california marin county marijuana cannabis

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 San Jose, 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 County the City of Emeryville and the City of Antioch.

In addition to the above, we have previously written about commercial cannabis regulations in Marin County here, here, and here. Today’s post is an update on those regulations, as requested by one of our faithful readers.

Welcome to the California Cannabis Countdown.

What commercial cannabis activity is allowed in Marin County?

In unincorporated Marin County, medicinal cannabis delivery-only retailers (MCDORe) are allowed pursuant to a licensing ordinance approved on November 14, 2017. These locations must be closed to the public– only delivery is allowed.

How many retailers are allowed?

A maximum of four MCDORe locations are authorized in the C1 (Retail Business), CP (Planned Commercial), AP (Admin and Professional), OP (Planned Office) and IP (Industrial Planned) zoned districts. MCDORe locations must be located at least 600 ft from schools, day care centers, youth centers and playgrounds.

What about delivery?

Delivery of medicinal cannabis into unincorporated Marin County by licensed retailers located outside of unincorporated Marin County is also allowed. All other commercial cannabis activities are prohibited in unincorporated Marin County.

Is Marin County accepting MCDORe license applications?

The deadline for applications was July 12, 2018 and Marin County is not accepting additional MCDORe applications at this time. According to County staff, there may be an opportunity for additional licenses in the future if the program expands. After implementation of MCDORe licensing, Marin County will be evaluating program expansion into other potential licensing regulations.

What about non-medical?

Currently, Marin County does not allow any adult-use commercial cannabis activities, including cultivation, manufacturing, testing, distribution or retail sales. This is unfortunate, because in 2016, 69.6 percent of Marin voters supported Proposition 64. For this to change, citizens and industry should make it known to the County Board of Supervisors that an additional licensing ordinance is needed.

cannabis marijuana L.A. social equity
Looks good. Might get messy.

Phase II cannabis licensing in the City of Los Angeles (for only non-retail activity) kicked off on August 1 at 12 p.m. (and it will conclude on September 13th). To qualify for a City of Los Angeles cannabis license during this timeframe, an applicant must, among other things, be eligible for the City’s cannabis social equity program. This qualification factor has propelled a search for business partners who will make them eligible for Phase II cannabis licensing. Though this momentum is spurring business marriages all over the City many of these “partnerships” are little more than ruses for circumventing the social equity requirements.

It’s not unusual in the cannabis industry to see people rush into half-baked, hasty business marriages for fear that some grand opportunity will pass them by if they don’t. This is why the cannabis litigation lawyersat my firm spend so much time litigating cannabis business ownership disputes. LA’s social equity component has created a new breed of business “relationship” ripe forscamsand potential applicants on both sides of the social equity aisle need to be aware of the tricks being used to game this new system.

The below are some examples of what our Los Angeles cannabis lawyers have been seeing and are likely to see from social equity cannabis business unions in L.A.:

  1. The Tier 1 and Tier 2 Straw Men. To qualify for social equity in Los Angeles you need some combination of “low income” status, a “cannabis conviction,” or having lived in a “disproportionately impacted area” in the City for a certain amount of time. (For a detailed explanation of LA’s social equity qualification requirements go here.) Based on what you can prove as a social equity applicant, your cannabis business will be categorized as a Tier 1 or a Tier 2 business. To be Tier 1, the social equity applicant must have at least 51% of the equity in the cannabis business. To be Tier 2, the social equity applicant must have at least 33.3% of the equity in the cannabis business. Government rules that require sharing equity make even hardened business people nervous about losing voting control and search for ways around this rule. We expect to see Tier 1 and 2 cannabis businesses claim on paper (via operating agreements, bylaws, or subscription agreements) that they have the requisite equity spread while utilizing a “side letter” or a handshake to ensure that the actual social equity applicant has little to no real economic or control rights.
  2. The Incubator Terminator. L.A.’s social equity program has a Tier 3 cannabis business category that does not involve equity sharing. To qualify as a Tier 3, you must provide space, utilities, capital, business assistance, and licensing help to a Tier 1 or 2 business for no less than two years. Los Angeles is a very competitive cannabis market and I would not expect many will want to assist their competition and certainly not for free. This means we are bound to see Tier 3 businesses seek to sabotage their Tier 1 or 2 “roommates” so as to strengthen the competitive landscape for their own business. Oakland has shown what can happen when an incubator drags its feet during the entitlement process to the detriment of the social equity applicant, and unless Los Angeles mandates reporting requirements from Tier 1s and 2s to ensure Tier 3s are actually providing the help required by law, we can expect to see a Tier 3s working for the death of “their” Tier 1s and 2s during the mandatory assistance term.
  3. “Show Me the Money” Tier 1s and 2s. We have already seen Tier 1 and 2s essentially selling their status to multiple parties for a quick pay out without any actual plans to compete in the Los Angeles cannabis market. These sorts of deals go against the purpose of the social equity program, which wasto ensure those most negatively affected by The War on Drugs get a meaningful share of Los Angeles’s legal cannabis market.
  4. Is Your Partner Really a Tier 1 or 2?Many in Los Angeles wrongly believe one cannabis conviction is automatically enough to qualify for Tier 1 or 2 status. If you’re looking to partner with a Tier 1 or 2 be sure to do your due diligence to ensure they actually do meet the required criteria.
  5. Predatory Matchmakers. There aren’t many ways for legitimate Tier 1s and 2s to meet legitimate and willing Tier 3s, and our Los Angeles cannabis lawyers have been seeing more than a few questionable 11th hour brokered deals rushed to finish by the September 13th deadline. Many of  “brokerage” agreements we’ve seen have been inadequate and many deals are going through with little to no due diligence conducted by either party. These agreements are mostly boilerplate forms pulled down from the internet and badly re-purposed for social equity in L.A. Though satisfying L.A.’s requirements to qualify for Phase II is clearly important, you should not forget that these agreements will also serve as your legal foundation for a real business relationship with real obligations and liabilities and it is important thatt your agreement get the details right on things like company financing, leasing, voting, and managing day-to-day operations. Most of the “social equity brokers” putting these deals together care only about getting paid their percentage.
  6. Tier 3 Management Companies. There’s no such thing as a free lunch and many Tier 3s giving space, time, money, and assistance to Tier 1s and 2s will be expecting a lot back in return. We are already hearing of Tier 3s insisting they become management companies to the Tier 1s and 2s they plan to assist. L.A. is planning to address the issue of management companies generally in the City and that means we will likely see regulations aimed at preventing management companies from cannibalizing the opportunities intended for Tier 1s and 2s.

Los Angeles’s cannabis social equity program is a complicated undertaking and if just a handful of Tier 1 and Tier 2 cannabis businesses thrive in Los Angeles that will constitute a significant victory for the cannabis industry as a whole.

 

In the past year, we have seen a remarkable uptick in individuals and businesses pursuing Oregon industrial hemp production, processing and sale. This accelerated interest has coincided with the CBD craze, and fortunately, Oregon has been working steadily to build out its hemp program over the past year or two. Today’s blog post answers some questions commonly fielded by our Oregon cannabis lawyers, and summarizes the state of the state with regard to hemp.

What is the latest, as far as program rules?

The rules have undergone steady revision for a few years now. The most recent changes are shown in the Oregon Department of Agriculture’s (“ODA”) proposed rule changes, which should take effect very soon. These updates will stem from bills passed by the legislature earlier this year, which we wrote about back in March. A few of the biggest pending changes include the requirement that industrial hemp and seed can only be transferred to another ODA registrant or qualifying Oregon Liquor Control Commission (OLCC) licensee (in accordance with certain OLCC rules), and that any hemp sold to a consumer has to be tested by an OLCC licensed lab.

How easy is it to get a hemp handler’s permit?

It’s not quite as easy as it used to be, but it’s not bad, and it’s still faster and cheaper than getting an OLCC license. In our office, we have paralegals process these applications, and both grower and handler registrations often issue in a month or less when the client is organized.

Who can ODA permittees sell to, in the OLCC system?

ODA handlers can only sell to OLCC processors with a current OLCC endorsement to receive ODA hemp. Those processors can then move the industrial hemp products along the supply chain, to OLCC wholesalers and retailers.

I’m an ODA hemp handler. How do I get an OLCC hemp certificate?

You can’t right now. OLCC stopped accepting applications for the certificates back in April. Once the ODA proposed rule changes are final (hopefully very soon), OLCC should start issuing these applications once again. As to OLCC processors, those entities can still apply for hemp endorsements to add to their licenses.

Once I get an OLCC hemp certificate, how do those sales work?

You will have recordkeeping requirements for all hemp and related products transferred into the OLCC system. This means you will have to log information in the METRC Cannabis Tracking System, like OLCC licensees. Note that hemp products in METRC are not subject to tax, unless they are later mixed with marijuana. Note also that once you transfer hemp to an OLCC processor, it has to stay in the OLCC system. This means you cannot take it back and sell it outside of METRC.

Can I legally ship Oregon industrial hemp to other states?

Oregon does not restrict such sales, but the state does not create a safe harbor from federal law, either. In fact, the new rules will provide that no one participating in the Oregon hemp program is immune from federal law enforcement, even if they are not shipping hemp interstate. So what does federal law say about shipping industrial hemp and CBD interstate? It’s complicated.

Can I apply for an ODA permit on the same tax lot as my OLCC marijuana production? 

Yes, you can. But OLCC is going to require an approved “control plan” describing how the two production facilities will be separated, and ensuring that no industrial hemp winds up on the OLCC premises.

Can I get a bank account?

Yes. Maps Credit Union has announced it will begin servicing both plant-touching and ancillary hemp businesses on August 1. There may be other options in the pipeline as well.

Where can I find more information on all of this?

Aside from checking this blog, the best place to go are the relevant portions of the ODA and OLCC websites. Unlike OLCC, the ODA hasn’t done a great job of aggregating information in FAQ format or issuing bulletins, so you may have to actually read through the administrative rules (fun!), or call ODA itself with questions.

washington amnesty WSLCB
Coming soon to WSLCB.

We recently wrote about the Washington State Liquor and Cannabis Board’s consideration of a marijuana licensee amnesty program for licensees with undisclosed true parties of interest a couple of weeks ago. In that post, though we criticized the WSLCB for not doing more to put marijuana licensees in a position to succeed, we didn’t have much to say about the amnesty program itself. Other than the fact that the board was discussing offering leniency to companies with undisclosed true parties of interest, not many other details had emerged.

Since then, a few more details have emerged, including a draft notice to Washington marijuana stakeholders announcing the program. It is important to note that as of the writing of this post, the leniency/amnesty program has not yet been finalized, and details are subject to change. That said, here is what is proposed so far:

The program is targeted at licensees that have owners or financiers that have not been disclosed to or approved by the WSLCB. Applications for amnesty/leniency will be denied when:

  1. Owners do not reside in Washington;
  2. Financiers are not U.S. residents;
  3. Owners or financiers have disqualifying criminal history;
  4. Licensees are currently under investigation for hidden ownership;
  5. Entity and/or principal within entity exceeds marijuana licenses allowed; or
  6. Entity and/or principal has interest in cross-tiered marijuana licensee (can’t own both a retailer and a producer/processor).

Licensees will have one month, starting as early as August 1, to apply to the WSLCB on a form provided by the WSLCB for the leniency program. Once the WSLCB receives the form and contacts the licensee there will be a seven day period to complete the initial interview and another fourteen day period to provide all required documentation for all prior undisclosed true parties of interest or financiers.

The WSLCB defines ownership broadly. A legal owner of any shares or membership interest in a licensed business counts, but so do many other business relationships. The WSLCB currently mandates that spouses, even for marriages after initial licensing, be disclosed and vetted by the WSLCB. They also consider anyone who has the right to receive any percentage of the gross or net profits from a licensed business. The WSLCB still tells licensees that any payment of sales commissions to sales agents violates true party of interest rules, despite an administrative law judge ruling otherwise and the WSLCB signing off on that ruling a couple of years ago. Trademark licenses and consulting agreements can create ownership. The WSLCB has still not engaged in substantive rulemaking to implement RCW 69.50.395 that specifically allows for trademark licenses. Instead, they have developed an ad hoc approval process for trademark agreements, where non-attorneys at the WSLCB make judgment calls about whether standard trademark license provisions do or do not create the type of “control” that would render someone a true party of interest under WAC 314-55-035.

Our experience makes us think that there are a lot of marijuana businesses that have hidden ownership problems. The majority of them are not bad actors – they are simply people who either don’t understand that an agreement they signed technically creates an ownership interest as the WSLCB sees it or they have done things in the wrong order, transferring ownership before receiving WSLCB approval. So it is welcome that the WSLCB is moving along on potentially offering amnesty/leniency to the these businesses instead of shutting them down. While that doesn’t fix many of the underlying issues that we have been pointing out, it is still a band-aid that will prevent catastrophe for companies smart enough to take advantage of it.

We’ll post again as soon as we get word that this program is due to go live. In the meantime, check out the following for some recent thoughts on WSLCB program administration and enforcement.

California cannabis lawyersWe’re a couple of weeks into summer and in California that means county fair time! In populous counties, county fairs can include extravagant firework shows and platinum selling musicians coming into town. In smaller counties, a tractor-trailer show may be the biggest event. Regardless of their size, all county fairs have at least two things in common: 1) They are open to the public (entry fees do vary); and 2) Vendors sell their products to, and connect with, the consumer. In California, cannabis events are hoping to tap into the Golden State’s love of county fairs and our California cannabis attorneys are seeing an increase in the number of businesses looking to expand their reach into cannabis events.

California’s Bureau of Cannabis Control (“BCC”) regulates and licenses temporary cannabis events. Under the BCC’s readopted emergency regulations (permanent regulations were recently proposed, which we covered here), obtaining a cannabis event is a two-part process in California. Before you can host a cannabis event, you first have to secure a cannabis event organizer license. Obtaining an organizer’s license is no easy feat, as applicants face the same daunting application requirements that cannabis retailers, delivery-only retailers, distributors, and testing laboratories face. These requirements require they provide the following:

  • A list of funds belonging to the applicant’s cannabis event organizing business held in savings, checking, or other accounts maintained by a financial institution;
  • A list of loans made to the applicant for its use in cannabis event organizing activities;
  • A list of investments made into the applicant’s cannabis event organizing activities;
  • A list of all gifts of any kind given to the applicant for its use in cannabis event organizing activities;
  • A complete list of every individual with a financial interest in the cannabis event organizing business; and
  • A complete list of every owner.

Once you’ve submitted all of the required BCC’s cannabis organizer application information you cannot pass go, nor do you get to collect two hundred dollars. Au contraire, you must submit a non-refundable annual license fee. This fee is five thousand dollars ($5,000) for an organizer planning one to ten events and fifteen thousand dollars ($15,000) for organizing more than ten events in a year.

Assuming you’ve cleared the BCC’s regulatory hurdles and secured your organizer’s license, you can now move forward with your application for a temporary cannabis event. We previously covered the regulations for temporary cannabis events here, but they are worth revisiting since the BCC released their new proposed regulations.

  • A temporary cannabis event license shall only be issued for a single day or up to 4 consecutive days.
  • Onsite consumption is allowed if authorized by the local jurisdiction.
  • Any compensation paid from a retailer to a cannabis event organizer for participation in a temporary cannabis event shall not be determined, based on, or be contingent on, the sale of cannabis goods.
  • Cannabis goods being stored by a licensee at a temporary cannabis event shall not be accessible to the public and shall not be left unattended. Licensees may share the secure, locked container; however, each licensee using the container shall be held responsible for any violations of this section and subject to disciplinary action.
  • A temporary cannabis event may only be held on the grounds of a county fair or district agricultural association. This is holdover from the previous regulations but we are seeing progress at the state level with Assembly Bill 2020 (which we covered here) to amend the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) so that all local jurisdictions can host temporary events in authorized locations.
  • Each sale at a temporary cannabis event shall be performed only by a retailer or microbusiness authorized to sell cannabis to retail customers. This is another holdover from the previous set of regulations, but just like with AB 2020, we are seeing state legislators push for change. Assembly Bill 2641 (covered here) would authorize licensed cultivators and manufacturers to sell their cannabis and cannabis products directly to the public at temporary cannabis events.

As of this writing, the BCC has issued approximately forty-three (43) cannabis event organizer licenses so we can expect to see new and exciting cannabis events this summer and throughout the year. Assembly Bills 2020 and 2641 are next up for hearings in front of the Senate Appropriations Committee on August 6th and we expect the Committee will vote to expand the number of cannabis businesses and locations that can participate in cannabis events. Until then, enjoy your summer and your county fair!

Los Angeles Cannabis AttorneysCannabis licensing in the City of Los Angeles has been a slow go. Though the City’s Department of Cannabis Regulation (“DCR”) has licensed 155 Existing Medical Marijuana Dispensaries (“EMMDs”) there is still an entire line of existing cultivators and manufacturers, social equity applicants, and general public applicants waiting their turn for cannabis entitlements. The City announced earlier this month that Phase II licensing would open on August 1 and run for 30 days. And the DCR will run its first Phase II work shop on July 24th from 6-8 p.m. (see here)–would-be Phase II applicants should attend this work shop where they’ll learn about the Phase II process and eligibility (and see here where the City finally released its guidelines for Phase II eligibility). Phase II applicants will ultimately need to prove a number of things, including that they were already operating in Los Angeles and supplying a valid EMMD prior to January 1, 2017. In addition, the City (and the world) is going to get its first look at initial social equity program entitlements in L.A.

Social equity in L.A. has been much debated and anticipated, namely because everyone knows that under local laws social equity applicants get a bevy of benefits and pretty much get to skip the line with priority license processing. Phase II is the first time we will get to see how social equity will work in practice since social equity eligibility is mandatory for Phase II licensees. Specifically, to qualify for Phase II temporary approval/licensing (which triggers priority licensing for existing “non-retailers” like growers and manufacturers — you will need to meet all of the following criteria:

  1. The Applicant was engaged prior to January 1, 2016, in the same Non-Retailer Commercial Cannabis Activity for which it now seeks a License;
  2. The Applicant provides evidence and attests under penalty of perjury that it was a supplier to an EMMD prior to January 1, 2017;
  3. The Business Premises meet all the land use and sensitive use requirements of Article 5 of Chapter X of this Code;
  4. The Applicant passes a pre­-license inspection;
  5. There are no fire or life safety violations on the Business Premises:
  6. The Applicant has paid all outstanding City business tax obligations;
  7. The Applicant indemnifies the City from any potential liability on a form approved by DCR;
  8. The Applicant provides a written agreement with a testing laboratory for testing all Cannabis and Cannabis products and attests to testing all its Cannabis and Cannabis products in accordance with state standards;
  9. The Applicant is not engaged in Retailer Commercial Cannabis Activity at the Business Premises;
  10. The Applicant attests that it will cease all operations if denied a State license or City License;
  11. The Applicant qualifies under the Social Equity Program; and
  12. The Applicant attests that it will comply with all operating requirements imposed by DCR and that DCR may immediately suspend or revoke the Temporary Approval if the Applicant fails to abide by any City operating requirement.

There’s a fundamental misunderstanding that social equity in Los Angeles means you’ve faced some kind of cannabis conviction, but it’s way more than that. There are three levels of social equity identified by tiers as follows:

  1. Tier 1: Low Income (which means “80 percent or below of Area Median Income for the City based on the 2016 American Community Survey and updated with each decennial census”) and a prior California Cannabis Conviction (which means “a cannabis-related crime that occurred prior to November 8, 2016, and could have been prosecuted as a misdemeanor or citation under current California law,” though this definition is going to change to “an arrest or conviction for any crime under the laws of the State of California relating to the sale, possession, use, manufacture, or cultivation of Cannabis that occurred prior to November 8, 2016”); or Low Income and a minimum of five years cumulative residency in a Disproportionately Impacted Area (which means residency in “eligible zip codes” as established by the City). Tier 1’s can’t own less than a 51 percent equity share of the licensed business.
  2. Tier 2: Low Income and a minimum of five years cumulative residency in a Disproportionately Impacted Area; or a minimum of 10 years cumulative residency in a Disproportionately Impacted Area. Tier 2’s can’t own less than a 33 1/3 percent equity share of the licensed business.
  3. Tier 3: Tier 3’s have to enter into a Social Equity Agreement with the City to provide very specific capital, leased space, business, licensing and compliance assistance to a Tier 1 or Tier 2. Most people shooting for Phase II licensure will likely try to go for Tier 3 status, but they still have to find those coveted Tier 1s or 2s to play ball.

There are also a slew of regulations that apply to social equity applicants including having to disclose to the DCR any proposal to take on debt, any proposal to sell any equity in the business after licensure, and forking over bylaws and other corporate control documents.

At a roundtable I spoke on last week at the Vision Theater, L.A.’s social equity program was the topic of discussion. Cat Packer, executive director of the DCR, made clear that if people want to see changes to the social equity program, they need to show up to meetings with city council to voice their positions and desires. Ms. Packer also stated that Tier 1 and 2 social equity applicants are going to get retail licenses on a 2:1 basis relative to the general public and EMMDs (and on a 1:1 basis for non-retail). This means social equity applicants will get at around 310 retail licenses (there are 155 EMMDs) even before a single general public license ever issues. Combine those ratios with mandatory undue concentration limitations, and there’s a solid chance city license caps may be triggered with social equity, giving those applicants major leverage in what could be the world’s largest cannabis market.

The social equity program in LA is going to evolve and hopefully lead the way for other cities and counties looking at various social equity models. As Phase II approaches, social equity applicants need to be wary of hawkish and predatory practices that seek to take advantage of their status and discard them after the fact (see here for California’s recent cannabis schemes and scams).

California cannabis attorneyLast Friday, July 12, 2018, all three agencies overseeing California’s implementation of MAUCRSA dropped proposed permanent regulations that will eventually replace the readopted emergency regulations that are active now. For the text of those proposed regulations go here, here, and here. Importantly, these regulations are just proposed; they are not in effect and they won’t be in effect until after the 45-day public comment period so long as the agencies move to adopt them without changes.

The proposed rules don’t make massive changes to the existing regime. In fact, many of these rule additions and clarifications should have already been in the mix as fundamental, common sense standards for operation in line with former federal enforcement priorities. More than anything else, these proposed rules represent technical fixes to pretty large gaps in the existing emergency rules.

All three California agencies tasked with regulating cannabis are now finally on the same page about the disclosure and vetting of “owners” versus “financial interest holders” and, importantly, if an “owner” is an entity only “the chief executive officer and members of the board of directors of the entity shall be considered owners.” In addition, the agencies clarified that none of them will issue temporary licenses after December 31, 2018. This was already in MAUCRSA, but the agencies clarified that temporary licenses with an expiration date after January 1, 2019 will be valid only through that date with no additional 90 day extensions. This is significant since a temporary license is the only way licensees can operate post-local approval but before receiving their annual license. Further, all three agencies are addressing issues regarding CEQA compliance prior to licensure and responses to disaster relief, and M and A licensees can still do business with each other to get product to market. Each agency has also upped the required details on annual licensing submissions relative to standard operating procedures (SOPs) and plans.

The highlights of the more specific significant changes/additions/clarifications from the three agencies are:

  1. Department of Food and Agriculture, CalCannabis Cultivation Licensing (oversees cultivators and processors):
    1. Individuals and entities will still only be allowed to have one Type 3 medium license, and there’s still no limit on the number of Type 1 or 2 cultivation licenses anyone can have (other than those limitations set forth by cities and counties, if any).
    2. Outdoor licensees won’t be able to use use any light deprivation techniques.
    3. Licensees are prohibited from accepting returns of cannabis plants or nonmanufactured cannabis products after transferring possession of cannabis plants or nonmanufactured cannabis to another licensee after testing is performed.
    4. Nurseries can now develop and maintain dedicated R&D areas in their facilities.
  2. Department of Public Health, Manufactured Cannabis Safety Branch (oversees manufacturers): 
    1. CDPH-MCSB implemented some notable changes to their definitions of certain cannabis terms. For example, the term “concentrate” would now include inhaled products (such as shatter, dab, or wax) and “edible cannabis product” and would include “a cannabis product that resembles traditional foods or beverages and cannabis products that dissolve or disintegrate in the mouth.” They’ve also proposed the terms “infused pre-roll,” which would mean “a pre-roll into which cannabis concentrate or other ingredients have been incorporated” and “orally-consumed concentrate” to mean “cannabis concentrates that are consumed by mouth and are not otherwise considered edibles.”
    2. You can’t manufacture, prepare, package or label any products other than cannabis products at a licensed premises.  “Cannabis products” also includes packaged cannabis, pre-rolls, and products that do not contain cannabis, but are otherwise identical to the cannabis-containing product, and are intended for use as samples.
    3. You can’t manufacture, prepare, package, or label cannabis products in a location operating as a retail food establishment or as a processed food registrant, and you can’t do the same in any location licensed by the Department of Alcoholic Beverage Control.
    4. Edible potency limitations are staying the same (no more than 10 mg of THC per serving and no more than 100 mg per package), but “orally-dissolving” edibles can have up to 500 milligrams THC per package, if: (1) The cannabis product consists of discrete servings of no more than 10 milligrams THC per piece; (2) The cannabis product is labeled “FOR MEDICAL USE ONLY;” and (3) The cannabis product is only available for sale to a medicinal-use customer.
    5. There are now increased packaging and labeling requirements for pre rolls and dried flower, and the labeling requirements generally for all products have increased.
    6. Use of the word organic (or any variation of that word) on any product label is now going to be false or misleading unless the National Organic Program (the federal regulatory program governing organic food) “authorizes organic designation and certification for cannabis and the cannabis or cannabis product meets the requirements for such designation and certification.”
    7. Child-resistant packaging would be eliminated, but tamper-evident packaging would still be required for cannabis products.
  3. Bureau of Cannabis Control (oversees retailers, delivery only retail, microbusinesses, distributors, and labs):
    1. Making up your own SOPs would no longer be a requirement for the annual license. Instead, the state would have you input all of your SOP information into pre-established forms.
    2. You won’t be able to pump in the smell of cannabis to your licensed premises via a vaporizer device or diffuser.
    3. The state is cracking down on cannabis giveaways and generally getting stricter on licensee advertising attractive to children.
    4. “Limited access area” security now applies to all licensees, not to just retailers.
    5. On rejections and returns, licensees now have to reject whole shipments and they can’t just pick and choose inventory they want to keep from those shipments.
    6. Distributors are receiving more clarity in their rules such that they can now package prerolls but can’t store live plants, they can transport tested product to more than one retailer, distributor, or microbusiness, and they can perform just quality assurance reviews of product if another distributor has already had that product tested.
    7. Retail exit packaging has to be resealable, child-resistant, and opaque.
    8. Statewide delivery would be permitted regardless of jurisdiction. The specific rule states that “A delivery employee may deliver to any jurisdiction within the State of California.” Given the hostility of some cities and counties to any form of commercial cannabis activity, or those cities that require you to have local approval to deliver (like Los Angeles), this is bound to cause conflict between the state and the locals.
The 45-day comment period has begun, so get your comments in now or forever hold your peace in California as the regulatory landscape continues to shift slowly but surely.
WSLCB cannabis marijuana
The WSLCB approach is not working so well.

The Washington State Liquor and Cannabis Board (WSLCB) may finally be noticing that its current treatment of “true party of interest” violations is neither just nor sustainable. During an extended conversation at its monthly executive management team meeting in June, the WSLCB discussed potentially adopting a hidden ownership amnesty program. Basically, any existing businesses that had mistakenly created a true party of interest relationship would have a limited time to come forward and declare any owners or other true parties of interest in licensed marijuana businesses that had not been disclosed and vetted in the past. The licensee would then be able to get the person vetted, though some penalty other than license cancellation would potentially still be on the table.

The details are not set, and the WSLCB executive team is going to continue meeting and discussing the issue over the coming months. For those licensees in the middle of investigations or regulatory hearings with the WSLCB, there’s not much hope to pull from this. Even if the WSLCB moved with lightning speed to adopt something, the agency was clear that it would not avail anyone currently undergoing a formal investigation or violation hearing.

That the WSLCB is discussing the topic of leniency at all indicates that they are cognizant of problems with current regulations and enforcement, though their idea of an amnesty or leniency program won’t do anything to solve the underlying issues. The foremost issue right now is that the timing of getting financing approved doesn’t work. The WSLCB currently demands that all money contributed to a licensed business be approved prior to it being spent on behalf of the business. The approval process for capital can take months, even if the capital contributors have already been approved as owners or financiers of the business in the past. But the types of emergencies that require short-term capital infusions tend not to wait months for regulators to approve. Businesses are forced to violate a rule by either having current owners contribute new capital or having outsiders provide financing prior to getting WSLCB approval.

There are plenty of solutions to the financier predicament that the WSLCB could adopt. They could allow for after-the-fact vetting of certain types of loans. They could modernize and streamline their financial approval process. They could keep the exact same system and just hire more people so that new funds could get investigated and cleared immediately. Any move to temporarily allow for relaxed penalties for regulatory violators to come forward isn’t necessarily a bad thing, but the same problem will continue again and again. Academically speaking, the WSLCB is applying an over-inclusive rule to business actions that range from willfully criminal to entirely benign. This over-inclusive application of the law “makes regulatory unreasonableness not an occasional weakness but a pervasive problem.”[1]

[1] Quote is from the first full paragraph on page 40 of this linked article — the WSLCB should read it and redesign their enforcement structure.

The WSLCB’s current investigative and enforcement strategy feels targeted at unlucky businesses that have made mistakes. This is part of why their trigger-happy nature regarding license cancellation is so frustrating. Two of the cancellation cases that my law firm is currently working on have come because of voluntary disclosure of information by a licensee. There certainly are bad actors in the marijuana industry that are intentionally defrauding the WSCLB and may well have ties to organized crime, but the WSLCB seems to leave those businesses alone. It is tough, challenging work to investigate illegal activity when the actors are working hard to cover up the illegal activity. It is much easier to go after the low-hanging fruit of licensees that are fully transparent about their activities.

Fundamentally, the WSLCB underestimates the deterrent effect of large monetary fines and underestimates the huge collateral damage that business shutdowns can create. If the WSLCB wants to create real compliance, it is going to need to make some more drastic changes than temporary amnesty/leniency programs.

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 Antioch, and before that the City of San Jose, 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 County and the City of Emeryville.

Today’s post is on the County of Contra Costa. Welcome to the California Cannabis Countdown.

contra costa cannabis california

LocationHome to Mt. Diablo, Contra Costa County occupies the northern portion of the East Bay with its county seat in Martinez. The County has two cannabis friendly cities within its border: Richmond and El Cerrito. During the hot days of summer, you can make your way to Six Flags Hurricane Harbor in Concord.

History with Cannabis: Contra Costa County did not embrace cannabis businesses like many of its other Bay Area neighbors (San Francisco, Oakland, Berkeley, and Santa Rosa to name just a few). In 2008, the Board of Supervisors adopted an ordinance prohibiting the establishment of medical marijuana dispensaries. On October 24, 2017, the County passed an ordinance prohibiting commercial cannabis activities and regulating personal cultivation. However, because nearly sixty-one percent (61%) of the County’s residents voted in favor of the Adult-Use of Marijuana Act (a /k/a Prop 64), an outright prohibition was not feasible in the long-term. Regular readers of this series can guess what happened next: The County held a number of hearings, with input from a number of local departments, to study the issue. It’s been a slow haul but the County’s been moving in the right direction – incremental progress is better than no progress.

Recent Cannabis Laws: On June 26, 2018, the Board of Supervisors held a public hearing on a cannabis ordinance regulating commercial cannabis activities in the County. The ordinance passed and Contra Costa County joined the enlightenment era — Welcome! The ordinance will not take effect for thirty (30) days. It will take some time before the County is issuing cannabis licenses to businesses but it is always good news when a new jurisdiction revokes its prohibition. The new ordinance does the following:

  • Authorizes up to four (4) storefront retailer permits. Storefront retailers are authorized to make deliveries;
  • Authorizes up to ten (10) cultivation permits (outdoor, mixed-light, and indoor are allowed). However, if a licensee holds both a retailer and cultivation permit, that cultivation permit will not count against the cap;
  • Authorizes up to two (2) manufacturing permits (non-volatile only) in an agricultural zoning district. However, manufacturing permits in non-agricultural districts and those integrated with a cultivation permit in an agricultural district will not count against the cap;
  • Authorizes distribution. The ordinance does not address whether there will be a cap on distribution permits;
  • Authorizes testing facilities. The ordinance is also silent on a cap for testing facilities;
  • Delivery retailers licensed outside the County are permitted to make deliveries within it so long as they obtain a County business license;
  • The County will develop procedures and scoring criteria for prospective cannabis businesses;
  • Requires a cannabis business to obtain a health permit from the County; and
  • Cannabis permits will have an initial term of five years;

Proposed Cannabis Laws: The Board of Supervisors will hold a hearing today on a proposed tax schedule for cannabis businesses (Come on, you knew taxes were on the way). If the Board approves the tax measure it will be placed on this November’s ball and require the approval of a majority of voters in the County to take effect. The proposed taxation schedule is as follows:

  • Indoor cultivation: $7 a square foot up to $10 a square foot;
  • Greenhouse cultivation: $4 a square foot up to $7 a square foot;
  • Outdoor cultivation: $2 a square foot up to $4 a square foot;
  • Nurseries: $1 a square foot up to $2 a square foot;
  • Manufacturing: 2.5% of gross receipts up to 4% of gross receipts;
  • Distribution: 2% of gross receipts up to 3% of gross receipts; and
  • Retailer: 4% of gross receipts up to 6% of gross receipts.

For its foray into regulating cannabis activities, this is a big step for the County and we applaud the fact that it will authorize seed-to-sale license types. Would we like to see the removal of permit caps? Sure, but with local jurisdiction prohibitions still being one of biggest impediments to the cannabis industry in California, we will gladly welcome Contra County into the fold.

Happy Fourth of July!

For those in California, the rollout of the state’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“) has been no picnic. The emergency rules released by the State of California last November (and recently re-adopted) still contain gaps and gray areas and the  “transition period” that allowed for ended on July 1. In addition, the majority of California’s 482 cities and 58 counties have rejected cannabis legalization by banning commercial cannabis activity or by enacting rolling moratoria to give themselves time to see how other cities and counties handle things. Just like any other state that’s navigated adult use and medical cannabis commercial activity, California is going to need more time before its cannabis market stabilizes, and it’s going to take a while before its cities and counties routinely sign on to local regulations. There is though some good news as Los Angeles County finally seems ready to open its doors to local cannabis regulations.

Under MAUCRSA, before you can secure even a temporary license to operate, you must first obtain “local approval.” Local approval is basically affirmative authorization from the city or county in which you plan to operate that it approves your commercial cannabis activity and location. Local approval can take the form of a city or county license, permit, or some other form of authorization. Having the nation’s most populous county on board to regulate and allow for cannabis businesses is a huge step forward for MAUCRSA.

LA County has long banned commercial cannabis activity of any kind. However, back in February 2017, the County decided it would flirt with cannabis regulations. The Interim Director of the Department of Consumer and Business Affairs then released its report on options for regulation (or continued prohibition) of cannabis:

  1. Allow and regulate all medical and adult-use commercial cannabis activity in unincorporated areas.
  2. Allow and regulate commercial cannabis but limit the types of businesses that can locate in unincorporated areas (e.g.,allow commercial medical cannabis activities only and limit business types to retail only).
  3. Continue to prohibit commercial cannabis in unincorporated areas.

For option number 1, the County came up with 8 components that would make up a comprehensive regulatory framework for all license types “that promotes health equity, ensures the health and safety of consumers and people living and working nearby, prevents cannabis businesses from causing blight or becoming nuisances in their communities, takes residents’ concerns into account, and does not promote commercial cannabis activities at the expense of other considerations.” Those components are to:

  1. Establish a cannabis commission to oversee the licensing and regulatory enforcement program in conjunction with the existing Office of Cannabis Management.
  2. Complete a health impact assessment on the health equity impacts of permitting cannabis businesses in unincorporated areas. This assessment would inform the county regarding the communal impact stemming from regulation and the establishment of cannabis businesses within certain communities.
  3. Create permits to allow cannabis stores, delivery services, indoor cultivation, manufacturing, distribution, and testing laboratories in unincorporated areas. Outdoor cultivation would be a no-go.
  4. Institute permit caps. In the first two years of the program, there would be no more than 25 cannabis store permits, with no more than 5 store permits per supervisorial district and no more than 2 cannabis store permits in any one unincorporated community. There would also be 25 cannabis delivery-only permits, with no more than 5 delivery-only permits per supervisorial district, 10 cultivation permits, 10 manufacturing permits, 10 distribution permits, and 10 testing laboratory permits.
  5. Institute zoning limitations and buffers. Cannabis stores, delivery, and testing laboratories would only be allowed in heavy commercial and manufacturing zones and all other commercial cannabis businesses could only go into manufacturing zones. Stores would be required to locate not less than 1,000 feet from schools (K-12), 600 feet from day cares (including preschools), public parks, public libraries, licensed drug and alcohol treatment centers, and other cannabis stores, and 300 feet from off-site alcohol sales, such as liquor stores. All other commercial cannabis businesses would need to locate not less than 1,000 feet from schools (K-12) and 600 feet from day cares (including preschools), public parks, and public libraries. Maps of where operators could potentially go can be found here.
  6. Come up with a social equity program to reduce barriers to entry for those who were disproportionately impacted by the War on Drugs.
  7. Create a 15-member stakeholder advisory board to assist the cannabis commission and the board of supervisors.
  8. Create a business license category for commercial cannabis businesses (in addition to the required permits). The County is also discussing tax proposals for commercial cannabis activity if it opts to institute comprehensive regulation.

Permit caps in a county that boasts over 10 million residents may are not likely to go over well with those looking for meaningful access to cannabis, especially since most LA County cities have banned cannabis or (like the City of Los Angeles) been slow to write cannabis regulations.

Proposed County Option 2 would limit the types of businesses that could engage in a cannabis business in the County. It might do this by, for example, allowing only medical cannabis but no adult use cannabis, or just by allowing retail and delivery in an effort to curb the gray and black market shops that continue popping up.

County Option 3 would continue the ban on commercial cannabis activity in all portions of unincorporated LA County. Without exception, all of my firm’s California cannabis lawyers see this as unlikely to happen given the time and money the County has already spent analyzing its options and givn how many tax dollars it will lose by not going forward. LA county need only look at its inability to shut down illegal operators to know that its implementing comprehensive (or even limited) regulation will likely help with identifying good versus bad actors. If Los Angeles County wants to succeed with its cannabis regulations it will go with Option 1 and that is exactly what I see it doing.

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