California marijuana license
California marijuana licenses: start now, but stay flexible

California lawmakers have been tasked with the difficult challenge of reconciling the Medical Cannabis Regulation and Safety Act (MCRSA), which legalized commercial medical marijuana activities, with Proposition 64, which legalized recreational marijuana use for all adults and is set to begin licensing commercial recreational businesses by January 1, 2018. We’ve previously blogged about this challenge and the state’s efforts to meet the 2018 deadline here, here and here.

The many conflicts between the MCRSA and Prop 64 include different timelines, license categories, rules on ownership, residency requirements, and tracking systems. Another key difference is that the MCRSA places limits on vertical integration, generally allowing cannabis licensees to hold state licenses in up to two separate categories and only in certain combinations. The MCRSA also does not allow licensed cannabis cultivators and manufacturers to hold a marijuana distribution license. Licensed cannabis cultivators and manufacturers in the State of California instead must work with an independent distributor to transport cannabis products to labs for testing and quality assurance before they enter the consumer market.

The California cannabis industry is divided on both vertical integration and distribution issues, and the side you take most likely depends on your views on allowing big business to operate under the new regulated cannabis regime. Growers and dispensaries in California are also divided on the issues. California dispensaries generally believe that the use of independent distributors is unnecessary and will ultimately increase costs for the consumers, small mom-and-pop operations worry that without limits on vertical integration they will be squeezed out by bigger, well-funded investments groups.

In contrast, Prop 64 places no limits on vertical integration, except that all testing labs must be independent and large Type 5 grows will not be able act as their own distributors (but these licenses won’t even kick in until 2023). For those hoping to create a vertically integrated cannabis business in California in 2018, Prop 64 offers a nice alternative to avoid the MCRSA’s limits and independent distribution requirements altogether.

However, this option could be gone by the time state licenses are issued. As California legislators work to develop regulations for both the MCRSA and Prop 64 that can operate simultaneously and in congruence, special interests are sending their lobbyists to the Capitol to try and influence the upcoming laws. Labor unions, investors, and entrepreneurs are all seeking to shape the laws that will most favor their members and bottom lines for when the California cannabis gold rush starts in earnest.

The coalition of Teamsters, local government, police chiefs, a Sacramento distribution company called RVR, and the California Growers Association (CGA) that helped draft the MCRSA bills wants to see the same limits on vertical integration and independent distribution requirements extended to recreational businesses under Prop 64. On the other side, cannabis manufacturers, the United Food and Commercial Workers (UFCW), and the California Cannabis Industry Association (CCIA) want to see a more free-market approach under the current Prop 64 model. They argue this is the model California voters supported when they passed Prop 64 last November.

To make changes to Prop 64, California legislators will need to pass any amendments by a two thirds vote. We advise cannabis license hopefuls to start NOW to prepare for California cannabis licensing, but remain ever mindful that much can change between now and January 1.

Producer_of_marihuanaIndividuals and companies looking to join the Oregon cannabis market often ask us lawyers whether we know of any licenses for sale. Some of these requests come from states like Washington, where licenses are no longer being issued and are frequently bought and sold. Others come from outside the regulated marijuana space altogether, from people who believe it advantageous to “purchase” a license, rather than start from scratch. Typically, however, Oregon licenses are not bought and sold.

As a preliminary matter, it is important to note that Oregon is a wide-open recreational cannabis market. State licensing fees are relatively cheap, and neither residency requirements nor other challenging barriers to entry exist. Most importantly, there is no cap on the number of licenses issued by the Oregon Liquor Control Commission (OLCC) — a fact that should drive the resale value of licenses down to zero as a basic economic proposition. So, Oregon is an open market where everyone is allowed to compete, and where entrepreneurs, not the state, will determine who succeeds.

During the Oregon cannabis license application process, everyone with a “financial interest” in a cannabis enterprise must be disclosed to OLCC. Having pushed through licenses for a while now, and lots of them, it is our experience that OLCC is flexible with ownership changes mid-stream (before a license is actually issued). After a license is out there in the world, however, the analysis is different: for a proposed change in ownership or business structure, OLCC requires submission of a form for its review, and payment of up to $1,000. If the proposed change of ownership is 51% or greater, a new application must be filed. OAR 845-025-1160(4)(d).

Because of the “new application” rule, licenses are never truly sold in Oregon. Instead, when Party A purchases the going concern of Party B, OLCC attempts to coordinate with both buyer and seller so that the old license is surrendered on the day the new license is issued. Note that Party A cannot take its license to a new locale; licenses are fixed to locations. The surrender/issue protocol is a theoretically simple process, although review is never expedited per se. This is because OLCC will want to vet Party B to ensure that nothing has changed regarding the physical space before it issues a new cannabis business license.

Often, it is attractive for new players to enter the Oregon market via acquisition, and our Portland office has vetted and handled pot business sales on behalf of everyone from publicly traded companies to single-member LLCs. The reason for the acquisition approach is because for certain lines of business, namely retail, locations that work with OLCC distance requirements and local zoning rules are scarcer than before. Thus, anyone interested in entering the Oregon pot market as a retailer may be better served to buy an existing operation, than to try to find an unclaimed space.

Altogether, the Oregon pot licensing system means that what is bought and sold in the state is almost always the cannabis business itself (whether that’s an asset sale or a stock sale) and never the license. Sometimes a premium is paid for a desirable location or other intangible item, but not for OLCC paper. So, if you are vetting a pot deal in Oregon and thinking of paying for the license, think again. Licenses are different here.

California marijuanaWe previously wrote about possible delays to California’s cannabis state licensing program due to conflicts between the state’s new medical and recreational laws under the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult Use of Marijuana Act (AUMA), respectively. The AUMA, aka Proposition 64, was passed by California voters last November and required state agencies begin issuing licenses by January 1, 2018 (hereinafter “the 2018 deadline”).

Last week, we provided an update on the work California legislators have been doing to get the state ready to issue licenses. Lori Ajax, the Chief of the Bureau of Medical Cannabis Regulation (soon to be the Bureau of Marijuana Control), promised audiences at a recent cannabis event that licenses would be issued by the 2018 deadline set under Prop 64.

However, California lawmakers are not so sure. On Monday, January 30, 2017, state Senate committees held an oversight hearing to discuss whether California agencies are on track to meet the 2018 deadline. During the hearing, Sen. Jerry Hill voiced “a considerable amount of skepticism” that the state would meet the deadline. Though lawmakers believe some agencies will be able to start processing applications by 2018, they doubt they will be able to issue all of the “tens of thousands” of licenses applied for by that time. Once the cannabis license applications are received, they could take months to process and complete the necessary background checks.

As Sen. Mike McGuire so aptly put it, the state is “building the airplane while it’s being flown,” and thus “it’s not realistic that all of the Proposition 64 rules and regulations will be in place by the new year.” The state’s process for rule-making includes the potential for further delays as public feedback could require a major reworking of regulations (followed by further feedback and more reworking) while new legislation could rewrite rules or change the process entirely (we covered proposed pot legislation here, here, and here).

Ajax admitted not everyone will receive their California cannabis license on January 1, 2018, but instead some could receive temporary licenses while the rest of the applications are being processed. She also stated that California’s state marijuana regulations will be in place by the 2018 deadline through a streamlined, “emergency regulation” process.

Ajax and her 11-person staff (six positions remain unfilled) are working hard to meet the deadline, but there is still a lot left to do. They have yet to convene the advisory committee required under Prop 64 to advise the Bureau and state agencies on drafting standards and regulations for marijuana businesses. Prop 64 also requires implementing a marijuana track and trace system the state has yet to develop. Besides creating the computer program behind the system, the government process will also involve long timelines for drafting proposals, selecting vendors, and completing a statewide rollout. Ajax has stated that applicants may not be included in the track and trace system by the 2018 deadline.

It’s currently unclear what would happen if California is unable to meet the January 1, 2018 deadline. Some argue it is better to have a well-crafted system later, than risk an ineffective system and a thriving illegal market. Since medical cannabis businesses can continue operating until state licenses are issued, the effect of any delay will fall mostly on prospective recreational cannabis businesses.

California CannabisOn January 18, 2017, California state regulators attended a cannabis event in Sacramento to discuss cannabis policy and what lies ahead for California. Though previous reports indicated that California cannabis licensing could be delayed for an additional year, state regulators at the event promised a licensing program would be operational by January 1, 2018.

Lori Ajax, the Chief of the California Bureau of Medical Cannabis Regulation (soon to be renamed again to the Bureau of Marijuana Control under Proposition 64), told the audience:

We will not fail. We will make this happen by Jan. 1, 2018, because we have to […] It may not be pretty. But we will get there.”

Since Prop 64 passed last November, California regulators are now in charge of crafting comprehensive regulations and issuing state licenses to not only medical marijuana businesses but to recreational cannabis businesses as well. This includes 17 license types for medical businesses and 19 licenses types for recreational businesses, covering cultivation, manufacturing, retail dispensaries, distribution, testing, and transportation. The authority to regulate and license these cannabis businesses is divided among ten California state agencies.

The California Department of Food and Agricultural will oversee cannabis cultivation activities, and it created a new division, the CalCannabis Cultivation Licensing program, to issue permits and develop regulations for cultivators, including setting up a track and trace system for all cannabis plants that enter the California market. Amber Morris, a branch chief for CalCannabis Cultivation Licensing, was also in attendance at the event in Sacramento and she said that California state departments are working with economists to create a tiered permit fee program that will assign fees to cannabis cultivators based on the size and scale of their businesses.

A big challenge faced by state regulators is the lack of banking available to cannabis businesses and affiliated companies. Ajax expressed her hope that there would be some clarity on the matter by the time state licenses are issued, stating that banking is “a challenge for us, too. As we set up our online permitting system, we would like to accept credit cards. We don’t want to have to accept wads of cash.”

The banking issue has been high on the mind of California lawmakers, as we get closer to statewide regulation. In December, California Treasurer John Chiang wrote a letter to President Donald Trump seeking guidance ahead of California’s licensing program. In his letter, Chiang wrote that the new program could “exacerbate” the banking problem because California’s cannabis economy will be so large.

Due to federal prohibition on marijuana and anti-money laundering regulations issued by the Financial Crimes Enforcement Network (FinCEN), banks are reluctant to work with cannabis businesses. The banking challenge is not unique to California and it affects businesses in legal marijuana states across the United States. Several U.S. senators sent a letter to FinCEN in December asking for more guidance and explaining how the dearth of cannabis banking promotes tax fraud and creates a public safety issue because cannabis businesses are forced to deal in large amounts of cash.

Under the new California cannabis licensing program, state agencies will need to collect fees from licensed cannabis businesses. Yet most of these agencies have only one office — in Sacramento — which means anyone paying their fees in cash will need to carry that cash with them all the way to the capitol. To address this issue, California legislators recently introduced new legislation to increase the number of government offices that can accept payments from cannabis businesses for state fees and taxes. The legislation, known as the Cannabis Safe Payment Act, is sponsored by the Board of Equalization (BOE), which has been collecting sales tax from California medical marijuana businesses since 1996.

The BOE currently accepts payments in cash from cannabis businesses at its 22 offices across the state. However, to reach these offices, many California cannabis cultivators have to travel great distances with “bags of cash” in their cars, which BOE Chairwoman Fiona Ma agrees “is not the safest method of paying your taxes.” Thus, Ma states that the BOE’s “priority has to be increasing safety—for the business owner, the public, law enforcement, and state employees by enabling cannabis businesses to pay their taxes and fees in as many a safe and secure locations as possible.” Under the Cannabis Safe Payment Act, California counties that receive approval by board of supervisors and tax collectors will be able to accept cash payments from local cannabis businesses on behalf of the BOE and other state agencies.

With promises from the Marijuana Bureau to begin issuing state licenses by January 1, 2018, collaboration from state agencies to develop regulations and set permit fees, and efforts from state lawmakers to alleviate banking challenge, California legislators are showing they are hard at work creating a viable state licensing program for cannabis businesses. For cannabis businesses planning to take advantage of California’s new cannabis program, a lot of work lies ahead and you should start preparing now.

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.