California cannabisOn June 27, 2016, the California legislature passed Senate Bill No. 837 (SB 837) to amend certain areas of the MMRSA. To start, the bill changes the name of the Medical Marijuana Regulation and Safety Act, the Bureau of Medical Marijuana Regulation, and the Medical Marijuana Regulation and Safety Act Fund to the Medical Cannabis Regulation and Safety Act, the Bureau of Medical Cannabis Regulation, and the Medical Cannabis Regulation and Safety Act Fund, respectively. All references to medical marijuana or marijuana throughout the bill are also changed to medical cannabis or cannabis. These changes most likely reflect the legislature’s recognition of the industry’s preference for the term “cannabis” over “marijuana.”

In addition to the technical changes, SB 837 also includes substantive changes to the law, which affect the various state agencies involved in regulating cannabis businesses as well as potential licensees under the MCRSA.

Changes for State Agencies. Under SB 837, the BCMR formed under the Department of Consumer Affairs (DCA) remains responsible for the licensing of dispensaries, transporters, and distribution. Likewise, the Department of Food and Agriculture (DFA) is still responsible for licensing cultivation and the Department of Public Health (DPH) for licensing of manufacturers.

However, there has also been some shifting of the roles assigned to these agencies:

  • The BCMR has replaced the DPH as the agency responsible for licensing testing laboratories.
  • The DFA has replaced the BCMR as the agency responsible for establishing appellations of origin for cultivated cannabis.
  • The DPH’s role in regulating manufacturing has been expanded to cover developing standards for the manufacturing and labeling of all manufactured medical cannabis products and not just edibles. In addition, the DPH will now identify and report any medical cannabis products that have been adulterated or misbranded.

Furthermore, the agencies may now adopt emergency regulations to remain in effect for no longer than 180 days in order to carry out the purposes of the MCRSA. The use of emergency regulations should buy the agencies time to prepare final regulations while still commencing with state licensing in 2018 as promised.

Changes to License Types and RequirementsSB 837 also includes changes to the various license types which should be noted by any interested applicants.

For potential dispensary applicants, the Type 10 A license for a “Dispensary; No more than three retail sites” is now for a “Producing Dispensary; No more than three retail sites.”

For potential manufacturing applicants, the Type 8 license for “Testing” is now a “Testing laboratory” license. (Also note: infused butters are now excluded from the Milk and Milk Products Act of 1947.)

For potential cultivation applicants, several new rules were added regarding the source of water and diversion of water for cannabis grows. The State Water Resources Control Board, in consultation with the Department of Fish and Wildlife, is tasked with adopting principles and guidelines for diversion and use of water for cannabis cultivation. The bill also expands the ability of the Water Board to issue cease and desist letters to violating cannabis cultivators and adds new fines for violations based on period of time and acreage. (Also note: cannabis seeds are now excluded from state Seed Law).

For potential distribution applicants, the role of distributors has been diminished such that a distributor is not required to transport cannabis between a cultivator and a manufacturer for further manufacturing. For more information on the current status of distribution in California, see our previous post on the two sides of the distribution debate.

Finally, all applicants for a state license will now need to provide proof of a bond to cover the costs of the destruction of their medical cannabis or medical cannabis products due to a violation of the licensing requirements.

As a final note, SB 837 clarifies that medical cannabis businesses operating in compliance with local laws on or before January 1, 2018 can continue to operate until their license application is either approved or denied, but only if: 1) the business continues to operate in compliance with local laws and 2) submits a completed application with the appropriate licensing authority by the to-be-established deadlines. With new state rules being written and emergency regulations on the horizon, the urgency for California cannabis businesses to form their corporations, get in compliance, and prepare a completed application prior to 2018 is more certain than ever.

EDITOR’S NOTE: Three of our California cannabis lawyers (Tiffany Wu, Alison Malsbury and Hilary Bricken) will be putting on a FREE webinar on September 14, moderated by our lead cannabis corporate lawyer (Robert McVay). This webinar will focus on what you should be doing now to prepare your existing or future cannabis business for California’s soon to be legalized landscape. Go here on Eventbrite to sign up to attend.