California cannabis edible rules
Too cute for California cannabis edibles?

We’ve written before about California’s extremely onerous proposed advertising restrictions, but last week, California’s legislature gave its final approval to another restrictive piece of legislation, Assembly Bill 350, that would ban edibles that appeal to children.

These types of legislation are nothing new. In Washington State, for example, cannabis processors must obtain approval from the Washington State Liquor and Cannabis Board (LCB) for all marijuana-infused products, labeling, and packaging before offering these items for sale to licensed retailers. And specifically, the LCB rules prohibit any marijuana product from being “designed to be especially appealing to children.”

Every state that has legalized cannabis in some capacity has adopted rules aiming to keep cannabis out of the hands of children – a priority that states must consider regulating in accordance with the 2013 Cole Memo. But the question of how to accomplish this – how onerous edibles regulations must be – has been highly controversial. Maureen Dowd’s infamous New York Times piece recounting her traumatizing “overdose” on marijuana-infused chocolate was one of many that helped fuel the fire of fear surrounding cannabis edibles.

But in California, at least until now, cannabis edibles have been completely unregulated. Infused products that look exactly like the candies we all know so well – gummy bears, lollipops, etc. – have been a staple in California dispensaries, and form the basis of many businesses. But it was only a matter of time before the state cracked down on these types of products, which can arguably be easily confused with the candy our children love.

The purpose of AB 350 is to flesh out the requirements for edible cannabis products produced by Level 1 (nonvolatile) and Level 2 (volatile) manufacturers pursuant to the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA). The legislation provides that edible cannabis products shall be:

  1. Not designed to be appealing to children or easily confused with commercially sold candy or foods that do not contain cannabis. Cannabis products shall not be made in the shape of a person, animal, insect or fruit;
  2. Produced and sold with a standardized concentration of cannabinoids not to exceed ten (10) milligrams of THC per serving;
  3. Delineated or scored into standardized serving sizes if the cannabis product contains more than one serving and is an edible product in solid form;
  4. Homogenized to ensure uniform disbursement of cannabinoids throughout the product;
  5. Manufactured and sold under sanitation standards established by the State Department of Public Health, in consultation with the Bureau, that are similar to the standards for preparation, storage, handling, and sale of food products;
  6. Provided to customers with sufficient information to enable the informed consumption of the product, including the potential effects of the cannabis product and directions as to how to consume the cannabis product; and
  7. Marked with a universal symbol, as determined by the State Department of Public Health through regulation.

Although AB 350 will throw a wrench in the business plans of many currently operating cannabis manufacturers, we aren’t surprised in the least to see California adopting these types of restrictions aimed at keeping cannabis out of the hands of children. We’ll be keeping a close eye on whether Gov. Brown signs this bill, how broadly the state interprets these provisions, and what products ultimately will and will not be allowed.

Los Angeles cannabis regulations
Los Angeles just came out with new cannabis regulations

California has lately been on its game with progressive changes to is cannabis laws. Last week, AB 133 passed, making needed technical fixes to the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94). And then last Thursday, California’s Bureau of Cannabis Control publicly revealed details behind its temporary licensing program (see here for the Bureau’s brochure on that process). And now the City of Los Angeles just released its 42-page revised draft regulations under Proposition M and they contain some interesting, comprehensive, and important changes from the original draft (if anyone forgets what Prop. M is, go here).

Here are some of the highlights from the revised ordinance if you’re looking to have a cannabis business in Los Angeles:

  1. Remember the controversial certificates of approval? Those have been eliminated in favor of a straight licensing program that includes provisional and permanent City licenses. This new licensing program will give applicants greater and better-protected rights to operate within the City’s borders. Upon initial approval, you will receive a provisional license and once you get your state license to operate, the City will issue you a permanent City of Los Angeles license.
  2. Under the original Prop. M draft regulations, certificates of approval were set to issue in four waves in this particular order: Prop. D-compliant existing medical marijuana dispensaries (EMMDs), non-retail registrants (i.e., growers and manufacturers), the social equity program, and then the general public. Formerly, non-retail registrants were only eligible for a certificate of approval in that second wave if they could show they were operating in the City before January 1, 2016. That’s all changed as there is no longer any non-retail registry priority.
  3. The City of Los Angeles Department of Cannabis Regulation will still give first priority in processing EMMD applications that “demonstrate to the Department the EMMD has operated in compliance with the provisions of the limited immunity and tax provisions of Proposition D.” Note that in the previous draft rules, the City required “substantial compliance” with Prop. D. Once applications become available, these EMMD applicants will have only 60 days to get their applications in and, after that, that application window closes indefinitely. And, just like in the original rules for EMMDs, “any mitigating circumstances due to gaps in operations, location change or involuntary closure, ownership, tax payments, etc. must be described in detail for the Department to consider eligibility.”
  4. EMMDs will only be allowed to apply for Retailer Commercial Cannabis Activity (including delivery), which may include on-site cultivation as allowable under Prop. D. On-site cultivation in this scenario may not exceed the size of the EMMD’s existing canopy or square footage of building space as documented by a lease or Certificate of Occupancy prior to January 1, 2017. A maximum of three Licenses per EMMD with a valid Business Tax Registration Certificate will be allowed–the example the City gives is: One Type 10 (retailer), One Type 10 (retailer with delivery) AND one Type 2A OR Type 3A (on-site cultivation if applicable).
  5. One of the biggest boons for EMMDs (and for any cannabis applicant in the city of L.A.) is that “changes in ownership status from non-profit status to for-profit status are allowable.” Now is the time for all LA operators to get away from their precarious non-profit mutual benefit corporations and other bizarre corporate setups and convert to a legal, for-profit business entity that lines up with the California Corporations Code.
  6.  The City of Los Angeles is still working on its social equity program. It is expected that will be finalized and made part of the Prop. M rules sometime in October.
  7.  The general public will be allowed to apply for licenses at the same time as the social equity program opens up. The most positive change for the general public is that they are no longer limited to the number of licenses that will issue in the social equity program. Without a doubt, the general public now has a much better chance to participate in L.A.’s cannabis scene.
  8. Here’s the deal on license caps in the City: all retailers and microbusinesses in the City will be limited to three licenses at the most. There are no license caps for cultivators so long as a given business does not have more than 1.5 acres of plant canopy within the City. Type 7 volatile manufacturing is now allowed (previously it wasn’t), and there are no set caps on manufacturing licenses within the City. There also is no licensing cap for distributors.
  9. As part of the application process, applicants must provide a site diagram to the City. The premises must be a contiguous area and may only be occupied by one business. However, multiple businesses may be located on the same property (as established by an assessor’s parcel number) if each premises has “a unique entrance and immovable physical barriers between unique premises.” Our cannabis lawyers have dealt with these sorts of restrictions in other states and they are usually not a problem and should be dealt with in your lease.
  10.  Applicants must provide a detailed description and plan for hiring “local residents, including making an ongoing good-faith effort to ensure that at least 30 percent of hours of their respective workforce be performed by residents of the City of Los Angeles, of which at least 10 percent of their respective workforce shall be performed by Transitional Workers whose primary place of residence is within a 3-mile radius of the proposed Business.”
  11. An applicant with ten or more full-time equivalent employees must enter into a labor peace agreement.
  12. On the M & A front, neither the City licenses nor the businesses are transferable once a provisional or permanent license issues, but you can still apply to the City to change the business structure, which does allow for you to sell the business so long as the City of Los Angeles approves the sale. See here for more on buying cannabis businesses in Los Angeles.
  13. No licensed retailer of alcoholic beverages or tobacco products can apply for a City of Los Angeles cannabis license.
  14. Foreign companies from outside the U.S. are not allowed in the City, but the City specifically states that this prohibition “does not preclude out-of-state investment in a Business proposing to conduct Commercial Cannabis Activity.” If you are thinking about investing in a California cannabis businesses, you should be sure to join us at our September 28th California Cannabis Investment Forum in San Francisco. But do NOT wait because we must limit the number attendees to 250 and we are getting dangerously close to that already.
  15. The City is still discussing what to do about zoning for cannabis businesses and changes to that proposed ordinance are sure to affect your ability to secure an eligible property.

All in all, Los Angeles is finally starting to embrace comprehensive cannabis control and oversight with a regulatory system that should catapult it into its rightful place as a cannabis powerhouse with serious operators.

California Cannabis LawyersYesterday, at the California Cannabis Business Conference in Anaheim (attended by our Southern California cannabis attorneys), the California Bureau of Cannabis Control (the “Bureau”) released information regarding temporary license applications under the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”), which we now know will start to issue on January 1, 2018–see the Bureau’s brochure on temporary licensing details here, and note that the other agencies have not yet released any information on temporary licenses for manufacturers and/or cultivators.

The Bureau will likely begin accepting applications prior to that date, but no temporary license application will be effective before January 1, 2018. Additionally, the Bureau expects that the next round of draft (temporary) rules pursuant to MAUCRSA will issue sometime in mid to late November, coinciding with the release of the temporary license application.

A temporary license is a conditional license that will allow a business to engage in commercial cannabis activity for a period of up to 120 days (i.e., 4 months). Within that 120 day period, the business with a temporary license must apply for their full state license. If the operator is unable to finalize their state license within that period (through no fault of their own), the state will grant extensions to the temporary licensee until the full license is issued.

The requirements for obtaining a temporary license to engage in commercial cannabis activity are as follows:

  1. Local jurisdiction authorization. Applicants must provide a copy of a valid license, permit, or other authorization to operate issued by the applicable local jurisdiction that allows the applicant to conduct commercial cannabis activity at their proposed location.
  2. Name. Applicants must indicate the name of the individual(s) or business entity applying.
  3. License type requested. Applicants must specify which of the license types (Distributor, Retailer, Microbusiness, Etc.) they are applying for.
  4. License designation. Applicants must indicate whether they are applying for an adult use (A-license) or medicinal (M-license) license.
  5. Contact information. Applicants must provide a designated primary contact including first and last name, title, address, phone number(s) and email address(es).
  6. Owners. Applicants must provide the name, mailing address, and email address of each “owner” that meets the criteria of Business and Professions Code Section 26001 (i.e., you own 20% or more of the company, you’re the CEO, you’re a director on the board of a non-profit, or you exercise any direction, control, or management of the company).
  7. Physical address. Applicants must provide the physical address of the location at which they intend to operate.
  8. Authorization to use location. Applicants must provide a copy of the title or deed to the land where the proposed premises is located, or a document from the landowner, such as a lease agreement, stating that the applicant has the right to occupy the property and may use the property for commercial cannabis activity.
  9. Premises diagram. Applicants must provide a diagram of the business’s layout at the proposed location.

It is important to note that local approval still reigns supreme–without the necessary city or county permits and/or licenses, applicants will not be able to obtain temporary or actual state licenses.

Unlike other states with recreational cannabis, Washington does not allow for home cultivation of recreational cannabis. However, that could change soon as SB 5131 requires the Washington State Liquor and Cannabis Board (LCB) to study the viability of home cultivation. The LCB will hold a public hearing on Wednesday, October 4, 2017, at 10:00 AM on whether the State should allow home grows of recreational marijuana.  Written public comments may be submitted through October 11 at rules@lcb.wa.gov or hard copy at PO Box 43080, Olympia, WA 98504.

The LCB will hold a public hearing on Wednesday, October 4, 2017, at 10:00 AM on whether the State should allow home grows of recreational marijuana.  Written public comments may be submitted through October 11 at rules@lcb.wa.gov or hard copy at PO Box 43080, Olympia, WA 98504.

The LCB must consider home cultivation in light of the Cole Memorandum, the Obama-era policy statement from the Department of Justice that tacitly permits states to legalize marijuana so long as those states enact strong and effective regulations. The Cole Memo outlines eight enforcement priorities:

  1. Preventing the distribution of marijuana to minors;
  2. Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
  3. Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
  4. Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
  5. Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
  6. Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
  7. Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
  8. Preventing marijuana possession or use on federal property.

The LCB has opposed home cultivation in the past. In 2015, Washington lawmakers considered a bill that would have allowed cultivation of up to six cannabis plants. In response, the LCB sent a letter outlining the Board’s concern that unregulated home grows would increase the occurrence of all eight enforcement priorities outlined in the Cole Memo.

The LCB worries that home cultivation will lead to diversion. Washington producer, processors, transporters, researchers, and retailers must all use “seed-to-sale” traceability software. As the name suggests, a cannabis plant is monitored throughout its life to prevent cannabis from being diverted to other states, to minors, or to the black market.

The LCB is seeking public input on three proposed options:

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

The LCB must report its findings to Washington’s legislature by December 1, 2017. Lawmakers provided the LCB with no additional funds, meaning the Board must conduct its study without expanding its budget. There is no guarantee that anything changes but this is could be the beginning of recreational home cultivation in Washington.

Will the (former) Senator yield?

The Oregonian, Willamette Week, and KGW, to name a few, are reporting that US Attorney General Jeffrey Sessions is visiting Portland today to meet with federal and local law enforcement. These reports suggest Mr. Sessions is in town primarily to discuss immigration, sanctuary cities, and his unconscionable position on the Deferred Action for Childhood Arrivals program (“DACA”).

Given the recent exchange of letters between Oregon Governor Brown and the Attorney General, it seems likely Mr. Sessions has also come to Oregon to discuss and criticize Oregon’s medical and recreational cannabis programs. We’ve recently discussed how this exchange of letters demonstrates how Oregon sits uncomfortably within Mr. Sessions’ crosshairs. Governor Brown eviscerated Mr. Sessions’ reliance on a leaked, incomplete, and misleading draft of a report prepared by the Oregon State Police on cannabis in Oregon. Our money says Mr. Sessions is also here on a fact-finding mission, to see if he can drum up some better (or any?) sources for his claims that Oregon has so far failed to comply with Cole Memorandum guidelines.

Anyone in the cannabis industry here in Oregon knows Oregon treats these guidelines with the utmost respect and importance. Heck, if they didn’t, our Oregon cannabis business lawyers would not all be putting in 12 hour days! The Governor, the legislature, and Oregon’s relevant regulatory agencies, including the Oregon Liquor Control Commission and Oregon Health Authority, have been working tirelessly to improve their policies and procedures to ensure that Oregon’s recreational and medical cannabis programs protect public safety and prevent illegal activity.

Hopefully, Mr. Sessions’ visit will change his heart, but I wouldn’t count on it.

Receiver time?

Back in 2014, we wrote that bankruptcy is not an option for marijuana businesses. That issue has been litigated here and there since then, but as of today, cannabis businesses are no better off than before. The hard reality is this: all bankruptcy cases are handled in federal courts under rules outlined in the U.S. Bankruptcy Code. Those courts have held that it would be impossible for a U.S. Trustee to control and administer a debtor’s assets (cannabis) without violating the federal Controlled Substances Act.

Bankruptcy laws are designed to afford a fresh start to honest but unfortunate debtors, while providing equal treatment to creditors. Without recourse to bankruptcy, parties can only: (1) liquidate without court supervision, or (2) explore state court receivership. Liquidating without court supervision offers no protection to pot business creditors. State court receivership does afford protections, but adds complexity because states closely regulate who is allowed to possess and sell marijuana (through licenses). For a while, it was an open question as to whether a state court receivership would actually work in the cannabis context. Recently, one actually did.

In the case at issue, a landlord (creditor) had leased space to a licensed marijuana business tenant (debtor). The tenant failed to pay rent, and the landlord evicted the tenant and acquired a judgment for unpaid rent. Because RCW 7.60.010 et seq. provides that a Washington state court may appoint a receiver over a marijuana business, the landlord convinced the court to issue an order appointing a receiver to sell the tenant’s cannabis and satisfy the judgment. The landlord then successfully navigated the licensure issue with the Washington State Liquor and Cannabis Board, sold the pot, and collected on its judgment.

Washington is not the only pro-cannabis state with statutes and administrative rules that seek to bridge the bankruptcy gap by allowing creditors to seize and sell cannabis. In Oregon, OAR 845-025-1260 provides “Standards for Authority to Operate a Licensed Business as a Trustee, a Receiver, a Personal Representative or a Secured Party.” Our Oregon and Washington cannabis lawyers have assisted numerous clients in acquiring and perfecting security interests under the relevant rules. We expect California to adopt a similar regime.

One of the reasons creditors get such high rates of interest for loans to cannabis businesses—in addition to the fact that banks won’t lend to them—is because many pot businesses lack lienable collateral. For many of them, the net worth of the business is mostly tied up in the cannabis itself. It is now clear that, at least in Washington, the cannabis can be liquidated by a third party, whether or not the pot was initially proferred by the debtor as collateral for a loan. In that way, cannabis businesses are being treated by progressive states much like non-pot concerns.

That we finally have had one successful state court receivership probably won’t nudge circumspect lenders to reach out to the cannabis industry. However, cannabis businesses can feel encouraged that their number one asset (their cannabis) may have marketable value when looking for loans; and lenders can feel hopeful that if everything falls apart, there may be liquidation value in the cannabis crop. None of this “solves” the bankruptcy issue, but it’s a step in the right direction.

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

Our last California Cannabis Countdown post was on Oakland and before that San FranciscoSonoma County, the City of Davis, the City of Santa RosaCounty and City of San BernardinoMarin CountyNevada County, the City of Lynwood, the City of CoachellaLos 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.

Today’s post is on Alameda County.

Welcome to the California Cannabis Countdown.

Location.  Alameda County is the 7th most populous county in the state of California. Its county seat is in Oakland and it occupies much of the East Bay region. It’s home to the Alameda County Fair and the Alameda County Fairgrounds, which can boast to being the home of the oldest one-mile horse racing track in America. Hope that tidbit comes in handy on trivia night.

History with Cannabis and Current Cannabis Laws. Back in 2005, Alameda County (this post is addressing only Alameda County and not the City of Alameda) began regulating cannabis by passing a medical cannabis dispensary ordinance. Though we’re always happy to see cities and counties embrace cannabis businesses with sensible and reasonable regulations, Alameda’s first foray should be described as a very timid one. Alameda’s ordinance only addressed medical cannabis dispensaries and it capped the number of dispensary licenses at three and it also limited the amount of cannabis a dispensary could keep on its premises.

With friendlier regulations in Oakland, Berkeley, Richmond, and Emeryville, this first ordinance put Alameda at a competitive disadvantage with potential cannabis businesses when compared to those cities. With the passage of the Medical Cannabis Regulation Safety Act (MCRSA), Alameda County (along with a number of other California jurisdictions) decided it was time to amend their cannabis ordinance. In June of 2016, the Alameda County Community Development Agency and the Castro Valley Municipal Advisory Council held a meeting to begin the process of updating Alameda’s cannabis ordinance. If you’ve ever followed a cannabis ordinance as it winds its way through your local jurisdiction you are well aware that after one meeting comes many others – supervisor meetings, planning commission meetings, citizen advisory committee meetings, and interdepartmental working group meetings, just to name a few. Like Gremlins, the meetings just continue to multiply. Let me not be too harsh on Alameda because slow progress is better than no progress and definitely better than these alternatives.

Proposed Cannabis Laws: On August 1, 2017, the Alameda County Board of Supervisors conducted the first reading of its proposed amendments to their cannabis ordinance and on September 12th of this year (we like to keep you up to date here on the Canna Law Blog) the Board held a second reading of their cannabis ordinance. Here’s a list of the some of the highlights of Alameda’s cannabis ordinance:

  • Increases the number of dispensaries allowed from three to five.
  • Allows delivery of medical cannabis from permitted dispensaries within the county and from outside jurisdictions from 9:00am to 9:00pm.
  • Allows the sale, distribution, and delivery of edibles.
  • Removes the 100-pound limit on the amount of cannabis that can be stored by a dispensary on its premises.
  • Implements a two-year pilot program authorizing medical cannabis cultivation. This pilot program will authorize up to six cultivation permits – up to two indoor cultivation operations and four mixed-light operations. Outdoor cultivation is prohibited.
  • Nurseries may be permitted where cultivation is permitted.
  • Cultivation sites will have to be at least one thousand feet from any pre-K to 12th grade school, licensed child or day care facility, public park or playground, drug or alcohol recovery facility or public recreation center.

Although the caps imposed on medical cannabis dispensaries and cultivators will limit the innovation, investment, and tax revenue generated by Alameda County cannabis businesses, this is still a step in the right direction and we should not let perfect be the enemy of the good. We’re also optimistic that Alameda County will continue on its path towards increased legalization – perhaps with fewer meetings next time.

At the beginning of this month, Oregon implemented a critical change to its cannabis pesticide testing regulations: As of August 30, 2017, every batch of cannabis produced in Oregon must be tested for pesticides prior to transfer or sale. This simply wasn’t possible a year ago, when the Oregon Liquor Control Commission (“OLCC”) issued a finding that there were not enough accredited labs available to allow for universal pesticide testing. As a stop-gap measure, the OLCC limited testing to one-third of all batches from each harvest. According to the OLCC, the situation on the ground has changed substantially. There are now twice as many accredited labs and the Oregon Health Authority (“OHA”) has recently increased testing batch sizes. The net result is that the OLCC believes there is now capacity to ensure universal pesticide testing.

We’ve written quite a bit about how Oregon is slowly shifting responsibility for medical cannabis from the OHA to the OLCC, but product testing remains an outlier. The OHA retains responsibility for issuing cannabis testing rules for both the medical and recreational program, and has issued some of the strictest pesticide testing requirements in the nation. With this recent change, all Oregon cannabis, recreational and medical, will be tested for pesticide contamination prior to transfer to retailers and processors, and ultimately to the consumers.

 

California cannabis Having begun my cannabis legal career in Washington State, which is a cannabis marketplace that started with a loose collective model and then morphed into the heavily regulated medicinal and adult use marketplace it is today, I know firsthand that it will be no small task to get right on cannabis regulation here in California now. As we all know by now, cannabis regulations are constantly changing and in California such changes seem already to be hitting us nearly every month. California seems hellbent on getting revising (and re-revising) its regulations so as to get a strong regulatory grip over what will soon be the most profitable and dynamic legal cannabis market in the world (by far).

Cue AB 133, which is the most significant and realistic technical fix bill to California’s cannabis marketplace since passage of SB 94 this summer. SB 94 represents a regulatory union between medical and adult use cannabis from the get-go. Most other states that have legalized recreational cannabis already had a robust (though unregulated) medical cannabis market that they let remain for a while to the detriment of regulated operators, but California has decided from the outset that the two cannabis industries (medical and recreational) would be combined under one regulatory regime. However, there are flaws in SB 94 and a lot of gaps and ostensible impossibilities when it comes to logistics and operational standards. Though regulating agencies (like California’s Bureau of Cannabis Control) might normally be expected to interpret and fill in the blanks on legislation via rule-making, California isn’t leaving anything to chance with its proposal of AB 133.

If passed, AB 133 would make SB 94 even more business-friendly for operators and consumers. AB 133 would do the following:

  • Cannabis deliveries would allowed by a retailer using any technology platform owned, leased, or controlled by the retailer. Currently, retailers can only use technology platforms they own and control to undertake deliveries.
  • Holders of multiple cannabis licenses would no longer be required to keep their licenses “separate and distinct.” This likely will mean you can combine your multiple licenses or your adult use and medical operations on a single “premises.”
  • AB 133 would repeal the requirement that licensed medicinal cannabis manufacturers only manufacture cannabis products for sale by a medicinal cannabis retailer.
  • Verification of local approval would change for applicants that voluntarily provide proof of such approval to the state during the licensing process. Essentially, if you provide this proof to the State of California, it will presume you’re in compliance with local laws unless otherwise notified by the city or the county.
  • If you’re a cultivator and your water source stems from diversion, you will have until October 31, 2017 to get that use authorized and to disclose that diversion to the state (rather than the July 31, 2017 deadline that’s already come and gone).
  • If you’re under 21, you can be on the premises of an A-licensee so long as the A-licensee also holds an M-license at the same location. And if you’re over 21, you can be on the premises of an M-licensee so long as that licensee also holds an A-license at the same location.
  • Caregivers would be allowed on premises to purchase medical cannabis for verifiable qualified patients, but the Bureau of Cannabis Control would set forth the specific rules around these purchases.
  • Cannabis cooperatives would be barred from undertaking contracts, etc. with other cooperatives in other states.
  • The unlawful possession of concentrated cannabis amounts would be increased from 4 grams to 8 grams.
  • The cannabis cultivation tax would apply only to harvested cannabis that “enters the commercial market” and cannabis that “enters the commercial market” would re redefined to be cannabis or cannabis product that completes and complies with a quality assurance review and testing, except immature cannabis plants and seeds,
  • You won’t pay your cannabis excise taxes directly to the Board of Equalization anymore; you will instead pay them to the California Department of Tax and Fee Administration.

Though passage of AB 133 is not a cure-all for all that ails us in SB 94, it is a good start toward ensuring that some of the wider gaps in California’s existing cannabis legislation are headed off at the pass of rule-making. Most importantly, California is still on track to be one of the most business-friendly regulatory states, but we’ll see what future rule-making (and local restrictions) do to that status as fall approaches.

Cannabis Development Agreements
Development agreements should be in your real estate tool kit.

We’ve seen this movie before: a city gets excited about commercial cannabis opportunities and passes an ordinance allowing indoor medical cannabis cultivation. After the law goes into effect, neighbors complain about odors or aesthetic issues or just because they don’t want anything to do with cannabis in their neighborhood. Sooner or later, the right neighbor complains to the right city council member and cannabis suffers a major setback with a restrictive ordinance or even a moratorium. The city declares the “offending” cannabis business use to be nonconforming and issues a notice and order to abate. The cannabis business finds itself hundreds of thousand dollars in debt on its construction/build-out project without a path forward for being able to operate and a permit it can’t take elsewhere because it runs with the land.

How then should a would-be cannabis tenant or purchaser avoid this risk, or at least mitigate against it, before jumping into a huge investment for improving the land? A development agreement is one solution.

A development agreement is essentially a contract between a property owner/developer and a municipality that specifies how a given parcel will be improved and used for a certain finite period of time, and specifying how the planning and zoning laws for that parcel will change or not change during that time. Municipalities benefit from development agreements because by reducing risk they encourage development and increase property tax revenues. The property owner/developer benefits by having much greater certainty regarding the uses to which the property may be put.

The added certainty of stable zoning makes developers and their investors and lenders more willing to invest their time, effort, and financial resources into improving the land. Without a development agreement, developers typically must risk paying architects, engineers, and contractors before they can obtain a building permit from the municipality. Developers and municipalities often end up litigating over vested rights and the permitting process. Under California’s vested rights doctrine, only after developers obtain the building permit can they be certain their parcel will remain unaffected by future zoning law changes — and even this isn’t always a total certainty, as California courts have found exceptions that allow zoning changes, depending on the circumstances.

Given its unpredictability and its huge potential, California’s commercial cannabis industry is a prime candidate for development agreements, yet they are still rarely used for cannabis business land development. I see this as due to a combination of things, ranging from local government reluctance to tie land within city limits to uses the federal government still deems unlawful, to cannabis lawyers (especially those who only recently switched from representing cannabis criminal defendants) simply not knowing about development agreements. See How To Choose Your Cannabis Business Lawyer.

Whatever the reason, less certainty in already uncertain times is bad for all parties involved.

Cities want to attract responsible, experienced developers to improve land and public infrastructure and increase property values and tax revenues. Developers and their associates seek certainty that the improvements they pay to add to their land may be legally utilized. Cities that pass ordinances to allow cannabis business activities, as well as would-be purchasers and developers, should be considering development agreements as part of their commercial cannabis development plans.