California marijuana lawWith passage of the Medical Cannabis Regulation and Safety Act (“MCRSA”) in 2015, California took a huge step towards regulating its medical cannabis industry after more than twenty years of minimal state government oversight under Proposition 215. Under the MCRSA, California medical cannabis businesses should expect a bevy of regulations spanning packaging and labeling requirements, mandatory quality assurance testing, advertising, seed to sale tracking, environmental impact restrictions, plant canopy and potency limitations, and financing and ownership restrictions. You should also expect the same level of regulation and government oversight under the Control, Regulate, and Tax Adult Use of Cannabis Act (“AUMA”), California’s legalization of recreational marijuana initiative that passed in 2016.

Though the AUMA and MCRSA are similar, they have distinct differences that will impact how cannabis licenses may be obtained and how cannabis businesses may be operated. Among other things, the AUMA and MRCSA differ on licensing timelines; priority licensing; mandatory distributorships; license categories and types; local approvals necessary before licensure by the state; ownership restrictions; residency requirements; and traceability systems. The MCRSA limits vertical integration of licensees, generally allowing cannabis licensees to hold licenses in no more than two separate categories and only in certain combinations while the AUMA has no such vertical integration restrictions.

In response to these AUMA and MCRSA conflicts, California Governor Jerry Brown recently proposed a technical fix Budget Trailer Bill. The fact sheet attached to that Bill states that as California  “moves forward with the regulation of both medicinal cannabis and adult use, one regulatory structure for cannabis activities across California is needed to maximize public and consumer safety.” Ultimately, Governor Brown’s Bill seeks to to merge the MCRSA and the AUMA into one master regulatory structure with two separate licensing tracks for medical and adult use cannabis operators. Governor Brown’s 79-page proposal generally favors the more liberal regulatory standards set out in the AUMA, and it would specifically do the following:

  1. Change the name of the AUMA to the Medicinal and Adult-Use Cannabis Regulation and Safety Act;
  2. Mandate anyone seeking to operate an adult use cannabis business apply for “A-Licenses,” and those seeking to open a medical cannabis business apply for “M-Licenses.” You can apply for both licenses and operate both kinds of businesses, but you cannot co-locate those businesses on the same premises;
  3. Remove AUMA’s requirement of “continuous residency” in California from at least January 1, 2015;
  4. Allow licensees to submit proof of local approval to the state but leave it up to local governments to ensure the license applicant is in compliance with local laws;
  5. Keep AUMA’s near total vertical integration of licenses except for testing labs, which must be independent of other licensees;
  6. Allow AUMA’s open distributor model for both medical and adult use cannabis businesses by allowing “a business to hold multiple licenses including a distribution license … [to] make it easier for businesses to enter the market, encourage innovation, and strengthen compliance with state law”;
  7. Define “applicant” as “an owner applying for a state license,” with at least a 20 percent ownership in the cannabis business or any person who participates in the “direction, control, or management” of the cannabis business.
  8. Require each cannabis business owner pass a fingerprinting and criminal background check and each applicant disclose “every person with a financial interest in the person applying for the license as required by the licensing authority”;
  9. Support the AUMA’s more liberal allowance for cultivation licenses;
  10. Add a new cultivation license — Type 1C, “specialty cottage” — which will mean California will have 20 types of cannabis business licenses;
  11. Require microbusinesses (licenses only available under the AUMA) to secure regulatory approval from the California Bureau of Cannabis Control and the California Departments of Food and Agriculture and Public Health;
  12. Mandate the AUMA and MCRSA have the same environmental protections and restrictions on licensees; and
  13. Task California’s Department of Food and Agriculture, (not its Bureau of Cannabis Control) with creating California cannabis appellation standards by January 1, 2020.

California’s Legislature must approve Governor Brown’s Bill by a two-thirds vote, and that is expected to occur (at least in some form) this summer.