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Every brand needs protection, and Alison extends her knowledge of intellectual property and corporate law to our cannabis clients, ensuring their businesses are protected.

Santa Cruz Cannabis
Will Santa Cruz lead on cannabis?

With less than three months until the end of the year and the commencement of California’s medical and adult use cannabis licensing program, most local jurisdictions are still without regulations to govern adult use commercial cannabis businesses. This has created concern throughout the industry that despite the Bureau of Cannabis Control’s (BCC) promise that it will begin issuing licenses on January 1st, few — if any — adult use commercial cannabis businesses will have secured the requisite local approvals for state licensing. Last month San Francisco, for example, introduced legislation confirming the city would not allow recreational cannabis sales by January.

San Francisco’s stance on adult use commercial cannabis activity is echoed across the state, with cities and counties waiting for state guidance before drafting, adopting and implementing their own adult use regulations. Though Proposition 64 gave local jurisdictions broad authority to adopt cannabis regulations, without draft rules from the state, cities and counties are in a tough place. It doesn’t necessarily make sense to put resources into drafting regulations when the state rules could necessitate hefty revisions.

But last week, the City of Santa Cruz recommended to its City Council amendments to the local zoning ordinance and the Local Coastal Program to regulate adult use commercial cannabis businesses. The Bay Area in particular lacks local regulation of adult use commercial cannabis businesses, so adoption of these recommendations could provide opportunity for those looking to open a recreational business.

The City’s recommendations are broken down by retail sales, manufacturing and cultivation, and delivery. Here are the highlights of the proposed regulations for each category:

Retail Sales

  • Retail uses should be limited to the same zoning districts that currently allow medical marijuana dispensaries: CC, CT, IG, and IG-Per 2.
  • There should be a 600-foot buffer between marijuana retail outlets, with the City maintaining discretion to consider smaller separations when certain findings are met;
  • Based on the MAUCRSA locational restrictions (600 feet from any K-12 school, childcare center, or youth center), the definition of “youth center” is broad and should include parks with playgrounds or those that provide youth programs, both athletic and educational. The city has provided a map indicating the locations where retail outlets would be allowed.
  • The city may limit the number of retail outlets to a maximum of five. This would include both medical and adult use retail stores. The two currently operating legal medical marijuana dispensaries in Santa Cruz may be allowed to sell recreational cannabis in addition to medical cannabis.
  • Applications should be reviewed with consideration to factors of importance to the community, including local preference, preference for women- and minority-owned businesses, and treatment of employees (living wage and benefits).
  • Licenses should be non-transferrable.
  • Onsite consumption, including smoking lounges, should not be allowed.

Manufacturing and Cultivation

  • Commercial outdoor cultivation should not be allowed within city limits.
  • Marijuana testing, manufacturing, distribution and warehousing, and indoor cultivation should be allowed in industrial districts only (IG and IG-Per 2) with approval of an Administrative Use Permit at a public hearing by the Zoning Administrator.
  • The 600-foot MAUCRSA buffer would not apply to commercial uses that are not open to the public, except for manufacturing that uses volatile solvents.
  • Indoor cultivation should be limited to a maximum of 10,000 square feet.

Delivery

  • Deliveries should be prohibited within the City from businesses located outside the City limits. Santa Cruz acknowledges the difficulty of enforcing this rule.
  • The ordinance should specifically prohibit deliveries from other than licensed retailers, microbusinesses or nonprofits.

The City Council will take up this issue this Thursday, October 19th, and we’ll be standing by to see whether the city adopts these proposed cannabis ordinance amendments.

Cannabis trademarksThe Gorilla Glue Company and GG Strains LLC, a Nevada-based cannabis company, entered a recent settlement agreement in the trademark infringement case brought by Gorilla Glue back in March. This case provided a perfect illustration of what NOT to do when developing your cannabis brand, and it now illustrates the possible consequences of infringing the trademarks of a well-established company.

In its complaint, Gorilla Glue, the manufacturer of a variety of adhesives sold under the “Gorilla” brand and distinctive logo, alleged trademark infringement, dilution, unfair competition, and cybersquatting. The allegation was that by marketing their strains under “confusingly similar” names, GG Strains was trading off the goodwill and reputation established by Gorilla Glue over the course of 23 years.

The trademark infringement in this case appears to have been flagrant – GG Strains utilized a logo for its “Gorilla Glue #4” strain that incorporated a gorilla, and certainly conjured an association in the minds of consumers with the famous adhesive brand. But though this case involved a pretty flagrant example of trademark infringement – after all, the infringing word mark was exactly the same as the registered Gorilla Glue mark – the standard for infringement is actually significantly lower. Not only can you not use a mark that is the same as a registered trademark, you cannot use a mark that is confusingly similar to a registered trademark.

We’ve written before about the standard for assessing likelihood of confusion, but it warrants repeating. The Ninth Circuit (which sets the law on this for Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) in AMF Inc. v. Sleekcraft Boats, developed an eight-factor test for determining whether one mark is confusingly similar to another. Here are those eight factors:

  1. Strength of the mark;
  2. Proximity of the goods;
  3. Similarity of the marks;
  4. Evidence of actual confusion;
  5. Marketing channels used;
  6. Type of goods and the degree of care likely to be exercised by the purchaser;
  7. Defendant’s intent in selecting the mark; and
  8. Likelihood of expansion of the product lines.

Some of these factors are clear-cut, and some are highly subjective. The Ninth Circuit has repeatedly reaffirmed that this is a flexible test, but it is useful to consider these factors when choosing a name for your brand that may be similar to another registered mark. For example, if the other, similar mark is a well-known brand, or a household name, your risk of infringement goes up. If the goods you are selling are similar to the goods provided by the other brand, your risk goes up. Likewise, if the marks are very similar, if similar marketing channels are used, or if either company intends to expand into the market of the other, your risk of infringement goes up. You’ll notice that the court also considers the intent of the defendant. This means that if you knew from the outset that your mark was similar to a registered mark, the court is less likely to look favorably on your case.

In the Gorilla Glue case, the intent of the defendant would likely have been a factor weighing heavily in favor of the plaintiff. It would have been tough for GG Strains to make a case that they weren’t intentionally referencing and playing off of the brand of the well-known adhesive company.

And the consequences for GG Strains’ branding choices were serious. The settlement agreement gives GG Strains twelve months to cease using the word “Gorilla,” an image of a gorilla, or any of the “Gorilla” trademarks. After December 18th of this year, GG Strains can only use their current “Gorilla” marks preceded by a new name, together with the phrase “formerly known as.” Affiliated companies, dispensaries, cultivators and other partners must stop using the word “gorilla,” or any Gorilla Glue trademarks or imagery, and licensees of the strain have ninety days from September 19, 2017 to cease use of the gorilla word, images or trademarks.

The founder of GG Strains estimates that the dispute and rebranding costs have totaled around $250,000. And the costs would have been astronomically higher had the case proceeded to litigation. This should serve as a lesson to cannabis business owners that your brands will be treated no differently than those in any other industry. Big brand owners are taking note of what cannabis businesses are doing, and they are not hesitating to enforce their trademark rights against cannabis brands in court.

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.

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.

California cannabis manufacturing
California cannabis manufacturing

We wrote about cannabis edibles regulations under the proposed manufacturing rules issued pursuant to the MCRSA, but clients have been asking about what, if anything, has changed due to passage of Senate Bill 94. Here’s what SB 94, aka “MAUCRSA,” has to say, generally, about edibles:

MAUCRSA mandates edible cannabis products must meet the following requirements:

  1. Not be designed to appeal to children, or be easily confused with commercially sold candy or foods that do not contain cannabis;
  2. Produced and sold with a standardized concentration of cannabinoids not to exceed 10 mg of THC per serving;
  3. Delineated or scored into standardized serving sizes if the cannabis product contains more than one serving;
  4. Homogenized to ensure uniform disbursement of cannabinoids;
  5. Manufactured and sold under sanitation standards that comport with California State Department of Health regulations;
  6. Provided to consumers with sufficient information to enable informed consumption of the product, including the potential effects of the cannabis product and directions for its consumption; and
  7. Marked with a universal symbol that will be set by the California Department of Health.

But as for the other rules promulgated by the California Department of Health pursuant to the MCRSA? They are no longer applicable, and we will have to wait for another set of proposed rules to drop before we know exactly what the regulations will look like. If you weren’t happy with the first set of rules under the MCRSA, you shouldn’t get your hopes up for big changes as the odds are good that most of these rules will remain the same under MAUCRSA as it is widely expected the California Department of Health will issue a new set of rules very similar to the first. As a refresher, here are some of the cannabis products NOT allowed under the first set of rules that could change, but probably won’t:

  1. Cannabis-infused alcoholic beverages;
  2. Cannabis products containing any non-cannabinoid additive that increases potency, toxicity or addictive potential, or that would create an unsafe combination with other psychoactive substances, including nicotine and caffeine;
  3. Cannabis products that must be held below 41 degrees Fahrenheit to be safe for human consumption;
  4. Vacuum packed cannabis products;
  5. Canned cannabis products;
  6. Cannabis-infused juice;
  7. Perishable bakery products that must be held at temperatures below 41 degrees Fahrenheit, including cream or custard-filled pies, pies or pastries which consist in whole or in part of milk or milk products, eggs, or synthetic fillings, or meat-filled pies or pastries;
  8. Dairy products of any kind (yes, this appears to include butter);
  9. Meat products;
  10. Seafood products.

Also note that the initial set of proposed rules prohibited licensees from manufacturing cannabis products by applying cannabinoid concentrate or extract to commercially available snack candy or food items, also known as “re-manufacturing.” Though MAUCRSA (SB94) does not speak to this issue, the California Department of Health will likely take the same stance as they redraft the next set of proposed rules. Those hoping to secure manufacturing licenses pursuant to the MAUCRSA will need to stay tuned, and pay close attention to the revised rules as they develop.

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. Hilary Bricken from our Los Angeles office will moderate two of our San Francisco-based attorneys (Habib Bentaleb and me) 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!

California cannabis lawyers California may take its cannabis advertising restrictions to the next level if Senate Bill 162 makes it through the Assembly Appropriations Committee. SB 162, which the Senate passed unanimously last month, would prohibit future cannabis licensees from advertising their cannabis products “through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.”

This legislation would fill some of the gaps in the proposed rules for the implementation of both Proposition 64 and the MCRSA, now known cumulatively as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). Many opponents of Proposition 64 raised concerns that legalization would lead to increased public consumption due to the measure’s “lax rules on marketing.” Well, if there was any concern over allegedly lax marketing standards, California’s legislature is now swinging in the extreme opposite direction by essentially eliminating any branded merchandise for cannabis businesses.

Originally, Prop. 64 limited ads in broadcast, cable, radio, print and digital mediums to placements where at least 71.6% of the audience is reasonably expected to be at least 21 years old, based on reliable, up-to-date audience data. This restriction was not included in any of the proposed rules for the MCRSA (which has now been repealed), but it is included in SB 162.

Prop. 64 required any advertisements or marketing by a state-authorized marijuana licensee satisfy the following:

  1. Accurately and legibly identify the licensee responsible for the content;
  2. Use a method to confirm age if involving direct, individual communication by the licensee; and
  3. Be truthful and appropriately substantiated.

Prop. 64 also specifically prohibited licensees from advertising or marketing marijuana in the following ways;

  1. On a billboard located on an Interstate Highway or State Highway that crosses the border of any other state;
  2. In a manner intended to encourage people under 21 to consume marijuana;
  3. With symbols, language, music, gestures, cartoon characters or other content known to appeal primarily to people under 21;
  4. On an advertising sign within 1,000 feet of a day care center, K-12 school, playground, or youth center; and
  5. Through free giveaways of marijuana or marijuana accessories as part of a business promotion.

SB 162 includes these restrictions, but takes things one huge step further with its extremely broad ban on branded merchandise. Ostensibly, the ban could extend to employee t-shirts or uniforms bearing the brand of the licensee, and would prohibit merchandise produced by an unlicensed third-party if that merchandise were created on behalf of a licensee (or if that third-party company was owned by a licensee in their individual capacity).

These advertising restrictions in SB 162 are more restrictive than we’ve seen in any of the other adult-use states in which our cannabis lawyers worked, and we’re pretty shocked California is trying to kill this kind of creativity because they truly believe that if kids see branded merchandise they’ll start using cannabis. Washington State, for example, prohibits licensees from selling branded merchandise in their stores or facilities such as hats and t-shirts, but allows separate or affiliated ancillary companies to sell this merchandise on a licensee’s behalf. And Washington does not prohibit the sale of branded paraphernalia, which would likely be included under the definition of “branded merchandise” in SB 162.

We think this piece of legislation goes way overboard in its attempt to regulate advertising. These types of onerous restrictions will not allow licensed businesses under the new regulatory regime to thrive, and it will definitely kill the swag game at all cannabis-related events in The Golden State, undermining cannabis business’ ability to grow, compete, and spread their brands. We will be keeping tabs on the progress of SB 162, and will provide an update on its final fate, but we really hope the California legislature comes to its senses and stops this form of modern reefer madness.

Cannabis trademark law
Will the wraps come off cannabis trademarks?

Last week, in an 8-0 opinion in the Matal v. Tam case, the United States Supreme Court ruled that the disparagement clause of the Lanham Act violates the First Amendment’s free speech clause. For those unfamiliar with the case, in 2011, Simon Tam attempted to register The Slants (the name of his band), as a federal trademark. But the USPTO examining attorney rejected the application, on grounds that the name was an offensive reference to Asians.

Section 2(a) of the Trademark Act, 15 U.S.C. §1052(a), bars any trademark registration of immoral, deceptive or scandalous matter, and states that no trademark may “disparage … or bring … into contempt or disrepute” any “persons, living or dead.” Some characteristics of a mark that can result in rejection include references to sex, offense to religion, race or to honor, and references to illegality. Interpretation of this prohibition is (and you probably would guess) both subjective and fluid, creating a good deal of uncertainty as to what actually constitutes disparagement.

According to Tam, “he and his bandmates wanted to reclaim the term as a badge of pride.” The Court of Appeals, and now the Supreme Court, found that the disparagement clause “offends a bedrock First Amendment principle: speech may not be banned on the ground that it expresses ideas that offend.” In Justice Kennedy’s concurring opinion, he stated that a “law that can be directed against speech found offensive to some portion of the public can be turned against minority and dissenting views to the detriment of all … The First Amendment does not entrust that power to the government’s benevolence. Instead, our reliance must be on the substantial safeguards of free and open discussion in a democratic society.” We couldn’t agree more.

So how does this opinion affect cannabis trademark applications? Substantively, not a lot. Obtaining a federal trademark registration for use on cannabis-related goods presents a host of challenges, and none of that has changed. You still must make legal use of your mark in commerce to obtain a federal trademark registration.

But we were seeing the rejection, at least initially, of some trademark applications for goods and services that were ancillary to the cannabis industry – goods and services that CAN qualify for registration – based on references in the mark to immoral or scandalous matter. Ultimately, subjective denial of a trademark application based on the nature of speech it contains should not generally be within the power of the PTO. It stands to reason that if disparaging marks cannot be denied registration and are protected by the First Amendment, the same principal ought to apply to “immoral” or “scandalous” marks. Thus, the PTO may not be able to reject applications that make reference to things like being “high,” which could be considered “immoral” or “scandalous,” because those references are protected by the First Amendment.

California cannabis: think local
California cannabis. Think local.

To the excitement of many, California’s Medical Cannabis Regulation and Safety Act (MCRSA) does not include a residency requirement akin to those we’ve seen in other states, like Washington. Though in theory this could change, such an about face is unlikely given the proposed rules that dropped a few weeks ago. And though Chapter 5, Section 26054(a) of Proposition 64 (dealing with recreational cannabis regulation) does contain a residency requirement, it is likely the medical and recreational cannabis rules will ultimately be synced, eliminating that requirement. For reference, however, that section of Proposition 64 states:

“[n]o licensing authority shall issue or renew a license to any person that cannot demonstrate continuous California residency from or before January 1, 2015. In the case of an applicant or licensee that is an entity, the entity shall not be considered a resident if any person controlling the entity cannot demonstrate continuous California residency from and before January 1, 2015.”

That residency requirement will expire on December 31, 2019 unless the California state legislature renews it. Also important to note is that even if this residency requirement were to go into effect, it would apply only to “controlling persons.” But again, we believe that as the medical and recreational cannabis rules are finalized and synced up, the residency requirements of Proposition 64 will be eliminated.

But this has not stopped local jurisdictions, including cities and counties, from implementing varying levels of residency requirements, or de facto residency requirements, on their own. For example cannabis licenses in the City of Los Angeles will likely be limited to state residents since the City is issuing first round licenses only to Proposition M Priority eligible applicants (i.e., the ~135 Pre-ICO cannabis collectives currently operating in the City under Prop. D immunity from prosecution). In theory, at least, the proprietors of these businesses, who would have been required to possess qualified patient authorizations, would have needed to be California state residents. In other words, the City of Los Angeles is limiting licenses to those who have operated locally since at least 2007, which functions as de facto localism.

Los Angeles’ proposed regulations also require applicants provide a detailed 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.”

The city of Oakland has developed what is perhaps one of the most contentious residency requirements via its Equity Permit Program. This program aims to address inequity in the local cannabis industry by prioritizing permit issuance to those with roots in certain identified Oakland neighborhoods that have been historically impacted by disproportionate drug law enforcement, and to members of the Oakland community who have been arrested and convicted of cannabis crimes in Oakland in the last 20 years. The law moves qualifying Equity Applicants, defined as Oakland residents with an annual income at or less than 80% of the City average and who either lived in certain defined Oakland police beats for 10 of the last 20 years, or who have been convicted of a cannabis crime committed in Oakland within the last 20 years, to the front of the cannabis permitting line, and it also creates access to approximately $3.4 million in earmarked interest-free business loans and other assistance.

When issuing permits for any kind of cannabis business, the City must give half (i.e. maintain a 1-to-1 ratio) of all permits issued in its initial issuance phase to these Equity Applicants.  Oakland local law also requires dispensary staff be at least 50% Oakland residents, with at least half of those residents from areas identified as having high unemployment or low household incomes.

Other local jurisdictions are implementing or considering similar means of enacting residency restrictions, despite the state’s leniency on the issue. It is therefore imperative to review the local laws under which you intend to operate, particularly if you are not a California state resident.

 

 

 

California Cannabis Law Senate Bill 94
California just came out with its Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”)

The California Legislature today passed Senate Bill 94, which effectively repeals the Medical Cannabis Regulation and Safety Act (“MCRSA”) and incorporates certain provisions of the MCRSA in the licensing provisions of the Control, Regulate, and Tax Adult Use of Marijuana Act (“AUMA” aka Proposition 64). As we’ve covered extensively, draft rules for the MCRSA dropped in late April, but speculation has been rampant that the state would integrate the rules for both medicinal cannabis (MCRSA) and adult use cannabis (AUMA). SB 94 does just that by creating the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”).

Here are 10 of the most important highlights of today’s bill:

  1. The governing bureau will now be the Bureau of Cannabis Control (“the Bureau”).
  2. The types of licenses available for commercial adult-use cannabis activity and commercial medicinal cannabis activity will be the same. The licenses available under both the MCRSA and the AUMA will continue to be available for both kinds of activity, and for specialty cottage cultivation licenses and microbusiness licenses, and, commencing on January 1, 2023, licenses for large outdoor, indoor, and mixed-light cultivation will also be available for both medicinal and adult-use cannabis activity.
  3. Producing dispensary and transporter licenses will not be available.
  4. Quality assurance, inspection, and testing requirements of cannabis and cannabis products prior to retail sale will change. Distributors will be required to store cannabis batches on their premises during testing, testing lab employees will be required to obtain samples for testing and transport those samples to testing labs, and distributors will be required to conduct a quality assurance review to ensure compliance with labeling and packing requirements, among other things.
  5. Though the MCRSA limited the combinations of medicinal cannabis licenses a person may hold until January 1, 2026, the MAUCRSA will not apply these limits (other than that testing laboratory licensees are prohibited from obtaining licenses to engage in any other commercial cannabis activity);
  6. The residency requirements of the AUMA are repealed. In other words, out of staters and even residents of other countries can freely participate.
  7. Additional advertising requirements, including regulation of online advertising and the creation of a universal symbol for edible cannabis products will be implemented.
  8. The cannabis excise tax will be measured by the average market price (as defined) of the retail sale, instead of by the gross receipts of the retail sale.
  9. Applicants for cultivation licenses will need to identify the source of water supply.
  10. The Bureau will no longer have the authority to regulate and control industrial hemp.

The above is only a rough summary of the new legislation. We will be breaking down the details in the coming days so stay tuned.

California cannabis edibles: just say no to butter
California cannabis edibles: just say no to butter

If you missed our webinar last week on California’s new medical cannabis rules and you just can’t wait for us to publish the recording here on the blog (coming soon!), this post will deal with California’s proposed medical cannabis manufacturing rules for edibles, on which we received a ton of great questions. To get started, a couple of key definitions from the rules:

“Manufacture” means the production, preparation, propagation, or compounding of cannabis products. The term “manufacture” includes the following:

  • Extraction processes;
  • Infusion processes;
  • Packaging or repackaging of manufactured medical cannabis or medical cannabis products.

“Edible Cannabis Product” means manufactured cannabis intended to be used, in whole or in part, for human consumption.

In addition to extensive sanitation, recall, customer complaint and operational requirements for edibles manufacturers, the proposed rules include quite a list of prohibited products and based on our experience in other states with regulated cannabis, we anticipate the list will only grow over time. Here is a sampling of some of the products that will not be allowed under the proposed manufacturing rules:

  1. Cannabis-infused alcoholic beverages;
  2. Cannabis products containing any non-cannabinoid additive that increases potency, toxicity or addictive potential, or that would create an unsafe combination with other psychoactive substances, including nicotine and caffeine;
  3. Cannabis products that must be held below 41 degrees Fahrenheit to be safe for human consumption;
  4. Vacuum packed products;
  5. Canned cannabis products;
  6. Cannabis-infused juice;
  7. Perishable bakery products that must be held at temperatures below 41 degrees Fahrenheit, including cream or custard-filled pies, pies or pastries which consist in whole or in part of milk or milk products, eggs, or synthetic fillings, or meat-filled pies or pastries;
  8. Dairy products of any kind (yes, this appears to include butter);
  9. Meat products;
  10. Seafood products.

For obvious reasons, the issue of whether or not cannabis-infused butter will be allowed is a big one. Though cannabis butter would be prohibited under the current draft rules, we’ve seen other states, like Washington, carve out exceptions for products  made with cannabis butter. However, even Washington prohibits selling cannabis butter as a stand-alone product.

One other glaring omission from the current rules is a prohibition on cannabis products that appeal to children, although this legislation is likely coming down the pipeline. Many states prohibit products like gummy bears and lollipops that mimic candies appealing to children. Though California seems to be taking a less restrictive approach than other states in which my firm’s cannabis lawyers work, it’s highly unlikely it will leave this issue completely unaddressed. In this vein, California’s proposed rules do prohibit licensees from manufacturing cannabis products by applying cannabinoid concentrate or extract to commercially available snack candy or food items. Though the definition of “commercially available” is not entirely clear, at least part of the intent here is to prevent consumer confusion between cannabis-infused and non-cannabis products present in many homes – children are often the ones confused in this manner.

Ultimately, many California cannabis manufacturers will need to rethink the types of products they offer for sale once they begin operating with a state license. Many of the products currently on the market here simply will not comply with the new rules, and a thorough understanding of what products are prohibited will be critical to developing a viable business plan as a cannabis manufacturing licensee.