california marijuana cannabis

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

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

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

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

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

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

marijuana oregon seminar

On June 7, our own Vince Sliwoski will chair an all-day continuing legal education (CLE) event called The Business of Marijuana in Oregon, along with Jesse Sweet, a lawyer and senior policy analyst at the Oregon Liquor Control Commission (OLCC). This will be Vince’s fourth year presenting at the event and his third year as chair. The roster of speakers lined up for this CLE is better than any year to date, and everyone, including non-lawyers, would be well served to attend. For a full event description, including topics, speakers and registration links, click here.

Looking back over the past four years, it is amazing to see how much things have changed in Oregon cannabis. At this point, the OLCC’s recreational marijuana program is fully built out, with over 3,400 applicants now on file with the state. We are proud to call many of these Oregon producers, processors, wholesalers and retailers our clients, alongside the many investors and ancillary service providers we represent.

Sometimes, it is said that pioneers get slaughtered and settlers get rich. Now that the Oregon regulatory groundwork has stabilized, we have begun to see a second wave of entrepreneurs and investors move in on the local industry. Many of these new entrants bring skills, capital and experience from other regulated markets, while others are new to the space. Over the next year or so, we expect to see a fair amount of market consolidation throughout the Oregon cannabis industry. (See our most recent observations on the “state of the State” here).

Oregon attorneys and business owners alike need to be familiar with the unique regulatory concepts and industry dynamics that will be discussed on June 7, in order to best serve the Oregon cannabis industry. These concepts include state laws and administrative rules, developments in the highly dynamic federal sphere, and practical approaches to working with and in the cannabis industry. Attendees will hear from regulators, bankers, CPAs, and, of course, lawyers aplenty.

We hope you will join us on June 7 for an eight-hour survey of Oregon cannabis that is both broad and deep. And if you are a Harris Bricken client or a friend of the firm, please click here to request a promotional discount code, which can be applied to either the webcast, or to in-person attendance.

See you soon.

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

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

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

Welcome to the California Cannabis Countdown.

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

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

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

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

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

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

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

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

california cannabis employee
More employees. More laws.

Cannabis companies are subject to both state and federal employment laws and regulations. Certain employment laws only kick in once your cannabis business employs a certain number of employees. This post will the first in a series to explore when different employment laws take effect, relative to the size of your workforce. Today’s post focuses on California’s Sexual Harassment Requirements.

As we have discussed in the past, sexual harassment policies and trainings are very important for every cannabis business. California’s anti-discrimination and harassment statutes and implementing rules are some of the most comprehensive in the country. California has strict anti-harassment requirements and is one of the few states that requires certain private sector employers provide sexual harassment training for managers and supervisors. The anti-discrimination and harassment statute has different requirements depending on the size of the employee workforce.

California’s Fair Employment and Housing Act (“the Act”) requires all California employers to take reasonable steps to prevent discrimination and harassment from occurring. This requirement means that employers have to: 1) distribute the Department of Fair Employment and Housing’s brochure on sexual harassment (or a writing that complies with statutory requirements); 2) post an anti-discrimination poster and; 3) develop and distribute a written harassment, discrimination, and retaliation prevention policy. The requirements of the anti-harassment and discrimination policy are extensive and specific. In general, the policy must prohibit discrimination and harassment; create a complaint process; create an investigation process; and make clear that employees will not be exposed to retaliation for reporting discrimination or harassment. To put it simply—an expert should draft your anti-harassment policy.

California cannabis businesses that employ at least 50 employees must provide at least two hours of sexual harassment training every two years to each supervisor employee and to all new supervisor employees within six months of the assumption of a supervisory position. The training must be “effective interactive training” and includes: in-person instruction; e-learning; webinars; or a using audio, video, or computer technology with any of those training methods. The trainer must be a qualified trainer which is defined as “attorneys, professors or instructors, HR professionals or harassment prevention consultants.”

The California Department of Fair Employment and Housing enforces the Act and rules. DFEH can impose a civil penalty on any employer that fails to follow the above requirements. Those penalties can range from the moderate to the severe, depending on the violation and attending circumstances. Suffice it to say that you do not want to be caught up in a state-level enforcement action.

Although Act provisions go take effect at the 50 employee threshold, any new cannabis company should have an anti-discrimination and harassment policy in place as soon as it intends to hire its first employee. As cannabis business grow, additional requirements are placed on them. California’s requirements are strict and its best to get in front of these requirements before its too late.

Stay tuned for Part 2 of this series, where I will discuss state and federal family leave requirements for marijuana businesses.

San Luis Obispo California marijuana cannabis

As of May 1, the City of San Luis Obispo is one step closer to permitting adult-use cannabis retail stores. At its most recent meeting, council members approved the first reading of a draft ordinance intended to regulate marijuana businesses. Currently, Ordinance 1633 which was adopted in March 2017, expressly prohibits all commercial and industrial, medical and recreational cannabis activity within city limits.

Pursuant to Ordinance 1633, the Council directed staff to monitor developments in other jurisdictions, monitor development at the federal level, engage with the community regarding various land use and taxation issues, and return to the City Council with a recommendation. We now have those recommendations, which would establish new Municipal Code provisions that would become effective if a cannabis revenue measure is placed on the November 2018 General Election ballot and approved by voters.

Specifically, staff recommended “repealing the current ban on commercial cannabis business activity and establishing standards to protect public health and safety regulating personal cannabis cultivation, cannabis business operators, and permitted cannabis business activities in the City.” Staff also recommended land use regulations for commercial cannabis activity and personal cultivation and provided for the creation of overlay zones where the proposed regulations would apply.

Before regulations are adopted, though, staff will still need to return to City Council with additional implementing measures, including zoning map amendments for the proposed overlay zones, criteria for ranking permit applications, and a fee schedule for applications and annual licenses.

A summary of the proposed ordinance was provided in the Staff Report as follows:

  1. Allows for access to medical and recreational marijuana in the City, with storefront and delivery options (at least one storefront will be reserved for a holder of a medicinal retail license)
  2. Prohibits onsite consumption
  3. Establishes a two-step process requiring prospective business operators to be certified and ranked prior to applying for a land use permit
  4. Includes requirements for energy and water efficiency, and limits total amount of cultivation, to ensure consistency with City climate action goals
  5. Limits manufacturing uses to non-volatile extractions only
  6. Limits cultivation to indoors only, and total City-wide amount of cultivation allowed to 70,000 square feed of total canopy coverage within indoor areas, cumulatively (includes total canopy of either horizontal or vertical growing situations)
  7. Provides for the creation of overlay zones where cannabis business activity may be permitted, and buffers within those overlay zones for cannabis retail stores of 300 feet from residential zones, and 1,000 feet from schools, and parks
  8. Requires retail stores to be located at least 1,000 feet apart
  9. Only three retail storefronts, which must be on arterial streets, will be allowed within the City

According to the City Council, they intend to adopt regulations by early summer of 2018, but given that the voters must approve a tax revenue measure in November in order for the ordinance to go into effect, we’re still looking at quite some time before the City begins accepting permit applications. We will keep you posted!

california cannabis insurance
In California, it just got easier for landlords.

One of the most important elements of a commercial tenancy is insurance. Generally, the landlord maintains property insurance for damage to the building, existing improvements, and surrounding property, as well as liability insurance for bodily injury and property damage occurring on the premises. The landlord will typically pass the cost of that coverage on to the tenant as an operating expense, proportionally according to the tenant’s share of space in the building. The tenant will typically be required under the lease to carry, at its own expense, property insurance on all tenant improvements and tenant personal property, as well as its own liability policy covering injury and property damage occurring on the premises.

Because marijuana remains a Schedule I controlled substance that is federally illegal to produce or sell, most traditional insurance companies have declined to write insurance policies for the commercial cannabis industry. This relates to the federal illegality of marijuana itself, and also the increased risk associated with commercial cannabis as a result of such illegality, e.g. increased rate of loss from theft or burglary. As a result, landlords and tenants alike have often had to look to non-admitted carriers or surplus lines insurers to write a rider on a policy to cover cannabis activity. Such coverage is often extremely limited in scope, rife with exclusions, and very expensive. That said, rolling with a general liability policy that is not specific to cannabis is often even worse.

In industries other than cannabis, buyers tend to disfavor non-admitted carriers. This is due to the risk of losing out on various benefits offered through admitted carriers. Such benefits include: the certainty of financial stability and good business practices that comes with the state’s stamp of approval, the right to appeal claims that are denied, and the guarantee that the state will pay certain claims if the insurance company goes bankrupt. Cannabis businesses have had none of these benefits, until now.

Last week, the California Department of Insurance announced that it has approved a Lessor’s Risk policy issued by California Mutual, a traditional carrier with an “A- excellent” rating, for landlords renting to commercial cannabis tenants. Lessor’s Risk coverage is typically a comprehensive landlord insurance package that includes both the property and liability coverages often carried by commercial landlords. Specific commercial cannabis activities and businesses services by this announced coverage would include cannabis labs, product manufacturing, cultivation, and dispensary operations.

In the bigger picture, this is an important development for at least two reasons. First, it signals to other large insurers that the water is warm to start writing policies for cannabis businesses, and increased competition will mean lower prices, which will encourage more landlords to lease to cannabis tenants. Second, it is a huge step towards further legitimizing the cannabis industry by treating it like any other industry that requires business and government services. And it also highlights the need for perhaps the most important business service, banking, which is currently headed in the right direction as well.

All in all, when you have the Insurance Commissioner for the fifth largest economy on earth organizing cannabis facility tours for insurance executives, you can’t help but notice how seriously the state is taking this industry. That’s a good thing for landlords and tenants alike.

california marijuana cannabisEver since the passage of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), the California legislature has been busy debating and amending a wide variety of laws related to cannabis. We have been tracking these developments so you don’t have to. Below is an update on pending California cannabis legislation.

AB 2914 loosens the protections on alcohol and tobacco retailers and no longer prohibits those retailers from being able to apply for and obtain a commercial cannabis license. However, AB 2914 will continue to prohibit the infusion of cannabis and alcohol products. This bill was introduced on February 16, 2018 and was amended in assembly on May 1, 2018.

AB 2255 prohibits a law enforcement officer from being able to seize cannabis and cannabis products from licensed distributors who are in violation of MAUCRSA. If a licensed distributor is transporting cannabis in excess of what is stated on its shipping manifest, they will be issued a fine depending on whether this is a first, second, or additional violation. However, a law enforcement officer may still seize cannabis or cannabis products if the law enforcement officer has probable cause to believe a criminal violation has occurred. The bill clarifies that if a shipping manifest has been counterfeited, this would amount to a criminal violation. This bill was introduced on February 13, 2018 and was last amended in assembly on April 26, 2018. It was referred to committee on April 30, 2018.

AB 2641 places a restrictions on non-retailer cannabis businesses from holding temporary event licenses. If this bill were to pass, non-retailers would only be able to secure a maximum of 4 temporary event licenses within a calendar year. This prevents manufacturers, distributors, and cultivators from engaging in constant retails sale without a retail license. This bill was introduced on February 15, 2018 and was last amended in assembly on April 19, 2018. It was referred to committee on April 23, 2018.

SB 930 would provide for the licensure and regulation of cannabis limited charter banks and credit unions whose sole purpose would be to provide banking services to the cannabis industry. For more information about this, see our related post here. This bill was introduced on January 25, 2018 and was last amended in assembly on April 9, 2018. On May 1, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

AB 2555 makes a slight amendment to the unique identifier requirement under the state’s track and trace program. Instead of requiring cultivators to issue a unique identifier for all cannabis plants, the state would only require a unique identifier to be issued to mature cannabis plants. This bill was introduced on February 15, 2018 and was last amended in assembly on April 4, 2018. On April 25, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

AB 2215 allows medical and adult-use retailers to sell cannabis products to adults who intend to use the products for animals. This bill was introduced on February 12, 2018 and  was last amended in assembly on April 24, 2018. It was referred to committee on April 25, 2018.

SB 1409 allows individual cities or counties to prohibit the cultivation of industrial hemp regardless of whether the grower meets the requirements for the cultivation of industrial hemp. For more information on industrial hemp nationwide, see our related post here. This bill was introduced on February 16, 2018 and was last amended in assembly on May 1, 2018.  On May 1, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

The bottom line? We can expect some significant technical changes to California’s cannabis laws and regulations in the near future, so keep checking in, and prepare your marijuana business accordingly.

california marijuana cannabis invest own

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

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

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

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

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

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

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

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

Our own Hilary Bricken will have the great pleasure of speaking at the Central Coast Wine and Weed Symposium (presented by the Wine Industry Network) tomorrow, May 10, in San Louis Obispo. While the Symposium will focus on a variety of topics covering the cross section of the wine and cannabis industries, Hilary’s panel will specifically cover “Wineries & Cannabis: What You Can & Can’t Do” in regards to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) and its corresponding emergency rules.

The breakdown of Hilary’s panel is as follows:

On January 1st, California finally kicked it off its newly regulated adult use and medical cannabis markets, creating a plethora of business opportunities, some of which will undoubtedly impact the wine industry, both positively and negatively. However, acquiring state licenses and local approval to operate within the confines of the law can be challenging, costly and confusing, as state regulations and tax policies remain a work in progress and local commercial cannabis ordinances are different from one county and city to the next. In addition, with three separate state agencies taking on the comprehensive regulation of all kinds of cannabis businesses, understanding regulations across agencies is of the utmost importance to would-be cannabis entrepreneurs.

This interactive session, featuring leading cannabis legal experts, will address questions regarding what’s permitted and what’s not including but not limited to analyzing distribution restrictions, prohibited products, packaging and labeling, quality assurance standards, consumer protections, brand and advertising restrictions, as well as the overall temporary and annual state licensing, taxation, operational and reporting requirements, and the expected costs of and barriers to entry.

Hilary’s fellow panelists are heavy hitters in their own regard–Amanda Ostrowitz, an attorney, as well as founder and CEO of the very popular CannaRegs, and Rebecca Stamey-White, a partner at Hinman & Carmichael, LLP and a very well known and highly respected alcohol and cannabis regulatory attorney. We expect a lively and interesting discussion: Although the wine and cannabis industries don’t always get along, these two industries have a lot more in common than you might think.

For all your questions about wine and cannabis, as well as specifics regarding the regulatory challenges under MAUCRSA, we sincerely hope you can make it to the Wine & Weed Symposium!

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

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

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

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

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

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

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

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

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