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Griffen is based in the Los Angeles office of Harris Bricken and focuses his practice on corporate and transactional law as well as on data privacy and California cannabis law compliance.

Our California hemp lawyers regularly get asked about the laws and regulations about growing hemp in California, manufacturing hemp products, and shipping those products around the country. I’ve written about the various hemp laws in California and how confusing they are previously (see here and here). Those posts, however, were more geared towards the manufacture and sale of hemp-derived cannabidiol (“Hemp CBD”) products than the actual cultivation of hemp, which is becoming an increasingly important topic in the hemp industry in the wake of the federal Agricultural Improvement Act of 2018 (or “2018 Farm Bill”).

The reality is that California is far behind many other states when it comes to hemp. There are very few laws or regulations here on hemp and Hemp CBD, and most of them take a very restrictive view towards what kinds of products are allowed to be sold. There is actual law on the books for cultivation, but it mostly sat there for a few years and is only now coming to light.

california hemp

To understand the current state of hemp cultivation in California, we need to look back a few years. In 2013, California passed Senate Bill 566, the California Industrial Hemp Farming Act (or “CIHFA”). The CIHFA amended the Health and Safety Code to redefine “marijuana” to exclude industrial hemp, and to statutorily define industrial hemp. It also added a section to the Food and Agriculture Code that would regulate the production of hemp by established agricultural research institutions and commercial cultivators. This latter section was not immediately effective and was subject to federal law authorizing it.

The next year, the federal Agricultural Act of 2014 (or “2014 Farm Bill”) was passed. As readers of this blog probably know by now, section 7606 of the 2014 Farm Bill allowed the cultivation of hemp for research purposes conducted under an agricultural pilot program or by a research institution, in states where hemp cultivation was legal.

After the 2014 Farm Bill was passed, on June 6, 2014, then-California Attorney General Kamala Harris issued opinion 13-1102, which stated “Federal law authorized, and rendered operative, the relevant portions of the California Industrial Hemp Farming Act on February 7, 2014.” The opinion, however, noted that provisions of the CIHFA were “inoperative to the extent that they apply or pertain to any form of industrial hemp cultivation not authorized by federal law.” In other words, commercial cultivation was still not allowed. In 2016, the Control Regulate and Tax Adult Use Of Marijuana Act (or “Prop. 64”) was passed. Prop. 64 formally amended the above California Food & Agriculture Code sections to make the hemp provisions become effective on January 1, 2017.

In 2018, commercial cultivation began to become a reality with Senate Bill 1409. SB-1409 (which we have written about here, here, and here) allowed for the commercial cultivation of hemp upon registration with the state Department of Food and Agriculture (“CDFA”) and county commissioners, effective January 1, 2019. SB-1409 provides relatively sparse testing and other rules (at least in comparison to the highly regulated cannabis industry). After SB-1409 was passed, the CDFA issued proposed regulations in November 2018 for registering commercial cultivators, which appear to be under review with the California Office of Administrative Law (“OAL”) through April 3, 2019.

Part of the reason for the stalling out of the proposed regulations seems to be the 2018 Farm Bill, which was signed on December 20, 2018. The 2018 Farm Bill completely removed hemp from the Controlled Substances Act and require states to submit “hemp production plans” to the United States Department of Food and Agriculture for its approval. But notably, section 7605(b) of the 2018 Farm Bill extends the 2014 Farm Bill through one year after the USDA’s establishment of certain plans (which will be a while from now).

This is a lot to unpack, but the gist is that hemp cultivated pursuant to state law and provisions of the 2014 Farm Bill (i.e., not purely commercial hemp) will be permitted for now, but purely commercial hemp production may not be permitted until the establishment of USDA-approved plans. It will be interesting to see what happens come April 4 if the OAL approves the regulations that allow for commercial hemp cultivation even in spite of no plan being submitted to the USDA. As of now, it’s pure speculation, and I am not aware of any plan submitted by California to the USDA.

This brings us to today. Currently, California law allows for established research institutions to cultivate hemp if they provide certain information to county agricultural commissioners (subject to any state or local prohibitions, of course). The commercial hemp cultivation regulations haven’t been fully implemented as noted above. There are a few big outstanding questions today.

First, what happens if California allows commercial cultivation before or without submitting a plan to the USDA? We might then be in a world similar to cannabis, where the state has adopted laws and regulations that conflict with federal law. If cannabis is any sign, it may be that the federal government does not prioritize enforcement because California would have its own regulations. But there’s no guarantee as to how the federal government would react and in light of the FDA’s December 20, 2018 statement that hemp-derived CBD isn’t allowed in many commercial products, there may be more aggressive federal enforcement.

Problematically, even if California did allow commercial hemp cultivation, that hemp may get siloed in California or just in the nearby states that don’t block shipments. The 2018 Farm Bill does prevent states from interfering interstate shipment, but its terms seem pretty clear that this only applies to hemp produced pursuant to USDA-approved hemp production plans. Some arguments can be made that 2014 Farm Bill-produced hemp can be transported interstate pursuant to this provision, but the 2014 Farm Bill did not allow commercially grown hemp sales.

Another big question is whether hemp grown by an established agricultural research institute in California could be re-sold commercially. The current hemp law as amended by SB-1409 doesn’t speak to this issue, but these institutions may be concerned about selling hemp and may refuse to do it.

Like I have said many times before, the state of hemp law in California is perplexing. That rule is no different for cultivation than it is for the sale of hemp products. It’s always a good idea to consult with experienced California hemp lawyers when considering hemp cultivation or any other sort of hemp sales. As always, stay tuned to the Canna Law Blog for more California hemp updates.

california cannabis licensingCalifornia’s cannabis licensing process has been a mess for applicants since pretty much day one. Annual license applications have disappeared into a black hole for months, the window for obtaining temporary licenses was very small and many have expired, and many local jurisdictions decided to make up their own phased permitting processes that in many cases ensured that many operators could never be eligible for temporary licenses (e.g., Phase 3 applicants in Los Angeles).

For any applicant who was lucky enough to obtain a state temporary license in 2018, efforts are underway at the state level to relieve some of applicants’ fears surrounding the fact that most of those temporary applications are set to expire in the next few months and that there is no clear understanding of the provisional licensing process. A new California senate bill (SB-67) would reinstate expired temporary licenses and would fill the gaps in the provisional licensing scheme through mid-2020. This would allow operators who received temporary licenses in 2018 to actually become operational rather than sit and wait on annual licenses to be issued.

For some background, I wrote recently the provisional licensing scheme that was intended to act as a band-aid in light of the fact that temporary licenses were going away by the end of 2018 and the fact that annual applications took extreme amounts of time to review. To recap: if an operator who once held a temporary license filed an annual application, submitted evidence of CEQA compliance, and paid the fee, the state agency could issue a year-long provisional license. But the provisional licensing regime is not free from problems.

The first issue with provisional licenses is that they are only allowed to be issued through the end of 2019. This effectively placed about a similar one-year time frame as with temporary licenses. The second problem with provisionals is that there has been virtually no guidance from the state agencies on how to obtain them. The regulations don’t mention provisionals, and only the California Department of Food and Agriculture (or “CDFA”) published guidance on how to get them. That guidance makes it appear like they are issued at the CDFA’s total discretion after an applicant makes the required annual filings. This is problematic because there is no clear time frame or review process. In other words, an operator could file a complete annual application, and the CDFA could sit on it for months before issuing a provisional.

SB-67 might just fix some of these problems. SB-67’s key provision is that when an applicant files its annual license application, its temporary licenses shall remain valid—even if those licenses had previously expired. These extended temporary licenses would only stay effective until an annual license is issued or denied, a provisional license is issued, an application is disqualified or abandoned, or the end of 2019, whichever is earliest.

This is a lot to unpack, but essentially what it means is that if applicants file annuals before the date of  temporary license expiration, those applicants will still have temporary approval until a provisional license is issued. This will help dispel any lack of clarity surrounding the provisional licensing process but will still not change the fact that annuals will need to be submitted as soon as possible.

Another notable part about SB-67 is that if passed, it would first extend the time to issue provisionals through July 1, 2020. This will give the agencies more time in actually issuing provisional licenses past 2019. But problematically, there will be a six-month window where licensees who don’t have provisionals will lose their extended temporary licenses. There may just be another bill on the table later this year to address this very same issue.

SB-67 ultimately will only benefit those few operators and may signal that the state agencies are still so overwhelmed with applications that they won’t be able to process them on time. We’ll be sure to keep our readers up to speed on any updates on SB-67 or the provisional licensing laws.

california cannabis packaging labelingOn March 7, 2019 the California Department of Public Health (“CDPH”), which regulates cannabis manufacturers, dropped a new list of updated resources for packaging and labeling. Anyone on the CDPH’s email list should have received a copy. The notice was quickly picked up the Bureau of Cannabis Control (“BCC”), which regulates retailers and distributors, and is available here.

The notice is significant because it contains three new checklists based on product type (cannabis, pre-rolls, and manufactured goods), and a link to updated master packaging and labeling FAQs. This will be sure to help licensees with compliance and is much more user friendly than the scouring through the dense regulations.

But one of the really important parts of the notice is the following language:

Expectations for Compliance: Cannabis and cannabis product packaging that was compliant under the emergency regulations but is no longer compliant under the permanent regulations can be transferred to a licensed distributor until June 30, 2019. Licensed retailers may sell these cannabis products through December 31, 2019.

Licensees should be actively taking steps to transition their packaging and labeling into compliance with the regulations. Tips for licensees to transition into compliance with the labeling requirements:

  • Use stickers to modify existing packaging – Stickers can be used to cover non-compliant labeling or to update/add additional labeling information to outer or inner containers.
  • Repackage using compliant packaging – Manufacturers can repackage cannabis products on their premises. Child-resistant packaging requirements may be fulfilled using child-resistant exit packaging at retail during 2019, reducing the cost of repackaging products.

In other words, it looks like the CDPH will be relaxing some of it new requirements that came into effect with the final regulations, if product packaging was compliant with the readopted emergency regulations. This is key, because as I wrote back in early January, there wasn’t really a transitional period in the regulations for most products. Rather than bake this into the regs, the agencies apparently will simply view this as some sort of compliance expectation. It’s only too bad that this wasn’t announced a few months ago.

There are two important notes: First, the above language regarding expectations refers to packaging and not labeling. However, this may have been accidental since the first bullet-point actually refers to labeling. Second, the CDPH has no jurisdiction over distributors or retailers, so its statements concerning what they may do is not as good as the BCC saying the same thing. However, when the BCC published this notice, that probably indicated its agreement with the CDPH’s position.

Stay tuned to the Canna Law Blog for more details on California cannabis labeling.

california cannabis packaging and labelingOur California cannabis attorneys have been getting inundated with packaging and labeling review since each California cannabis licensing agency adopted its final rules in January 2019, and even before that when the rules were under consideration. One thing that many California cannabis companies—and especially cannabis companies from other states who are stakeholders in California—often overlook or gloss over are the requirements of the Safe Drinking Water and Toxic Enforcement Act of 1986 (or “Prop. 65”). It’s been a while since we’ve written about the specific requirements Prop. 65 for California cannabis goods, so we thought it best to look back at the Prop. 65 rules and see how they square with the final cannabis rules.

For some refresher, Prop. 65 is NOT a cannabis-specific law. It was passed long before the Medicinal and Adult-Use Cannabis Regulation and Safety Act (or “MAUCRSA”) and applies broadly to all kinds of goods and other things in California. What’s important for California cannabis companies to know about Prop. 65 is that it requires companies to notify consumers about the presence of certain harmful chemicals in cannabis goods.

Prop. 65 requires the California Office of Environmental Health Hazard Assessment (“OEHHA”), which is part of the California Environmental Protection agency, to publish a list of chemicals known to cause cancer, birth defects, or other types of reproductive harm. The OEHHA’s regulations give California businesses a roadmap for, among other things, how to provide notice to consumers if certain carcinogens or reproductive toxins are present in consumer products (i.e., marijuana). In light of Prop. 65’s requirements, any cannabis licensee needs to ask itself a number of important questions:

Do Prop. 65’s Warning Requirements Even Apply?

The first question cannabis businesses need to ask themselves in a Prop. 65 analysis is whether they’re subject to Prop. 65 at all. There are a short list of exemptions that are applicable to California cannabis products:

  • Businesses with fewer than 10 employees and government agencies.
  • Situations where a business can demonstrate that “exposure poses no significant risk assuming lifetime exposure at the level in question for substances known to the state to cause cancer, and that the exposure will have no observable effect assuming exposure at one thousand (1000) times the level in question for substances known to the state to cause reproductive toxicity, based on evidence and standards of comparable scientific validity to the evidence and standards which form the scientific basis for the listing of such chemical”. This is a mouthful, requires demonstrable evidence, and places the burden on any defendant in a case to prove.
  • According to the California Attorney General, “[e]xposures to listed chemicals that occur naturally in foods” is also an exemption. There is a more detailed discussion of this exemption in the regs.

Are Prop. 65-Type Chemicals Present?

Once California cannabis companies determine that Prop. 65 applies to them, they need to determine what specific chemicals are present in their cannabis goods. The Prop. 65 list now includes more than 1,000 chemicals. In 2009, marijuana smoke was added to the Prop. 65 list of chemicals known to cause cancer. Thus, all cannabis flower is subject to Prop. 65 warnings since all flower produces “marijuana smoke.”

But Prop. 65 doesn’t end there. In most cases, other manufactured cannabis products—such as oils, vape cartridges, and even edibles—contain at least one chemical on OEHHA’s gigantic Prop. 65 list. Because of this, many (if not most) cannabis businesses in California will be subject to Prop. 65 warning requirements. And as noted below, none of the California cannabis agencies regulate or even explain how to comply with Prop. 65.

How to Provide Warnings?

This may be one of the more complicated issues, and this is where the cannabis regulations come in.

As any California cannabis licensee knows, the California Department of Public Health (“CDPH”)—which regulates manufacturers—is the agency which has promulgated explicit packaging and labeling rules in its regulations. Even though these regulations apply to manufacturer licensees, the other two agencies explicitly incorporate them for packaging and labeling. The CDPH regulations don’t explicitly require Prop. 65 compliance, but the CDPH does have FAQs which note that Prop. 65 compliance may be necessary. That said, there are some pretty important aspects of the CDPH regulations to consider when thinking about Prop. 65.

First, the CDPH requires that for any product, an informational panel and primary panel be present and provide certain information (the necessary information changes from product to product). The CDPH is clear, however, that each label can include other information. Typically, we see Prop. 65 warnings somewhere on one of these two labels, though the CDPH doesn’t specifically require it. The reason is probably because section 26501(d) of the OEHHA rules requires that the warning be conspicuously displayed on a package in a way that a consumer would be likely to actually read and understand it. That probably won’t happen if the label is tucked away into a corner on the bottom of the box.

Second, the CDPH has explicit requirements for multi-layered product packaging (CDPH rules 40403). The gist of these rules is that for products with separable layers of packaging, each layer must include different kinds of information (the required information changes based on the product, but for some products all that must be present is a compliant version of the CDPH’s universal symbol).

These regulations raise two important questions: (1) Does a Prop. 65 warning need to be present on each layer of separable packaging? and (2) What does the Prop. 65 warning need to say?

The answer to the first question is probably “no.” In the OEHHA’s final statement of reasons for its regulations, the OEHHA responded to a comment as follows: “These regulations do not require a warning on both the container and the outer packaging, although some businesses may choose to provide both to ensure that the average consumer receives a warning as required by the Act.” Thus, a single warning is probably fine, and our California cannabis attorneys typically see that on the outer layer of the packaging.

The answer to the second question is more complex, but there are a number of options. OEHHA rule 25602(a) says that for consumer products, a warning meets the safe-harbor if it is provided via one of four methods. One of those methods is a “label” compliant with section 25603(a), and the other is an “on-product” warning that complies with section 26503(b). Label is defined as “a display of written, printed, or graphic material that is affixed to a product or its immediate container or wrapper.” The term “on-product”, however, is not defined.

That said, section 25603(a) provides a mechanism for providing full notice by using the triangle, the word “WARNING”, and specific language that identifies the carcinogens and/or reproductive toxicants. It must be on a label as notice above, which can be on the product or its immediate wrapper.  In this case, the label must have one of the following four full warnings which specifically identify the problematic chemicals.

On the other hand, section 25603(b) governs “on-product” warnings. On-product warnings are abbreviated warnings that require only the Prop. 65 symbol, the word “WARNING”, and a short-form warning which does not need to identify all chemicals. While the term “on product” is not defined, the OEHHA’s final statement of reasons says in part:

For purposes of subsection 25603(b), the short-form warning may only be provided on the product, which would include the immediate container (box, packaging) or wrapper for the product, but would not include other types of “labeling” as defined in subsection 25600.1(j).

In other words, it appears that the short-form, on-product warning in section 25603(b) is fine on actual products or their packaging, but not on websites, placards, etc. In that case, the full warnings from 25603(a) are likely required.

The rules also have specific requirements for the text size, the wording, the symbols that must be used, and as noted above, the placement. These rules can be complex for companies to remember, so it is critical for California cannabis companies to consult with experienced regulatory counsel prior to creating packaging or labeling to ensure that they comply with the CDPH regs and Prop. 65. That’s because Prop. 65 is a complex law and there can be many pitfalls—including litigation—for failure to adequately comply.

california cannabis licensing sb 1459Last summer, I wrote about Senate Bill 1459, a piece of California legislation that created a new scheme of provisional licenses for cannabis operators. This provisional licensing scheme was essentially intended to replace the temporary licensing scheme that only ran through January 1, 2019 per state law. SB-1459 was necessary because the three main state cannabis licensing agencies—the Bureau of Cannabis Control (“BCC”), California Department of Public Health (“CDPH”), and California Department of Food and Agriculture (“CDFA”)—and localities which issue permits to cannabis operators, were all backlogged with numerous applications and couldn’t process all of the applications in time for applicants to get operational in 2018. In some cases, applicants could not even obtain temporary licenses before the temporary license regime expired.

SB-1459 was thus supposed to be a lifeline for companies which had scored very short-lived temporary licenses so that they could get operational in 2019 while the state was processing their annual licenses. In this post, I look at what’s happened with the provisional licensing scheme since SB-1459 has passed, how each agency has treated them, and what applicants need to do to get them.

The steps—per SB-1459—to obtain a provisional license are fairly straightforward at first glance: (1) an applicant must hold or previously have held a temporary license for the same commercial cannabis activity for which it seeks a provisional, and (2) the applicant must submit a completed annual license application and proof that California Environmental Quality Act (“CEQA”) compliance is underway. Provisionals last for 12 months and can be issued through the end of 2019. Luckily for operators, this doesn’t add a layer of complication to the already complex process of applying for annual licenses and doesn’t really require applicants to do much that they wouldn’t have already needed to do in connection with annual applications.

The only agency which has published more comprehensive information on provisional licenses is the CDFA, which regulates cultivators. The CDFA does not have a separate application for provisional licenses. Per its instructions, once an applicant submits an annual license application (and assuming it held a temporary and paid its fees), CDFA staff will determine whether a provisional is warranted.

As noted above, and as most readers of this blog are probably aware, the temporary license scheme ended in late 2018. The impact of this is that temporary applications will expire in March or April unless an extension was provided. Each of the three agencies is likely to get a large influx of applications between now and when the temporary licenses expire, but we don’t yet know how they will process provisionals. If the BCC and CDPH follow the CDFA’s lead, then it seems like it may be a ministerial act after review of the completed submissions. But even that takes time to do, and businesses that are currently legally operational should probably not wait until their cutoff to apply for annuals, as a provisional application probably would not be processed by that time.

The bottom line for provisional license applicants is that even though they don’t have many filing prerequisites, they are going to be difficult to obtain because applicants must have first applied for annuals. Qualifying applicants—those who hold or have held temporary licenses—should take a hard look at the temporary license expiration dates and consult with their cannabis counsel on finishing up annuals with time for the agencies to review annual applications, and hopefully process and issue provisionals. Stay tuned to the Canna Law Blog for any other developments with provisionals.

federal law cannabis FDAAs more and more states legalize cannabis in some form or another, and as more and more Senators and Representatives introduce legislation that would relax the federal pot laws, it’s important not to lose sight of reality: cannabis is still a Schedule I drug and is unlawful under federal law. That said, in the years since cannabis has become legal in various states, the federal government has taken an increasingly less active role in enforcement in those states. Sure, the feds could start ramping up enforcement even against state-lawful operators, but it doesn’t seem like that’s going to happen any time soon.

To understand the future of federal pot enforcement, we need to look back a few years. Most readers of this blog are familiar with the Cole Memo, an Obama-era Department of Justice policy memo which essentially says that the federal government wouldn’t prioritize marijuana enforcement where operators follow state laws and would instead follow focused enforcement priorities. Since President Trump took office, Attorney General Jeff Sessions rescinded the Cole Memo but didn’t go full-enforcement, instead leaving it up to more local federal authorities to decide whether to enforce. But Sessions was removed, and the newly appointed William Barr has indicated that he probably isn’t going to spend federal resources enforcing the Controlled Substances Act against state-lawful operators.

What is clear about future enforcement is that until the Controlled Substances Act (“CSA”) is amended to de-schedule cannabis, the feds will still be targeting cannabis businesses that don’t follow state laws. Just last month, an owner of an unlicensed cannabis company in Washington State pleaded guilty to crimes in federal court stemming from the operation of a dispensary without a state license. This plea followed an investigation, which obviously means that federal offices are investigating what they view to be criminal activities. We wouldn’t expect this to stop anytime soon, and so unlicensed operators (either in state which still have prohibition or in states with licensing regimes) will need to worry about federal—and state—enforcement.

It’s less clear how the federal government will handle state-lawful operators who violate state law—in other words, will the federal government allow the states to deal with violations of state law, or will they step in and interfere? Because of the CSA, any sale of cannabis is federally prohibited, so state-licensed cannabis businesses that make illegal sales risk both federal and state enforcement. It seems, however, that unless there is serious or egregious misconduct by a state-licensed operator, the federal government will keep deferring to the states.

One agency that those rules may not apply so much to is the federal Food & Drug Administration (“FDA”). After President Trump signed the Agriculture Improvement Act of 2018 (or “Farm Bill”), the FDA (the same day) released a memo saying it retains jurisdiction over hemp and other cannabis products in foods. Pretty much immediately thereafter, the FDA began enforcing its position. It’s certainly plausible that the FDA could step in if manufactured cannabis products (especially edibles) contain what the FDA views as prohibited hemp-derived CBD, or if manufactured cannabis products make false health claims (we already know that the FDA has in the past sent a number of warning letters to state operators).

The future of federal enforcement isn’t completely hashed out. Until the CSA is amended, however, it’s not going to end. Stay tuned to the Canna Law Blog for more updates.

cannabis marijuana immigrationOn January 16, 2019, each of the three California cannabis agencies dropped a final set of regulations. In many senses, the Bureau of Cannabis Control’s (“BCC”) regulations were the most comprehensive and expansive (we summarized some of the highlights here, and summarized the highlights of the California Department of Public Health’s final regulations here). In one area in particular, the BCC’s regulations may have some unintended and far-reaching effects: immigration.

For some reference, one of the biggest changes to the BCC’s regulations is in the “ownership” disclosure requirements, which now will require disclosure of persons as potential owners who may be far removed from the actual licensed entity. To recap, in the post linked above, we wrote:

[The BCC’s] entity ownership requirements kick in in any situation in which a company owns a licensee—not only where the ownership is based in equity (remember that ownership can also be based on direction, management, or control of a licensee or other grounds). If an entity is considered an owner, then anyone with a financial interest in that entity must be disclosed to the BCC and may be considered an owner.

This is a tremendously significant requirement and means that virtually everyone in the corporate chain must be disclosed (and probably must provide all of the many significant and burdensome disclosures). For example, if John Smith directly owns 1% of the BCC licensee ABC Retailer and does not exercise any control over ABC Retailer, he will be considered a financial interest holder as opposed to an owner.  But if he owns 1% of XYX Holdings, which has a 20% stake in ABC Retailer, he will need to be disclosed to the BCC and may be considered an owner.”

What this could mean in other words is that more people, and people higher up a corporate chain, may need to make “ownership” disclosures. One of those disclosures is the requirement per BCC Regulation 5002(c)(20)(D) to provide a Social Security Number (“SSN”) or individual taxpayer identification number (“ITIN”), and another is the requirement to obtain a live scan. These are significant requirements for foreign persons who “own” cannabis businesses and, as described below, could affect their immigration status.

SSNs are available for residents and citizens of the United States. ITINs may be available in limited circumstances to foreign persons who have a need for tax identification purposes in the United States, but they are somewhat complex to obtain and require certain documentation (either a federal income tax return or some “exemption” documents). And live scans are federal background checks that land in federal databases, and as a result, in hot water.

The reason background checks for foreign nationals are problematic is that any direct or peripheral involvement in the cannabis industry is incompatible with the immigration laws of the United States. This applies to everyone who is not a United States citizen, including lawful permanent residents (i.e., green card holders), those living, studying, and/or working in the United States under an authorized nonimmigrant visa, those temporarily visiting the United States for business or pleasure, and of course, those who have no legal status in the United States.

As explained previously, even where a foreign person is traveling to a state where marijuana is legal, federal law applies at all U.S. ports-of-entry and preflight clearance locations (the “border”). The U.S. Customs and Border Protection (“CBP”) officer at the border has the legal authority to question the foreign person about the purpose of the visit and has advance access to the list of airline passengers on each flight and the license plate of each vehicle waiting at a border checkpoint.

By the time a foreign person is greeted by the CBP officer, seemingly unrelated dots between a web search and live scan and other databases have already been connected for the officer to use in questioning the foreign person about his connection to a cannabis business.

If the foreign person wants to lie about his involvement, he should absolutely not. The CBP has broad authority to search electronic devices, including cell phones and laptops. If the CBP officer finds any information to contradict the foreign person’s statements, it can potentially permanently ban him or her from entering the United States because of fraud or misrepresentation, and not just for violating the Controlled Substances Act.

Under the BCC’s new ownership regulations and its live scan requirement, a few things are clear. First, persons who earlier may not have qualified as owners now might. This may include a host of foreign citizens who now need to obtain ITINs and undergo live scans. Second, live scans are part of a federal database, so federal agents may be able to stop and ask clients questions about why they have undergone live scans. Moreover, and third, under the BCC’s live scan memo (linked above), live scan forms won’t be sent until an application is made, so foreign persons entering the United States to undergo a live scan will by definition already have applied for a cannabis application and thus may risk being turned away.

What’s clear is that ownership of a cannabis business is a risk when it comes to immigration. The BCC’s newest regulations may pass that risk on to a host of new persons. Stay tuned to the Canna Law Blog for more developments. In the meantime, for more on immigration and cannabis, check out the following:

california hemp cbd food ab 228
 Keep your fingers crossed for AB 228.

On January 17, 2019, California Assembly Member Cecilia M. Aguiar-Curry kept her promise and introduced a piece of hemp legislation, AB 228.  This bill is aimed at paving the way for adding industrial hemp derived cannabidiol (“Hemp CBD”) to foods, beverages, and cosmetics. The text of AB 228 is relatively short and would add the following two provisions to the California Health and Safety Code which contain provisions of the Sherman Food, Drug, and Cosmetic Laws (the “Sherman Laws”):

110611.  A food or beverage is not adulterated by the inclusion of industrial hemp products, including cannabidiol derived from industrial hemp. The sale of food or beverages that include industrial hemp products or cannabidiol derived from industrial hemp shall not be restricted or prohibited based solely on the inclusion of industrial hemp products or cannabidiol derived from industrial hemp.

111691.  A cosmetic is not adulterated because of the fact that it includes industrial hemp products, including cannabidiol derived from industrial hemp. The sale of cosmetics that include industrial hemp products or cannabidiol derived from industrial hemp shall not be restricted or prohibited based solely on the inclusion of industrial hemp products or cannabidiol derived from industrial hemp.

AB 228 thus narrowly targets California regulators’ ability to penalize companies for selling Hemp CBD beverages or foods on the grounds that they are “adulterated” under California law. This is an interesting piece of legislation, as the biggest major legal roadblock to selling Hemp CBD foods in California is the California Department of Public Health’s (“CDPH”) Hemp CBD FAQs, which don’t in fact claim that Hemp CBD makes foods or beverages “adulterated” (and says nothing about cosmetics). The only citation in the FAQs to the Sherman Laws is for the definition of foods (see footnote 1). That said, the Los Angeles Department of Public Health will soon begin taking the position that Hemp CBD foods and beverages are “adulterated” and issuing penalties based on that position.

If AB 228 becomes law, it will take the legs out from under one of the major arguments that could be used against Hemp CBD food products. The law wouldn’t change the federal Food and Drug Administration’s position that Hemp CBD is unlawful in foods, and so it will be interesting to see how California cannabis regulators treat Hemp CBD in the wake of AB 228 passing (if it does).

Ultimately, AB 228 isn’t perfect, but it’s a step in the right direction. Stay tuned to the Canna Law Blog for more updates on this and everything else Hemp CBD.

On Wednesday, January 16, 2019, the California Bureau of Cannabis Control (“BCC”)—the agency that licenses distributors, retailers, testing labs, and event organizers—dropped its final regulations. Until then, BCC licensed commercial cannabis operators or applicants for BCC licenses had been in no man’s land, complying with emergency regulations while trying to divine what the final regulations would look like, what they would need to change, and when they would need to change it. While the final regulations are by no means perfect, they are at least here (alongside the CDPH permanent regulations, which we covered on Monday). While these final regulations from BCC appear to mirror the proposed regulations submitted back in early December, they depart from the emergency regulations in some pretty significant ways. Below are a few of the more key areas.

BCC marijuana final regulationsOwner Changes. One of the more significant final regulatory expansions comes in the disclosures that must be made to the BCC when a licensed entity is owned by another entity. The BCC previously required that some of the people who own or run entity owners of licensees be disclosed in BCC applications, but the new regulation greatly expands those requirements. For example, in the readopted emergency regulations, entity owners needed to disclose their CEOs and/or board members if those entities were considered owners based on 20 percent or more equity in the licensee.

Now, entity ownership requirements kick in in any situation in which a company owns a licensee—not only where the ownership is based in equity (remember that ownership can also be based on direction, management, or control of a licensee or other grounds). If an entity is considered an owner, then anyone with a financial interest in that entity must be disclosed to the BCC and may be considered an owner.

This is a tremendously significant requirement and means that virtually everyone in the corporate chain must be disclosed (and probably must provide all of the many significant and burdensome disclosures). For example, if John Smith directly owns 1% of the BCC licensee ABC Retailer and does not exercise any control over ABC Retailer, he will be considered a financial interest holder as opposed to an owner.  But if he owns 1% of XYX Holdings, which has a 20% stake in ABC Retailer, he will need to be disclosed to the BCC and may be considered an owner.

What is less clear is how the BCC will evaluate whether persons like John Smith in the above example are owners. The rule isn’t very clear on this point, but does give examples such as “all entities in a multilayer business structure, as well as the chief executive officer, members of the board of directors, partners, trustees and all persons who have control of a trust, and managing members or nonmember managers of the entity.” Persons like John Smith, who really have no say over the company and have just a small monetary interest, probably won’t be considered owners even under these new rules. But again, they probably will need to make full ownership disclosures before the BCC makes that determination.

One other significant point in the final regulations is that the BCC now expressly considers persons who expect 20% or more of the profits of a licensee to be owners. This means that various kinds of contracts (subject to the discussion below) between a licensee and third party could turn the third party into an owner depending on the compensation—even if that third party otherwise would not be an owner.

Interest Holder Changes: Similar to the owner regulations, the financial interest holder rules (regulation 5004) were also enlarged. Unlike in the readopted emergency regulations, the interest holder regulations provide a non-exhaustive list of persons or entities who must be disclosed as interest holders:

  • An employee who has entered into a profit share plan with the commercial cannabis business.
  • A landlord who has entered into a lease agreement with the commercial cannabis business for a share of the profits.
  • A consultant who is providing services to the commercial cannabis business for a share of the profits.
  • A person acting as an agent, such as an accountant or attorney, for the commercial cannabis business for a share of the profits.
  • A broker who is engaging in activities for the commercial cannabis business for a share of the profits.
  • A salesperson who earns a commission.

The ownership changes discussed above may seem at first glance to be one of the more onerous changes in the regulations. And to some extent—especially for licensees in corporate families or which are owned by other companies—this is true. But these interest holder disclosure requirements are equally, if not more complex because they require disclosure of virtually anyone with any sort of stake in a cannabis company—small or large. This will require companies to take stock of all third-party agreements to which they are a party and spend serious effort analyzing whether the disclosure obligations apply.

Not only are there likely to be larger disclosures of financial interest holders than of owners, but licensees are also now obligated to make similar disclosures where their financial interest holders are entities. Now, anyone who is an “owner” of a financial interest holder will need to be disclosed to the BCC. This rule is admittedly narrower than the ownership disclosure requirement in that it is limited to just owners of the financial interest holder and that the categories of information that must be submitted are much narrower, but it is significant nonetheless and will require a lot of work and evaluation.

IP Licenses and Other Third-Party Agreements: Back in October, we wrote about how changes to BCC regulation 5032(b) could prohibit IP licenses and other transactions with non-licensed entities. This is obviously significant as there are many such transactions in this industry (and any). The October version of rule 5032(b) was subsequently scaled back to remove examples of unlawful third-party agreements, but now we are left with a regulation which is ambiguous as to its scope: “Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person who is not licensed under the Act.” In the final statement of rules that accompanied the December 2018 proposed final regulations (which have been removed from the BCC’s website), the BCC suggested in response to comments that third-party license agreements could be permissible if an unlicensed entity were disclosed as an owner or interest holder. But whether the BCC maintains this position remains to be seen.

Packaging and Labeling: A few weeks ago, I wrote about the packaging and labeling mess that was likely to ensue if the December proposed regulations became the final regulations. It looks like that’s happened, so I won’t repeat that article verbatim. But what bears repeating is that, except for child-resistant packaging, there doesn’t appear to be any sort of grace period for compliance with the new labeling regulations. To compound matters, while distributors can re-label cannabis and pre-rolls, they apparently can no longer re-label manufactured goods—and retailers can’t do any sort of labeling. We therefore expect that there will be a good deal of chaos over packaging that was compliant but now suddenly is not, and confusion over what to do about it.

Delivery Expansion (or Not?): As I highlighted back in the October when the BCC’s modified proposed regulations were issued, one of the bigger changes to the regulations was to section 5416(d), which allows deliveries into any jurisdiction in the state so long as they comply with the BCC regulations. This change stuck in the final regulations. While it would seem that licensed cannabis retailers can deliver anywhere in the state, there are a number of jurisdictions that still forbid it. This thus creates a conflict between local laws and statewide regulations that is not so clear as one may think.

For example, Malibu recently passed a measure that permits adult use cannabis sales and deliveries, but forbids deliveries into Malibu for entities that don’t have Malibu permits. Pasadena, which is currently undergoing a massive licensing competition, prohibits its permittees from delivering into cities or counties that prohibit deliveries. And of course there are numerous other California cities which are even more restrictive and prohibit all commercial cannabis sales or deliveries.

While not very clear, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) provides: “A local jurisdiction shall not prevent delivery of cannabis or cannabis products on public roads by a licensee acting in compliance with [MAUCRSA] . . . .” Arguments could therefore be made on either side of the spectrum about whether MAUCRSA permits cities to preclude deliveries: cities could argue that MAUCRSA permits them to ban deliveries off of public roads (i.e., on private property); others could argue that deliveries made using public roads and to residences or other private properties adjacent to public roads cannot be prohibited. We expect that there may be future litigation here.

These are just some of the significant changes in the regulations. Compliance with the regulations is critical, and it’s always recommended to consult with experienced regulatory cannabis counsel in doing so. Stay tuned to the Canna Law Blog to see how the BCC regulations shake out and for other California cannabis developments.

HR 420 marijuana blumenauer

On Wednesday, January 9, 2018, Representative Earl Blumenauer (D-Or) introduced the aptly designated H.R. 420, or the Regulate Marijuana like Alcohol Act. The bill is still so new that it’s not yet up on Congress’ site, but the apparent text for the bill can be found online.

H.R. 420, if passed in its current form, would remove marijuana from the Controlled Substances Act’s scheduling. The law wouldn’t allow complete legalization without regulation. It still makes clear that bringing cannabis into a jurisdiction would be unlawful where it would violate the laws of that jurisdiction. Instead of full-scale legalization, the bill would require the Secretary of the Treasury to establish a permitting scheme which could, like state law, involve different permits for each different kind of cannabis activity. It’s not yet totally clear how this would play out for permit holders in states with current regimes, i.e., whether they would have to get federal permits and/or what criteria they’d be held to.

Interestingly, these federal permits appear to last indefinitely until suspended and can be transferred if the transferee makes a timely request. There are of course disqualifying convictions, but those appear to be relatively narrow and exclude federal or state offenses if the underlying conduct was lawful in the state where the conviction was rendered. The bill also makes clear that applicants couldn’t get permits that would violate state law (this is an interesting flip where federal law bows to state law) or if an applicant wasn’t likely to commence operations within a reasonable period or maintain them in accordance with federal law.

One other interesting component of the bill is that it would transfer jurisdiction from the Attorney General over marijuana to the re-named Bureau of Alcohol, Tobacco, Marijuana, Firearms, and Explosives. The bill would also give the Food and Drug Administration the same authority over marijuana that it has over alcohol. The bill would also give the Treasury Secretary the authority to regulate certain elements of marijuana advertising to ensure that it was not false or misleading.

Ultimately, the bill leaves more unsaid than said, and if it is ever passes, it will be up to the regulators to figure out the mechanics. It’s not certain that this bill will go anywhere, especially in such a tumultuous and chaotic time. However, the approach of regulating marijuana more or less like alcohol, similar to what many states are already doing and with an element of federal oversight, is a compelling idea. Stay tuned to the Canna Law Blog for more details and updates.