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As our leading practitioner for cannabis business in California, Tiffany advises clients on California’s existing and proposed state and local marijuana regulations, including preparing them for licensing under the Medical Cannabis Regulation and Safety Act (MCRSA).

California Cannabis lawsSince Proposition 64 passed last November, there has been a spike in reports of California dispensaries advertising their willingness to sell recreational cannabis to anyone 21 years and older “with only a valid ID” (i.e. physician’s recommendation not required). However, Prop 64 requires dispensaries apply for and obtain a state retailer license to sell recreational cannabis or face criminal and civil penalties for each day of illegal operations. Since the State of California has yet to issue such a license, any dispensary currently selling recreational cannabis in California is doing so illegally.

For marijuana consumers, your options are simple: (1) obtain a valid physician’s recommendation and purchase medical marijuana from a dispensary; (2) grow your own recreational marijuana at home by following local regulations; or (3) get home grown marijuana from other adults in California through a free, sharing economy.

For dispensaries, your options are even simpler: (1) sell medical marijuana legally by following local laws and securing any necessary permits or licenses; or (2) operate illegally and face severe penalties, raids, and criminal prosecution.

Dispensaries in California have been making illegal sales long before Prop 64 passed. But local law enforcement believe dispensaries have become “more emboldened” now that recreational cannabis is legal in the state. Some dispensaries might wrongly believe that any and all sales are allowed under a Prop 64 regime, but others clearly choose to operate outside of the law. This angers legal dispensary owners who pay the high costs of operating a legal business (including taxes, licensing fees, and security costs) while also waiting to profit on recreational sales after state licenses are issued.

Though Prop 64 makes clear that anyone making retail sales or deliveries of recreational cannabis must have a California state license, the challenge faced by local (and soon state) prosecutors is how to go about shutting down illegal businesses. Often when a city or county attempts to shut down an illegal dispensary, the dispensary owner just relocates the business and changes the name, resulting in an endless game of “whack-a-mole” for local authorities. But now that cannabis businesses are beginning to set their sights on state licenses, is it more important than ever to play nice with your local city and county officials as local authorization is a requirement for state licensing. Businesses caught operating illegally can be disqualified from receiving a local permit, and even if state and local authorities cannot prohibit these business from applying for a California cannabis license, past troubles with following the law will likely be a negative mark on your cannabis license application.

We also expect state and federal enforcement to pick up over the next few years. California state agencies do not currently have jurisdiction over illegal cannabis businesses, but once state licenses are issued they plan to work with local authorities to enforce the cannabis laws. Even worse, If illegal businesses continue to thrive in California, the federal government could challenge California’s entire regulatory system under the guidance of the Cole Memo. With a new federal administration coming in, and the possibility of an anti-marijuana Jeff Sessions as Attorney General, California could face even greater scrutiny. So by operating an illegal business not only do you risk your own chances at the legal market, you also risk undermining the legalization effort California strived so long to achieve.

As California transitions into a regulated legal market, the grey areas we have long been dealing with will soon shrink. In a post-Prop 64 world you can either follow the laws and obtain a license to make legal recreational sales or you can risk fines, jail time, and the loss of the chance to ever operate again.

Proposition 64California cannabis laws states that adults in California age 21 and older may legally possess, plant, cultivate, harvest, dry, or process up to six marijuana plants as well as possess the marijuana produced from those plants. Though cities and counties can completely prohibit personal outdoor cultivation (and some already do), Prop 64 does not allow them to prohibit personal cultivation indoors or in an outside structure that is fully enclosed and secure.

However, Prop 64 does grant California cities and counties the authority to reasonably regulate these activities and requires that all persons cultivating cannabis for personal use comply with any local ordinances. In addition, Prop 64 limits personal cultivation to six marijuana plants per private residence (regardless of the number of adults living in the residence) and requires any marijuana produced from the plants that is over the legal possession limit of 28.5 grams be kept within the residence or in a locked, outdoor space not visible to the public.

Some California municipalities have already started passing local ordinances to regulate personal cultivation. Prop 64 allows cities and counties to “enact and enforce reasonable regulations to reasonably regulate” personal cannabis cultivation activities. So now the question is just how reasonable are these new regulations?

In December, the City of Indian Wells passed an ordinance that requires residents to register for a permit from City Hall to cultivate marijuana at home. To receive the permit, residents must allow home inspections by city employees and pay an annual fee of $141. According to Erwin Chemerinsky, Dean of University of California, Irvine Law School and prominent constitutional law scholar, Indian Wells’ regulation “goes significantly beyond what state law allows local governments to do.” There is also concern that by requiring individuals to register to grow, the City’s regulation forces them to self-incriminate themselves under federal law and is therefore unconstitutional.

Last week, the City of Los Banos also considered an ordinance requiring its residents to first register with the City to cultivate marijuana indoors for personal use. The stated reason for requiring residents to register was so authorities could educate them on how to safely grow marijuana and avoid fire hazards. However, one City Council member did not support the ordinance because he was concerned about creating a public registry that could potentially expose home growers to “shaming, harassment or violence.” The Los Banos City Council later amended the proposed ordinance to provide greater privacy for registrants by avoiding collection of personal data. The modified ordinance was approved unanimously on January 4th.

We’ve been working with plenty of cannabis companies in California on the local permitting and future state licensing processes, but this is the first time individuals are being asked to register to cultivate marijuana in their own homes for their own personal use. Ultimately, it may be up to a court to decide whether these new local regulations are indeed “reasonable,” as required under Prop 64. In the meantime, California residents should be aware that they cannot legally purchase recreational cannabis from any dispensaries and, if they happen to live in a city or county that has passed regulations on personal cultivation, they also may not be able to legally grow marijuana in their residences without first registering and complying with any new rules.

Yes, California has legalized recreational cannabis, but we still have a long way to go until it becomes widely available for all adults living in our state.

California cannabis

Proposition 64 (Prop 64 or the Adult Use of Marijuana Act), which passed last November and legalized recreational cannabis use throughout California, included stricter laws regarding driving while “high.” But California senators have proposed a new bill, Senate Bill 65 (SB 65), to close what they say is a loophole in the law that does not explicitly make it illegal to drive while consuming marijuana as long as you aren’t impaired.

One of the stated intents of Prop 64 was to maintain existing laws that make it illegal to operate a car (or other vehicle) while impaired by marijuana. Like driving under the influence of alcohol, it is illegal in California to drive or operate a vehicle under the influence of any drug. You are under the influence of a drug when your physical or mental abilities are impaired to the point where you can no longer drive with the caution of an ordinary, sober person under similar circumstances. However, there are no current state laws that address the legality of driving when not impaired but while still consuming marijuana or marijuana products.

Prop 64 provides that it does not permit any person to, among other things:

  • possess an open container or package of marijuana while driving, operating, or riding in the passenger seat of a vehicle
  • smoke or ingest marijuana or marijuana products while driving or operating a vehicle
  • smoke or ingest marijuana or marijuana products while riding in the passenger seat or compartment of a vehicle, except as permitted by a local jurisdiction

Note that even though Prop 64 does not permit these activities, it also does not prohibit them. However, it provides that any person with an open container of marijuana in a vehicle may be cited for an infraction and have to pay a fine of up to $250. For persons under the age of 18, drug education and community services will instead by required. In contrast, no penalties are included for smoking or ingesting marijuana while driving or riding in a vehicle, an oversight that the authors of Prop 64 simply forgot to include.

SB 65 would “remedy” this by making it illegal for a person to smoke or consume marijuana in any form while operating a vehicle, vessel, or an aircraft; and any violations could result in either an infraction or a misdemeanor. However, SB 65 would also prohibit consumption of CBD-only marijuana products while driving a vehicle, which could be a problem for many medical marijuana patients.

Though SB 65 would clearly allow police to ticket anyone caught smoking or ingesting marijuana red-handed, a challenge for the bill is how to test whether a driver who is pulled over for driving erratically recently consumed marijuana. There is currently no THC threshold for impairment established in California as well as no standard test for impairment (e.g. blood, saliva, breath). A separate bill, Assembly Bill 6, was recently proposed to allow law enforcement to perform saliva tests on drivers they suspect are impaired by marijuana use. But a similar proposal was rejected in 2016 because legislators were concerned about the dependability of field testing marijuana-induced drivers.

To address this problem, Prop 64 allocates some of the tax revenues that will be raised from recreational marijuana sales to the Department of California Highway Patrol to create protocols for determining whether a driver is impaired by use of marijuana. The state is currently exploring ways to test driver impairment, including the use of marijuana breathalyzers that have already been road-tested on California highways.

Finally, for those that are still unclear on California’s stance on using cannabis while driving, the state recently launched a $1 million anti-drugged driving campaign that uses television and digital ads to show the dangers of driving under the influence of marijuana. For California cannabis consumers, the state wants you to know “DUI doesn’t just mean booze” anymore. (You can watch the video here.)

California cannabis lawsA new California bill, Assembly Bill 64, is currently being considered by California legislators. AB 64 would amend the marijuana advertising rules under Proposition 64 (aka the Adult Use of Marijuana Act, or AUMA) to create stricter regulations for advertising on highway billboards. Though Prop 64 already bans marijuana ads on any billboards on California interstate highways or state highways that cross the border of any other state, AB 64 would extend that prohibition to exclude advertising on billboards on any highways within the state.

The sponsors of AB 64 state that the stricter regulations are meant to further enforce prohibitions against advertising cannabis to minors under the age of 21, who would be able to see ads on highway billboards even if the ads are targeted specifically at legal adult consumers and medical marijuana patients. In addition, the bill’s sponsors are concerned that cannabis businesses that have not yet received a state license to sell medical or recreational cannabis are already advertising on highway billboards across California.

AB 64 would prohibit not only licensed businesses, but any entities operating in California from placing marijuana ads on interstate and state highways. The bill would also extend all other restrictions under Prop 64 on marijuana advertising and marketing from licensees to all entities operating within the state; thus closing a loophole that currently exempts unlicensed cannabis businesses from new state advertising laws. What’s more, the bill would extend the prohibition on billboard ads to the marketing of medical cannabis and medical cannabis products.

Though the new advertising restrictions are already receiving pushback from the cannabis community, AB 64 is not all bad news for California cannabis businesses and license hopefuls. If passed, the bill will also provide clarification on major issues concerning many California cannabis businesses, specifically whether for profit businesses and delivery-only businesses will be allowed under new statewide regulation.

Under AB 64, the Medical Cannabis Regulation and Safety Act (MCRSA) would be amended to explicitly allow medical cannabis collectives and cooperatives to operate for profit. In order to operate for profit, these businesses will be required to obtain a valid California seller’s permit from the State Board of Equalization and a valid local license, permit, or other authorization from the city or county where the business operates.

AB 64 would also amend California law to specify that Type 10 dispensaries and Type 10A producing dispensaries under the MCRSA, as well as retailers (and by association microbusinesses) under the AUMA, may be either:

  1. a “storefront dispensary” for locations that have direct physical access for the public, or
  2. a “nonstorefront dispensary” for locations that do not have direct physical access for the pubic.

For the amendments under AB 64 to pass, two thirds of California legislators will need to vote in favor of the bill. This is California’s first attempt to consolidate the provisions of the MCRSA and the AUMA, which contain several conflicting provisions due to differing approaches on key issues under the two state initiatives. However, this will most likely not be the last attempt as the state prepares to license both medical and recreational cannabis businesses beginning as early as January 1, 2018. We will be closely following any changes to California cannabis laws throughout 2017 and those interested in securing a state license should be following along.

Nevada County CannabisCalifornia 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 plan to cover who is banning, who is waiting, 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 to give you a clearer picture of where to locate your 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 the City of Lynwood, and before that, the City of Coachella, Los Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Welcome to the California Cannabis Countdown.

Nevada County has long been a popular spot for cannabis cultivation due to its location and climate, but many longtime growers in the area were displaced in 2012 when the County passed restrictive cannabis regulations. In early 2016, the County banned all outdoor cannabis cultivation but it has since repealed the ban and adopted less restrictive, though still very limited regulations for indoor and outdoor cultivation that have not been well-received by local growers.

Location. Nevada County is located in the Sierra Nevada region of Northern California, bordering the state of Nevada. It was once home to the California Gold Rush of 1849 and it lays claim to many firsts and historic moments, including the first long-distance telephone, the only railroad in the West that was never robbed, and the historic Holbrooke Hotel. The County itself has stated that its “unique geographic and climatic conditions, which include dense forested areas receiving substantial precipitation, along with the sparse population in many areas of the County, provide conditions that are favorable to marijuana cultivation. Marijuana growers can achieve a high per-plant yield because of the County’s favorable growing conditions.”

History with Cannabis. On May 8, 2012, the Nevada County Board of Supervisors passed Ordinance No. 2349, which created regulations for medical cannabis cultivation.

On November 4, 2014, voters in Nevada County rejected Measure S, an initiative from the Nevada County branch of Americans for Safe Access designed to overturn the County’s ordinance and replace it with less restrictive provisions.

On January 12, 2016, the Board adopted emergency Ordinance No. 2405, banning all outdoor cultivation and limiting indoor cultivation to 12 plants per property. At the same time, the Board passed Resolution No. 16-038 to submit Measure W to the voters of the County.

On February 9, 2016, the Board passed Resolution No. 16-082, which clarified that if Measure W was not approved by a majority of Nevada County voters, the Board intended to repeal the ban on outdoor cultivation and adopt other regulations at the next available meeting after the election.

On June 7, 2016, voters in Nevada County rejected Measure W, an initiative proposed by the Board of Supervisors to ban all outdoor cultivation, commercial cultivation, and all other commercial cannabis activities. As a result, the emergency ordinance from January 12th remained in place.

On July 26, 2016, to follow through on the Board’s intention to repeal the ban on outdoor cultivation, the Board approved urgency Ordinance No. 2416 to allow limited outdoor cultivation in the County.

Current Cannabis Laws. Under Ordinance No. 2416, cultivation is permitted in residential and agricultural zones in Nevada County in very limited amounts.

In residential zones:

  • Indoor and outdoor cultivation is prohibited in all R-1, R-2, and R-3 zones
  • In areas designated as residential and estate and zoned R-A:
    • On parcels of 5 acres or less, indoor and outdoor cultivation is prohibited
    • On parcels greater than 5 acres and up to 10 acres, a maximum of 12 plants may be cultivated indoors only; outdoor cultivation is prohibited
    • On parcels greater than 10 acres and up to 20 acres, a maximum of 16 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 800 square feet
    • On parcels greater than 20 acres, a maximum of 25 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 1,000 square feet

In agricultural zones (e.g., AG, AE, FR, TPZ, and areas designated as rural and zoned R-A):

  • On parcels 2 acres or less, indoor and outdoor cultivation is prohibited
  • On parcels greater than 2 acres and up to 5 acres, a maximum of 6 plants may be cultivated outdoors only; cultivation must be on one contiguous staked grow area not exceeding 300 square feet
  • On parcels greater than 5 acres and up to 10 acres, a maximum of 12 plants may be cultivated indoors, outdoors, or a combination of both; outdoor cannabis cultivation must be on one contiguous staked grow area not exceeding 600 square feet
  • On parcels greater than 10 acres and up to 20 acres, a maximum of 16 plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 cannabis plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 800 square feet
  • On parcels greater than 20 acres, a maximum of 25 marijuana plants may be cultivated indoors, outdoors, or a combination of both; a maximum of 12 plants may be cultivated indoors; outdoor cultivation must be on one contiguous staked grow area not exceeding 1,000 square feet

In addition, all indoor and outdoor marijuana cultivation must comply with the following setbacks, as measured in a straight line from the nearest border of the grow area to the property line of any adjacent, separately owned parcel:

  • On parcels greater than 2 acres and up to 5 acres: 100 feet
  • On parcels greater than 5 acres and up to 10 acres: 150 feet
  • On parcels greater than 10 acres and up to 20 acres: 200 feet
  • On parcels greater than 20 acres: 300 feet

Proposed Cannabis Laws.

The regulations under Ordinance No. 2416 were passed amidst criticisms and protests from Nevada County residents, but the Board has said the ordinance is meant to be temporary in order to buy time to draft permanent regulations.

On November 8, 2016, the same day as the passage of Proposition 64 in California, the Nevada County Board of Supervisors formed a subcommittee to develop a permanent cultivation ordinance. The County is currently seeking stakeholder and community input on the ordinance and is also seeking proposals for consulting and facilitation services for their Marijuana Regulation Community Advisory Group.

Prop. 64 permits adults in California over age 21 to cultivate up to six plants for personal recreational use. While cities and counties can still ban outdoor cultivation, Prop. 64 does not allow cities and counties to ban indoor personal cultivation though they are allowed to regulate it. In response, the Nevada County Board of Supervisors introduced an amendment to Ordinance No. 2416 on December 13, 2016, to allow indoor personal cultivation of up to six plants per private residence. The Board will consider adopting the amendment at its meeting on January 10, 2017.

California Cannabis
       California Cannabis: possibly delays.

Though California officially legalized cannabis last month, those hoping to walk into a dispensary and legally purchase recreational cannabis will have to wait until state licensing begins. Proposition 64 requires licensing authorities to start issuing licenses by January 1, 2018, however there are now reports licensing could be delayed until 2019. A significant challenge faced by California rule makers are the two conflicting legalization initiatives passed under the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult Use of Marijuana Act (AUMA).

These challenges were recently discussed at a California cannabis event by Lori Ajax, the Chief of the Bureau of Medical Cannabis Regulation, which is the agency in charge of running both the medical and recreational systems. Assemblyman Jim Wood (who helped to author the MCRSA) also pointed out that the Acts take different approaches to issues ranging from ownership and residency requirements to timelines and license categories. The question then is whether the two systems should run in parallel, like they do in Colorado, or be combined into a single system, like in Washington.

In addition, the two Acts differ on state-level taxes. Both apply a retail tax to sales by dispensaries, however the AUMA also creates a new cultivation tax on licensed growers. California growers argue that the tax could apply to excess plant material that is never sold in market and request the law be changed, but to change a voter-approved initiative in California requires a two-thirds vote of the legislature, which could cause further delays.

Statewide licensing for both medical and recreational cannabis businesses, as well as the implementation of a track and trace system under the AUMA, will also require developing new technology platforms that currently do not exist. If they must be built from scratch, we can again expect further delays in the issuance of state licenses.

Finally, President-elect Trump’s nomination of Senator Jeff Sessions as Attorney General has many in the industry fearing a federal crackdown on marijuana that could slow legalization efforts not only in California, but across the United States. Moreover, cities and counties in California may be weary of moving forward with local licensing in case the federal government begins raiding local cannabis businesses. Since California operates under a dual license system, requiring local compliance before a state license can be issued, delays in local licensing could also lead to delays in the ability of cannabis businesses to apply for and obtain state licenses.

There are many elements at work here and though there is still a chance for everything to run smoothly towards state licensing in 2018, it is starting to look like it is going to be a bumpy ride to statewide regulation in California.

California Cannabis LawyersOur California cannabis attorneys are constantly receiving inquiries from individuals interested in starting cannabis companies in the City of Los Angeles. But for many reasons, Los Angeles is not the best place to set up shop.

First, you will not be able to operate a legally compliant business (except under a very small exception). Los Angeles does not permit any cannabis businesses but allows a select 135 businesses to operate under immunity from prohibition under Proposition D. These businesses must meet certain criteria, the first of which is that they have been registered to operate in the city since 2007 (also known as “pre-ICO” businesses). This means your only options for starting a cannabis business in Los Angeles are to either purchase an existing pre-ICO business or find yourself a working time machine. (Note: Los Angeles County is even more restrictive with a nearly complete ban on all marijuana activities.)

Second, if you decide to move forward anyway and operate an illegal cannabis business in Los Angeles, you risk severe fines and possible jail time. The Los Angeles City Attorney has been busy cracking down on illegal cannabis businesses and claimed to have shut down over 500 illegal businesses as of early last year. More recently, the City began targeting illegal cannabis delivery companies through court-enforced injunctions and landlords renting to illegal businesses through criminal complaints. Here again is a list of over 400 criminal cases filed against illegal medical marijuana businesses by the Los Angeles City Attorney as of July 7, 2016.

Finally, if you are at all interested in obtaining a state license in 2018, then you would be wise not to locate your business in Los Angeles. Both the MCRSA and Proposition 64 require applicants to demonstrate compliance with local laws in order to apply for and receive a state-issued cannabis license. For Los Angeles-based businesses, that means showing compliance with Proposition D through confirmation to the state from the City itself. Again, this option will be limited to those select businesses that have been operating since 2007.

Yet even with all these factors against setting up a cannabis business in Los Angeles, there continues to be a lot of interest in the area. One explanation could be the dispensaries on every corner that lead some to falsely assume cannabis businesses are not only legal in Los Angeles, but very easy to start. Another cause of confusion is the fact the Los Angeles has continued to issue tax certificates to illegal cannabis businesses. But it is an “urban legend” that receiving a tax certificate means a business is legal. In fact, earlier this year, the Los Angeles City Council voted to stop issuing new tax certificates to medical marijuana collectives while emphasizing that an issued tax certificate does not indicate a business is legal.

We want to remind everyone operating or interested in starting a cannabis business in the City of Los Angles, that registering to pay taxes as a cannabis business gives you zero rights to operate in Los Angeles and provides zero defense if the City later shuts you down for operating illegally. To put it bluntly, unless you are one of the aforementioned 135 businesses granted immunity under Proposition D, you are operating an illegal drug business in violation of local, state, and federal law.

California CannabisSince Proposition 64 passed earlier this month, there have already been reports of dispensaries selling recreational cannabis to adults without a physician’s recommendation. However, for those who believe they are now able to walk into a California dispensary and legally purchase recreational marijuana, they will be sorely disappointed.

The catch-22 of Prop 64 is that though adults in California can now legally possess, use, and transport recreational cannabis, there is currently no place in the state to purchase the cannabis as licensed medical dispensaries are not allowed to sell recreational cannabis (i.e. to adults over 21 who do not have the required physician’s recommendation to purchase medical marijuana). And though out-of-state residents can legally purchase recreational cannabis under Prop 64, they too are out of luck until state licensing begins, as currently licensed medical dispensaries may only sell medical cannabis to California residents.

Under Prop 64, dispensaries are required to apply for a “retailer” Type 10 license, which will be issued by the Department of Consumer Affairs, for the retail sale and delivery of marijuana or marijuana products to customers. The state is required to issue licenses by January 1, 2018, but at this time no license has been issued. Not only are dispensaries not allowed to sell recreational cannabis without a license, they will be penalized for operating without a license on top of any criminal penalties. Specifically, Prop 64 provides:

A person engaging in commercial marijuana activity without a license required by this division shall be subject to civil penalties of up to three times the amount of the license fee for each violation, and the court may order the destruction of marijuana associated with that violation in accordance with Section 11479 of the Health and Safety Code. Each day of operation shall constitute a separate violation of this section.

At this time, the only options for consumers to obtain recreational cannabis are to grow their own for personal use or share among each other free of charge. But to grow a plant you first need seeds or a clone, which you still can’t buy legally without a physician’s recommendation, so you’ll need to find a bud to give you the bud. The result could be the start of a sharing economy among California cannabis users while we wait for the state to get its regulated system in place.

The California state legislature is also considering allowing current medical dispensaries to temporarily sell recreational cannabis through a “special, conditional, time-restrained license” until formal state licenses are issued. We will alert you if that happens and we will continue to keep you informed of all things legal related to the ever-changing California cannabis landscape.

 

California cannabis attorneyCalifornia officially legalized recreational cannabis on November 8, 2016 through Proposition 64, and the next day several provisions under the initiative went into effect. Cannabis users in California over the age of 21 now have new freedoms to possess, use and even cultivate cannabis for their personal use. In contrast, marijuana businesses will have to wait until January 1, 2018 to receive their state licenses to cultivate, manufacture, and sell recreational cannabis in California. Prop 64 also applies new state level marijuana taxes to licensed businesses. A cultivation tax will be assessed on all harvested marijuana that enters the commercial market and collected from commercial cultivators. In addition, a 15% marijuana excise tax will be assessed on any retail sales of cannabis and collected by dispensaries. However, for qualified patients or caregivers who provide dispensaries with a Medical Marijuana Identification Card, Prop 64 exempts them from having to pay additional sales and use tax on top of the 15% excise tax.

The provisions of Prop 64 for both the cultivation tax and excise tax specifically state that they are “[e]ffective January 1, 2018,” but this language is not included in the subsection regarding the sales and use tax exemption for medical marijuana patients. While the authors of Prop 64 state that this was an unintentional error in drafting, the California Board of Equalization (BOE) has ruled that under the language of Prop 64, medical marijuana patients are immediately exempt from any sales tax. The BOE even went so far as to send letters to dispensaries across the state advising them to stop collecting sales and use tax as of November 9th.

What all this means is as of now through the end of 2017, the small percentage of medical marijuana patients in California who have or obtain a state-issued ID card can take advantage of this unintended tax break. California reportedly brings in around $50 million in annual tax revenue from sales of medical marijuana and some are worried that the state could miss out on millions in tax revenue through 2017. However, others claim that the effects will not be so great as currently only about 6,000 patients in California have the state-issued ID cards necessary to claim the exemption. The impact of the error may depend on how many California patients actually take the time (and the $100) it takes to register with the state as well as whether dispensaries will check for ID cards or simply offer their customers an unlawful discount. Considering most dispensaries do not bother to collect and pay sales tax at all, it’s hard to tell what effect this could have on California’s tax revenue next year.

The supporters of Prop 64 are also looking for a way to correct the problem if the BOE does not change its interpretation. One solution would be for two-thirds of the state legislature to amend the language, as is required under Prop 64, but this would not occur until the next legislative session begins in January. Alternatively, if California’s newly elected Attorney General Kamala Harris decides to weigh in with a more definitive ruling, we could see a swift end to this unintentional tax break. For now, cannabis consumers in California can enjoy a marijuana tax holiday, just in time for the holiday season.

California cannabis lawyers
California is going to have a patchwork of local cannabis bans and regulations

We’ve blogged previously about California cities and counties enacting bans on medical marijuana activities following the passing of the Medical Cannabis Regulation and Safety Act (MCRSA). So after Proposition 64 passed on November 8th, legalizing recreational cannabis in California and creating a statewide system for licensing new recreational cannabis businesses, it wasn’t long before new cannabis bans were enacted. In fact, some localities passed ordinances prohibiting various recreational cannabis activities before the vote even took place, in anticipation of Prop 64 passing.

Though the state is not required to begin issuing recreational cannabis licenses until January 1, 2018, Prop 64 immediately allows California residents to cultivate up to six marijuana plants for personal use. In response, several localities have instituted bans on outdoor cannabis cultivation. Though they aren’t able to ban personal cultivation indoors, note that they can (and some already do) regulate these activities. Also keep in mind that under Prop 64 if you rent instead of own, your landlord still has the right to prohibit cannabis use on its property.

The City of Sonoma was one of the localities to approve a temporary ban on outdoor cannabis cultivation, reinforcing its ban on outdoor cultivation for medical marijuana. The Sonoma City Attorney stated that without the cannabis ban, there was worry that any residents who began cultivating marijuana immediately after Prop 64 passed would have “vested, grandfathered” rights to continue growing. Other California cities banning outdoor cannabis cultivation include Palo Alto, Martinez, and Antioch.

Other areas have gone further than just banning outdoor cultivation and enacted bans on all recreational cannabis activities. The City of San Jose is the third-largest city in the state based on population, and it approved a temporary ban on recreational cannabis businesses just one week before Prop 64 was passed. The move extends the city’s existing ban on outdoor grows to both medical and recreational cannabis businesses. In addition, the city has prohibited commercial cultivation, processing, manufacturing, distributing, testing and sales of recreational cannabis.

The City of Berkeley also approved a temporary ban which mandates that recreational cannabis businesses wait for the city to create cannabis regulations and licensing processes before they begin operating. Though some localities put temporary bans in place to buy themselves time to draft ordinances before permitting new cannabis businesses, others, like Kings County, plan for their cannabisprohibitions to remain permanent. Other California localities currently banning all recreational cannabis activities include Santa Barbara, DavisSan Bruno and Foster City.

Several cities in San Diego County also passed bans, both temporary and permanent, on recreational cannabis activities. In contrast, voters in the City of San Diego approved Measure N, allowing the city to create a local tax of up to 15 percent on recreational marijuana sales. A few other cities had local tax initiatives for recreational cannabis businesses on the November ballot in advance of permitting.

Though new taxes are seldom welcome by business owners, these tax measures signify for those hoping to set up and begin operating a recreational cannabis business that they may not have too long to wait. Furthermore, the potential for local tax revenue has incentivized many California cities and counties to allow cannabis businesses and is a good starting point if you decide to approach your local government. Many of the bans are temporary and others can be changed, so if you are interested in starting your own California cannabis business, now is the time for you to step up and help educate local authorities about what their local recreational cannabis industry should look like. For our part, our California cannabis lawyers will continue to keep you updated on here regarding the patchwork of local bans and regulations.