Today, the California Department of Public Health (CDPH) released its proposed emergency regulations governing cannabis manufacturing in shared-use facilities. We’ve written previously about CDPH’s statement that it was developing an additional license type, Type S, which would allow businesses to share facility space, and we’re pleased to see such quick progress in rules development. We see this license type as benefiting small business owners who may not otherwise be able to afford buildout of their own manufacturing facility.
According to the CDPH, the proposed emergency regulations will be filed with the Office of Administrative Law (OAL) on April 3, 2018, and will then undergo a five-day public comment period until April 8th. The stated goal of these new regulations is to “provide opportunities for small manufacturing businesses,” and is “in response to demand from cities and counties wishing to implement equity programs.” The regulations should be important to an often neglected segment of industry players.
Under the current rules, each manufacturing licensee must occupy its own separate and distinct premises, with the exception being that a licensee may hold both an M- and an A- license of the same type on one premises. But under the proposed rules, Type 6, 7 or N licensees would be able to register their location as a shared-use facility. After approval by the CDPH, other cannabis manufacturers wishing to utilize that shared-use facility would apply for a Type-S license.
This new license structure would “allow for operations similar to a commercial kitchen or agreements in which larger manufacturers offer space and use of equipment to smaller ones.” This license type will open the door to many small manufacturers who have been unable to secure their own real estate in a highly competitive market, or do not possess the requisite capital for building out their own facility. In that sense, we are pleased to report today’s development.
Some important things to note about these new regulations:
- A licensed premises still cannot be used to manufacture any non-cannabis products, and each manufacturer on the premises must be licensed by the state.
- Type-S licensees may only conduct the following cannabis manufacturing activities:
- Packaging and labeling;
- Extractions with butter or food-grade oils (the extract or concentrate produced can only be used in the Type S licensee’s infused products).
- The shared-use facility must include storage for the Type-S licensee’s cannabis and cannabis products.
- The primary licensee/owner of the shared-use premises must assign a designated area to be used as a shared space. They must post an occupancy schedule, outlining the days and/or times that the space will be used by Type-S licensees, and only one licensee can utilize the space at a time.
- There is no limit to the number of Type-S licensees that can operate within a registered shared-use facility, but again, only one licensee can utilize the shared space at a time.
- The primary licensee is responsible for ensuring that the entire facility meets the conditions for cannabis manufacturing under state and local law and the cannabis manufacturing regulations. This includes providing security, waste management and contamination controls and providing secured storage for Type S licensees to hold their cannabis and cannabis products.
Also important to note is that all Type-S license applicants will need to submit a copy of a valid license, permit or other authorization issued by the local jurisdiction that enables the applicant to conduct commercial cannabis activity. This authorization will be required of both the primary licensee (showing that the local jurisdiction approves of a shared-use space) and all Type-S licensees utilizing the shared space. Most local jurisdictions have not explicitly addressed the issue of licensees sharing space, so it will be critical to communicate with your local government if you intend to apply for a shared-use facility designation or a Type-S license to determine what the licensing and permitting requirements will be.