing categories (Governor Brown’s Trailer Bill will change this if it passes this summer). A Type 10 licensee can only be a retailer and until January 1, 2026, a Type 10A licensee can be a retailer at no more than three retail locations by holding three separate Type 10 licenses: that of a manufacturer and a cultivator (so long as the Type 10A license has no more than four acres of total canopy size of cultivation throughout the state).

In addition to the mandatory submissions for “owners” and their spouses we discuss here, California cannabis retailers must also submit a complete list of every individual with a non-controlling interest in the retailer, though there are no indications non-controlling interest holders will be vetted by the state in the same way “owners” will be.

Retail applicants must submit all of the following to the State of California as well:

  1. A list of funds belonging to the retailer held in savings, checking, or other accounts maintained by a financial institution.
  2. A list of investments made into the retailer entity.
  3. A list of all gifts of any kind given to the retailer for its use in conducting commercial cannabis activity.
  4. Whether an owner or their spouse has a financial interest in any other cannabis license. “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.
  5. A list of all convictions (excepting juvenile crimes and traffic infractions under $300 that didn’t involve alcohol, controlled substances, or dangerous drugs) as well as a rehabilitation list for each conviction.
  6. Application for fingerprints through the Department of Justice.
  7. Documentation issued by the local jurisdiction in which the applicant proposes to operate certifying the applicant is in compliance with all local ordinances and regulations, or will be in compliance with all local ordinances and regulations by the time the Bureau issues a license.
  8. Evidence that the proposed dispensary location is at least a 600-foot radius from any school. In addition, the retail premises must be in a contiguous area and may only be occupied by one licensee, and retailers cannot sublet any portion of the retail premises.
  9. If you have 20 or more employees, an attestation that the applicant has entered into a labor peace agreement and you must provide a copy of that agreement.
  10. A $5,000 surety bond.
  11. A scaled diagram of the dispensary premises that shows “the boundaries of the property and the proposed premises to be licensed, showing all boundaries, dimensions, entrances and exits, interior partitions, walls, rooms, windows, doorways, and common or shared entryways. The diagram must show the areas in which all commercial cannabis activities will take place, including but not limited to, limited-access areas.”
  12. A list of your quality assurance, security, and inventory practices.
  13. Proof of acknowledgement from the dispensary property owner that you can use the property for dispensing and a copy of your lease agreement if you have it. Or if you own the property, provide the deed.

Regarding retailer operational standards, the retailer is responsible for sufficiently tracking and tracing all of its inventory and for record keeping — certain records must be kept for at least seven years. The retailer must also follow all security, surveillance (including installation of 24-hour recording cameras of a certain pixellation that covers certain areas of the operation by a specific number of feet), alarm, and premises access requirements. The retailer is also responsible for cannabis waste-management destruction and disposal. And though California cannabis retailers cannot package or label any cannabis goods, they still must provide “exit packaging” for products, which basically means re-sealable and opaque child resistant packaging. And if a retailer discovers any defective product, it may return the medical cannabis goods only in exchange for a non-defective version of the same medical cannabis goods. So, no cash refunds.

As far as customers go, between the hours of 6 a.m. to 9 p.m., only verified qualified patients or primary caregivers over 18 can freely shop in the dispensary. Nonetheless, anybody younger than 18 can enter the dispensary to purchase medical cannabis goods if they are a medical cannabis patient accompanied by their parent, legal guardian, or primary caregiver. Customers are free to inspect medical cannabis goods through secured containers, but no sampling is allowed. A customer purchase no more than 8 ounces in a single day, unless their physician’s recommendation authorizes more.

Under the MCRSA, “delivery” means “the commercial transfer of medical cannabis or medical cannabis products from a dispensary, up to an amount determined by the bureau to a primary caregiver or qualified patient . . .  or a testing laboratory.” “Delivery” also includes “the use by a dispensary of any technology platform owned and controlled by the dispensary . . . that enables qualified patients or primary caregivers to arrange for or facilitate the commercial transfer by a licensed dispensary of medical cannabis or medical cannabis products.” So long as city or county law allows for delivery, dispensaries must deliver all product themselves; they cannot use a third party contractor or courier to do it. All deliveries must be done in person by a retail employee who’s at least 21, and all deliveries have to go to physical addresses in California. When making deliveries, dispensary employees cannot carry more than $3,000-worth of cannabis goods at any time. No delivery can be made to an address on “publicly owned land or any address on land or in a building leased by a public agency.” Finally, delivery hours are from 6 a.m. to 9 p.m.

These rules are currently in a 45-day comment period and are by no means final. So, stay tuned to see if and when the Bureau makes additional changes. I am sure these rules seem onerous to many of you, and they are. But for what it is worth, they are in many respects very similar to the laws in various other states where we have helped our clients secure cannabis licenses — Oregon, Washington, Colorado, Nevada and Alaska, for instance — and so as difficult as they may seem, it is certainly possible to satisfy them.

California cannabis lawIt’s finally happened. Three of the California agencies implementing the Medical Cannabis Regulation and Safety Act (“MCRSA”) released their initial draft rules last Friday. These long-awaited rules make up the bulk of the regulatory standards for: transportation, distribution, and retailers (as developed by the Bureau of Medical Cannabis Regulation/Bureau of Marijuana Control); cultivation (as developed by the Department of Food and Agriculture through its CalCannabis Cultivation Licensing arm); and manufacturing (as developed by the Department of Public Health through its Office of Manufactured Cannabis Safety).

Within their 209 pages of regulatory mandates, these rules are a serious step toward California finally bringing its entrenched medical cannabis marketplace in line with federal enforcement priorities. Though our California cannabis attorneys will be blogging in depth about each license type and their respective regulations in the upcoming week, we wanted to first provide you with a brief overview of these initial rules. This post does that by highlighting the basic requirements under each set of the initial rules.

Under the initial rules, the basic background and corporate information submissions to the state are nearly identical for cultivators, manufacturers, retailers, distributors, and transporters. Each of these license types will have to submit to the state required background information on all owners. An “owner” is the CEO or any person or entity within a publicly traded company that has, in aggregate, greater than a 5% ownership interest and, for all other business entity applicants, “owner” means any individual who has, in aggregate, greater than a 20% ownership interest — excluding the ownership of a security interest in, lien on, or any other encumbrance of the business entity applicant. And if there’s a business that has an ownership stake of greater than 20% in the entity applying to the state, its CEO and all directors are considered owners. Lastly, an individual is considered an owner if he or she participates in directing, controlling, or managing the applicant, which includes “discretionary powers” to, among other things, direct and/or control the hiring and firing of personnel, contracting for the sale of goods on behalf of the applicant, and making policy decisions on behalf of the applicant.

If an owner is married, the spouse does not have to go through the intense background checking process or get fingerprinted so long as he or she is not an owner in or controlling the applicant. Either way though, the spouse must be disclosed to the state.

The rules also require applicants submit to the state the first and last name of a primary contact person for the application and the organizational structure of the applicant. Applicants must also submit a copy of their business formation documents. The rules nowhere prohibit out-of-state companies from applying for licenses so long as they are registered to do business in the State of California. All owners must be disclosed to the state along with their stated ownership interest in the applicant and they also must disclose if they (or their spouse) have a “financial interest” in any other licensee applicant, which includes any “investment in a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.”

For retailers, distributors, transporters, and cultivators, owners must also supply a detailed description of any convictions, excepting juvenile adjudications and traffic infractions. Owners of retailers, distributors, and transporters need not disclose traffic infractions under $300 “that did not involve alcohol, dangerous drugs, or controlled substances.” Owners of manufacturing businesses must disclose all convictions substantially related to operating a manufacturing facility in addition to a specific list of other convictions that can be found at Section 40128(3)(A) of the manufacturing rules. Depending on license type, owners may or must also provide a statement of rehabilitation for each conviction.

Retailers, distributors and transporters will face the most financial scrutiny as the state will require that they submit the following:

  1. A list of funds belonging to the commercial cannabis business held in savings, checking, or other accounts maintained by a financial institution.
  2. A list of investments made into the commercial cannabis business; and
  3. A list of all gifts of any kind given to the applicant for its use in conducting commercial cannabis activity.

Notably, none of the rules for any license type contain any residency requirements on ownership, financing, or investment. These licenses will not be transferable and any change of ownership structure will require either a new license application or at least notification to the regulating agency before it can happen.

The rules also mandate that applicants provide a premises diagram along with other substantive information about their operations, including security layouts and plans, surveillance standards, standard operating procedures, and quality assurance controls and practices. All applicants must also submit proof of their right to their real property location that demonstrates they can use it for their specific license type. Every applicant that employs more than 20 employees must also provide a copy of its labor peace agreement to the state. And, though Governor Brown’s technical fix bill hasn’t passed yet, all license applicants must demonstrate either prior compliance with or the capability of compliance with local law before they can receive a California state license.

Priority status” has also finally been defined across the license categories. Generally, the MCRSA states that “In issuing licenses, the licensing authority shall prioritize any facility or entity that can demonstrate to the authority’s satisfaction that it was in operation and in good standing with the local jurisdiction by January 1, 2016.” All of license types must show their ownership or premises are currently the same as they were by January 1, 2016 and also that they are in “good standing.” Proof of “good standing” is generally met by providing the state “a document issued or signed by the local jurisdiction that contains: the name of the applicant; the address of premises to be licensed; the name of the office that issued the local license, permit, or other authorization; the name, contact information, and signature of the individual authorized to sign on behalf of the local jurisdiction; and a statement to this effect: The above-named party has been issued a license, permit, or other authorization from this jurisdiction to conduct commercial cannabis activity. The above-named party is currently in operation and is operating in good standing in this jurisdiction.” And in order to prove the date on which commercial cannabis activity began before January 1, 2016, all priority license applicants have to show their dated articles of incorporation, certificate of stock, articles of organization, certificate of limited partnership,  statement of partnership authority, tax form(s), local license, permit, or other written authorization, collective or cooperative membership agreement, receipts, or any other business record.

Overall, these rules are a pretty thorough first shot out of the gate for regulating commercial cannabis activity in California. Nonetheless, these are draft rules and that means what you are seeing now will no doubt be different from what comes out in their final version. The three California agencies tasked with these regulations will be holding public hearings in June to get feedback on these rules, so, if you are in the process of mapping out the future of your California cannabis business, you should keep an eye on these initial rules and their evolution so you can plan accordingly.

California Cannabis LawyersThis past Friday, three of the California state agencies charged with implementing the Medical Cannabis Regulation and Safety Act released their initial draft rules that will govern all medical cannabis commercial activity in California. These long-awaited rules make up the regulatory standards for: transportation, distribution, and retailers (as developed by the Bureau of Medical Cannabis Regulation/Bureau of Marijuana Control); cultivation (as developed by the Department of Food and Agriculture through its CalCannabis Cultivation Licensing arm); and manufacturing (as developed by the Department of Public Health through its Office of Manufactured Cannabis Safety). The summary/statement of reasons for each set of rules can be found here, here, and here.

As expected, the regulations are voluminous and comprehensively cover everything from what applicants must submit to receive a cannabis license (including required background checks) to all operational standards for each type of license, including, packaging and labeling standards, ownership qualifications, defining how to meet “priority status,” quality assurance testing, distributor controls, delivery, hours of operation, sales limitations, licensing fees, environmental protection standards, medium cultivation license limits, traceability requirements, pesticide limitations, quality control standards for manufacturing, security and surveillance, extraction standards, product recall procedures, edible product serving size limitations, and what products will be allowed in the marketplace.

Notably, these initial rules say nothing about any regulations under the Adult Use of Marijuana Act and we probably won’t see those rules until Governor Brown’s technical fix bill passes this summer. We are though betting those rules will be similar if not identical to some of these MCRSA rules, at least when it comes to operational standards. Note though that these are initial MCRSA rules and they are not yet official. Friday marks the beginning of a 45-day public comment period. So don’t be surprised if these agencies go back to the drawing board after taking public comments at various public hearings the’ve set for themselves. You can find the public hearing schedule here.

Nonetheless the release of these regulations is a huge deal and our California cannabis attorneys (Hilary Bricken, Alison Malsbury, Habib Bentaleb, Daniel Dersham, and Carlton Willey) will throughout the upcoming week be writing about each license type and its corresponding MCRSA regulations. And later next month, we’ll be hosting a webinar to discuss these regulations and what they will mean for your California marijuana business and licensing application.

Please stay tuned.

California marijuana lawWith passage of the Medical Cannabis Regulation and Safety Act (“MCRSA”) in 2015, California took a huge step towards regulating its medical cannabis industry after more than twenty years of minimal state government oversight under Proposition 215. Under the MCRSA, California medical cannabis businesses should expect a bevy of regulations spanning packaging and labeling requirements, mandatory quality assurance testing, advertising, seed to sale tracking, environmental impact restrictions, plant canopy and potency limitations, and financing and ownership restrictions. You should also expect the same level of regulation and government oversight under the Control, Regulate, and Tax Adult Use of Cannabis Act (“AUMA”), California’s legalization of recreational marijuana initiative that passed in 2016.

Though the AUMA and MCRSA are similar, they have distinct differences that will impact how cannabis licenses may be obtained and how cannabis businesses may be operated. Among other things, the AUMA and MRCSA differ on licensing timelines; priority licensing; mandatory distributorships; license categories and types; local approvals necessary before licensure by the state; ownership restrictions; residency requirements; and traceability systems. The MCRSA limits vertical integration of licensees, generally allowing cannabis licensees to hold licenses in no more than two separate categories and only in certain combinations while the AUMA has no such vertical integration restrictions.

In response to these AUMA and MCRSA conflicts, California Governor Jerry Brown recently proposed a technical fix Budget Trailer Bill. The fact sheet attached to that Bill states that as California  “moves forward with the regulation of both medicinal cannabis and adult use, one regulatory structure for cannabis activities across California is needed to maximize public and consumer safety.” Ultimately, Governor Brown’s Bill seeks to to merge the MCRSA and the AUMA into one master regulatory structure with two separate licensing tracks for medical and adult use cannabis operators. Governor Brown’s 79-page proposal generally favors the more liberal regulatory standards set out in the AUMA, and it would specifically do the following:

  1. Change the name of the AUMA to the Medicinal and Adult-Use Cannabis Regulation and Safety Act;
  2. Mandate anyone seeking to operate an adult use cannabis business apply for “A-Licenses,” and those seeking to open a medical cannabis business apply for “M-Licenses.” You can apply for both licenses and operate both kinds of businesses, but you cannot co-locate those businesses on the same premises;
  3. Remove AUMA’s requirement of “continuous residency” in California from at least January 1, 2015;
  4. Allow licensees to submit proof of local approval to the state but leave it up to local governments to ensure the license applicant is in compliance with local laws;
  5. Keep AUMA’s near total vertical integration of licenses except for testing labs, which must be independent of other licensees;
  6. Allow AUMA’s open distributor model for both medical and adult use cannabis businesses by allowing “a business to hold multiple licenses including a distribution license … [to] make it easier for businesses to enter the market, encourage innovation, and strengthen compliance with state law”;
  7. Define “applicant” as “an owner applying for a state license,” with at least a 20 percent ownership in the cannabis business or any person who participates in the “direction, control, or management” of the cannabis business.
  8. Require each cannabis business owner pass a fingerprinting and criminal background check and each applicant disclose “every person with a financial interest in the person applying for the license as required by the licensing authority”;
  9. Support the AUMA’s more liberal allowance for cultivation licenses;
  10. Add a new cultivation license — Type 1C, “specialty cottage” — which will mean California will have 20 types of cannabis business licenses;
  11. Require microbusinesses (licenses only available under the AUMA) to secure regulatory approval from the California Bureau of Cannabis Control and the California Departments of Food and Agriculture and Public Health;
  12. Mandate the AUMA and MCRSA have the same environmental protections and restrictions on licensees; and
  13. Task California’s Department of Food and Agriculture, (not its Bureau of Cannabis Control) with creating California cannabis appellation standards by January 1, 2020.

California’s Legislature must approve Governor Brown’s Bill by a two-thirds vote, and that is expected to occur (at least in some form) this summer.