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.

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.

Oregon Cannabis lawsThis week marks the end of the early start program for medical marijuana dispensaries licensed by the Oregon Health Authority (OHA). As of Sunday, January 1, OHA licensed dispensaries will only be allowed to sell marijuana to adults who hold a valid medical marijuana card. These dispensaries will no longer be allowed to sell marijuana at retail to non-medical cardholders, as most had been doing since October 1, 2015. Going forward, only Oregon Liquor Control Commission (OLCC) licensed dispensaries can sell pot at retail to non-medical cardholders. And that is where the money is.

For the past few months, our Oregon cannabis lawyers have prodded, poked and cajoled many of our clients to submit their OLCC paperwork to ensure a timely and successful transition into the adult use market. In our experience, OLCC has prioritized retail applicants, and for anyone without local hang-ups the transition has been fairly smooth. Still, the OLCC reports that just 104 of 494 retail applicants have been licensed to date. (The numbers for processors are even worse, with just 23 of 208 applicants approved.)

If you are an OLCC licensed retailer, you will be sitting pretty on January 1, assuming you can find product to sell while everyone else scrambles toward licensure. The situation is less than ideal for consumers, who will no longer have access to many outlets, and also less than ideal for the State of Oregon, which could see a hiccup in sales tax revenues. We have written that the rollout of state level cannabis programs is an uneven course, and hard deadlines tend to showcase that observation.

Note that although the January 1 deadline may seem to decouple Oregon’s medical and adult use marijuana programs, the reality is more nuanced. OLCC licensed entities are allowed to opt in to medical marijuana activity, and almost all of them do – whether through production, processing or retailing. In the retail context, this means that OLCC licensees will be allowed to sell marijuana to medical marijuana cardholders along with anyone else (but tax-free), subject to tracking and reporting requirements. A year from now, we expect very few OHA dispensaries will be standing.

The Oregon early sales program was a good idea, and we believe it achieved its goal of diminishing black market sales. It is our hope that the testing bottleneck and a lack of licensed OLCC operators will not reverse that trend. In any case, starting January 1, Oregon dispensaries without an OLCC license will face a $500 fine, per violation, for selling to retail customers. All of this should make for an interesting start to 2017.

 

Cannabis ContractsOur cannabis clients often face the chicken and egg problem of trying to balance three or four decisions contingent on one another. A classic example is a new marijuana business licensee that wants the state agency to approve a certain location, wants a landlord to execute a lease for that location, and wants an investor to contribute capital to pay for equipment and build-out at that location. The state agency will only approve the location when it has a signed lease in front of it. The landlord will only execute the lease if a state license has already been approved and if the business is properly capitalized. The cannabis business does not want to be on the hook for executing the lease until it knows it has a good source of capital and that the land will be approved by the state for its cannabis business. And the investor will only put money into the cannabis business if there is confirmation the property works and the business has a lease.

Basically, everything is contingent on everything else. It can be a challenging situation for cannabis business owners, but there is a simple solution more companies should use — standard conditional agreements with agreed-upon closing periods. Anyone who has bought a home understands how closing works. You sign a purchase agreement, but you have 30 days to get inspections done to make sure the home has clear title and is adequately constructed. If there are any problems, you can walk away, less your earnest money.

The same structure can be used in startup cannabis business deals. So long as landlords get some earnest money up front, they are generally willing to execute commercial leases that allow tenant cancellation if the state does not approve the cannabis license or if the tenant discovers its cannabis business is not feasible at any point during the first few months of the lease. Similarly, cannabis investment contracts can and should be similarly conditioned. A loan agreement or an equity purchase agreement involving a cannabis business can have any time frame for closing, which can be defined as actually funding the investment or as the moment when the investor is fully obligated to pay the investment over time. Generally, the conditions will be that the company passes some standard due diligence, but it makes sense for the licensing and real estate portions to be added as additional closing conditions.

Using multiple conditional agreements, a cannabis business can ensure everything is aligned before obligations to pay money mature. And if things fall apart, the various conditions will not be met and everyone can walk away with minimum pain. When doing cannabis deals, it is important to think through the various facts that need to be in place before obligations start maturing. If you do this, you will be better able to walk the tight rope that heavily-regulated cannabis businesses on a timeline face during the cannabis licensing process.

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 lawyers Since passage of the Medical Cannabis Regulation and Safety Act in California (“MCRSA”), our California cannabis attorneys have been getting calls nearly non-stop regarding what to do now to have a medical marijuana business later. Passage of Proposition 64, California’s legalization initiative, has only accelerated the questions on what to expect when California adds a comprehensive legal marijuana licensing system.

Though the three bills that comprise the MCRSA and Proposition 64 lay the foundation for California’s future medical and recreational marijuana licensing systems, these laws are only the beginning. California’s Bureau of Marijuana Control (“BMC”), and various other California state agencies granted governing authority under these new laws will be filling in the blanks on the actual substance of all medical and recreational rules and enforcement.

The below are the eight most relevant “blanks” for those planning on having a California marijuana business:

  1. Residency Requirements For Cannabis Licensees. The MCRSA does not include a residency requirement, but that could change with future rule making. However, Chapter 5, Section 26054.1(a) of Proposition 64 states that, “[n]o licensing authority shall issue or renew a license to any person that cannot demonstrate continuous California residency from or before January 1, 2015. In the case of an applicant or licensee that is an entity, the entity shall not be considered a resident if any person controlling the entity cannot demonstrate continuous California residency from and before January 1, 2015.” This residency requirement expires on December 31, 2019 unless the California state legislature renews it. If — as expected — California begins issuing cannabis licenses in 2018, California legal marijuana will at least at the start have a residency requirement. However, it is important to note that this residency requirement applies to “controlling persons”  and “controlling” is nowhere defined in the initiative. How the state eventually defines “controlling” will likely determine whether out-of-staters (including residents of foreign countries) can own a licensed California cannabis business.
  2. Cannabis Financing. California’s new laws do not address financing beyond Proposition 64’s residency requirement for ownership and “control.” This means it is not yet clear who can finance California’s marijuana businesses. In some states, residency requirements have essentially forced licensees to rely on money from family and friends (Washington State, for instance). In other states, rule makers have allowed financiers from anywhere to invest in their cannabis businesses. If California borrows from Washington, Colorado, or Alaska, financing for California cannabis businesses will likely be hamstrung by residency. If California takes its financing page from Nevada, Illinois, or Oregon (these are states which do not have residency requirements), cannabis investments in California will likely explode.
  3. For-Profit Cannabis Entities. Though still unclear, our California cannabis attorneys believe for-profit cannabis companies will be allowed under the MCRSA. The MCRSA defines a license “applicant” as an “[o]wner or owners of a proposed facility, including all persons or entities having ownership interest other than a security interest, lien, or encumbrance on property that will be used by the facility,” and defining a “person” as “an individual, firm, partnership, joint venture, association, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit and includes the plural as well as the singular number.” Proposition 64 has almost identical language for the terms “applicant,” “owner,” and “person.” Will California allow existing non-profit medical marijuana collectives to convert to for-profit companies or will it instead force its cannabis collectives to first wind down and then start brand new for-profit companies? This transition matters for things like the distributing assets upon dissolution, tax consequences, and using the non-profit’s already established goodwill. For more on our views regarding the California non-profit transition, go here.
  4. Priority Cannabis Licensing. Both the MCRSA and Proposition 64 contain priority licensing thresholds. Article 4, Section 19321 of the MCRSA states that “[i]n 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.” Proposition 64 at Chapter 5, Section 26054.2(a) contains the following “priority” language similar to the MCRSA: “A licensing authority shall give priority in issuing licenses under this division to applicants that can demonstrate to the authority’s satisfaction that the applicant operated in compliance with the Compassionate Use Act and its implementing laws before September 1, 2016, or currently operates in compliance with [the MCRSA].” Proposition 64 also provides that “[t]he [BMC] shall request that local jurisdictions identify for the bureau potential applicants for licensure based on the applicants’ prior operation in the local jurisdiction in compliance with state law, including the Compassionate Use Act and its implementing laws, and any applicable local laws.” But none of this reveals much about what priority status will actually mean or the detailed standards for proving it. Does it put you first in line for a cannabis license? Does it get you a cannabis license that no one else can get? It will all depend on how the state defines it, which we likely will not know until it issues its initial rules.
  5. Number of Cannabis Licenses. The MCRSA mandates limiting the number of certain licenses, but it does not specify what those limitations will be. Limited licenses under the MCRSA include the “Manufacturing level 2” license “for manufacturing sites that produce medical cannabis products using volatile solvents,”  the Type 3 outdoor cultivation license, the Type 3A indoor cultivation license, and the Type 3B mixed-light cultivation license. Other than prohibiting large scale cultivation for the first five years of the program, Proposition 64 contains no licensing limitations, though that could change once California starts its rule making.
  6. Cannabis Distribution. The MCRSA mandates distributorships  and it defines “distributor” as “a person licensed . . .  to engage in the business of purchasing medical cannabis from a licensed cultivator, or medical cannabis products from a licensed manufacturer, for sale to a licensed dispensary.” Formerly, distributors were also the only channel through which cultivators and manufacturers could transport product to other manufacturers for further manufacturing, but this changed with this year’s passage of SB 837. Unlike in any other cannabis legal state, California cultivators and manufacturers must go through a licensed distributor to get their product to retail. We anticipate additional roles and responsibilities of the distributor will likely come from the governing state agencies through rule making. Though Proposition 64 requires all licensees use a distributor, that distributor does not have to be an independently-owned company, except for large-scale cultivators with a Type 5 license, which licenses won’t even become available until 2023. Expect future California rule making to clarify the role of distributors under Proposition 64.
  7. Cannabis Licensing Fees. Neither the MCSRA nor Proposition 64 reveal license fee amounts. Given how other recreational states have handled licensing and how California does not want to push out its existing MMJ operators, California likely will make its licensing competitive and its fees at least somewhat reasonable, though it may implement some sort of lottery system for the limited licenses under the MCRSA. In most recreational states, the license application fee has been $250 or less. In medical marijuana states however, license application fees have ranged from approximately $60,000 in Florida (non-refundable) down to $5,000 in Nevada. Both the MCSRA and Proposition 64 mandate license fees be on a “scaled basis” and cover the costs of administering the programs.
  8. Cannabis License Applications. Neither law reveals what California will require in its licensing applications. Even in less competitive cannabis licensing states (like Oregon and Washington) the state regulators want to see every detail of your proposed cannabis business from start to finish. And in the more competitive states (like New York and Maryland), the regulatory authorities usually want a thesis-level explanation of every arm of your business. Based on the experience of our cannabis lawyers in helping clients with cannabis licensing applications in more than a dozen states, we can tell you that, at minimum, you should expect California’s marijuana licensing applications to require the following:
    1. detailed financial and criminal background checks and disclosures for every owner and financier of the business,
    2. calculated start-up costs and annual budget,
    3. a detailed business plan and operational plan,
    4. a floor plan,
    5. proof of a lease agreement or right to use the proposed real property,
    6. buffer measurements,
    7. local law approval or compliance at some point,
    8. fingerprinting,
    9. proof of security measures,
    10. proof of environmental compliance (or capability of compliance),
    11. proof of insurance,
    12. a transportation plan including a planned transportation manifest,
    13. list of products to be cultivated, manufactured, and/or sold,
    14. a list of soil amendments or fertilizers to be used on plants if you’re a cultivator,
    15. the type of closed loop system you’ll work in if you’re a manufacturer, and
    16. how products will be stored and quarantined if you’re a retailer.

For more on what California’s new cannabis regime is going to look like, I urge you to check out our California cannabis page here.

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.

 

Florida cannabis lawyerA great battle has been won in Florida for a more comprehensive medical marijuana program thanks to Florida voters overwhelmingly voting for Amendment 2. But the war still remains in that Amendment 2 is a very short piece of legislation that gives huge power to Florida’s Department of Health (DOH) to make rules tfor Florida Medical Marijuana Treatment Centers (MMTCs). Amendment 2 simply states that DOH must come up with regulations for, among other things, “[p]rocedures for the registration of MMTCs that include procedures for the issuance, renewal, suspension and revocation of registration, and standards to ensure proper security, record keeping, testing, labeling, inspection, and safety.” That’s it. After writing “Florida Legalizes Medical Marijuana, So Now What? Here’s the 4-1-1,” I’ve been getting many calls from Floridians who want a license to run an MMTC, but many questions remain about who can participate in Florida’s new medical cannabis industry and how participating businesses can be run and financed, because the Amendment is silent on these topics.

The only reference Florida has for previous DOH rule making on medical marijuana is its 2014 Compassionate Medical Cannabis Act (i.e., the “Charlotte’s Web law”), which has since been amended. Upon its passage by the legislature, that law contained way more detail than Amendment 2 on who could operate and own a Dispensing Organization, and it set forth qualification thresholds DOH could not change through rule making. The Charlotte’s Web “final” DOH rules can be found here, and you can read our analysis of DOH’s initial rules here.

Here is a run-down on some of what the Amendment does not cover and where DOH (and, more likely, the Office of Compassionate Use) will need to fill in the blanks for better or worse:

  1. Existing Charlotte’s Web nurseries. Since Amendment 2 pretty much puts DOH in full charge of the fate of Medical Marijuana Treatment Centers, the question becomes whether DOH will only allow the existing Charlotte’s Web nurseries to run all MMTCs or whether DOH will expand the program to allow for a more open medical cannabis market with a diverse range of Medical Marijuana Treatment Center operators. Because Amendment 2 does not say that this sort of exclusive situation cannot happen, and because we all know these nurseries have tremendous influence with the Office of Compassionate Use, it is at least possible that these very same nurseries will walk off with all of the licenses for Florida’s Medical Marijuana Treatment Centers. If DOH follows the path of Charlotte’s Web and engages in negotiated rule making for Amendment 2, you can bet these nurseries will at minimum have big seats at the table.
  2. Limitations on number of MMTCs and vertical integration. The Amendment doesn’t dictate that DOH must limit the number of MMTCs in the state, but I see DOH strictly limiting the number of MMTCs to ensure DOH control and oversight. There’s also the question of vertical integration and whether the DOH will DOH force Florida’s Medical Marijuana Treatment Centers to be vertically integrated. Or will DOH create and issue different kinds of cannabis licenses and registrations without tied-house restrictions for cultivation, manufacturing, and dispensing? If DOH opts for mandatory vertical integration, expect to see many would-be marijuana operators lose interest in Amendment 2 because the costs and the difficulties of vertical integration will prove impossible or undesirable for so many.
  3. Residency. The Amendment does not have an explicit residency requirement. The MMJ industry in many states has suffered much heartburn when marijuana operators have to prove (and sometimes fail to prove) that their financiers or fellow owners have spent a certain amount of time in the state. Florida’s Charlotte’s Web law has no explicit residency requirement, but since it mandated that only Florida-registered plant nurseries existing for thirty or more years with the capability of cultivating more than 400,000 cannabis plants could participate, it essentially did have a residency requirement. Assuming DOH doesn’t just turn over all new Medical Marijuana Treatment Centers to these nurseries as well, it remains to be seen as to whether Florida will allow out of staters to enter its cannabis market.
  4. Financing. The Amendment is also silent on financing for MMTCs and so we do not know whether Florida will cap financing or restrict certain kinds of financing.
  5. Criminal background checks. The Amendment does not tell us what kind of criminal history Florida Medical Marijuana Treatment Center owners and managers can or cannot have. In most marijuana states, a felony conviction within the past ten years (or, sometimes, at all), makes you ineligible to own or manage a marijuana business. Since Florida hasn’t been the friendliest state when it comes to marijuana-related crimes, I am expecting it will implement fairly aggressive criminal background standards.
  6. Corporate entities. There’s no mention in the Amendment as to whether Medical Marijuana Treatment Centers can be either for-profit or not-for-profit. Some states care about this distinction, but the trend is to allow marijuana businesses to be for-profit companies. Surely, when DOH defines “MMTC applicant,” it will tell us what kind of corporate entities can participate in its medical cannabis program, but we likely won’t know this before the first set of DOH rules comes out.
  7. Application, scoring, and application fees. We can only guess at what the application for a Florida Medical Marijuana Treatment Center will look like and the information it will require. Having helped clients with competitive licensing applications in New York, Minnesota, Maryland, and Nevada (and less competitive licensing applications in a host of other states), I can tell you that if DOH doesn’t hand all of the keys to Amendment 2 over to the Charlotte’s Web nurseries, its MMTC applications are likely to be pretty intense. The application for the Charlotte’s Web nurseries was no picnic and I don’t see DOH being any less restrictive or invasive for MMTC applications. There’s also the issue of how DOH will choose MMTC operators. In Charlotte’s Web, DOH first tried to implement a lottery system but got sued and lost. DOH then ended up going with an obtuse scorecard that allegedly ranked applicants based on merit (that also got them sued, but they prevailed on that system). Regarding any MMTC application fees, the Amendment says nothing. But you can be sure DOH will implement an application fee under Amendment 2. Charlotte’s Web applicants had to pay a $60,063 non-refundable application fee, but I anticipate the fee for Medical Marijuana Treatment Centers (hopefully) being lower since considerably more applicants will be involved. Florida might also institute other threshold financial requirements to create barriers to entry for MMTC applicants. For example, the Charlotte’s Web program required a $5 million performance bond prior to registration as a Dispensing Organization.
  8. Buffer requirements and “regional restrictions.” The Amendment is also slient on whether MMTCs have to be located a certain distance from sensitive uses like schools or playgrounds. The buffer for these things has varied from state to state (usually from around 500 to 1,000 feet as the crow flies) and cities and counties usually have a say on this also. At one point in the initial draft rules, Dispensing Organizations under Charlotte’s Web could not “be located within 500 feet of any public or private school that existed prior to the date of the dispensing organization’s application,” but that buffer requirement didn’t make it into the “final” rules. MMTCs may also see regional restrictions like nurseries saw with Charlotte’s Web where those nurseries are limited to serving the five regions of Florida. If the goal of Amendment 2 is to provide better and more convenient access to cannabis for medical use, the five-region plan of Charlotte’s Web will likely not be the way to go.

There are a whole host of other issues not covered in the Amendment with which DOH will have to wrestle, but the above are some of the most important, and they constitute plenty to get you started in planning for your application and your eventual cannabis business.

Be sure to stay tuned as DOH gears up for Amendment 2 rule making.

Spain Cannabis LawyerIn Marijuana in Spain: Our on the Ground Report, I wrote how Spain is one of (if not THE) the most marijuana-friendly countries in Europe. We have more than 800 private cannabis clubs here, most of which are concentrated in the northern autonomous regions of Catalonia (where I am based) and the Basque Country. In Barcelona alone, Catalonia’s capitol city and where I am located, we have more than 200 cannabis clubs. The regional governments of Catalonia and the Basque Country generally tolerate the existence of such clubs, and cities including Barcelona and Bilbao have taken steps towards sanctioning legal cannabis.

But Spain’s national laws are not so permissive as the central government does not want to allow autonomous regions to enact regulations invading its legislative powers. This limits the capacity of an autonomous region such as Catalonia to enact cannabis laws contradicting a law enacted by the central government.

On the national level, Spanish law currently permits private cannabis consumption and cultivation for personal use, but prohibits selling or cultivating marijuana for the purpose of “trafficking.” Private cannabis clubs are ostensibly allowed because they charge a membership fee but do not directly sell marijuana to their members or to the public. That, however, has not stopped authorities from arresting club operators with large scale cultivation operations who were deemed to be “trafficking.”  Spain’s fuzzy legal framework and the conflict between its national and local policies has created significant legal uncertainty for the cannabis community and has inspired a movement towards legislative reform.

To this end, advocates for change to Spain’s marijuana laws united under the banner of the Responsible Regulation platform in 2014. Made up of multiple Spanish political parties and interest groups, this coalition advocates for reforms that would allow adults 21 years and older to obtain and consume cannabis safely and legally. Unfortunately, efforts have stalled due to the governing party being hostile to such regulation, and deep political gridlock that has persisted in Spain for nearly a year. Spain’s 2015 general elections failed to produce a majority sufficient to form a coalition government. There was still no final outcome even many months later and after a second round of elections in June 2016, and many feared a third round of elections would be necessary in December of this year to end the electoral impasse.

In the meantime Spain was ruled by acting President Mariano Rajoy of the center-right People’s Party. Both Rajoy (who was initially sworn in as Prime Minister in 2011) and his party oppose progressive marijuana reforms. Indeterminate election results in 2016 caused much confusion and brought into play the potential of a third round of elections. An October poll showed that an alliance with the pro-cannabis reform Ciudadanos party was the easiest way for the People’s Party to obtain the votes needed to form a coalition government in the third round. Contemporary reports predicted the Socialists party (PSOE) would preemptively throw its support behind the People’s Party to keep its seat at the table in the Spanish Parliament. PSOE does not advocate marijuana legalization but it does at least support reopening debate on the issue. Either party’s increased political clout could have created an opening for the Responsible Regulation platform to make headway or at least prevent national encroachment on regional progress.

Eventually, however, PSOE stood down and allowed Rajoy to form a governing coalition. On October 29, Rajoy became President.

It remains to be seen what ultimate impact this new political panorama will have on the autonomous regions, their political and regulatory aspirations, and the future of cannabis in Spain. We remain optimistic about the potential of the Catalonia and Basque cannabis markets and we will bring you any further cannabis updates as they develop.