California cannabis lawyersWe’re a couple of weeks into summer and in California that means county fair time! In populous counties, county fairs can include extravagant firework shows and platinum selling musicians coming into town. In smaller counties, a tractor-trailer show may be the biggest event. Regardless of their size, all county fairs have at least two things in common: 1) They are open to the public (entry fees do vary); and 2) Vendors sell their products to, and connect with, the consumer. In California, cannabis events are hoping to tap into the Golden State’s love of county fairs and our California cannabis attorneys are seeing an increase in the number of businesses looking to expand their reach into cannabis events.

California’s Bureau of Cannabis Control (“BCC”) regulates and licenses temporary cannabis events. Under the BCC’s readopted emergency regulations (permanent regulations were recently proposed, which we covered here), obtaining a cannabis event is a two-part process in California. Before you can host a cannabis event, you first have to secure a cannabis event organizer license. Obtaining an organizer’s license is no easy feat, as applicants face the same daunting application requirements that cannabis retailers, delivery-only retailers, distributors, and testing laboratories face. These requirements require they provide the following:

  • A list of funds belonging to the applicant’s cannabis event organizing business held in savings, checking, or other accounts maintained by a financial institution;
  • A list of loans made to the applicant for its use in cannabis event organizing activities;
  • A list of investments made into the applicant’s cannabis event organizing activities;
  • A list of all gifts of any kind given to the applicant for its use in cannabis event organizing activities;
  • A complete list of every individual with a financial interest in the cannabis event organizing business; and
  • A complete list of every owner.

Once you’ve submitted all of the required BCC’s cannabis organizer application information you cannot pass go, nor do you get to collect two hundred dollars. Au contraire, you must submit a non-refundable annual license fee. This fee is five thousand dollars ($5,000) for an organizer planning one to ten events and fifteen thousand dollars ($15,000) for organizing more than ten events in a year.

Assuming you’ve cleared the BCC’s regulatory hurdles and secured your organizer’s license, you can now move forward with your application for a temporary cannabis event. We previously covered the regulations for temporary cannabis events here, but they are worth revisiting since the BCC released their new proposed regulations.

  • A temporary cannabis event license shall only be issued for a single day or up to 4 consecutive days.
  • Onsite consumption is allowed if authorized by the local jurisdiction.
  • Any compensation paid from a retailer to a cannabis event organizer for participation in a temporary cannabis event shall not be determined, based on, or be contingent on, the sale of cannabis goods.
  • Cannabis goods being stored by a licensee at a temporary cannabis event shall not be accessible to the public and shall not be left unattended. Licensees may share the secure, locked container; however, each licensee using the container shall be held responsible for any violations of this section and subject to disciplinary action.
  • A temporary cannabis event may only be held on the grounds of a county fair or district agricultural association. This is holdover from the previous regulations but we are seeing progress at the state level with Assembly Bill 2020 (which we covered here) to amend the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) so that all local jurisdictions can host temporary events in authorized locations.
  • Each sale at a temporary cannabis event shall be performed only by a retailer or microbusiness authorized to sell cannabis to retail customers. This is another holdover from the previous set of regulations, but just like with AB 2020, we are seeing state legislators push for change. Assembly Bill 2641 (covered here) would authorize licensed cultivators and manufacturers to sell their cannabis and cannabis products directly to the public at temporary cannabis events.

As of this writing, the BCC has issued approximately forty-three (43) cannabis event organizer licenses so we can expect to see new and exciting cannabis events this summer and throughout the year. Assembly Bills 2020 and 2641 are next up for hearings in front of the Senate Appropriations Committee on August 6th and we expect the Committee will vote to expand the number of cannabis businesses and locations that can participate in cannabis events. Until then, enjoy your summer and your county fair!

California cannabis lawIt’s finally happened. Three of the California agencies implementing the Medical Cannabis Regulation and Safety Act (“MCRSA”) released their initial draft rules last Friday. These long-awaited rules make up the bulk of the regulatory standards for: transportation, distribution, and retailers (as developed by the Bureau of Medical Cannabis Regulation/Bureau of Marijuana Control); cultivation (as developed by the Department of Food and Agriculture through its CalCannabis Cultivation Licensing arm); and manufacturing (as developed by the Department of Public Health through its Office of Manufactured Cannabis Safety).

Within their 209 pages of regulatory mandates, these rules are a serious step toward California finally bringing its entrenched medical cannabis marketplace in line with federal enforcement priorities. Though our California cannabis attorneys will be blogging in depth about each license type and their respective regulations in the upcoming week, we wanted to first provide you with a brief overview of these initial rules. This post does that by highlighting the basic requirements under each set of the initial rules.

Under the initial rules, the basic background and corporate information submissions to the state are nearly identical for cultivators, manufacturers, retailers, distributors, and transporters. Each of these license types will have to submit to the state required background information on all owners. An “owner” is the CEO or any person or entity within a publicly traded company that has, in aggregate, greater than a 5% ownership interest and, for all other business entity applicants, “owner” means any individual who has, in aggregate, greater than a 20% ownership interest — excluding the ownership of a security interest in, lien on, or any other encumbrance of the business entity applicant. And if there’s a business that has an ownership stake of greater than 20% in the entity applying to the state, its CEO and all directors are considered owners. Lastly, an individual is considered an owner if he or she participates in directing, controlling, or managing the applicant, which includes “discretionary powers” to, among other things, direct and/or control the hiring and firing of personnel, contracting for the sale of goods on behalf of the applicant, and making policy decisions on behalf of the applicant.

If an owner is married, the spouse does not have to go through the intense background checking process or get fingerprinted so long as he or she is not an owner in or controlling the applicant. Either way though, the spouse must be disclosed to the state.

The rules also require applicants submit to the state the first and last name of a primary contact person for the application and the organizational structure of the applicant. Applicants must also submit a copy of their business formation documents. The rules nowhere prohibit out-of-state companies from applying for licenses so long as they are registered to do business in the State of California. All owners must be disclosed to the state along with their stated ownership interest in the applicant and they also must disclose if they (or their spouse) have a “financial interest” in any other licensee applicant, which includes any “investment in a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.”

For retailers, distributors, transporters, and cultivators, owners must also supply a detailed description of any convictions, excepting juvenile adjudications and traffic infractions. Owners of retailers, distributors, and transporters need not disclose traffic infractions under $300 “that did not involve alcohol, dangerous drugs, or controlled substances.” Owners of manufacturing businesses must disclose all convictions substantially related to operating a manufacturing facility in addition to a specific list of other convictions that can be found at Section 40128(3)(A) of the manufacturing rules. Depending on license type, owners may or must also provide a statement of rehabilitation for each conviction.

Retailers, distributors and transporters will face the most financial scrutiny as the state will require that they submit the following:

  1. A list of funds belonging to the commercial cannabis business held in savings, checking, or other accounts maintained by a financial institution.
  2. A list of investments made into the commercial cannabis business; and
  3. A list of all gifts of any kind given to the applicant for its use in conducting commercial cannabis activity.

Notably, none of the rules for any license type contain any residency requirements on ownership, financing, or investment. These licenses will not be transferable and any change of ownership structure will require either a new license application or at least notification to the regulating agency before it can happen.

The rules also mandate that applicants provide a premises diagram along with other substantive information about their operations, including security layouts and plans, surveillance standards, standard operating procedures, and quality assurance controls and practices. All applicants must also submit proof of their right to their real property location that demonstrates they can use it for their specific license type. Every applicant that employs more than 20 employees must also provide a copy of its labor peace agreement to the state. And, though Governor Brown’s technical fix bill hasn’t passed yet, all license applicants must demonstrate either prior compliance with or the capability of compliance with local law before they can receive a California state license.

Priority status” has also finally been defined across the license categories. Generally, the MCRSA states that “In 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.” All of license types must show their ownership or premises are currently the same as they were by January 1, 2016 and also that they are in “good standing.” Proof of “good standing” is generally met by providing the state “a document issued or signed by the local jurisdiction that contains: the name of the applicant; the address of premises to be licensed; the name of the office that issued the local license, permit, or other authorization; the name, contact information, and signature of the individual authorized to sign on behalf of the local jurisdiction; and a statement to this effect: The above-named party has been issued a license, permit, or other authorization from this jurisdiction to conduct commercial cannabis activity. The above-named party is currently in operation and is operating in good standing in this jurisdiction.” And in order to prove the date on which commercial cannabis activity began before January 1, 2016, all priority license applicants have to show their dated articles of incorporation, certificate of stock, articles of organization, certificate of limited partnership,  statement of partnership authority, tax form(s), local license, permit, or other written authorization, collective or cooperative membership agreement, receipts, or any other business record.

Overall, these rules are a pretty thorough first shot out of the gate for regulating commercial cannabis activity in California. Nonetheless, these are draft rules and that means what you are seeing now will no doubt be different from what comes out in their final version. The three California agencies tasked with these regulations will be holding public hearings in June to get feedback on these rules, so, if you are in the process of mapping out the future of your California cannabis business, you should keep an eye on these initial rules and their evolution so you can plan accordingly.

California LegalizesAs most of you know by now, California voters yesterday passed Proposition 64, legalizing recreational cannabis in the state. As a California cannabis lawyer based in San Francisco, I could not be happier and I want to extend my heartfelt congratulations to my state for finally saying yes to a comprehensive recreational cannabis program that should provide more and better access to cannabis for adults in California. I also believe this vote will be the tipping point that will set in play the forces that will relatively soon lead to nationwide legalization.

Nice going California!

Under the ballot measure, the California state agencies responsible for issuing licenses have until January 1, 2018 to create regulations for the nineteen different license types available for cultivation, manufacturers, testing, retailers, distributors, and microbusinesses. Under California’s Constitution, the ballot measure takes effect “the day after the election unless the measure specifies otherwise,” which means as of today Prop 64 is up and running.

Leading up to this vote, I and the other California cannabis business lawyers in my firm have been getting a slew of phone calls and emails from people asking what they can do now to get ready for state licensing applications in the future. Given the timeline above, my response was and is, “a lot actually.” I tell them that they can and should be doing the following, starting now:

  • Read Proposition 64 and then read it again. The Proposition is everything at this point and it’s imperative all prospective California cannabis operators read and thoroughly understand it because it provides the baselines for what’s going to be allowed and not allowed in the future.
  • Figure out where you might want to operate and learn about the local government there. The initiative specifically states that local jurisdictions retain the authority to adopt and enforce local ordinances to regulate cannabis businesses, including banning one or more business types from operating in their jurisdiction. Several California cities and counties already have bans in place and are expected to remain opposed to both recreational cannabis businesses under Prop 64 and medical cannabis businesses under the Medical Cannabis Regulation and Safety Act. Still, others have been preparing for changing state marijuana laws by enacting municipal zoning and permitting laws. For more on local cannabis ordinances, check out our California Cannabis Countdown series, which most recently featured the City of Lynwood. Instead of spending dollars and time planning for a marijuana business in a California city that will never allow one, you should instead get a handle on friendly versus non-friendly local governments, especially since the state will ask local jurisdictions to identify potential license applicants. As for those local governments without a clear idea on what to do about cannabis, this is your chance to step up and help educate the local authorities about what their local industry should look like. Our cannabis lawyers have done this in countless cities and counties in multiple states and believe me when I tell you that this can profoundly impact which way a city or county will go on cannabis commerce. I cannot stress enough the importance of your understanding the local situation where you will be locating.
  • Review the California corporate structures available and figure out now which makes sense for you. Applicants under Prop 64 include individuals, corporations, limited liability companies, joint ventures, and several other entity types and structures, including publicly traded companies and nonprofit entities. Since most cannabis businesses currently operating in California are formed as nonprofit collectives, these businesses will have to decide whether they want to convert to a for-profit entity or form a completely new entity. This means you should learn about the various corporate structures available to you, how they operate, and what you’ll need when you’re ready to file for your entity. Check out California’s AUMA: What You Need to Know NOW to Have a Recreational Marijuana Business Later.
  • Start figuring out your budget and pace yourself. In anticipation of a fee-laden, probably very expensive application process to obtain a California cannabis license, you need to start thinking now about your budget and from where you are going to get your funding. In all of the states in which our cannabis business lawyers have operated, one thing always holds true: those with secure funding before the application process starts have always had a huge advantage in competing for a cannabis business license over those still patching together their funding when the application window opens. You should plan for more than just start-up costs such as inventory, employees, operational costs, etc. You should also have a good idea of the funding you will need for the application process itself, which will require legal oversight, expert advisory input, contracting with architects for floor plans, and all sorts of other expert assistance. And again, speaking from experience, those with the best and most experienced team in place are the ones that get the licenses. And speaking just for lawyers, the best lawyers will charge a lot but not take on many clients. All of this means that you must budget accordingly and pace yourself. We still have over a year before California agencies are required to issue state licenses, and during that time a lot could change through the rule making process. Get your budget in sufficient shape to weather these inevitable changes.
  • Choose your partners wisely. Consultants and so-called cannabis experts are a dime a dozen. Take your time in choosing who you will be using to help you navigate what is sure to be a complicated application process. Ask lots of questions, especially about whether they will require you to give them equity in your company and whether their relationship with you will be exclusive. For more on why this choice can be so important, check out Buyer Beware: Pot Colleges and Canna Consultants.
  • Choose your legal counsel wisely. Lawyers claiming to be marijuana business attorneys are also a dime a dozen and you need to proceed with caution in choosing your legal counsel as well. Make sure you choose a law firm with extensive experience in navigating robustly regulated application processes, the more states the better. Make sure your law firm also has corporate lawyers experienced in forming cannabis businesses and in dealing with state cannabis laws and regulations. Make sure to get clear on whether your law firm will be representing just you in seeking a particular license, or ten of your potential competitors as well. Make sure your law firm also has experience with commercial leaseholds for the cannabis industry. For why this matters, read Marijuana Commercial Leases: This Industry Is Different, You Know. And, given the wild west nature of this industry, no matter how regulated it is by a given state, make double-sure your attorney is an ethical one. And to put it bluntly, ethical lawyers do not take equity in cannabis businesses; they just don’t.
  • Don’t forget about federal illegality and get comfortable now with what that means. Those of us with years of experience in the state-regulated marijuana industry know all too well how the federal illegality of marijuana makes day to day business difficult and you need to start educating yourself on this as well. It’s not too early for you to start figuring out how you will deal with the difficulties of opening a bank account due to federal anti-money laundering laws or protecting your trade name and your brands without being able to register trademarks with the USPTO. To make IP matters worse for you California does not even allow for state registration of cannabis trademarks. It also makes sense to start navigating how you can best mitigate against federal income tax laws that prohibit all normal business deductions under IRC 280E, and add to that new California cannabis taxes under Prop 64 and local initiatives and the fact that bankruptcy isn’t a likely option in the event of failure. And, finally, how will you advertise your new cannabis business when Google and most major social media platforms will not allow you to do so, and California’s Prop 64 creates new limits on marijuana advertising?

California has legalized recreational cannabis. This means now is the time to get going on staking your claim to a piece of this industry.

Florida legalizes cannabisAs most of you know by now, Florida voters yesterday passed the “Use of Marijuana for Debilitating Medical Conditions” ballot measure commonly known as Amendment 2. As a Florida-licensed attorney, I want to give a big congrats to my home state for finally saying yes to comprehensive medical marijuana program that should (hopefully) expand the monopoly on MMJ currently held by the Charlotte’s Web nurseries and provide more and better access to a variety medical cannabis for patients.

Nice going Ya’ll.

Under the ballot measure, the Department of Health has no more than six months from the law’s effective date to create regulations for registering Medical Marijuana Treatment Centers (MMTCs). Under Florida’s Constitution, the ballot measure should take effect “on the first Tuesday after the first Monday in January following the election unless otherwise specified by the amendment.” Amendment 2 has no specific effective dates for its various provisions, so this should mean we will be seeing a complete set of MMTC rules by June 2017 (assuming there are no legal challenges to these rules, but it’s Florida so there will be). An overview of the initial Department of Health Charlotte’s Web rules can be found here.

Leading up to this vote, Floridians have been calling our cannabis lawyers asking what they can do now to get ready for Department of Health MMTC registration in the future. Given the timeline above, my response was and is, “a lot actually.” I tell them that they can and should be doing the following, starting now:

  • Read the initiative and then read it again. The initiative is everything at this point and it’s imperative all prospective Florida MMJ operators read and thoroughly understand it because it provides the baselines for what’s going to be allowed for patients, physicians, and operators.
  • Figure out where you might want to operate and learn about the local government there.  The initiative is silent regarding whether local governments will be able to opt of the new law should it pass, which, in most states, has meant local governments are free to ban if they so wish. Some Florida cities have already prepared themselves for changing state marijuana laws by enacting municipal zoning and permitting laws. Other Florida cities and counties are (and will remain) opposed to MMJ businesses. Instead of spending dollars and time planning for a marijuana business in a Florida city that will never allow one, you should instead get a handle on friendly versus non-friendly local governments. As for those local governments without a clear idea on what to do about cannabis, this is your chance to step up and help educate the local authorities about what their local industry should look like. Our cannabis lawyers have done this in countless cities and counties in multiple states and believe me when I tell you that this can profoundly impact which way a city or county will go on cannabis commerce. I cannot stress enough the importance of your understanding the local situation where you will be locating.
  • Study other state regulatory models, including the super strict ones. You can learn a lot about what to expect from Florida by looking at other states’ regulatory models. Look at states like New York, Illinois, Nevada, and Minnesota, all of which have fairly limited and heavily controlled MMJ regimes. If Florida’s 2014 Charlotte’s Web law tells us anything (and it does), Florida’s new medical cannabis regime is going to be a lot more like these states than, let’s say, California, where (until the implementation of the MCRSA) the “cannabis friendly doctor is always in.” Our cannabis licensing lawyers area constantly comparing laws in the older states to get a better feel for what is likely to go down in the newer states. If State A interprets X provision a certain way, there is a good chance State B will do the same.
  • Review the Florida corporate structures available and figure out now which makes sense for you. MMTCs will be the “entities” that cultivate, process, and dispense cannabis to qualified patients. However, since MMTCs aren’t defined in the initiative beyond the term “entities,” that means we could be looking at either non-profits or for-profit entities. This means you should learn about the various corporate structures available to you, how they operate, and what you’ll need when you’re ready to file for your entity.
  • Start figuring out your budget and pace yourself. In anticipation of a fee-laden, probably very expensive application process for registering an MMTC, you need to start thinking now about your budget and from where you are going to get your funding. In all of the states in which our cannabis business lawyers have operated, one thing always holds true: those with secure funding before the application process starts have always had a huge advantage in competing for a cannabis business license over those still patching together their funding when the application window opens. You should plan for more than just start-up costs such as inventory, employees, operational costs, etc. You should also have a good idea of the funding you will need for the application process itself, which will require legal oversight, expert advisory input, contracting with architects for floor plans, and all sorts of other expert assistance. And again, speaking from experience, those with the best and most experienced team in place are the ones that get the licenses. And speaking just for lawyers, the best lawyers will charge a lot but not take on many clients. All of this means that you must budget accordingly and pace yourself. Just because the initiative mandates Florida’s Department of Health come up with all of the MMJ rules within six months of the effective date of the law doesn’t mean it will actually issue licenses or register MMTCs by that time. It’s Florida, people, and, that means there will likely be a whole host of lawsuits to delay this process. Get your budget in sufficient shape to weather these inevitable delays.
  • Choose your partners wisely. Consultants and so-called cannabis experts are a dime a dozen. Take your time in choosing who you will be using to help you navigate what is sure to be a complicated application process. Ask lots of questions, especially about whether they will require you to give them equity in your company and whether their relationship with you will be exclusive. For more on why this choice can be so important, check out Buyer Beware: Pot Colleges and Canna Consultants.
  • Choose your legal counsel wisely. Lawyers claiming to be marijuana business attorneys are also a dime a dozen and you need to proceed with caution in choosing your legal counsel as well. Make sure you choose a law firm with extensive experience in navigating robustly regulated application processes, the more states the better. Make sure your law firm also has corporate lawyers experienced in forming cannabis businesses and in dealing with state cannabis laws and regulations. Make sure to get clear on whether your law firm will be representing just you in seeking a particular license, or ten of your potential competitors as well. Make sure your law firm also has experience with commercial leaseholds for the cannabis industry. For why this matters, read Marijuana Commercial Leases: This Industry Is Different, You Know. And, given the wild west nature of this industry, no matter how regulated it is by a given state, make double-sure your attorney is an ethical one. And to put it bluntly, ethical lawyers do not take equity in cannabis businesses; they just don’t.
  • Don’t forget about federal illegality and get comfortable now with what that means. Those of us with years of experience in the state-regulated marijuana industry know all too well how the federal illegality of marijuana makes day to day business difficult and you need to start educating yourself on this as well. It’s not too early for you to start figuring out how you will deal with the difficulties of opening a bank account due to federal anti-money laundering laws or protecting your trade name and your brands without being able to register trademarks with the USPTO. It also makes sense to start navigating how you can best mitigate against federal income tax laws that prohibit all normal business deductions  under IRC 280e, and that bankruptcy isn’t a likely option in the event of failure. And, finally, how will you advertise your new cannabis business when Google and most major social media platforms will not allow you to do so?

Florida has legalized. Now get cracking.

The federal government continues to surprise us with its varied treatment of marijuana: this time  by federally recognizing marijuana workers’ rights. Specifically, the National Labor Relations Board (for the second time) is preparing to hear marijuana workers’ allegations against their New Jersey medical marijuana dispensary employer for retaliation, union-busting, and unfair working conditions. That hearing is currently set for this March.

If anything, the NLRB’s willingness to hear such cases tells us that the Feds acknowledge the legitimacy of the ever-developing and expanding marijuana industry. It also tells us that all marijuana employers need to be very careful regarding their employment policies and workplace procedures and be mindful of both state and federal employment laws and regulations.

But first, a very brief history and legal lesson surrounding current employment and labor laws.

The Taft-Hartley Act and the Landrum-Griffin Act, passed in 1947 and 1959, guarantee the rights of private employees to form and join unions to bargain collectively with employers for pay and for workplace rights and conditions. Employers are barred from joining these unions, they cannot exude any dominance over these unions, and employers certainly cannot engage in illegal union busting to prevent workers from banding together to collectively bargain. The National Labor Relations Act (NLRA) provides a legally protected right for private sector employees to strike for better wages, benefits, or working conditions, without threat of termination. The NLRB oversees investigating and remedying unfair labor practices, including union-busting. What’s union-busting? It’s a “range of activities undertaken to disrupt or prevent the formation of trade unions.”

This is not the first time that the NLRB has gotten involved in marijuana employer to employee relations. Back in 2013, for the first time ever, the NLRB was prepared to hear allegations of union-busting and unfair working conditions from workers of a Maine medical marijuana dispensary. When the NLRB agreed to hear the case brought by United Food and Commercial Workers International Union (which maintains a Medical Cannabis and Hemp Division) against Wellness Connection of Maine, the industry as a whole was left scratching its head regarding the decision since the Controlled Substances Act renders all marijuana businesses illegal under federal law. How can employees working at an “illegal enterprise,” seek redress under federal labor laws that technically should not apply? Do marijuana workers even qualify as “employees” under the NLRA?

These questions went unanswered for several months when the Maine case settled before the NLRB hearing. But in August 2014, the NLRB’s Office of General Counsel/Division of Advice released a memorandum detailing its recommendation to the regional NLRB to take up the Wellness Connection case even though marijuana is federally illegal. This memorandum also explained why marijuana workers are “employees” entitled to NLRA protections.

That NLRB memo provides that the NLRB need not decline exercising jurisdiction over medical marijuana due to the following:

  • The NLRB may exercise jurisdiction over any employer doing business in the country except those specifically made exempt by Congress.
  • The NLRB has authority to regulate the marijuana industry even where production and consumption are intended to be intrastate.
  • A medical marijuana industry-based labor dispute could have a substantial effect on interstate commerce because the medical marijuana industry is a large and growing interstate industry. Wellness Connection purchased enough out-of-state supplies to meet the NLRB’s non-retail jurisdictional standard and had enough revenue to meet the Board’s retail standard. Also labor disputes in the medical marijuana industry could interfere with the federal government’s regulation of the intrastate marijuana market.

The NLRA does not include protections for “agricultural laborers” but this memorandum made clear that marijuana workers (specifically, “processing assistants”) are statutory employees since they are more like manufacturers because they transform the cannabis products “from their raw and natural state” than they are like farm laborers.

It bears noting that this NLRB memo is neither law nor is it binding on the NLRB in any way. But it is a strongly persuasive guideline regarding the NLRB’s priorities when it comes to regulating medical marijuana employers. And though this memo is written in the context of medical marijuana, there is nothing to stop the NLRB from applying the same analyses to adult use (recreational) marijuana businesses. Consequently, marijuana employers need to take into account their employees’ now federally recognized rights to join unions, and they should institute and enforce workplace policies and procedures pass muster under the NLRA. Cannabis companies that ignore the NLRA are putting themselves at big risk of costly litigation and federal penalties.

 

marijuana california employment union
Labor Peace Agreements can save you from strikes.

We recently hosted a webinar discussing cannabis disputes and litigation. Over 1,000 people signed up to learn about the different types of litigation that can occur, how to avoid disputes, and, if necessary, how to prevail when litigation is unavoidable. During the presentation, I covered employment litigation and received quite a few questions. Several people were curious about labor peace agreements in particular, which are an important topic for the California cannabis industry. Because we ran short of time during the webinar, however, I will address those agreements here.

California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) requires adult use cannabis and medicinal cannabis licensees with 20 or more employees to provide a statement that the applicant will enter into, or demonstrate that it has already entered into, a labor peace agreement. In other words, once your business reaches a certain size, you will not be able to operate in California without a labor peace agreement. But, what is a labor peace agreement?

In short, a labor peace agreement is an agreement your cannabis business enters into with a union that represents cannabis workers. The agreement includes obligations for both the union and the cannabis employer. This types of agreements are highly specialized.

As a preliminary matter, the cannabis employer must agree to remain neutral regarding unions and their representation of employees. This means the employer cannot make any statement opposing or advocating for unionization and cannot retaliate against any employee for discussing joining a union or disparaging unions. Employers are responsible for ensuring all managers and supervisors are aware of the neutral requirements of labor peace agreements.

Usually, labor peace agreements include a provision that requires employers to provide a list of the name and contact information of all non-supervisory employees. Employers typically are required to provide these lists at the request of the union, although most labor peace agreements include a limit on the frequency of the requests the union may make (i.e., no more than once a week). A labor peace agreement also grants the union the right to contact the cannabis business employees. However, this right must not disrupt normal business and productivity activities.

Unions also have obligations under Labor Peace Agreements. The union is required to be neutral in its communications with employees. The union cannot disparage the company and cannot paint the cannabis employer in a bad light to employees or to the public. The union must also agree to not disrupt or interfere with the employer’s operations or businesses, and cannot encourage or engage in a strike, slowdown, or picketing of the company.

In addition for individual obligations for both employer and the union, labor peace agreements also typically contain provisions related to collective bargaining if the cannabis employees decide to unionize. The collective bargaining agreement requires the parties to bargain in good faith, and it usually includes a provision about how to resolve an impasse if the parties cannot reach an agreement.

Labor peace agreements may seem intimidating or burdensome but they are nothing more than an agreement to work with your local union and allow the union access to your cannabis employees. In return, the union agrees to not disrupt your business practices in contacting employees, and agrees to not strike or to cause a labor strike.

Ultimately, when looking to enter into a labor peace agreement, your foremost concern should be entering into the agreement with a union that is easy to work with. The union should be open to your ideas and open to negotiations in the labor peace agreement. In the end, you will have options over what union you choose to enter the agreement with, but you will always need a labor peace agreement if your California cannabis business has more than 20 employees.

California’s Bureau of Cannabis Control (along with its Departments of Public Health and Food and Agriculture) dropped their much-anticipated emergency rules this afternoon (see here, here, and here) to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act in California. The agencies kept a lot of what we saw from the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA). (see herehere, here, and here), but there are also some new, notable additions and some interesting gap-fillers that now give us the foundation for operational standards across cannabis license types.

Though we can’t cover every single change or topic from these rules in one post (and because we’ll be covering the license types and application details in other posts in the coming days and weeks and at our SoCal Cannabis Investment Forum), I will instead focus on the following highlights of the emergency rules:

  1. We now have a revised definition of “canopy,” which is “the designated area(s) at a licensed premise that will contain mature plants at any point in time.” In addition, canopy shall be calculated in square feet and measured using clearly identifiable boundaries of all area(s) that will contain mature plants at any point in time, including all of the space(s) within the boundaries. Canopy may be noncontiguous, but each unique area included in the total canopy calculation shall be separated by an identifiable boundary which includes interior walls, shelves, greenhouse walls, hoop house walls, garden benches, hedgerows, fencing, garden beds, or garden plots; and if mature plants are being cultivated using a shelving system, the surface area of each level shall be included in the total canopy calculation.
  2. “Nonvolatile solvent” has been further defined to mean “any solvent used in the extraction process that is not a volatile solvent,” which “includes carbon dioxide (CO2) used for extraction and ethanol used for extraction or post-extraction processing.”
  3. Temporary licensing has now been fully detailed to include online applications, the personal information for each owner that must be disclosed, contact information for the applicant’s designated point of contact, physical address of the premises, evidence that the applicant has the legal right to occupy the premises for the desired license type, proof of local approval, and the fact that the temporary license (which is good for 120 days) may be renewed and extended by the state for additional 90 day periods so long as a “complete application for an annual license” has been submitted to the state. No temporary license will become effective until January 1, 2018.
  4. For the full blown “annual license,” the application requirements are pretty much the same as under the MCRSA rules except that you must disclose whether you’re applying for an “M License” or an “A License” and you have to list out all of your financing and financiers which include: “A list of funds belonging to the applicant held  in savings, checking, or other accounts maintained by a financial institution, a list of loans (with all attendant loan information and documentation, including the list of security provided for the loan), all investment funds and names of the investors, a list of all gifts, and a list with certain identifying information of anyone with a “financial interest” in the business. “Financial interest” means “an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.” The only exempt “financial interests” are bank or financial institution lenders, individuals whose only financial interest is through an interest in a diversified mutual fund, blind trust, or “similar instrument”, and those shareholders in a publicly traded company who hold less than 5% of the total shares.
  5. As part of your licensing application, you will still need to submit a premises diagram drawn to scale along with all of your security procedures and inventory procedures (and pretty much all corresponding operational SOPs) A $5,000 bond is still required for all licensees (as well as mandatory insurance) and all owners must submit their felony conviction criminal histories as specifically enumerated in the regulations, as well as rehabilitation statements.
  6. Several new licenses have been created (and/or brought back from the dead from MCRSA): the cannabis event organizer license (to enable people to take advantage of the temporary cannabis event license), the distribution transporter only license (which allows this licensee to only move product between licensees, but not to retailers unless what’s being transported are  immature plants or seeds from a Type 4 nursery), the processor license (a cultivation site that conducts only trimming, drying, curing, grading, packaging, or labeling of cannabis and non-manufactured cannabis products), the Type N and P manufacturing licenses are back, and there’s now a Type 9 delivery only Non-Storefront Retailer license.
  7. We also now have the non-refundable licensing fee schedules and though they vary depending on the license type they mostly are nominal, though some increase with increased gross receipts, and small and medium-sized growers will have to pay pretty robust fees.
  8. If you want to make changes after-the-fact to your premises or to your ownership structure, you first must secure state approval to do so.
  9. All growers are again limited to one Type 3 medium cultivation license each, whether it’s an M License or an A License.
  10. A retailer can sell non-cannabis goods on its premises so long as their city or county allows it (this excludes alcohol, tobacco, and tobacco products). Retailers can also sell non-flowering, immature plants (no more than six in a single day to a single customer). M-licensed retailers and micro-businesses can also give cannabis away free of charge to qualified patients or to their caregivers.
  11. Notably, until July 1, 2018, licensees may conduct commercial cannabis activities with any other licensee, regardless of the A or M designation of the license.
  12. The renewable energy requirements for cultivators have been revamped hopefully to the satisfaction of cannabis growers.
  13. Again, the licenses are NOT transferable, so we’re looking at folks only being able to purchase the businesses that hold them.
  14. Distributors will be able to re-package and re-label flower, but not infused cannabis products unless they hold a manufacturing license. Distributors also cannot store any non-cannabis goods at their premises. The state has laid out what must take place during a distributor’s quality assurance review and the chain of custody protocol with third party labs for testing.
  15. We have a detailed list of all permissible extraction types, including that any CO2 extractions must be done within a closed loop system.
  16. The prohibited products list is pretty much the same as it was under the  MCRSA rules (so, no nicotine or caffeine infused cannabis products).
  17. In regards to “premises,” the Bureau’s regulations mandate that a licensee may have up to two licenses at a given premises of the same license type so long as they’re owned by the same company and one is an A-License and  the other is an  M-License.
  18. In addition to other relatively onerous advertising requirements, licensees must “Prior to any advertising or marketing from the licensee involving direct, individualized communication or dialog, . . .  use age affirmation to verify that the recipient is 21 years of age or older.” Direct, individualized communication or dialog, may occur through any form of communication including in person, telephone, physical mail, or electronic. A method of age verification is not necessary for a communication if the licensee can verify that “the licensee has previously had the intended recipient undergo a method of age affirmation and the licensee is reasonably certain that the communication will only be received by the intended recipient.”
  19. Retailers and micro-businesses are now required to hire third party security to protect and watch their premises.
  20. To hold a micro-business license, a licensee must engage in at least three of the following commercial cannabis activities: cultivation, manufacturing, distribution, and retail sale. There are also now a slew of regulations surrounding each activity a micro-business can undertake.
  21. Live entertainment is now allowed at a licensed premises so long as it follows the bevy of regulations regarding content and presentation.

Overall, we have a close-ish copy of the withdrawn MCRSA rules that will lead us into 2018. Be sure to read the rules again and again before pursuing your California cannabis license. Applicants will have their work cut out for them on both the state and local levels.

 

California cannabis rules for deliveryLast week, California’s Bureau of Cannabis Control (“BCC“) finally announced the withdrawal of the MCRSA retailer, transporter, and distributor rules in light of the passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94) this past June. With that announcement also came some insight from the BCC on what we can expect in the emergency MAUCRSA rules that will drop this November. Specifically, the BCC posted on the California Cannabis Portal website that:

The three cannabis licensing authorities are in the process of drafting emergency regulations based on the new law for the commercial medicinal and adult-use cannabis industries. The licensing authorities will consider the public comments received on the draft medical cannabis regulations and use the feedback to inform the draft emergency regulations. The emergency regulations are expected to be published in November 2017.

And with that website post, the BCC also included a “high level” stakeholder-focused summary telling the public what it learned from the public comments to the MCRSA rules and how it will address those comments in the forthcoming retailer, microbusiness and distributor MAUCRSA rules.

Ultimately, it appears that the majority of public comments will be squared away automatically by MAUCRSA. For example, one summarized public comment was that specialty licenses for “delivery only” or “special events” should be created under the MCRSA (Medical Cannabis and Recreation Act). MAUCRSA takes care of both of these by allowing delivery for only retail and by providing “a state temporary event license at a county fair or district agricultural association event in local jurisdictions that authorize such events.”

There were though some summarized public comments where the BCC’s responses tell us what to expect in the future:

  1. One summarized public comment was that “The regulations should specify which party in the supply chain of transactions (manufacturer, transporter, or dispensary) bears the risk of loss and how much liability should attach.” And the BCC’s response was that liability pretty much has to be negotiated between licensees, which is 100% the right answer. We’ve blogged multiple times about the dangers of product liability (and Prop. 65 violations) in the industry and how to prepare for and shift that risk in your goods and services contracts.
  2. There were several comments about changing the definition of “owner,” lowering the 600-foot buffer requirement, and removing the mandatory labor peace agreement if you have 20 or more employees, dropping the minimum bond requirement, and other MAUCRSA-mandated operational standards, but the BCC made clear that its hands are tied because they must follow SB 94 as written.
  3. The public requested the BCC convene a hotline for assistance with applications, and the BCC replied that “The Bureau will have a call center available to help answer applicant’s questions, as well as materials on its website with information to assist applicants, licensees, and the public.”
  4. Another comment was that “The regulations should provide applicants a streamlined process for converting a business from a not-for-profit business to a for-profit business,” and the BCC punted in its response by stating that MAUCRSA doesn’t require any particular business structure for operation (again, the old collective model is not mandatory for compliance with MAUCRSA, so, if your local jurisdiction permits it, you should begin to think about corporate conversion as application time ramps up).
  5. Colocation of multiple licenses at the same “premises” is still up in the air and the BCC will address it in the emergency rules. Helpfully, AB 133 removed the “separate and distinct” requirement for multiple licenses and licenses of different types.
  6. Regarding comments about continued operations to ensure no disruption of services and goods to qualified patients, the BCC’s response is that temporary licensing should serve to prevent that disconnect.
  7. The public commented that licenses should themselves be transferable and the BCC responded that “By law, each owner must meet certain requirements to hold a license, therefore, a new application is needed. The Bureau is evaluating if a notification, rather than a new application, is appropriate when changes in persons with a financial interest in the business do not include a new owner, who is required to submit fingerprints.” Given that the withdrawn MCRSA rules rendered licenses non-transferable, we’re likely to see that again in the MAUCRSA rules, which means business purchases will likely be the only way to get a hold of a license — as long as you notify the BCC beforehand and the BCC approves that ownership change request. In any event, you should be aware of California’s M & A red flags.
  8. Summarized public comment wanted the distributor license eliminated or small businesses be able to self-distribute. The BCC responded it can’t get rid of the distributor license because it’s required under MAUCRSA, but that it is considering creating another distributor license for transportation only. Not to worry folks, you can self-distribute and you don’t need to contract with a distributor anymore to make a sale to a retailer.
  9. The BCC is reviewing whether cannabis licensees will be able to engage in “other [non-cannabis] activities.” This review came from a summarized public comment that distributors should be able to store and distribute non-cannabis related products. In all other states, licensees are restricted to only commercial cannabis activity for their license type so it would be groundbreaking if California were to go against that norm by allowing California cannabis licensees to take on other lines of business.
  10. The BCC isn’t going to allow for delivery or transport of cannabis other than by enclosed motor vehicle with sufficient GPS tracking despite summarized comments that the BCC should relax restrictions to allow for bike couriers and other modes for transporting cannabis product.
  11. On delivery, public comments asked that the BCC allow delivery by third party contractors or couriers. The BCC batted back, citing to MAUCRSA, which only allows delivery by “an employee of a licensed retailer, microbusiness, or non-profit.”
  12. Summarized public comments also leaned towards asking BCC fees for licenses be set according to a sliding scale of total net revenue. In response, the BCC stated that “Business and Professions Code section 26180 requires that fees are set on a scaled basis based on the size of the business. The Bureau is examining what method is most appropriate to determine the scaled fee, including total net revenue.”

All in all, the BCC has its work cut out for it as it goes back to the drawing board on the MAUCRSA regulations. Many issues will be out of the BCC’s control because MAUCRSA requires certain unchangeable operational standards and restrictions. November will fill in many of the outstanding “don’t knows” that still remain for California cannabis rule-making, so stay tuned.

California cannabis distribution lawUnder California’s now-repealed Medical Cannabis Regulation and Safety Act (“MCRSA”), would-be distributors would have had a field day (which became the subject of great debate industry wide). Under the MCRSA, California’s cannabis cultivators and manufacturers would have had to sell their products to licensed distributors who would then sell those products to licensed retailers. MCRSA distributors had to be separately owned from other licensees and the MCRSA draft rules mandated that distributors take title to all product. All of that has changed with passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (a/k/a MAUCRSA, SB 94, or the Governor’s Budget Trailer Bill), which combines medical and adult use cannabis laws and rules, repeals the MCRSA, and forces withdrawal of the MCRSA draft rules.

Under MAUCRSA, cannabis licensees can vertically integrate and even act as their own distributor. This ultimately means California cannabis distributors won’t really act as distributors as we know them from the alcohol model. Instead, cannabis distributors will mostly help transport product and be the arbiters of product quality assurance.

Under the common three-tier system of alcohol distribution in the U.S., you have three main actors: importers or producers, distributors, and retailers. Essentially, producers (brewers, winemakers, importers, etc.) sell their products only to wholesale distributors who then sell to retailers (bars, liquor stores, grocery stores, etc.). Only retailers can sell to consumers. The alcohol distributor is crucial to the distribution chain and therefore immensely powerful. The distributor is solely responsible for setting up the relationship between retailers and producers and it does this by negotiating prices and providing brand selection between the two. Why have this three tier model? The main reasons for doing this in the alcohol industry were to limit consumer overconsumption with high taxes (you have more taxable events by having a middle man) and by giving profit access to more players.

California’s version of a cannabis distributor under MAUCRSA seems to have all of the obligations of an alcohol distributor but not really any of the benefits of exclusivity or control between licensees. MAUCRSA defines “distribution” as the procurement, sale, and transport of cannabis and cannabis products between licensees. As of now, distributors are the only licensees that can transport inventory between licensees and the only licensees that must make sure third-party testing is completed and that all product packaging and labeling meet state requirements. Interestingly though, cannabis licensees are not required to sell their cannabis or cannabis products to a distributor and may directly sell to any licensee authorized to sell cannabis and cannabis products to purchasers. Despite this, all cultivation and manufacturing licensees must go through a distributor for testing and packaging and labeling quality assurance and distributors can charge fees for these services. Distributors will also be the ones to collect and remit taxes on behalf of cultivators and retailers and they must secure a Board of Equalization permit (in addition to state licensing) to do so.

Under the MCRSA, it seemed existing alcohol distributors and those acting like distributors under Prop. 215’s medical cannabis collective model were well-positioned to become power players in California’s cannabis industry. But now with passage of the MAUCRSA, it’s likely California will issue a slew of cannabis distributor licenses to actors of all sizes and these distributers will become one-stop-shops for mandatory quality assurance and little more. If California wants to avoid the same sort of distribution problems that befell Nevada in the early days of its adult use sales, it will need to issue a large number of distributor licenses. There may end up being some market for a distribution only model (in the alcohol sense) for distributors that can help their cultivator and manufacturer customers expand their markets and gain market share or that can help retailers secure top quality products and brands at good prices. But now that it will be so easy for cultivators, manufacturers, and retailers to get around distributors to forge their own relationships with each other, the role of cannabis distributors in California is far from the alcohol model.

To help you better understand what is going on with California cannabis and what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on Tuesday August 8, 2017, from 12 pm to 1 pm PT. From our Los Angeles office, I will be moderating two of our San Francisco-based attorneys (Alison Malsbury and Habib Bentelab) in a discussion on the major changes between the MCRSA and the MAUCRSA, including on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rulemaking continues through the remainder of the year. We will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us.

Bay Area Cannabis LawyersWith California’s recent passage of its Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a the Governor’s Trailer Bill, a/k/a SB 94), California has combined government oversight of its medical and adult use cannabis industries into one master regulatory regime. MAUCRSA is almost guaranteed to make California’s cannabis industry more business friendly and less bureaucratic and protectionist, but questions remain about how the California Bureau of Cannabis Control (and its sister agencies) will fill in the gaps posed by the MAUCRSA legislation. Though we have 200 plus pages of proposed regulation under the now repealed MCRSA, those rules will need to go back to the drawing board to accommodate MAUCRSA’s changes stemming from Proposition 64 (one of San Francisco attorneys attended a state stakeholder meeting this past Monday, and that was pretty much confirmed). The big question is whether California will significantly revise the rules already proposed under MCRSA.

The short answer is nobody really knows, but there’s a good chance that many of the operational standards from MCRSA will remain.

We say this because regulators knew it was pretty much inevitable MAUCRSA would pass. We also say this because California’s regulators are on a tight timeline to begin accepting applications for licenses in January 2018 and slashing and burning MCRSA proposed regulations is not a good way to finish by that date. We expect the proposed MCRSA rules will not change much regarding the application process, except where necessary to make them better line up with MAUCRSA.

In turn, here are the top ten issues (among many others) we see with which California regulators will have to grapple when revising MAUCRSA rules:

  1. “Premises” and Multi-Tenant Operations. MAUCRSA defines premises as “the designated structure or structures and land specified in the application owned, leased, or otherwise held under the control of the applicant or licensee where the commercial cannabis activity will be or is being conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.” MAUCRSA’s definition of premises is pretty much the same as in the proposed MCRSA rules, but it is not clear whether MAUCRSA rules will permit multi-tenant operations on the same parcel of land. Proposed MCRSA cultivator rules explicitly allowed for multi-tenant cultivation, but the MCRSA retail and manufacturing rules were silent on it. We’ll now have to see if the revised draft MAUCRSA rules will continue to permit multi-tenant operations.
  2. Local Approval Process. Under MCRSA, proof of a “local permit, license, or authorization” was required before you could receive your California state operational license. Though this has changed under the MAUCRSA, you still must be in compliance with local laws to secure your California state cannabis license. Among other things, the state of California will notify relevant local governments when a license applicant applies from within their borders. California’s cities and counties will then have 60 days to tell the state whether the applicant is in compliance with local laws. If the applicant is not in compliance, the state will reject the license application. If the local government stays silent, the state will presume the license applicant is in compliance with local laws, but will still not renew the license if the local government at any time notifies the state that the licensee is out of compliance with local laws. What we don’t know is how active local governments will be in communicating with the state about local law compliance. We expect litigation will emerge against local governments that “allow” cannabis operators to proceed via their silence, but then later object to those operations because of changes in local laws.
  3. Prohibited Products and Potency. The California Department of Health’s proposed manufacturing rules had a pretty aggressive list of prohibited products and everyone wants to know whether that list will change. Under MCRSA, California was not going to allow cannabis-infused alcohol, caffeine, or nicotine products and no cannabis product made of “potentially hazardous food.” Potentially hazardous food means any food “capable of supporting the growth of infectious or toxigenic microorganisms when held at temperatures above 41 degrees Fahrenheit.” This would mean products that must be refrigerated at less than 41 degrees and any dairy or meat products would not be allowed. MCRSA edibles also can’t contain more than 10 milligrams of THC per serving or more than one hundred 100 milligrams of THC per package of finished product. And, for non-edible manufactured cannabis, no finished package can contain more than 1000 milligrams of THC. Unfortunately, the consensus among our California cannabis attorneys is that it is unlikely MCRSA regulations will ease up on these restrictions.
  4. Advertising. Though MCRSA said nothing about cannabis business advertising other than that state agencies would generally regulate it, MAUCRSA heavily restricts it — there’s also bill in the California legislature to kill off cannabis business branded merchandise of all varieties.  What we don’t know is if regulators will further tighten advertising rules now that they have a roadmap from the state to do so. Specifically, under MAUCRSA both medical and adult use cannabis operators must:
    • Accurately and legibly identify the licensee responsible for advertising content.
    • Use a method to confirm age if involving direct, individual communication by the licensee.
    • Be truthful and appropriately substantiate their factual claims.
    • Not advertise or market cannabis in any of the following ways:
      • On billboards located on an Interstate Highway or State Highway that crosses the border of any other state;
      • In a manner intended to encourage people under 21 to consume marijuana;
      • With symbols, language, music, gestures, cartoon characters or other content known to appeal primarily to people under 21;
      • On an advertising sign within 1,000 feet of a day care center, K-12 school, playground, or youth center; and
      • Through free giveaways of marijuana or marijuana accessories as part of a business promotion.
  5. Non-Storefront Retail Delivery. Pursuant to MAUCRSA, “delivery” means the commercial transfer of cannabis or cannabis products to a customer and the retailer’s use of any technology platform it owns and controls. The MCRSA retailer rules required retailers to have brick and mortar storefronts from which to deliver cannabis product to patients. MAUCRSA on the other hand allows California cannabis retailers to “conduct sales exclusively by delivery” from a physical location that doesn’t have to be open to the public. Since the MCRSA regulations didn’t contemplate such a model, California cannabis regulators will need to craft rules regarding such operations, which will have huge ramifications for those delivery-only retail operators.
  6. Anti-Competitive Behavior. MAUCRSA zeroes in on preventing anti-competitive behavior between licensees, probably because, unlike MCRSA, MAUCRSA currently allows for near total vertical integration for almost all licensees and doesn’t yet limit the number of licenses a person can have in a given category (outside of Type 3s, see below). Specifically, MAUCRSA states that, it “shall be unlawful for any person to monopolize, or attempt to monopolize, or to combine or conspire with any person or persons, to monopolize any part of the trade or commerce related to cannabis. The Attorney General shall have the sole authority to enforce the provisions of this subdivision.” Though the Attorney General’s office will be the one to enforce here, there’s nothing to stop California’s regulating agencies from creating additional rules to prevent exclusive or long term contracting between licensees or to prevent cannabis licensees from exerting undue influence over each other. We have yet to see those rules, but they’re bound to arise as they have in other states with highly regulated cannabis regimes.
  7. State Due Diligence on “Owners.” MAUCRSA slightly changes and consolidates the definition of owner. “Owner” now means a “person with an aggregate ownership interest of 20 percent or more in the [entity] applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance; the chief executive officer of a nonprofit or other entity; a member of the board of directors of a nonprofit; and an individual who will be participating in the direction, control, or management of the person applying for a license.” MAUCRSA requires owners go through increased vetting (as opposed to those considered “non-owners”), but the consensus among our California cannabis attorneys is that the state will up the ante on background checks during the application process for those considered non-owners.
  8. Self-Distributorship. The MCRSA mandated cannabis cultivators and manufacturers go through separately owned third party distributors to get their products to market with retailers. MAUCRSA undoes this standard, for better or worse as I told L.A. Weekly, by allowing cannabis licensees to be their own distributors — with the exception of Type 5 licensees (i.e,. large scale growers), which won’t exist for the first five years of the program. The proposed MCRSA rules thoroughly covered how distributors could interact with licensees and operate. We don’t yet know whether those comprehensive regulations (like being able to take title to cannabis products and mandating separate storage facilities for inventory) will remain under MAUCRSA regulations now that almost all licensees can distribute their own products.
  9. Continuing Operations. The proposed MCRSA rules all had the following “continuing operations” standard: “All applicants that were in operation prior to January 1, 2018 . . . may continue to operate while their application is pending if a completed application is submitted to the Department no later than 5:00 p.m. Pacific Standard Time on July 2, 2018, and the continuing operations of the applicant are the same activities in which the applicant is seeking licensure.” MAUCRSA does not have this standard, which is somewhat problematic for those securing local permits, licenses, and approvals right now–though it does have a temporary licensing standard that will likely fill the gap here to make sure there is no shortage of product or access to cannabis when 2018 rolls around, but the procedures around securing those temporary licenses need to be fully created.
  10. Limitation on Type 3s and Total Plant Canopy. The MCRSA required the California Department of Food and Agriculture (“CDFA”) to limit the number of Type 3 cannabis licenses. Type 3s are mid-size grow facilities between 10,001 and 22,000 square feet of plant canopy. MAUCRSA has this same limitation requirement. Under the proposed MCRSA cultivation rules, the CDFA limited “a person … to one Medium Outdoor, or one Medium Indoor, or one Medium Mixed-Light license., and all cultivation licensee applicants to no more than 4 acres of total plant canopy statewide. It is not yet known whether the CDFA will keep these limitations in place.

To help you better understand what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on August 8, 2017 from 12 pm to 1 pm PT. I will moderate San Francisco-based Alison Malsbury and Habib Bentaleb in a discussion on the major changes between the MCRSA and MAUCRSA, including on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rule-making continues through the remainder of the year. We will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us!