When California was getting ready to legalize adult-use and medically commercial cannabis sales on January 1, 2018, we all knew it would be a bumpy ride. Going from the collective, cooperative, and non-profit models that governed marijuana operators (and I use the term “governed” loosely) prior to 2018, to a robust regulatory regime that was going to keep the federal government on the sidelines (hopefully) and better serve the public and the environment was never going to be easy.

When the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) was enacted in June of 2017, it merged the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult-Use of Marijuana Act (AUMA) into one regulatory regime. Under MAUCRSA there are three state agencies responsible for regulating and licensing cannabis operators: 1) The California Department of Food and Agriculture (CDFA), regulates cultivators, processors, and nurseries; 2) The California Department of Public Health’s (CDPH) Manufactured Cannabis Safety Branch regulates cannabis manufacturers; and 3) The Bureau of Cannabis Control (BCC) regulates distributors, retailers, delivery-only retailers, microbusinesses, temporary cannabis events, and laboratories.

In November of last year, all three agencies released their emergency regulations and licensing requirements (which we covered here and here). Upon gathering input from the public and cannabis businesses, all three state agencies made changes to their emergency regulations and readopted them last month.

In both the initial and readopted regulations, cannabis businesses were provided with a transition period that allowed for exceptions from certain regulatory provisions. The goal of the transition period was to grant cannabis businesses with a period of less stringent regulations so that they could sell cannabis products that were already in their inventory. The cost of compliance is a steep one and the transition period was an attempt to soften the blow. The readopted regulations made a number of changes (which we covered here) but what they didn’t change is the transition period’s termination date. The transition period ends on June 30, 2018, so starting on July 1 (which is also Canada Day!) the following regulations will apply:

July 1 is almost here!
  • Untested cannabis goods cannot be sold by a retailer and must be destroyed, nor will a retailer will be able to send the untested cannabis goods for testing.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in possession of a distributor that are owned by the distributor will have to be destroyed.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in the possession of a distributor owned by a manufacturer or cultivator may be returned to them. The manufacturer or cultivator could then sell the returned cannabis goods after sending them to a distributor and they pass all of the testing requirements.
  • All packaging and labeling of cannabis goods must be properly performed before being transported to a retailer. This also applies to cannabis goods that were in a retailer’s inventory before July 1. The only exception is that a retailer will be able to affix “FOR MEDICAL USE ONLY” for medicinal sales.
  • Cannabis goods in a retailer’s possession that do not meet packaging and labeling requirements will have to be destroyed.
  • All cannabis goods must be in child-resistant packaging, only having exit or secondary packaging be child-resistant shall no longer suffice.
  • Edible cannabis goods may no longer exceed 10 milligrams of THC per serving and may not exceed 100 milligrams of THC per package.
  • Non-edible cannabis products shall not contain more than 1,000 milligrams of THC per package in the adult-use market.
  • Non-edible cannabis products shall not contain more than 2,000 milligrams of THC per package in the medicinal market.
  • All products sold by a retailer will have to meet the CDPH’s requirements for ingredients and appearance.

In the long-term, the end of the transition period will benefit the public as the cannabis goods consumed will have passed stricter testing requirements. However, come July 1, you can expect to see less inventory on retailers’ shelves as there will inevitably be a number of cannabis goods that cannot pass the stricter testing requirements. Cannabis businesses that have been planning for the expiration of the transition period regulations are going to be the ones with good compliance programs and they’ll be able to take advantage of a less crowded marketplace as less forward-looking operators struggle to adapt.

One major concern for the California cannabis industry is whether there are enough licensed laboratories to meet demand. The BCC has currently issued temporary licenses to approximately twenty-nine (29) laboratories and whether they have the capacity to test all the cannabis products supplied by cultivators and manufacturers will have a direct impact on how fast a retailer can restock their inventory. In the short-term, you can expect to see some steep discounts from retailers as they’re forced to unload all their marijuana products that they’d have to destroy if not sold by July 1. Be ready for longer than normal lines at your favorite cannabis retailer on June 30!

It’s no secret that the City of Los Angeles has struggled with implementing its commercial cannabis program under the Medicinal and Adult-Use Cannabis Act (“MAUCRSA“). The licensing of existing medical marijuana dispensaries (“EMMDs”) under Measure M has been a slow and opaque process, but Los Angeles is committed to the success of its cannabis program long-term and isn’t in any rush to act hastily when it comes to continued licensing by the Department of Cannabis Regulation (“DCR“) and Cannabis Regulation Commission. Indeed, just last week, the Los Angeles City Council adopted a handful of ordinances and made several recommendations to the City Attorney (and other City departments) to tighten, clarify, and technically fix its current commercial cannabis legislation. The amended regulations take effect on July 23, 2018.

Here are the major highlights:

  • Off-site Advertising. Ordinance No. 185607 addresses commercial cannabis advertising in the City. We now have a 700-foot distance buffer for any off premises advertising for “Cannabis, Cannabis Products, or Cannabis Activity” in any “Publicly Visible Location” from “any School, Public Park, Public Library, Alcoholism or Drug Abuse Recovery or Treatment Facility, Day Care Center, and Permanent Supportive Housing,” except for those advertising signs that are located inside the licensed premises (unless it’s a window sign), or if the advertising sign is on any “commercial vehicle used exclusively for transporting or delivering cannabis or cannabis products.” The distance buffer also doesn’t apply to “the display of public service messages or similar announcements cautioning against the use of Cannabis or Cannabis Products or that are designed to encourage minors to refrain from using or purchasing Cannabis or Cannabis Products.” However, this exemption won’t be used “. . .to permit an advertisement that purports to caution against the use of Cannabis or Cannabis Products when that message is conveyed in conjunction with the display of a logo, trademark or name used by any person or entity engaged in any Cannabis Activity for marketing or promotion of Cannabis or Cannabis Products.” Lastly, the 700-foot buffer is measured as the crow flies from the property line of the prohibited facility to the “closest visible edge of the advertising sign face of the off-site sign.”
  • On-site Advertising. Ordinance No. 185607 also tackles on-premises advertising. Only one on-site sign per street frontage is allowed. And that signage is included in the “maximum sign area” allowed for the property (this is in addition to any mandatory state signage under MAUCRSA). On-site signage is now going to be content controlled–you can only have the following information on the sign: “name of business; ‘logogram’ of business; and business’ address, hours of operation and contact information. Other than the foregoing information, no advertising for Cannabis or Cannabis Products shall be displayed on any sign in a Publicly Visible Location.” And here’s the list of all the fun signage you CAN’T utilize: Portable signs or sandwich signs located in the public right-of-way; Digital signs; Spinner signs; Monument signs; Illuminated architectural canopy signs; Pole signs; Marquee signs; Roof signs; Temporary signs; Moving signs and signs with moving parts; and Supergraphic signs.
  • Testing. Ordinance No. 185609 addresses quality assurance testing in that licensees won’t have to have their products fully tested “until 120 days after City licensure, or until required under State of California Code of Regulations Title 16, Division 42, Chapter 5, Section 5715, whichever is sooner, after which all cannabis goods shall be labeled and tested.”
  • Technical fix legislation. Ordinance No. 185608 is the first technical fix legislation for existing commercial cannabis regulations in L.A. Here are the need-to-knows:
    1. EMMDs that entered into a payment plan with the Office of Finance to become current on outstanding taxes owed will be considered fully paid up for priority licensure (which closed back in March).
    2. The Type 10 Delivery Retailer License has been deleted–Type 10’s under state law outright allow delivery anyway.
    3. Crimes that will bar you from applying from a license have been further amended to include: “A Person with a felony conviction for violating any State or local law involving violent crimes, sex trafficking, rape, crimes against children, gun crimes or hate crimes for a period of 20 years from the date of conviction or completion of a term of imprisonment, supervised release or probation imposed as a sentence for the conviction, whichever is later.”
    4. EMMDs can now be approved for the full type 11 distribution license (not just “self-distribution transport only”).
    5. Since the April 1, 2018 deadline for accepting “Non-Retail” priority applications has come and gone, the DCR’s new standard is that it will accept those applications for no more than 30 days after it opens that particular application window. There’s City-wide speculation that this window will open on July 1, but the City hasn’t made anything official yet.
    6. If a testing lab obtains and maintains an ISO/IEC 17025 accreditation, the DCR may issue temporary approval to the testing lab before completion of a pre-licensing inspection.

What is probably even more interesting than the foregoing is that the City Council also asked (based on a June 5th motion) that the City Attorney, in conjunction with the DCR and other City offices, prepare and present an ordinance to make the following additional changes to existing cannabis regulations:

  • Address and control cannabis management companies. The City proposed that “management company” be defined as “any person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity, or any person who participates in the management, direction or control of another person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity.” The City Council has also proposed that “a management company shall not hold equity ownership in the applicant licensee or have the authority to make major decisions impacting the corporate structure of the applicant or licensee or the license held by the applicant or licensee.” However, a management company would be able to “receive revenue or profit-based compensation, subject to limitations established by the DCR.” Of course, this would still make the management company a financial interest holder under MAUCRSA.

Social Equity Program applicants (“SEPs”) and regular licensees would also have to get written approval from the DCR before engaging with a management company. All SEPs and licensees would also have to disclose to the DCR all written agreements or contracts with a management company and all other documents the DCR requires to identify all persons who will act as the management company for the business premises. And if you can’t qualify for licensure from the DCR, the DCR may also stop you from acting as a management company. Or if you’ve violated any local or state cannabis laws, the DCR may also knock you out from acting as a management company to a SEP or licensee. SEPs and licensee will be responsible for all acts or omissions of its management company in connection with compliance with state and city laws. All management companies engaged in commercial cannabis activity within the City of Los Angeles would have to register and maintain appropriate records with the DCR. Finally, management companies would be limited to entering into management agreements for no more than 3% of commercial cannabis businesses within the City of Los Angeles, by license type. That percentage will increase 1% on July 1st of every year beginning in 2019 until a total of 7% is reached. Tier 1 and Tier 2 SEPs would be exempt from these management company license limits.

  • More clarity on the social equity program and allowing more flexibility for Social Equity-licensed businesses. Among other tweaks and additions, Tier 1 and Tier 2 SEPs would be able to apply for retail licenses under the 2:1 ratio already set by the City, and Tier 3 applicants won’t be able to apply for retail licenses. Tiers 1 through 3 applicants would though be able to apply for non-retail licenses under the 1:1 ratio set by the City. The City also wants to allow the DCR to license incubator projects with multiple licenses for the education, training, etc. for SEPs. The City also asked that SEPs be allowed to apply for licensure even if they do not have local land use authorization, but local land use authorization must be obtained prior to completing the licensing process. The City would also increase term of Social Equity Program agreements to five years, and would allow Social Equity-licensed businesses to terminate their agreement with the actual SEP after five years, all with the approval of the DCR. Interestingly, the City added that the Social Equity-licensed business would have the right of first refusal to buy out the SEP applicant (presumably at any time). The City is also planning to allow the Social Equity-licensed business to replace the SEP under certain criteria and conditions.
  • Taxes and Cannabis Reinvestment Act. The City Council also asked the City Attorney to draft an election “Ordinance and Resolutions” to place a ballot measure before the voters at the November 6, 2018 State General Election entitled the “Cannabis Reinvestment Act,” and that the ballot measure would, among other revenue captures, implement a one percent gross receipts tax on all commercial cannabis activity to be “reinvested in the community with all funds going to a newly created Cannabis Reinvestment Trust Fund” earmarked for various City items and groups.

Without a doubt in the coming weeks we’re going to see even more legislation from L.A. regarding amending its current cannabis regulations (with specific regard to its much-anticipated Social Equity program), and these forthcoming changes will also directly affect would-be licensees’ ability to pursue licensure in the long run in what may end up being California’s largest cannabis marketplace. So, stay tuned!

marijuana cannabis oregon initiative
The goal of your ballot initiative is to get to a vote.

Oregon successfully legalized the use, sale, processing, and production of recreational marijuana in 2014 through the initiative process. The initiative process is a method of direct democracy that allows people to propose laws outside of the normal legislative process. Oregon’s marijuana statute (ORS 475B) allows cities and counties to “opt-out” of commercial recreational marijuana. In other words, cities and counties do not have to allow for the sale, processing, or producing of marijuana within their jurisdictional borders. ORS 475B, as originally written, allowed cities and counties to automatically opt-out if registered voters in the jurisdiction voted at least 55% against the legalization. All other cities or counties could either create reasonable time, place, and manner restrictions for marijuana businesses or could put up an opt-out vote to the public at the next general election.

Many cities and counties chose to opt-out from legalized recreational marijuana. In these jurisdictions, citizens can still use and possess marijuana, but licensed recreational businesses are not allowed to operate in jurisdictions that opted-out. Still, citizens can use the initiative process to change these local laws. The initiative process allows for citizens to propose a city or county ordinance allowing Oregon Liquor Control Commission (OLCC) licensed marijuana businesses within the jurisdiction. We have expertise in navigating this process and we are, in fact, running one initiative in an “opt out” jurisdiction right now.

The initiative process, much like many forms of our government, is overly complicated with a host of rules and technical requirements. It requires a lot of steps, careful planning, patience, and organization. Once an entrepreneur decides he or she wants to change the laws, the initiative process starts by filing a prospective petition with the local elections official. The prospective petition includes the language of the proposed ordinance. The language is an opportunity to develop a local ordinance that fulfills your goals and the citizens goals for licensed marijuana businesses.

After the prospective petition is submitted, the city or county will approve it for circulation. This is when the real work starts. Initiative petitions are not automatically guaranteed a spot on the ballot. Instead, initiative petitions must gather the support of the public to be included on the next election’s ballot. Almost all of us have been accosted by a circulator on the MAX or downtown in Portland asking if we are a registered voter and if we’ll sign the petition sheet to get a measure on the ballot. City initiative petitions require valid signatures from 15% of the registered voters in the city and County initiative petitions require 8% of registered voters.

If the local elections official determines enough valid signatures were received, the initiative will be referred to the local governing body. The local governing body has the option to adopt the petition without sending it to the ballot. They can also choose to allow the petition to be voted on in the next election. If it makes it onto the ballot, the initiative must receive a majority of approval from the voters to pass. If it receives a majority of votes, the initiative will be enacted as law.

Initiative petitions are one way to attempt to change local laws surrounding marijuana businesses. These petitions can be drafted in favor of their drafters, who may attempt to set themselves up for success once an initiative passes. Over the past few years, some citizens in Oregon have attempted and failed, while others have successfully changed local law to allow for recreational marijuana licensees. The process is long and complex, but the upside can be tremendous.

california cannabis marijuanaThe movement to legalize cannabis in the United States has come a long way since Californians started it all with the Compassionate Use of Act of 1996 (“Prop 215”). For many years after Prop 215, the pace of change was glacial. In California, it wasn’t until 2004 (8 years after Prop 215) that the California State Legislature passed Senate Bill (“SB 420”). SB 420 recognized the rights of qualified patients and their caregivers to collectively or cooperatively cultivate medical cannabis. Then it took an additional four years until the California Attorney General (who at the time was Jerry Brown, the state’s current governor) released the state’s guidelines (“Guidelines”) on medical cannabis enforcement in 2008.

The Guidelines created the framework for non-profit mutual benefits corporations, collectives, and cooperatives to provide medical cannabis to their patient members. Although the Guidelines were a step in the right direction, they still left many medical cannabis operators uncertain as to what was allowed. It took another seven years before California substantively addressed the cannabis industry when the State Legislature passed the Medical Cannabis Regulation and Safety Act in 2015 (“MCRSA”). But ever since the passage of the MCRSA and the Adult Use of Marijuana Act in 2016, the pace of change in California’s cannabis regulatory landscape is perhaps best described by a quote from Ernest Hemingway’s “The Sun Also Rises.” One of the characters, when asked how he went bankrupt, replied, “Two ways. Gradually and then suddenly.”

In California, we are firmly entrenched in the “suddenly” camp of cannabis regulations. The main reason cannabis operators are seeing a flurry of laws and regulations is because the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) allows for both state and local governments to regulate and license cannabis businesses. Keeping up with the state’s dual licensing regime is a never-ending endeavor. As an example, the state licensing agencies – the Department of Food and Agriculture, the Department of Public Health and the Bureau of Cannabis Control – just recently released and published readopted emergency regulations (which we covered, here).

This week we also saw important legislation make progress on the state and local level. They are as follows.

State Level:  AB 2641 and Temporary Retailer Licenses.

On the state level we saw Assembly Bill 2641 make it out of committee. We previously covered AB 2641, here, but a brief recap will be helpful. Under MAUCRSA only a retailer, delivery-only retailer, or microbusiness (“Retailers”) can sell cannabis products to the public. Currently, cannabis cultivators and manufacturers have no way to directly sell their cannabis goods to their consumers – they are completely reliant on Retailers at the point of sale to tell the public about their product and company mission. AB 2641 would allow certain cultivators and manufacturers the ability to obtain temporary retailer licenses. These temporary licenses would authorize cultivators and manufacturers to sell their products directly to their consumers at temporary cannabis events that are authorized by the appropriate local jurisdiction. AB 2641 needs the approval of two thirds of the State Assembly for it to pass. You can find information on how to support AB 2641 through the California Growers Association website.

Local Level: Sonoma County Recommendations.

As previously mentioned, California is a dual licensing state and we cover local changes in our California Cannabis Countdown series. Each California city and county have their own internal processes for passing cannabis ordinances in their jurisdictions. For example: In Sonoma County, the Planning Commission, the Board of Supervisors (and their Ad Hoc Cannabis Committee), the Cannabis Advisory Group, and the public (through hearings and workshops) all play a role in shaping cannabis policy in Sonoma County. Ultimately it comes down to the Board of Supervisors and we covered one its more contentious hearings here. The County’s Permit and Resource Management Department just recently released a staff report (“Report”) with proposed changes to the county’s cannabis ordinance. Here are some of the Report’s recommendation highlights:

  • Allow adult-use cannabis operations;
  • Extend the life of new cannabis permits from one to two years;
  • Allow transferability of permits between operators;
  • Add processor, microbusinesses, self-distributor transport-only, and shared-use manufacturing as cannabis license types;
  • Amend whether a conditional use permit or zoning permit is needed depending on the zone and parcel size of the property; and
  • Create a cannabis inclusion zone for cultivation applicants that do not have eligible zoning, but which have unique characteristics that may make them eligible for a conditional use permit.

You can download the full Report from the County’s cannabis page, here. The Planning Commission will hold a hearing to discuss the Report’s proposals on June 7th at 1:30pm. AB 2641 and Sonoma County’s Report can provide instrumental lifelines to many cannabis businesses, so let’s do what we can to ensure they pass. Keep checking in as we’ll be sure to keep you posted on their developments.

california cannabis leasing
Again and again and again.

Last Friday, California released another round of emergency regulations that essentially renewed the existing emergency rules, but with some updates, a fair amount of which affect commercial cannabis leasing. Here are some of the notable ones.

“Premises” distinctions defined. SB 94 and AB 133, the statutes enacted in 2017 to implement and refine Prop 64, both defined a licensed “premises” as a “designated structure” that is held “under the control” of the licensee for commercial cannabis activity, and must be contiguous and held by only one licensee. The statutes did not, however, define what those terms meant with regard to physical segregation of licensed spaces, which is an important factor for places like warehouse spaces where multiple tenants want to operate concurrently, or any rental space with common areas. The new emergency regulations address this issue by clarifying that for the areas of a licensed premises required to be under a licensee’s exclusive control for operations, actual walls and locked doors will be required, but that common or shared spaces will be allowed for multi-tenant spaces without violating that requirements. This may seem like common sense, but until now it was not codified. This means that landlords and tenants alike will have more certainty in planning out the leased premises.

Potential for shared entrances. On a related note, the new rules contemplate the use of a shared entrance, so that each licensed premises need not have its own exclusive access to the outside world. The catch, however, is that if neighboring licensees share a common entryway, and state inspectors are prevented from accessing a licensed premises due to a neighboring licensed premises preventing passage, then both licensees shall be responsible for the access violation and subject to discipline. Be warned!

No change to license stacking. Sometimes a lack of change is more significant than a change. The prior emergency regulations caused some controversy by allowing for stacking of small cultivation licenses and the potential proliferation of cannabis mega-farms. In fact, the state had to defend a lawsuit over this very issue. But despite all the controversy, the new regulations do not change the situation: a single licensee can still hold an unlimited amount of cultivation licenses each for up to 10,000 square feet of canopy, with no requirement that those licenses each have a separate and distinct premises.

Strict separation of residential and commercial buildings. It’s very common for commercial cannabis cultivation property purchases, especially in California’s Emerald Triangle, to include a residential home on the property. We’ve previously written about the pitfalls of these farmhouse purchases. The new emergency regulations reflect the state’s concern with mixing home and work when it comes to cannabis. The rules now require that the premises diagram in the license application clearly define which buildings on site are residential and which are commercial, and prohibit any licensed premises from being located within a private residence or from requiring a person to pass through a private residence to access the licensed premises.

Expanded access to shared utilities. An update to the rules last month created a new opportunity for manufacturer co-tenants to sublease shared space under certain circumstances, similar to a time-share arrangement. The new emergency regulations provide additional opportunities for tenants in a multi-tenant building or shared space to pool resources, including security camera systems, security guard services, and alarm systems. The catch, however, is that if multiple licensees decide to share such resources, each licensee is responsible for the violation of any regulations by any other licensee as it pertains to the shared resource.

It remains to be seen what other changes the state might make to its cannabis regulations when it issues its final rules, but it does seem that the rules are tending towards economies of scale in some respects. It will be interesting to see how strictly the state decides to enforce its rules as it continues to deal with black market stragglers that have thus far declined to join the regulated community.

california marijuana cannabis

Whenever government enacts new regulations there will always be some people and businesses that will be unhappy with the new changes. So, it came as no surprise when California embarked on its mission to create a state licensing regime for cannabis businesses (as well as personal use) that issues would arise. What made enacting cannabis regulations in California so difficult is that ever since Californians voted for the Compassionate Use Act in 1996 (a/k/a Prop 215), cannabis cultivators, manufacturers, and dispensaries were operating without regulations in what everyone conveniently called the legal “grey” area (a Michael Cohen area of practice).

That all changed when the state legislature passed the Medical Cannabis Regulation and Safety Act (MCRSA) in 2015 and a majority of the good people of California voted in favor of the Adult Use of Marijuana Act in 2016 (AUMA). In June of 2017, California Governor Jerry Brown signed into law Senate Bill 94 (a/k/a the Medicinal and Adult-Use Cannabis Regulation and Safety Act a/k/a MAUCRSA). MAUCRSA merged medical and adult-use cannabis activities under one regulatory regime and empowered three state agencies to license and regulate the commercial cannabis industry: The California Department of Food and Agriculture (cultivators, processors, and nurseries); the Department of Public Health (manufacturers); and the Bureau of Cannabis Control (distributors, retailers, delivery-only retailers, microbusinesses, and testing labs). Each state agency released their emergency regulations in November of 2017, which we covered for cultivators, manufacturers, distributors, and retailers.

The emergency regulations were quite the departure from the previously unregulated “grey” market of the previous twenty years. They were however not without some hiccups: Such as the removal of the cultivation acreage cap or the steadfast intransigence of local jurisdictions in licensing commercial cannabis activities.

After the release of the emergency regulations, representatives from the three state cannabis licensing agencies travelled up and down the state to solicit public input on the regulations. The reason the state continued to solicit feedback from the public was due to the fact that the emergency regulations were actually just temporary regulations. All three state agencies were required to release permanent regulations later this year – when exactly the permanent regulations were going to be released was anyone’s guess. While current cannabis businesses and aspiring entrepreneurs have been busy figuring out how to navigate the licensing landscape, the state just went ahead and made changes to the emergency regulations. Just this Friday all three state agencies released new emergency regulations (nothing like a regulation drop on a Friday!). We’ll cover the changes in greater detail in future posts (stay tuned) but here are a couple of highlights:

  • Applicants can submit one application (and pay one fee) to obtain both an adult-use and medical cannabis license. Previously you had to submit two applications and pay two separate licensing fees if you wanted to operate in the medicinal and adult-use market. This applies to all three licensing agencies.
  • A licensee can now engage in commercial cannabis activities with any licensee, regardless of medical or adult-use designation. This is a permanent extension of the transition period in the emergency regulations that allowed medical cannabis licensees to contract with adult-use licensees and vice versa (the transition period was set to expire on July 1, 2018). This also applies to all three agencies.
  • The Bureau of Cannabis Control’s definition of financial interest holder was amended to specifically state that anyone that has an agreement to receive a portion of the profits of a commercial cannabis business will be considered a financial interest holder (there’s an exception for diversified mutual funds, blind trusts, and similar financial instruments).
  • The BCC regulations also specify that licensees authorized for retail sales may not sell or deliver cannabis goods through a drive-through window.
  • A retailer’s delivery employee can now carry cannabis goods valued up to $10,000 while making deliveries (the cap was previously set at $3,000).
  • The Bureau of Cannabis Control reduced the annual license fees for its licensees.
  • The Department of Food and Agriculture revised how it will measure canopy for indoor, mixed-light, and outdoor license types.
  • The Department of Public Health (DPH) formally incorporated the regulations for shared-use facilities, which we covered here.
  • The DPH specifically removed tinctures from the definition of a product containing alcohol. However, tinctures shall not be sold in a package larger than two fluid ounces and shall include a calibrated dropper or other measuring device.

The public will now have all of five days to comment on the re-adoption of the emergency regulations. The five day window for public comment will begin once the California Office of Administrative posts the emergency regulations on its website – which it can do no earlier than May 25, 2018. When these updated emergency regulations are formally adopted the licensing agencies will have 180 days to develop their final regulations. Be sure to check in as we update you with even more details on these emergency regulations and how they may impact your cannabis business.

California has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is embracing cannabis (and how), and everyone in between.  For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on the Town of Truckee, and before that the City of Cotati, the City of San Luis Obispo, the City of Redding, the City of San Rafael, the City of Hayward, Alameda County, OaklandSan FranciscoSonoma County, the City of Davis, the City of Santa RosaCounty and City of San BernardinoMarin CountyNevada County, the City of Lynwood, the City of CoachellaLos Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey Countyand the City of Emeryville.

Today’s post is on the city of San Jose.

Welcome to the California Cannabis Countdown.

Surely there’s room for a few more licensed cannabis businesses?

Location. San Jose is the third most populous city in California and the largest city in Northern California. Located south of San Francisco and Oakland, San Jose is the county seat of Santa Clara county and the soon to be home of a massive new campus for Apple. San Jose is also home to the San Jose Sharks (get them next year) and the fervent fans of the San Jose Earthquakes.

History with Cannabis: Back in 2011, the City Council began the process to enact a land use and regulatory ordinance to govern  medical marijuana operations. Unfortunately, the City Council ended up suspending the land use ordinance and then repealing the regulatory ordinance – the effect of which meant that all medical marijuana collectives, cooperatives, and dispensaries operating in San Jose were doing so illegally. Then in June of 2014, the San Jose City Council passed their Medical Marijuana Program (“MMP”). The MMP was an amended attempt to correct the City’s failure to pass a medical marijuana ordinance back in 2011. The MMP went into effect on July 18, 2014 and gave medical collectives up until October 17, 2014 to submit their applications with the City.

At the time the MMP was passed there were an estimated 78 collectives operating in the San Jose, of which 50 collectives submitted applications with the City. Of those 50 medical marijuana collectives that submitted applications, only 16 were able to successfully navigate the application process and maintain their license in compliance with the San Jose’s regulations. Since the passage of the MMP, there have been no new cannabis licenses issued — only the 16 registered collectives have been authorized to cultivate, manufacture, and sell medical cannabis within city limits.

In November of 2017, the City Council passed Ordinances 30029 and 30030 authorizing adult-use cannabis activities. However, the adult-use ordinances did not open up licensing to new applicants — it only allowed the previously registered medical collectives to operate as adult-use businesses as well. These registered collectives have had a really good run as the only cannabis operators in town (legal operators anyway) but that may change as the City Council is considering opening registration to new cannabis operators for the first time since the MMP.

Proposed Cannabis Laws: This Monday, May 21 (6pm at City Hall), the City Council will hold a public hearing to discuss allowing new cannabis businesses to register and operate in San Jose. The City Council is considering allowing new businesses to register for the following types of cannabis licenses:

  • Manufacturing (volatile and non-volatile).
  • Distribution.
  • Testing laboratories.
  • Additional cultivation licenses are not currently on the agenda.

These are just the additional stages of the discussion that’s set to take place. It’s still to be determined whether the City will cap the number of additional licenses (or remove some of the proposed license types altogether) so it’s especially important for cannabis entrepreneurs to show up on May 21st and voice their opinions. All in all, it’s about time that new cannabis businesses get a chance to enter the cannabis market of California’s third largest city.

california marijuana cannabis invest own

Passage of California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“) has opened the doors to institutional investing in California cannabis companies. California’s lack of a residency requirement for investors and its relatively limited investor disclosure and background requirements have made it popular for institutional investors looking to invest in cannabis. In that sense, California is building out its program to mirror wide-open states like Oregon, and not protective states like Washington.

There are two main types of California cannabis applicants: owners and financial interest holders. To be legally considered an “owner” under California’s cannabis regulations, one does not actually need equity in the applicant’s cannabis business. “Owner” means any of the following:

  1. A person with an aggregate ownership interest of 20 percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, encumbrance;
  2. the chief executive officer of a nonprofit or other entity;
  3. a member of the board of directors of a nonprofit; and
  4. and any individual who will be participating in the direction, control, or management of the person applying for a license.

An individual who directs, controls, or manages the business includes any of the following: a partner of a commercial cannabis business that is organized as a partnership; a member of a limited liability company of a commercial cannabis business that is organized as a limited liability company; and an officer or director of a commercial cannabis business that is organized as a corporation. These are all fairly standard definitions, as far as cannabis regulation goes.

Even if someone is not an “owner,” however, that person or company may still be deemed a financial interest holder (“FIH”). “Financial interest” is broadly defined to mean “an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other ‘equity interest’ in a commercial cannabis business.” California cannabis regulators consider the term “equity interest” to include less than a 20% ownership in the cannabis applicant and pretty much any profit-sharing arrangement or entitlement to profits from cannabis licensee, including IP licensing royalties and percentage rent arrangements. The following are not considered FIHs: banks and financial institutions; diversified mutual funds, blind trusts or similar instruments; holders of security interests, liens, or encumbrances on property that will be used by the commercial cannabis business; and individuals holding less than 5 percent of the total shares in a publicly traded company.

California requires FIHs be disclosed to and vetted by the state upon application for annual cannabis licenses. The license applicant must provide a complete list of all financing it receives. Specifically, the license application mandates that applicants include the name, birthdate, and government-issued identification type and number (i.e., driver’s license) for any individual with a financial interest in a commercial cannabis business. FIHs are not required to submit to criminal background checks but they will still undergo some vetting by state regulators.

Even with these new rules, most institutional investment in the cannabis space is still concentrated in “ancillary services“, i.e. services that support cannabis businesses but do not “touch the plant.” Examples include turnkey real estateequipment and materials leasing and salesintellectual property licensing, consulting services, and tech platforms. Many institutional investors still want to stay one or two steps removed from touch-the-plant cannabis businesses and do not like the idea of being listed in a state database as being an owner or FIH. However, given California’s wide-reaching definition of owner and FIH, even these companies and their investors can be deemed by the state to have a direct cannabis business interest. To avoid being considered owners or FIHs in California, ancillary service providers will need to avoid directly providing financing, using profit-sharing or similar performance-based payment schemes with cannabis businesses. They will also need to avoid managing, directing, or controlling the licensed entity.

Editor’s Note: A version of this post originally appeared in an Above the Law column, also by Hilary Bricken.

If you’ve been following the state of affairs of commercial cannabis licensing in California, you know that it really is a tale of two cities (or counties). Both the Medicinal Cannabis Regulation and Safety Act (passed by the California state legislature in 2015) and the Adult Use of Marijuana Act (passed as a ballot measure by a majority of Californians in November of 2016) granted absolute discretion to local jurisdictions in determining how they wanted to regulate commercial cannabis activities. This deference to local jurisdictions was included in Senate Bill 94 (a/k/a the Medicinal and Adult Use Cannabis Regulation and Safety Act), which merged California’s medical and adult-use cannabis regulations under one regulatory regime. Although granting local jurisdictions the authority to regulate cannabis businesses was a necessary concession to get statewide cannabis legislation passed, in practice it’s the local jurisdictions that have been a significant impediment to bringing cannabis operators into the regulated market (which we’ve covered here and here).

Very few of California’s 482 cities and 58 counties are allowing medicinal and adult-use commercial cannabis activities within their borders. Instead of seeing cannabis businesses operating evenly throughout the state, what we’re seeing is an undue concentration in just a select few jurisdictions. The fact that so many California jurisdictions have outright commercial cannabis bans in place is forcing cannabis operators to relocate to cannabis friendly jurisdictions if they want to participate in California’s legal cannabis market. Cities and counties that have been open to cannabis businesses are now starting to rethink their approach as they’ve been inundated with the number of cannabis applications they’ve received. We’re seeing this trend take shape in Sonoma county and the city of Sacramento may be next.

sacramento cannabis marijuana
Will Sacramento turn back the clock on cannabis?

Sacramento falls squarely in the camp of a cannabis-friendly jurisdiction (for now): It licenses both adult-use and medical cannabis businesses to go along with all seed to sale license types (outdoor cultivation and volatile manufacturing are the only prohibited cannabis activities). When you combine: the size of Sacramento’s population, its place as the state’s capital, its relatively inexpensive cost of living (compared to the Bay Area, Los Angeles, and San Diego), and their willingness to license all types of cannabis activities, then it shouldn’t come as a surprise that cannabis operators have been flocking to Sacramento.

Unfortunately, Sacramento legislators have noticed the inbound cannabis migration as well, and they do not seem happy about it. Like most California jurisdictions, Sacramento only allows commercial cannabis businesses to operate in a couple of zoned districts. According to the city these districts are being overwhelmed by cannabis applications.

Sacramento city legislators feel so strongly that some neighborhoods are home to too many cannabis businesses–specifically the area within the Power Inn Alliance Business Improvement District (PBID)–that they’ve introduced a proposed ordinance to curtail the number of cannabis businesses in the city. The proposed ordinance would prohibit a cannabis business from being issued a permit if the city’s cannabis decision maker finds that the proposed site will result in an undue concentration of cannabis establishments in the area. The proposed ordinance defines undue concentration as follows:

  • Any cannabis cultivation that it is located within the area bounded by Power Inn Road to the west, Folsom Boulevard to the north, and the city limits to the east and south; and will result in more than 2.5 million square feet of building floor space approved by a conditional use permit for cannabis cultivation use in that area; or
  • Any cannabis production facility (cultivation, distribution, or non-volatile manufacturing) in all other parts of the city that is located on a parcel within 600 feet of another parcel having a use permit for cannabis production or a cannabis dispensary, unless the decision-maker determines that there is an overriding public benefit in approving the use permit for the proposed location.

The PBID district already has approximately 2.8 million square feet in cannabis cultivation conditional use permit applications pending and over 1,169,090 square feet of cannabis cultivation has already been approved. If the proposed ordinance passes, then it will only be a matter of time before Sacramento closes its doors to new cannabis operators.

Unfortunately, this trend of curtailing cannabis permits is likely to become more common so long as a vast swath of California continues to prohibit commercial cannabis businesses from entering the legal market. Sacramento will hold hearings on its proposed ordinance tomorrow, May 8th (at 3pm before the Law and Legislation Committee) and on Thursday, May 10th (at 5:30pm before the Planning and Design Commission). If you want to make sure Sacramento keeps its doors open to cannabis businesses, it’s imperative you show up.

California has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is embracing cannabis (and how), and everyone in between.  For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on the City of Cotati, an before that, the City of San Luis Obispo, the City of Redding, the City of San Rafael, the City of Hayward, Alameda County, OaklandSan FranciscoSonoma County, the City of Davis, the City of Santa RosaCounty and City of San BernardinoMarin CountyNevada County, the City of Lynwood, the City of CoachellaLos Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Today’s post is on the town of Truckee.

Welcome to the California Cannabis Countdown.

LocationTruckee is an incorporated town in Nevada County. Truckee is about 200 miles northeast of San Francisco and is just a short drive to Lake Tahoe. With its historic (and often bustling) downtown, background views of the Sierra Nevada mountains and proximity to world class ski resorts in the Lake Tahoe area, Truckee has become an attractive tourist destination. If you’re driving during the winter make sure to bring snow chains as you don’t want to veer off the road, get lost, and meat (pun intended) the fate of the Donner Party.

california cannabis marijuana Truckee
Is delivery coming to Truckee?

History with Cannabis: Truckee is known for its open beautiful landscape but no one would ever say it’s a jurisdiction that’s been open to cannabis. Dating back to 2005 the city adopted an interim ordinance prohibiting dispensaries. In 2008 the Community Development Director released a statement that dispensaries were not allowed under Truckee’s Development Code. It was only in 2015, when the California state legislature passed the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act was going to be placed on the 2016 statewide ballot, that Truckee decided to revisit its prohibitionist stance towards cannabis. At this point the Town Council began to earnestly look into the feasibility of regulating cannabis businesses in jurisdiction. To gauge community feedback the Town Council held public workshops in February, March, April, and May of 2017. After those workshops the Council held three public meetings that focused on the following options: 1) continued prohibition; 2) allowing only commercial medicinal access; or 3) allowing medicinal and adult-use access. In the end the Truckee Planning Commission developed Resolution 2018-04 (“Resolution”) that would authorize delivery services.

Proposed Cannabis Laws: The proposed Resolution is by no means a gigantic step for Truckee cannabis businesses, but it’s still a step in the right direction. And a step forward is still better than the status quo of outright prohibition. Here are some of the Resolution’s highlights:

  • Allows for both medical and adult-use delivery services;
  • All other cannabis activities are prohibited (unfortunately);
  • The buffer from schools, day care centers, and youth centers would be 1,000 feet as opposed to the state’s 600 foot requirement;
  • The delivery service shall be in a fixed structure and not open to the public;
  • There are no caps on the number of licenses;
  • A license is only transferable with the approval of the Community Development Director; and
  • The term of license is for perpetuity so long as the licensee is operating in compliance with local and state law.

If you’ve been following the slow rollout of cannabis licenses from California’s state agencies, you know that the biggest impediment to securing a cannabis permit has been local regulations. Would we like to see local jurisdictions reasonably regulate all seed to sale license types? Of course we would, but that doesn’t mean that we won’t encourage smaller locales that decide to take their first step into regulating cannabis. This is especially true when a local jurisdiction is putting in place regulations to provide patients and consumers with access to tested cannabis as opposed to forcing residents to buy from the black market.

Making sure Californians have access to cannabis through delivery services has also faced initial hurdles in 2018, so having smaller locales, like Truckee, authorize cannabis delivery will benefit all legal cannabis operators along the supply chain. A hearing on the Resolution was held two weeks ago, but the Planning Commission continued the matter to the next Commission meeting, which will be held on April 26 at 6pm. We’ve seen how public support (and opposition) can sway undecided local legislators so if you want safe access to cannabis in Truckee, it’s paramount that you show up at the Planning Commission meeting!