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!

california alameda marin marijuana
Alameda and Marin Counties are moving ahead, slowly.

Our offices in San Francisco and Los Angeles constantly get calls from entrepreneurs looking to launch or expand their cannabis businesses. By far, one of the most challenging aspects for any attorney advising clients in the cannabis industry is staying up to date on all the developments in the Golden State’s 58 counties and 482 cities. And although it’s a daunting task, we work hard to stay on top o things.

Avid readers of our California Cannabis Countdown series are well aware of the ever-changing cannabis regulatory landscape at the local level. Every week there are a number of Board of Supervisors or City Council hearings throughout the state where cannabis-related rules and ordinances are enacted and amended. We are constantly advising our clients about any changes in the cannabis ordinances of the local jurisdictions of interest.

It’s this constant flux of change at the local legislative level that brings me to today’s topic: an update on the counties of Alameda and Marin. We last covered Alameda here and Marin here.

Let’s start with Alameda County. The County passed its most recent cannabis ordinance last September (with some minor amendments since then). That ordinance created a medical cannabis pilot program that authorized up to three dispensaries, and up to four mixed-light and two indoor cultivation permits. The County’s Cannabis Interdepartmental Work Group (“Work Group”) has taken direction from the Planning Department and has proposed to amend their cannabis ordinance to include the following:

  • Authorize adult-use cannabis activities;
  • Allow for up to five dispensaries;
  • Allow for up to ten cultivation permits (only in the East County);
  • Remove cultivation from a pilot program to a permanent use; and
  • Establish a permit fee structure (the fees are quite significant so if the County is serious about bringing operators into the legal market they will hopefully lower the proposed fees).

The Board of Supervisors will meet this Wednesday to discuss these amendments as well as determine whether the County should allow for manufacturing, distribution, and testing. The County has also expressed an interest in the recently released emergency regulations by the Department of Public Health in regard to Type S manufacturing licenses, which we covered here. If you’d like to see Alameda expand the types of cannabis activities it is willing to authorize, showing up is paramount.

As for Marin County, it is still moving at a deliberate pace– some might call it too deliberate. After the County rejected all applications for medical dispensaries, its cannabis ordinance was amended to only authorize medical delivery-only services: Adult-use cannabis activities are still some ways away in Marin County. The County hopes to begin accepting applications this month but that might be overly ambitious. Marin’s delivery-only ordinance only authorizes up to four delivery licenses and applications will be graded on a 100 point scale: Business plan (20 points), operating plan (50 points), and public benefits plan (30 points). Today at 2 p.m., the Board of Supervisors will hold a briefing to discuss the following items:

  • The medicinal cannabis license application;
  • The license application submittal guide (which provides guidance on what to include in your business, operating, and public benefits plan);
  • The owner submittal form;
  • The owner submittal form guide; and
  • The financial information form.

Although these are steps in the right direction, both Marin and Alameda can still make more progress. At the very least both counties should be open to testing laboratories and non-volatile manufacturing. Marin, with nearly 70% of its residents voting in favor of the Adult-Use of Marijuana Act (Prop 64), needs to stop dragging its feet when it comes to allowing adult-use. The slow and restrictive pace of cannabis legislation at the local level is one of the biggest impediments to cannabis operators entering the regulated market. Let’s applaud Marin and Alameda for making progress, but let’s also reach out to our local officials to let them know they can also do better. There are two great opportunities to let them know in person this week.

washington cannabis license

As of April 1, 2018, Washington marijuana processors are required to hold a special endorsement from the Washington State Department of Agriculture (WSDA) to make marijuana-infused edibles (MIEs). This requirement follows from the WSDA’s appointment to share regulatory authority over MIEs with the Washington State Liquor and Cannabis Board (LCB). The WSDA’s Food Safety Program regulates, inspects and provides technical assistance to food processors generally, regarding product safety issues. Now, the WSDA will conduct similar activities with MIE processors including carrying out enforcement and recalls when necessary.

The endorsement costs $895 initially and $895 for each annual renewal. Applications must be submitted to the Washington State Department of Revenue Business Licensing Service website. Technically, processors are required to hold the endorsements as of April 1, but WSDA is providing a 30-day grace period. Therefore, the clock is ticking on any processors who have not yet acquired this mandatory endorsement.

Note that the endorsement is only available to businesses that already hold a processor license. The LCB is not currently accepting applications for new processor licenses. To add an MIE endorsement, a business or individual must currently have a processor license and only produce MIE products at a single facility. A business or individual cannot add MIE products under a Food Processor license, process MIE products at a facility that processes non-marijuana food products, or process non-marijuana food products at a facility that produces MIE products.

Prior to April 1, the WSDA had contracted with the LCB to inspect the facilities of processors making MIEs, so in some ways, not much is changing. Other than the new $895 fee, processors shouldn’t feel the impact of this regulatory change immediately. The LCB will maintain authority over marijuana activities such as processor license requirements, packaging, and labeling. Processors that are currently in compliance with food-related regulations for MIEs will not need to re-submit food safety information (e.g., floor plan, sanitation procedures) when applying for the MIE endorsement. If there are no changes to ownership, location, or products, WSDA will not require an inspection. Processors that have not produced MIEs before will have to submit additional information to WSDA and LCB. In 2015, the WSDA provided an outline of the basic requirements for processing MIEs and that document is available here.

Looking forward, processors can expect to deal with the WSDA more frequently. The WSDA now has authority to undertake enforcement action and implement recalls. On March 19, the WSDA issued a letter to stakeholders, stating that processors “may experience more frequent inspections, as well as more outreach efforts and industry engagement.” WSDA intends to inspect MIE-producing facilities within 12 months of the endorsement and may collect additional information during those inspections. Processors who make ownership, location, or product changes must submit materials to both WSDA and LCB.

If you hold a processor license that currently produces MIEs, you need to apply for this special endorsement this month to continue operating. This firm is very familiar with licensing procedures and can assist your business throughout the process of applying for this new endorsement. Feel free to contact us with any questions and stay tuned for additional updates.

california marijuana public consumption
Coming to a California locale near you?

As more cities begin to allow for and regulate commercial cannabis businesses, the State of California is seeing an influx of cannabis tourism. We’ve written before about the touchy relationships governments have with the idea of “cannabis lounges” (see here and here) and often questioned who will lead us in regards to cannabis tourism (our bets have often been on California).

Consumption of cannabis in public is illegal in the State of California, and many hotels and Air B&B’s do not allow smoking or “drug use” in their guest rooms. Nonetheless, MAUCRSA allows local jurisdictions to authorize the on-site consumption of cannabis by state-licensed retailers and/or microbusinesses, which gives tourists at least one legal way to consume. Specifically, so long as your city or county okays it, retailers and microbusinesses can have on-site consumption if: (1) access to the area where cannabis consumption is allowed is restricted to persons 21 years of age and older, (2) cannabis consumption is not visible from any public place or nonage-restricted area, and (3) the sale or consumption of alcohol or tobacco is not allowed on the premises. However, most local governments have explicitly prohibited “cannabis lounges” and on-site consumption by licensees (including the City of Los Angeles). Some cities, however, are capitalizing on the tourism potential in The Golden State. We have compiled a list of notable locales below.

The City of West Hollywood is the only city in the Los Angeles area that allows for on-site consumption. The City plans to permit eight (8) on-site consumption businesses for smoking, vaping, and ingesting, and it will also allow 8 on-site consumption businesses for edible ingestion only. The window for submission for on-site consumption applications (and for other commercial cannabis businesses) is expected during the month of May, so we may see on-site consumption up and running for the busy summer months. Los Angeles, which is an area already known for tourism, will see a lot of its cannabis tourism go to the City of West Hollywood.

San Francisco has been California’s leader when it comes to the cannabis lounge concept (and cannabis businesses in general). San Francisco’s regulations outright permit retailers and microbusinesses to allow customers to engage in on-site consumption. Unlike other cities that have placed strict limits on consumption lounges or outright banned them, San Francisco is fully embracing the cannabis lounge model.

The City of Oakland allows medical and adult-use cannabis dispensaries the opportunity to apply for and “obtain a secondary on-site consumption permit in order for cannabis to be consumed on the premises of the dispensary.” See Oakland Municipal Code §5.80.025. The City has not disclosed any limits as to how many on-site consumption permits may be issued, but the City has thus far only allowed eight dispensary permits and, as a result, there won’t be more than eight on-site consumption permits available (because only retailers and microbusinesses are allowed to undertake on-site consumption under state law).

The City of Alameda will only issue two dispensary/retailer permits. The City’s ordinance allows those retailers to have on-site use or consumption of cannabis or cannabis products in interior areas of the licensed premises. The City has made it relatively easy for those granted a dispensary/retail permit to also capitalize on on-site consumption.

Palm Springs has expanded its cannabis regulations to allow for cannabis consumer lounges. “Cannabis Lounge Facility” permits are available in the City, and those holding the proper permits may additionally sell medical and adult-use cannabis and cannabis products. With festival activities fast-approaching in the desert cities, many tourists will flock to the Palm Springs area looking to partake under California’s new cannabis laws. Palm Springs will likely see a high demand in cannabis and cannabis products from tourists looking to consume during festival time.

Other California cities that have explored the idea of cannabis lounges are Cathedral City and South Lake Tahoe, but nothing official has happened in either city as of yet. Over time, as legalized cannabis becomes more normalized (and socialized) in the state, California will likely see an increase in cities that allow cannabis lounges. For now though, on-site consumption is a rare occurrence and a political hot potato. And for the few on-site consumption lounges that exist, we expect nothing but success and increased tourism.

When the California Bureau of Cannabis Control (BCC) first released its proposed medical cannabis regulations under the Medical Cannabis Regulation and Safety Act (MCRSA) last April it created license types for laboratories, retailers, distributors, and transporters. Most people were surprised (and worried) when they found out that the MCRSA did not create a license type for cannabis delivery-only services. Under the MCRSA, only storefront medical retailers could deliver to a qualified patient or primary caregiver. Just like that, delivery services were about to be locked out of America’s biggest cannabis market.

As you can imagine the BCC and state legislators were inundated with calls to their offices as well as comments at public hearings about the glaring omission of delivery licensure. Whether the BCC was going to rectify this mistake became moot upon the withdrawal of their emergency regulations. The regulations were withdrawn when the state legislature passed the Medical and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) – which merged the MCRSA and the Adult-Use of Marijuana Act (AUMA) under one regulatory regime. We covered that here.

When the BCC issued their emergency regulations under MAUCRSA it was clear that the Bureau learned its lesson: This time, the BCC included a license type for delivery-only services. For delivery services that were previously a part of a collective or cooperative, this inclusion in the new regulations was a much-needed lifeline. However, since the BCC started issuing temporary licenses in January it hasn’t exactly been a smooth road for delivery services. Delivery services have been facing the same major obstacle that all other cannabis businesses are dealing with: local jurisdictions.

marijuana delivery california
Delivery is not guaranteed.

In order to be eligible to receive a commercial cannabis license from the state, you must first obtain a cannabis permit from your local city or county. As readers of our California Cannabis Countdown series are well aware, each of the state’s 482 cities and 58 counties have their own regulations. For delivery services, this dual licensing structure can cause a number of impediments to both obtaining a license and then operating a successful cannabis business. First and foremost, a local jurisdiction can enact an outright ban on all commercial cannabis activities, including delivery. In other instances, local jurisdictions are either only authorizing storefront retailers to conduct deliveries or only allowing deliveries within their borders by local permit holders. All these obstacles, when combined, limit competition and choice and thereby ultimately harm the consumer. This is especially true of qualified patients that live in prohibitionist jurisdictions or aren’t able to drive themselves to the nearest dispensary.

It is under this backdrop that State Senator Ricardo Lara (Senate District 33) introduced Senate Bill 1302 (SB 1302). The goal of SB 1302 is pretty simple: make sure every Californian that wants access to cannabis does in fact have access to cannabis (for many Californians growing their own isn’t a feasible option). The pertinent provision of SB 1302 is found in Section 26090(e):

“A local jurisdiction shall not prevent delivery of cannabis or cannabis products on public roads, or to an address that is located within the jurisdictional boundaries of the local jurisdiction, by a licensee who is acting in compliance with this division and who is acting in compliance with a license, permit, or other authorization obtained from another local jurisdiction, pursuant to the authority granted by that other local jurisdiction under Section 26200.”

SB 1302 is off to a slow start as it has yet to pickup any co-sponsors and has currently been referred to the Senate Governance and Finance Committee. Now would be a good time to let the Committee members know that you support SB 1302 and that they should too: You can find the Committee members here. SB 1302 would ensure that a licensed delivery service can provide cannabis anywhere in the state to a qualified patient, primary caregiver, or adult aged twenty-one and over. Although this would seem like a given after a majority of Californians voted for the AUMA, in practice the delivery option is far from reality. In that respect all SB 1302 is seeking to accomplish is to bring the spirit of the AUMA into practical effect. Let’s hope (and call your legislators!) it succeeds.

California marijuana manufacturer
Finally, a boost for small manufacturers.

This past Friday, the California Department of Public Health—the agency charged with regulating commercial cannabis manufacturing—issued new emergency rules to allow certain types of manufacturers to operate in shared use facilities and on shared equipment, under essentially a sort of timeshare sublease arrangement. The move is a win for small, medium, and artisan manufacturers that don’t have the budget to buy commercial property or take on an expensive lease, and who have the ability to run a lean operation without large space requirements.

The new rules require an existing “primary licensee” with a Type 6 (nonvolatile extraction), Type 7 (volatile extraction), or Type N (infusion) license that either owns or leases suitable manufacturing space. If the locality approves of the arrangement and issues the appropriate permits, the primary licensee can then enter into a use agreement with multiple “Type S” licensees— manufacturers that can engage in packaging and labeling, food infusion, and some butter and oil extraction operations required for the infusion process, all in the same space, as long as they have less than $500,000 in annual revenue.

Each Type S licensee must have their own designated space to store their cannabis and cannabis products, and the shared-use facility must have a security plan as with any other licensee. Under this new arrangement, however, Type S licensees can have exclusive access to the shared-use facility and equipment at their own designated times, like a time share. The California Bureau of Cannabis Control’s existing rules prohibit licensees from subletting all or part of a licensed premises. But under the new Type S rules, the use agreement creating the shared-use arrangement satisfies the requirement of lessees to demonstrate the legal right to occupy a space and obtain landlord approval for the proposed cannabis activity, implying that the relationship is akin to a sublease and thus seemingly creating a limited exception to the prohibition.

What this means for manufacturers looking to break into the market is that even in high-priced areas, there is an opportunity to cut costs by sharing rent and equipment—two of the largest recurring expenses for manufacturing operations. Companies with shared space can also potentially take advantage of group savings on expenses like insurance, maintenance and service contracts, utilities, security services, and distribution. On the other side of the equation, the new rules also present an upside for landlords and master tenant “primary licensees,” whose owned or leased space will now be able to command more overall rent, much like a dated 3-bedroom apartment in San Francisco can command $6,000: more tenants to spread the cost.

The next question will be what other actions the state might take to benefit small and medium commercial cannabis operations, as it faces challenges claiming that it has benefitted large scale operators at the expense of the still-growing artisan industry. Time will tell, but at the moment, small-scale manufacturers have cause to celebrate.

california cannabis licensing

Today, the California Department of Public Health (CDPH) released its proposed emergency regulations governing cannabis manufacturing in shared-use facilities. We’ve written previously about CDPH’s statement that it was developing an additional license type, Type S, which would allow businesses to share facility space, and we’re pleased to see such quick progress in rules development. We see this license type as benefiting small business owners who may not otherwise be able to afford buildout of their own manufacturing facility.

According to the CDPH, the proposed emergency regulations will be filed with the Office of Administrative Law (OAL) on April 3, 2018, and will then undergo a five-day public comment period until April 8th. The stated goal of these new regulations is to “provide opportunities for small manufacturing businesses,” and is “in response to demand from cities and counties wishing to implement equity programs.” The regulations should be important to an often neglected segment of industry players.

Under the current rules, each manufacturing licensee must occupy its own separate and distinct premises, with the exception being that a licensee may hold both an M- and an A- license of the same type on one premises. But under the proposed rules, Type 6, 7 or N licensees would be able to register their location as a shared-use facility. After approval by the CDPH, other cannabis manufacturers wishing to utilize that shared-use facility would apply for a Type-S license.

This new license structure would “allow for operations similar to a commercial kitchen or agreements in which larger manufacturers offer space and use of equipment to smaller ones.” This license type will open the door to many small manufacturers who have been unable to secure their own real estate in a highly competitive market, or do not possess the requisite capital for building out their own facility. In that sense, we are pleased to report today’s development.

Some important things to note about these new regulations:

  • A licensed premises still cannot be used to manufacture any non-cannabis products, and each manufacturer on the premises must be licensed by the state.
  • Type-S licensees may only conduct the following cannabis manufacturing activities:
    • Infusions;
    • Packaging and labeling;
    • Extractions with butter or food-grade oils (the extract or concentrate produced can only be used in the Type S licensee’s infused products).
  • The shared-use facility must include storage for the Type-S licensee’s cannabis and cannabis products.
  • The primary licensee/owner of the shared-use premises must assign a designated area to be used as a shared space. They must post an occupancy schedule, outlining the days and/or times that the space will be used by Type-S licensees, and only one licensee can utilize the space at a time.
  • There is no limit to the number of Type-S licensees that can operate within a registered shared-use facility, but again, only one licensee can utilize the shared space at a time.
  • The primary licensee is responsible for ensuring that the entire facility meets the conditions for cannabis manufacturing under state and local law and the cannabis manufacturing regulations. This includes providing security, waste management and contamination controls and providing secured storage for Type S licensees to hold their cannabis and cannabis products.

Also important to note is that all Type-S license applicants will need to submit a copy of a valid license, permit or other authorization issued by the local jurisdiction that enables the applicant to conduct commercial cannabis activity. This authorization will be required of both the primary licensee (showing that the local jurisdiction approves of a shared-use space) and all Type-S licensees utilizing the shared space. Most local jurisdictions have not explicitly addressed the issue of licensees sharing space, so it will be critical to communicate with your local government if you intend to apply for a shared-use facility designation or a Type-S license to determine what the licensing and permitting requirements will be.

Last week I spoke on a panel about compliance at the Cannabis Cultivation Conference hosted by the Cannabis Business Times. If you’ve been following the latest developments in California you’d know that compliance with the myriad of regulations is the biggest obstacle for businesses looking to join the state legal cannabis market. We recently covered the current landscape facing cultivators here.

california cannabis marijuana licensing
Get your compliance checklist ready!

For commercial cannabis purposes California is a dual licensing state (although some would call it a “duel” licensing state, as it can be quite a battle to obtain a cannabis business license). Dual licensing means that in order to operate a commercial cannabis business you have to obtain a cannabis permit from your local jurisdiction before you can receive your license from the state. That means you’ve got to comply with two sets of regulations and in some occasions, many more.

For those that have been operating as collectives, cooperatives, or non-profits under the Compassionate Use Act (1996), Senate Bill 420 (2003) and the California Attorney General Guidelines (2008), compliance requirements were practically non-existent. That all changed when the state passed the Medical Cannabis Regulation and Safety Act in 2015 and California voters approved the Adult Use of Marijuana Act in 2016: Both the MCRSA and the AUMA were merged under the Medical and Adult-Use Cannabis Regulation and Safety Act to form one regulatory regime. In that sense, compliance is more manageable than it may appear at first blush.

Still, for many people who have dedicated themselves to providing medical cannabis to Californians for the last two decades, the thicket of regulations is the equivalent of a meteor-level extinction event. For the last twenty years most cannabis operators have looked at record-keeping as something you’d do if you wanted to go to jail — handshakes, your word, and cash transactions were the non-incriminating way of the land. Due to banking issues, cash transactions are still prevalent, but handshake deals should be sitting on a shelf at Blockbuster now that cannabis businesses are legitimate, licensed entities.

It is also worth noting that record-keeping and compliance does not end once you’ve obtained your local and state cannabis permits. Compliance is not only a prerequisite to obtaining but is also vital in maintaining your cannabis license. If the thought of compliance is overwhelming you and you don’t where to start, don’t worry, we’ve got you covered. This list should not act as a substitute for obtaining competent legal representation but it will give you an idea on what the road to compliance looks like. Without further ado:

  • Prepare a List Of The Regulatory Agencies That You’ll Need To Work With. At the state level, the three main regulatory agencies are the Bureau of Cannabis Control (distributors, laboratories, retailers, delivery-only retailers, microbusinesses, and temporary special events); the Department of Food and Agriculture (cultivators, processors, and nurseries); and the Department of Public Health (manufacturers). Other agencies include the Department of Fish and Wildlife, Regional Water Boards, the California Department of Taxes and Fees Administration, and the California Department of Insurance to name a couple more (there are others out there). On the local side, you’ll likely need the approval of some combination of the following: the City Council or Board of Supervisors, the City Manager, the Planning Department, the Zoning Administrator, and Police, Fire, and Building Departments. Put a list together of all the agencies (and their requirements) that will regulate your cannabis business.
  • Read Your Local Ordinance. Remember, you can’t get your state license until you obtain your local permit. Your local cannabis ordinance will list the criteria you’ll need to meet to get a license. You’ll likely need a security plan, a business plan, an odor mitigation plan, and a community relations plan. Some local ordinances have hours of operation requirements that are stricter than the state’s regulations so make sure your application abides by your local rules. It’s essential that the business, operating, and security plans you submit align with your local ordinance. I also highly recommend that you attend all of the cannabis ordinance public hearings in your local jurisdiction to familiarize yourself with the decision makers and any community concerns.
  • Make Sure Your Location Is Properly Zoned For The Activity. This coincides closely with familiarizing yourself with your local cannabis ordinance. You’ve got to make sure that your business is located in a district zoned for your cannabis activity and satisfies state and local setback requirements. If you’re leasing the property make sure the lease properly lists all of your cannabis operations as a permitted use.
  • Prepare Standard Operating Procedures And Train Your Employees To Follow Them. Prepare SOPs for every part of your operation. If you don’t know where to start, begin with your local and state applications. Every plan or action item that was listed in your applications should have a corresponding SOP.
  • Conduct Financial, Security, And Inventory Audits. Not only is important to have SOPs but you need to make sure your business is following them. Let me be brutally honest here: At some point, something is going to go wrong. If that mistake brings a regulator to your door, you’ll want to show them that mistake was an anomaly and not due to poor business practices. Conducting audits and following SOPs will go a long way in mitigating potential penalties. For more on the importance of audits, see here.
  • Compliance With Securities Regulations. Will you need to raise funds from investors? If so, you’ll need to consult with your attorney to determine whether the investment constitutes a security and if so, whether a securities exemption is applicable or not. For more on securities compliance, see here.
  • Review The Representations, Warranties, And Indemnity Provisions In Your Contracts. When’s the last time you looked over any of your contracts? Make sure the other contracting party has obtained the necessary licenses, represents that they’re in compliance with all regulations, and will indemnify you if they’re negligent or otherwise deviate from their representations and warranties.
  • Have a Compliance Team. Depending on the size of your cannabis business, compliance should not be a one-person operation. Your business will benefit from having a compliance team. Not only is this important for regulatory reasons but having a compliance team will allow you to identify inefficiencies and irregularities in your operation and correct them. Make sure your compliance team or compliance officer meets regularly with your employees as improved communication will also improve profits.

The bottom line is that compliance is necessary for cannabis businesses and should be given the appropriate attention. Compliance isn’t a four-letter word, nor should it be treated like one. A robust compliance protocol will lead to a standardized and reliable cannabis product, and if a purchaser down the supply chain (and ultimately the consumer) can rely on your product to meet the same standard every time, you will differentiate yourself in a competitive marketplace. Life might be like a box of chocolates but you shouldn’t have to guess when it comes to compliance and your product.

oakland cannabis marijuana

Oakland’s City Council recently passed what is, to our knowledge, a first-of-its-kind ordinance intended to protect residential tenants in the city’s “Green Zone” from being evicted by cannabis businesses (as a resident of Oakland’s “Green Zone,” this is an issue of both personal and professional importance to me). The ordinance passed on its first reading last week, and the second reading will happen today.

The issue of cannabis-fueled residential displacement in Oakland seems to have come to everyone’s attention a few months ago, when a Denver-based cannabis company called Green Sage bought The Oakland Cannery, a community of live-work lofts that house more than 30 artists and makers. The tenants learned from representatives of the company that their intention was to convert the building to commercial use space, and to use it as a cannabis cultivation facility. Residents were told they would not be allowed to stay.

While many within the industry are quick to tout the economic benefits brought about by cannabis legalization (which are undeniable), Oakland is one of the first cities to grapple with the potential negative downstream effects on communities that are suddenly flooded with cannabis business dollars. The City recognizes the Bay Area’s affordability crisis in terms of housing, as well as the importance of “affordable housing and space for artistic and creative enterprises and small economic enterprises and businesses.” The City of Oakland Planning Code allows for a variety of live/work uses in its industrial and commercial zones, which provides important affordable housing and space for these creative and small economic enterprises.

The live/work spaces that the City is seeking to protect are located within the City’s “Green Zone,” which was established in May 2016. Since Spring of 2017, when the City began receiving applications for cannabis businesses, they have received more than eight hundred such applications. In its report, the City identified at least twenty-five permitted live/work properties in the “Green Zone” where cannabis businesses are allowed to situate. The City recognized that these properties, which are located in traditionally industrial areas, tend to be “both more affordable for residents and more conducive to businesses that support artists, makers, and other workers in creative sectors than in other areas of the City that allow more traditional housing and commercial uses.”

As anyone with any experience in vying for a properly-zoned space for their cannabis business in California knows, these spaces are hard to come by, and competition is fierce. The fact that an out-of-state cannabis company purchased The Oakland Cannery does not surprise us, and without intervention by the City, it’s likely that other owners of these live/work buildings would be tempted by the soaring purchase prices commanded by buildings that are zoned for commercial cannabis uses. Buildings in areas of Oakland that were for many years completely undesirable are now quite valuable, if those buildings can be put to use for cannabis cultivation or manufacturing.

In passing this ordinance, the stated purpose of the City Council is to “restrict and prohibit the issuance of cannabis approvals and permits in properties utilized for Work/Live or residential purposes [that existed as of March 6, 2018] to preserve the public peace, health, safety, and general welfare of the citizens and residents of the City of Oakland.” As we stated above, this is the first ordinance we’ve seen that intentionally carves out a cannabis zoning exception for live/work spaces, and given the character of the communities in Oakland that are encompassed by the “Green Zone,” I think this ordinance makes sense. It certainly shows that the City of Oakland continues to regulate cannabis in a way that is both progressive and beneficial to its communities and residents.

california CUA collective MAUCRSA
Is the tide finally coming in for gray market California cannabis?

For state-by-state legalization to succeed in the long run, state and local governments often need to take significant enforcement measures against existing “gray” cannabis markets to ensure that there’s an even playing field for licensed operators who face the financial pinch and responsibility of comprehensive licensing regulations and robust taxation. To date, each state with an existing, unregulated medical cannabis industry has taken action to make sure that unlicensed, unregulated medical cannabis operators don’t undermine or disenfranchise their otherwise licensed counterparts (see Washington State as a prime example, or the continuing legislative efforts in Oregon).

It appears that California is finally taking certain steps to stop the unlicensed and illegal sale of cannabis within its borders. To regulators’ credit, they don’t have a choice but to tolerate the Compassionate Use Act (“CUA”) collective model through early 2019: the MAUCRSA preserves the criminal immunity of CUA collectives and cooperatives up to one year after the first MAUCRSA licenses begin to issue. The drop dead date on those collectives and cooperatives is now January 9, 2019.

Although these CUA collectives and cooperatives can continue to serve qualified patients and their caregivers without the administrative annoyance or cost of having to comply with MAUCRSA, they can’t engage in the for-profit sale of cannabis or any level of “commercial cannabis activity” without a license. However, many of these collectives and cooperatives continue to engage in illegal commercial cannabis activity: such activity is hard to monitor and police where the CUA has pretty much no government oversight. In addition, many CUA collectives and cooperatives believe that they can do business with MAUCRSA temporary and/or annual licensees (and vice versa), but this is just another piece of unreliable industry hearsay that violates the law.

In turn, California has started sending cease and desist letters to unlicensed operators they believe to be engaged in commercial cannabis activity in violation of MAUCRSA. And regulators have also started to crackdown on ancillary advertisers, like Weedmaps, for promoting unlicensed operators and their products in violation of MAUCRSA marketing and advertising restrictions. Certainly, these won’t be the last efforts we see regarding the takedown of illegal cannabis operators in California. Here’s what else we can expect:

  1. Industry self-policing. It’s highly unlikely that licensed operators are going to allow CUA collectives and cooperatives to take away their market share and/or to conduct sales of cannabis without facing the same onerous state and local taxes as licensees. As a result, we’re likely to see a spike in industry reporting on CUA collectives and cooperatives that don’t have a MAUCRSA license.
  2. Increased scrutiny of ancillary businesses. Going after Weedmaps represents the state’s willingness to chase third parties that are directly or indirectly assisting illegal operators. We can expect then that consultants, landlords, equipment sellers/lessors, etc., who assist or continue to assist unlicensed operators violating MAUCRSA will feel the same heat as Weedmaps.
  3. Policing of attorneys. Yes, there are still attorneys forming CUA collectives and cooperatives with the sole purpose of helping their clients evade MAUCRSA licensing to make one last stream of profit before 2019. At this point, if a potential client wants to engage in the commercial cultivation, manufacture, distribution, and/or sale of cannabis, helping them start a CUA collective or cooperative is unethical and constitutes malpractice.
  4. Getting local governments involved. Half the problem with current CUA collectives and cooperatives violating MAUCRSA is that local laws still allow them to operate in a completely gray area. Sometimes, local governments haven’t even regulated under MAUCRSA but they have and maintain existing laws that only allow for CUA collectives and cooperatives. State regulators would be wise to dialogue with local governments about CUA collectives and cooperatives acting in violation of MAUCRSA. Otherwise, those collectives and cooperatives will have free reign under local law to continue to violate MAUCRSA through January of next year.
  5. Federal intervention. If CUA operators ignore state mandates to cease commercial cannabis activity, there’s a solid chance that state regulators (and local governments) will call upon U.S. prosecutors to assist in sweeps. Given Sessions’ rescinding of the Cole Memo in January, U.S. Attorneys are going to act in accordance with the resources and priorities of their districts. And if local and state governments demand action in regards to violations of MAUCRSA, we can expect more arrests and prosecutions from the Feds.

Let us know what you are seeing out there, and what you expect to see in the coming year for California enforcement against gray market cannabis.