San Francisco cannabis lawyersA couple of months ago we covered San Francisco in our Cannabis Countdown series. All up and down the state of California, local jurisdictions are constantly updating or amending their cannabis regulations and San Francisco is no different. There was also an enormous update on the state level as California’s Bureau of Cannabis Control, along with the state’s other cannabis licensing agencies (the Departments of Public Health and Food and Agriculture), just released their emergency regulations.

There’s a lot to digest in these 278 pages of regulations, but don’t fret as you know you can count on the Canna Law Blog to update you regularly on here with posts from our San Francisco and Los Angeles lawyers  and with our upcoming Los Angeles Cannabis Investment Forum on November 30 (go here to get your tickets for that before it sells out) and with a new webinar specifically on the new rules coming soon.

What hasn’t changed since California promulgated their rules (now withdrawn) under the Medical Cannabis Regulation and Safety Act is that local jurisdictions still control the types of cannabis licenses they are willing to permit inside their boundaries. Local jurisdictions still rule the roost and staying atop of the jurisdiction in which you want to operate your cannabis business is paramount. Just last week as I was meeting with clients at the MJBizCon conference in Las Vegas, the San Francisco Board of Supervisors (“Board”) released a draft of its new cannabis ordinance, which has significant implications for cannabis businesses looking to operate in San Francisco. The Board proposed amendments to San Francisco’s Planning Code (you can find them here) and the Administrative, Business and Tax Regulations, Health, and Police codes (here you go).

And if those are not enough to keep you busy, if you operate a cannabis cultivation, manufacturing, or distribution business in San Francisco you have until November 30th to register your business with San Francisco’s Office of Cannabis. In other words, if your cannabis business is eligible, you need to STOP researching Thanksgiving recipes and REGISTER with the Office of Cannabis here. To say that the phone lines in our San Francisco office have been ringing off the hook since the announcement by the Office of Cannabis would be both a cliché and the truth. Our cannabis lawyers have been representing companies in California, Washington, and Oregon since 2010 and we cannot remember any governmental body providing for such a tight deadline.

The below are some of the more important changes to the Board’s proposed amendments:

  • It creates an equity program that grants priority permit processing for equity applicants and defines an equity applicant as someone who a) lived in San Francisco for at least five years during the time period of 1971-2009; b) lived in a census tract where at least seventeen percent of the households had incomes at or below the federal poverty level; and c) at the time of application, has assets  (excluding non-liquid assets and retirement accounts) that do not exceed asset limits established by the Director (of the Office of Cannabis). For the entire list of criteria that defines an equity applicant look to Section 1604(b).
  • It establishes priority processing for equity incubators. An equity incubator is an applicant that does not qualify as an equity applicant, but that submits with its cannabis business permit application a cannabis equity incubator agreement in which it commits to comply with certain operating requirements (see section 1604(c)) during its first three years in operation as a cannabis business.
  • It creates a process to issue temporary cannabis business permits for all permit categories other than storefront retailers.
  • It allows storefront retailers to operate a compassion program that provides medicinal cannabis and/or medicinal cannabis products at no or nominal cost to low-income individuals qualified under California Health and Safety Code sections 11362.7 et seq. to use medicinal cannabis.
  • It allows for onsite cannabis consumption at dispensaries and microbusinesses so long as they have a valid cannabis consumption permit.
  • It prohibits delivery of cannabis products by businesses outside San Francisco. Only retailers and delivery-only retailers with a license from the Office of Cannabis can deliver cannabis within the city limits of San Francisco.
  • And of utmost importance, it provides that only those who fit into one of the following categories  can receive a permit from the Office of Cannabis in 2018:
    1. You are an equity applicant or an equity incubator.
    2. You possess a valid permit to operate a medical cannabis dispensary.
    3. You were issued a temporary permit.
    4. You can show you operate in compliance the Compassionate Use Act of 1996 and you were forced to discontinue operations as a result of federal prosecution or the threat of federal prosecution.
    5. You applied for a medical cannabis dispensary permit prior to September 26, 2017, that required referral to and approval by the planning commission.
    6. You registered with the Office of Cannabis as a pre-existing non-conforming operator, as set forth in subsection (k) of section 1605.

We previously covered the importance of reaching out to your local legislator when it comes to the implementation of cannabis policy and that holds true whether you live in a small town or a big international city like San Francisco. If you have issues with the Board’s amendments now is the time to speak up as they are expected to vote on them on November 28th, so call your district supervisor now!

California cannabis real estate laws
Careful buying real estate for your California cannabis business

Last month, in California Commercial Cannabis: Beware the Residential Farm Purchase, I discussed some of the risks inherent in buying a residential farm for commercial cannabis operations. In this post, I expand on that a bit by addressing some broadly applicable pitfalls for anyone looking to buy land on which to conduct a licensed commercial cannabis activity in California (or just about anywhere else). This post focuses on some land use pitfalls unique to cannabis that our real estate lawyers often encounter during the due diligence phase of land purchase deals involving cannabis.

  1.      Easements. An easement is generally a right to access or travel across real property that belongs to someone else. Cannabis businesses need to look out for easements that benefit the purchasing owner’s dominant estate by allowing access to a neighboring property but are subject to express conditions such as “compliance with all laws” (which would include federal law). If the purchased parcel includes an express easement for parking on a neighboring property subject to “compliance with all laws,” the neighbor could seek to prevent access to the easement as long as the cannabis use remains federally illegal, which could jeopardize the business’s operations. A title analysis during the buyer’s due diligence phase should include not just the usual searches for recorded and non-recorded easements, but it also should also account for the implications on these property rights that a cannabis use might present, which would not necessarily present with a routine property due diligence.
  2.      CC&Rs. Though covenants, conditions, and restrictions are normally associated with residential property (think homeowner associations), they are also common in the commercial real estate industry. CC&Rs typically are binding on future purchasers. Restrictions that might not normally be thorny or even applicable to typical business uses can present unique problems when it comes to cannabis. Common examples of this are restrictions on odor and waste emissions, use/manufacture/trafficking of “illegal drugs,” and the pervasive “compliance with all laws” mandate. Because cannabis is still illegal under federal law (notwithstanding its legal status in California and other states), a beneficiary of a “compliance with all laws” restriction could seek to enforce the CC&Rs against a cannabis operator. Consequently, due diligence for cannabis land purchases should include both a thorough review of CC&Rs and creative thinking on how those restrictions could potentially be interpreted against a cannabis use.
  3.      Zoning and local cannabis ordinances. A buyer looking for land for commercial cannabis operations has usually narrowed the search to jurisdictions with some form of commercial cannabis ordinance (See our California Cannabis Countdown series, which tracks updates in cannabis legalization by locality). Though many California cities and counties have passed legislation to accommodate new zoning requirements for cannabis uses, the burden is on the buyer to confirm that the parcel it seeks to buy will be suitable for its intended use, and, ideally, that it will stay that way. This means conducting due diligence on the local cannabis ordinance and on other related zoning laws and local land use restrictions. This also often means working with the locality to put in place a development agreement (sometimes required by the local ordinance anyway) to make sure the zoning laws won’t change.
  4.      Geographical vicinity and state regulatory requirements. In addition to local zoning requirements, cannabis operators must consider state laws when deciding where to locate. California’s Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) requires cannabis businesses maintain at least a 600-foot distance from schools and other youth gathering places. Local cannabis ordinances commonly include geographical buffer requirements that mirror current state requirements, but they can (and they sometimes are) be stricter than MAUCRSA’s. This means that your search for land suitable for your cannabis operation should include an analysis of local and state geographical buffers and any other local restrictions.
  5.      Neighbors. The importance of maintaining good neighbor relations cannot be overstated in the commercial cannabis industry. You should assume any neighboring landowner who opposes your business operation would have no trouble finding a legal basis to challenge it. They can (and often do) seek to enforce land use restrictions or lobby to change local zoning laws to the detriment of cannabis businesses. Or they might just bring an old-fashioned nuisance lawsuit against you, claiming the smell from your property or the number of people who visit it are damaging them. Your due diligence should, therefore, include gauging the potential risks coming from your future neighbors, particularly if the land you are considering is close to residential zoning or urban areas, where NIMBYism is likely to be more acute.

Due diligence on a real estate purchase is always important, but the unique characteristics and legal status of cannabis make it even more important for commercial cannabis businesses.

 

California cannabis bankingThe lack of reliable banking services has always been a problem for the cannabis industry. We’ve seen the dearth of banking options pose problems for fundraisers, advocacy groups, and state-chartered financial institutions.

Though 29 states and the District of Columbia have broadly legalized medical use of cannabis (eight of those states have also legalized adult-use), cannabis is still illegal under federal law and most financial institutions refuse to bank cannabis businesses. It is against this backdrop that  California State Treasurer John Chiang last week released a report (“Report”) outlining California’s approach to this problem. The Treasurer estimates California adult-use cannabis sales will exceed $7 billion by 2020 and will bring in approximately $1 billion a year in state tax revenues. The Report affirms that the status quo on cannabis banking is untenable for an economy the size of California’s.

The Report lists the following four areas as those on which the State of California must act:

1) Cash Handling for Collection of Taxes and Fees. The state cannot force financial institutions to bank cannabis businesses but it can implement strategies for an easier, safer, and more efficient way for cannabis businesses to remit their taxes and fees. In furtherance of this goal, the Report suggested the following:

  • State taxing agencies, the Treasurer’s office, and financial institutions should contract with an armored courier service to collect state tax and licensing payments.
  • The State of California should install smart safes and kiosks at government agencies and cannabis businesses.
  • California cannabis businesses should be allowed to use money services businesses for smaller tax payments.
  • California cannabis businesses should be allowed to use third-party payment services to make electronic payments (think PayPal or Venmo).

2) Expanding Cannabis Industry Access to Banking Services Under Current Law. California is not the first state to legalize cannabis for adult-use and the Report looked at Washington and Colorado where some credit unions are openly banking cannabis businesses. These Washington and Colorado credit unions are following guidelines promulgated by the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). The FinCEN guidance on cannabis provided information for financial institutions to bank cannabis businesses while still complying with the Bank Secrecy Act and the USA Patriot Act. The Report suggests creating an online portal to assist financial institutions to comply with FinCEN rules. The online portal would gather information from all 11 California state agencies with cannabis regulation or data collection responsibilities.

3) A State-Backed Financial Institution. The Report also looked at the feasibility of creating a state-owned or state-backed financial institution with either a broad mission to expand banking services to underserved groups or to narrowly focus on the cannabis industry. The prospects of a state-owned bank look dim because of the inability to obtain deposit insurance, the possibility of federal asset forfeiture, and the high (pun not intended) start-up costs. The Report also looked into the feasibility of a “bankers’ bank”: a private institution whose customers are other banks. Under this model, the bankers’ bank would help financial institutions comply with the Cole Memorandum and FinCEN guidelines. The biggest roadblock to the bankers’ bank is that it would do little to nothing to reduce financial institution fear of federal enforcement.

4) Full Access to Banking Services: The Federal Solution. In its final option, the Report relies on lobbying with the goal of bringing the federal government to its senses. One piece of legislation worth calling your representative about is the Secure and Fair Enforcement Banking Act (“SAFE Banking Act”), which aims to provide a safe harbor for banks that service cannabis businesses. Another focus is achieving the holy grail of the cannabis industry: removing cannabis from the federal government’s list of Schedule 1 controlled substances.

The report does a good job highlighting the unnecessary difficulties imposed on cannabis businesses by the federal government’s listing cannabis as Schedule 1 drug. As more states continue to legalize, regulate, and receive tax revenue from cannabis businesses there is reason for optimism. With staunch conservatives such as Utah Senator Orrin Hatch starting to see the light, it is fair to say that the federal legalization option is increasingly becoming less far-fetched – especially if we continue seeing the sort of election results we saw last Tuesday.

Now is not the time to rest on our precarious laurels. We all need to keep up the intensity, educate our local legislators, and most importantly, vote!

California cannabis lawyers
Big changes are coming to California cannabis collectives

Pretty much every state that’s dealt with an unregulated medical cannabis program has had to face the issue of what to do when heavily regulated adult use cannabis is introduced. In pretty much all of the West Coast states, you have had medical cannabis programs for qualified patients that revolve around an opaque “collective” model whereby patients are supposed to come together to pool resources to cultivate and distribute cannabis for medical use (via a physician or health care provider recommendation) among themselves and/or their caregivers. California was the first state to allow for medical cannabis for qualified patients back in 1996 under the Compassionate Use Act, which is part of the state’s health and safety code. Using “creative” legal advice to take advantage of this Act’s multiple loopholes and ambiguities, the “collective model” in California usually involves patients joining  a “closed loop” membership system (sometimes a formal corporate entity and sometimes not) to receive their medicine allegedly from other patients in the collective who grow or make it for them. What now happens to this collective model since California’s new cannabis laws (and forthcoming regulations) do not repeal the Compassionate Use Act?

When other states have faced the issue of what to do with their old and ambiguous medical marijuana laws after having enacted new and hardcore cannabis regulatory systems, they choose to have the new hardcore regulations cover all or nearly all cannabis issues in their state. This is due mostly to a desire to get into full compliance with the 2013 Cole Memo.

Our California cannabis lawyers are often asked whether it will be worth it to abandon the collective model in favor of receiving a state license under MAUCRSA, which will take time, money, and no small amount of effort. Our answer that it will be, especially because eventually you will no choice anyway. Even though the California legislature cannot disturb the Compassionate Use Act, it has already amended and repealed key provisions of the Medical Marijuana Program Act from 2003 that provided immunity to medical cannabis collectives and this will eventually eliminate the current collective model altogether.

Following implementation of MAUCRSA, qualified patients and their caregivers may continue to operate with limited criminal immunity without a state license, so long as: (1) the patients and caregivers operate in full compliance with state law, and (2) the local government does not prohibit the activity.  See, H&S Code sections 11362.5, 11362.765, 11362.77, and 11362.7. Immunities for medical cannabis collectives (i.e., non-profit mutual benefit corporations, non-profit corporations, non-profit cooperatives, etc.), on the other hand, expire one year after the state begins issuing licenses. See, H&S Code section 11362.775(d). 

Though MAUCRSA expressly exempts qualified patients and caregivers from licensure requirements, it does not allow qualified patients, their caregivers, or cannabis businesses to conduct commercial cannabis activity without a license. So, despite the one-year grace period provided to current collectives in H&S Code section 11362.775(d), a collective that is engaging in commercial cannabis activity that exceeds the very strict qualified patient and primary caregiver limits (see below) violates MAUCRSA and is operating illegally. We are hearing far too many stories (more in our Los Angeles office than in our San Fransisco office) of so-called cannabis lawyers and cannabis consultants charging small fortunes to help their collective clients avoid extinction. We urge you not to waste your money on these schemes.

To be immune from prosecution under the Compassionate Use Act and MAUCRSA, a primary caregiver (or a collective) must operate within the following confines when acting without a state license:

  1. Cultivation, possession, storage, manufacture, transportation, donation, or provision of cannabis must be exclusively for the personal medical purposes of no more than five specified qualified patients for whom the caregiver is the primary caregiver. (B&P section 26033(b));
  2. The caregiver cannot receive remuneration for these activities other than for actual expenses, including reasonable compensation incurred for services provided to an eligible qualified patient or person with an identification card to enable that person to use cannabis under this article, or for payment for out-of-pocket expenses incurred in providing those services. (B&P section 26033(b), H&S Code section 11362.765(c));
  3. The caregiver cannot possess more than eight ounces of dried cannabis per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)); and
  4. The caregiver cannot maintain more than six mature or twelve immature cannabis plants per qualified patient unless a physician’s recommendation or local guidelines allow amounts in excess of this limit. (H&S Code section 11362.77(a)-(c)).

Additionally, collectives and caregivers still must comply with applicable local city and county laws, which are quickly changing with respect to how they deal with commercial cannabis activity so as to embrace MAUCRSA licensing standards (if there’s not a ban).

If you do not believe the above will be enough to bring the current collective model to a halt by January 1 (when California cannabis licenses begin to issue and when temporary licenses are supposed to become effective), there’s more. Commercial cannabis activity is only permitted among licensees and once a business entity or individual receives an active temporary license or a full-blown license from the state, they must immediately stop doing business with non-licensed entities (including unlicensed collectives), or they risk losing their license. See B&P section 26053(a).

Those who think they will be able to milk the current unregulated collective model for the next year or so as the state implements MAUCRSA are likely to be sorely mistaken. Like the other adult use states that came before it, California will very soon essentially wipe out the old collective model in favor of the transparency and regulation its citizens chose. Trying to hold on to the collective model after January 1, 2018, is going to be a dangerous legal mistake.

 

 

 

California’s Bureau of Cannabis Control (along with its Departments of Public Health and Food and Agriculture) dropped their much-anticipated emergency rules this afternoon (see here, here, and here) to fully implement the Medicinal and Adult-Use Cannabis Regulation and Safety Act in California. The agencies kept a lot of what we saw from the withdrawn rules under the Medical Cannabis Regulation and Safety Act (MCRSA). (see herehere, here, and here), but there are also some new, notable additions and some interesting gap-fillers that now give us the foundation for operational standards across cannabis license types.

Though we can’t cover every single change or topic from these rules in one post (and because we’ll be covering the license types and application details in other posts in the coming days and weeks and at our SoCal Cannabis Investment Forum), I will instead focus on the following highlights of the emergency rules:

  1. We now have a revised definition of “canopy,” which is “the designated area(s) at a licensed premise that will contain mature plants at any point in time.” In addition, canopy shall be calculated in square feet and measured using clearly identifiable boundaries of all area(s) that will contain mature plants at any point in time, including all of the space(s) within the boundaries. Canopy may be noncontiguous, but each unique area included in the total canopy calculation shall be separated by an identifiable boundary which includes interior walls, shelves, greenhouse walls, hoop house walls, garden benches, hedgerows, fencing, garden beds, or garden plots; and if mature plants are being cultivated using a shelving system, the surface area of each level shall be included in the total canopy calculation.
  2. “Nonvolatile solvent” has been further defined to mean “any solvent used in the extraction process that is not a volatile solvent,” which “includes carbon dioxide (CO2) used for extraction and ethanol used for extraction or post-extraction processing.”
  3. Temporary licensing has now been fully detailed to include online applications, the personal information for each owner that must be disclosed, contact information for the applicant’s designated point of contact, physical address of the premises, evidence that the applicant has the legal right to occupy the premises for the desired license type, proof of local approval, and the fact that the temporary license (which is good for 120 days) may be renewed and extended by the state for additional 90 day periods so long as a “complete application for an annual license” has been submitted to the state. No temporary license will become effective until January 1, 2018.
  4. For the full blown “annual license,” the application requirements are pretty much the same as under the MCRSA rules except that you must disclose whether you’re applying for an “M License” or an “A License” and you have to list out all of your financing and financiers which include: “A list of funds belonging to the applicant held  in savings, checking, or other accounts maintained by a financial institution, a list of loans (with all attendant loan information and documentation, including the list of security provided for the loan), all investment funds and names of the investors, a list of all gifts, and a list with certain identifying information of anyone with a “financial interest” in the business. “Financial interest” means “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.” The only exempt “financial interests” are bank or financial institution lenders, individuals whose only financial interest is through an interest in a diversified mutual fund, blind trust, or “similar instrument”, and those shareholders in a publicly traded company who hold less than 5% of the total shares.
  5. As part of your licensing application, you will still need to submit a premises diagram drawn to scale along with all of your security procedures and inventory procedures (and pretty much all corresponding operational SOPs) A $5,000 bond is still required for all licensees (as well as mandatory insurance) and all owners must submit their felony conviction criminal histories as specifically enumerated in the regulations, as well as rehabilitation statements.
  6. Several new licenses have been created (and/or brought back from the dead from MCRSA): the cannabis event organizer license (to enable people to take advantage of the temporary cannabis event license), the distribution transporter only license (which allows this licensee to only move product between licensees, but not to retailers unless what’s being transported are  immature plants or seeds from a Type 4 nursery), the processor license (a cultivation site that conducts only trimming, drying, curing, grading, packaging, or labeling of cannabis and non-manufactured cannabis products), the Type N and P manufacturing licenses are back, and there’s now a Type 9 delivery only Non-Storefront Retailer license.
  7. We also now have the non-refundable licensing fee schedules and though they vary depending on the license type they mostly are nominal, though some increase with increased gross receipts, and small and medium-sized growers will have to pay pretty robust fees.
  8. If you want to make changes after-the-fact to your premises or to your ownership structure, you first must secure state approval to do so.
  9. All growers are again limited to one Type 3 medium cultivation license each, whether it’s an M License or an A License.
  10. A retailer can sell non-cannabis goods on its premises so long as their city or county allows it (this excludes alcohol, tobacco, and tobacco products). Retailers can also sell non-flowering, immature plants (no more than six in a single day to a single customer). M-licensed retailers and micro-businesses can also give cannabis away free of charge to qualified patients or to their caregivers.
  11. Notably, until July 1, 2018, licensees may conduct commercial cannabis activities with any other licensee, regardless of the A or M designation of the license.
  12. The renewable energy requirements for cultivators have been revamped hopefully to the satisfaction of cannabis growers.
  13. Again, the licenses are NOT transferable, so we’re looking at folks only being able to purchase the businesses that hold them.
  14. Distributors will be able to re-package and re-label flower, but not infused cannabis products unless they hold a manufacturing license. Distributors also cannot store any non-cannabis goods at their premises. The state has laid out what must take place during a distributor’s quality assurance review and the chain of custody protocol with third party labs for testing.
  15. We have a detailed list of all permissible extraction types, including that any CO2 extractions must be done within a closed loop system.
  16. The prohibited products list is pretty much the same as it was under the  MCRSA rules (so, no nicotine or caffeine infused cannabis products).
  17. In regards to “premises,” the Bureau’s regulations mandate that a licensee may have up to two licenses at a given premises of the same license type so long as they’re owned by the same company and one is an A-License and  the other is an  M-License.
  18. In addition to other relatively onerous advertising requirements, licensees must “Prior to any advertising or marketing from the licensee involving direct, individualized communication or dialog, . . .  use age affirmation to verify that the recipient is 21 years of age or older.” Direct, individualized communication or dialog, may occur through any form of communication including in person, telephone, physical mail, or electronic. A method of age verification is not necessary for a communication if the licensee can verify that “the licensee has previously had the intended recipient undergo a method of age affirmation and the licensee is reasonably certain that the communication will only be received by the intended recipient.”
  19. Retailers and micro-businesses are now required to hire third party security to protect and watch their premises.
  20. To hold a micro-business license, a licensee must engage in at least three of the following commercial cannabis activities: cultivation, manufacturing, distribution, and retail sale. There are also now a slew of regulations surrounding each activity a micro-business can undertake.
  21. Live entertainment is now allowed at a licensed premises so long as it follows the bevy of regulations regarding content and presentation.

Overall, we have a close-ish copy of the withdrawn MCRSA rules that will lead us into 2018. Be sure to read the rules again and again before pursuing your California cannabis license. Applicants will have their work cut out for them on both the state and local levels.

 

California Cannabis HaywardCalifornia 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 waiting to see what to do with cannabis, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law, all 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 Alameda County, and before that 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 City of Hayward.

Welcome to the California Cannabis Countdown.

LocationHayward is a city in Alameda County that borders the East Bay cities of San Leandro, Fremont, and Pleasanton. Though Hayward doesn’t have the worldwide recognition of San Francisco or Oakland, it is an affordable city near the water with a strong manufacturing base.

History with Cannabis and Current Cannabis Laws. Right now you might be asking yourself: Hayward? Sure Hayward at first might not seem like a jurisdiction in which to locate your California cannabis business, but in the other states in which we have cannabis lawyers (Oregon and Washington), we long ago learned that the most glamorous cities are not necessarily the most profitable ones.

Historically, Hayward’s stance towards cannabis probably aligns closer with U.S. Attorney General Jeff Sessions than with most Californians. Hayward’s unfriendly approach to cannabis — absolute prohibition through an exclusionary zoning ordinance — was even starker when compared to the other progressive cities in the East Bay (Oakland, Berkeley, and Emeryville). Hayward’s slow march towards progress began in November of 2016 when approximately 60 percent of Hayward voters supported Measure EE and 56 percent voted for the Adult Use of Marijuana (a/k/a Prop 64). Measure EE set up a tax structure allowing the city of Hayward to tax cannabis businesses up to fifteen percent of their gross sales. The Measure specified that the tax could apply to medical and adult-use cannabis businesses and cover seed to sale license types (cultivation, manufacturing, distribution, and retail). Let’s give credit when it’s due as Hayward’s city council took notice of their residents’ wishes and just recently proposed and voted on a new cannabis ordinance.

New Cannabis Laws: On September 14, 2017, the Planning Commission held a hearing to discuss regulations for cannabis business and on October 17, Hayward’s City Council introduced an ordinance amending their municipal code. The proposed ordinance removed Hayward from the dark ages of complete prohibition. On October 30th, the City Council approved a final version of their cannabis ordinance. Here’s a list of the some of the highlights (and some lowlights) of Hayward’s cannabis ordinance:

  • Allows medicinal and adult-use commercial cannabis businesses.
  • Will permit seed to sale license types, including laboratories. Commercial cannabis cultivation operations under 5,000 square feet will only need an administrative use permit, bigger operators will need to obtain a conditional use permit.
  • Outdoor commercial cannabis cultivation is prohibited.
  • Volatile manufacturing is prohibited.
  • Caps the number of retail dispensaries to no more than three.
  • Onsite consumption is prohibited although an exception could be granted for qualified medical patients.
  • Temporary special events that involve onsite cannabis sales and consumption may be allowed if the applicant receives a special event permit.
  • Multiple cannabis businesses can be permitted per site so long as the businesses are located on separate and distinct premises.
  • Creates an ancillary option for retail sales. The retail sale of cannabis and cannabis products is allowed only as a component of a microbusiness operation. The operator must hold a microbusiness (Type 12) license issued by the state Bureau of Cannabis Control. The cumulative floor area of the retail activity shall not exceed 10 percent of the first-floor area of the industrial building and all cannabis and cannabis products for sale must have been cultivated, produced and manufactured on-site.
  • All individuals that participate in the production of edible cannabis products must be state certified food handlers.
  • Security cameras will have to allow for remote access to be provided to the Hayward Police Department.
  • All cannabis businesses shall be subject to a 600-foot minimum setback from schools, day care centers, youth centers, and open space areas or designated parks used towards children’s activities. The setback for public parks and open spaces may be reduced by the Planning Commission.
  • Applications for a cannabis business permit will be evaluated by the City Manager.

As a whole, this is a pretty substantial first step by Hayward to regulate the cannabis industry. Sure, we’d prefer if there weren’t a cap on dispensaries but the city is showing some creativity by creating an ancillary sales option. This modified microbusiness model could be an attractive option for many California cannabis business owners. We’ll still have to wait to see how Hayward implements this ordinance, but it’s safe to say that you won’t find Hayward on this list anytime soon. Well done Hayward, well done.

Hollywood CannabisFive hours into a marathon council meeting, following robust discussion among City Council members and some fine-tuning by the City Attorney, West Hollywood introduced its new cannabis ordinance on first reading. The ordinance is scheduled for a second reading on November 20, and if adopted, will become effective just in time for the State’s implementation of MAUCRSA in January. The original ordinance is available here, but the revised version has not yet been published.

West Hollywood’s cannabis ordinance creates five types of cannabis business licenses, implements a merit-based system to select the top operators, and limits the number of licenses in each category to eight (except for delivery services).

The Ordinance Allows Adult Use Retail, Medical Use Retail, On-Site Consumption, Delivery, Testing, Manufacturing, and Cultivation

The ordinance provides for the following licenses:

  • up to 8 adult-use retail business licenses
  • up to 8 consumption area (smoking, vaping, ingestion) with on-site adult-use retail (sales of products to be consumed on-site) business licenses
  • up to 8 consumption area (edible ingestion only) with on-site adult-use retail (sales of products to be consumed on-site) business licenses
  • up to 8 medical-use dispensary business licenses
  • up to 8 business licenses for cannabis delivery services located in West Hollywood.
  • an unlimited number of business licenses for cannabis delivery services that are located outside the City limits and deliver cannabis to customers within the City of West Hollywood.

In addition to these licenses, the ordinance allows the following uses without a separate cannabis business license:

  • Testing laboratories
  • Manufacturing and indoor commercial cultivation as ancillary uses to licensed retail use

A business may hold a combination of licenses, but may not obtain two of the same type of cannabis license within the City. West Hollywood expects most operators will obtain multiple licenses.

A City Manager-Appointed Committee Will Rank Applicants Based on Weighted Criteria

Following an initial 30-day application period, the City Manager-appointed evaluation committee, comprised of at least three people with demonstrated experience in city government or the cannabis industry and with no business interests in West Hollywood, will review and score each application based on the general criteria listed below.

The City has not yet determined the specific criteria or weighting of points per criteria for each license type, but it will do so prior to the initial application period and it will publicly post this information.

At present, there is no tiebreaking mechanism in the ordinance, so it remains to be seen how the City will select the top 8 applicants in a particular category if, for example, 15 applications end up with the same high score.

The following general criteria will be used to rank applicants:

  • Previous adult-use retail, medical-use dispensing, or consumption area operation experience that was subject to state cannabis regulation, or experience in a similarly state- regulated activity (by way of example and not limitation, alcohol sales).
  • Ability to demonstrate the quality of cannabis strains and derivative product offerings.
  • Employee training, standard operating procedures, online ordering systems and procedures for providing cannabis to disadvantaged or disabled persons.
  • Social equity in terms of provision of providing a living wage and employee benefits and compliance with local, state, and federal employee non-discrimination policies.
  • Security program.
  • Pre-existing West Hollywood Cannabis Business that has no outstanding code violations with the City and is in compliance with local and state laws.
  • Ability to meet City of West Hollywood Urban Design Standards.
  • Additional information that demonstrates the ability to operate in a safe and responsible manner in the City, including without limitation a review of the quality and thoroughness of application materials, connection to West Hollywood, ability to serve the West Hollywood community, familiarity with West Hollywood, and innovative boutique business models consistent with the West Hollywood community.

Four Existing Cannabis Collectives Are Entitled to Relocation, Temporary Licenses, and Exemption from Ranking

The ordinance provides substantial priority to the four authorized cannabis collectives currently operating in West Hollywood. During the hearing, City Council amended the ordinance to automatically grant existing businesses the first four available medical dispensary licenses, so long as they satisfy certain criteria.

If any of the existing four want to take advantage of priority without having to go through the ranking process, they cannot make a permanent change to adult use. In other words, an existing business would have to remain medical only, and/or obtain only a temporary license to engage in any adult use. An existing business wanting to take advantage of this priority would not be able to obtain a consumption license, because those are only compatible with adult use retail. It appears an existing business could potentially add delivery services, so long as the delivery involved medical use products only.

However, even if one of the existing four decided to add adult use and forgo the priority license, the ranking criteria includes a category for existing collectives in good standing, meaning the existing businesses are entitled to additional points that a new business could not obtain. Accordingly, the existing businesses have a significant advantage in obtaining licenses.

The ordinance further provides that any of the existing four collectives that do not meet location requirements of local or state laws can move to a compliant location and be considered an “existing medical cannabis location.” An existing business may also obtain a temporary use permit in its original, non-compliant location if the State will issue a license for the location. This language appears directed at an existing collective located within 600 feet of a school.

Under the ordinance, existing businesses may immediately apply for a temporary and annual state license and local business license to operate medical and adult use retail. A temporary use permit may be issued to the existing four collectives to engage in the sale of adult use on a temporary basis provided that the operator receives and maintains a valid temporary license from the State.

Further Changes to the Original Ordinance Include Eliminating the Double Driver Requirement, Expanding Consumption Areas, and Limiting Operating Hours

In addition to the changes discussed above, the City eliminated the requirement that at least two employees be present in a delivery vehicle at all times, expanded the maximum consumption space from 25% to 50% of the total floor area of the retail space, and added language expressly reserving the authority of the Business License Commission to limit operating hours and to institute a closing time earlier than 2:00 a.m.

Orientation Meetings Next Week; Ordinance Scheduled to Take Effect Before January 1, 2018

The City invited interested parties to an orientation meeting next week to discuss the ordinance and answer questions about specific requirements and the application process. If the second reading and adoption proceed as expected on November 20, the ordinance will become effective before January 1, 2018.

Los Angeles Cannabis Investment Forum

Come to find out that among the hundreds of California cannabis events and conferences out there, not many actually offer much valuable insight or even tips for investing in California’s cannabis industry and ancillary sector. Many of our California cannabis clients have been engaging in all kinds of hybrid equity and debt deals to put dollars into the hands of California cannabis operators and ancillary businesses as we head into licensing in 2018.

In turn, on September 28th of this year, our San Francisco office hosted our first California Cannabis Investment Forum, and it was a huge success. Not only did we sell out, with more than 250 people in attendance, those who attended really enjoyed it and many requested we do something similar in Los Angeles. Their reasons for wanting a similar event in Los Angeles ranged from wanting their SoCal people to be able to attend to wanting to hear what is happening in Southern California and to meet and network with cannabis industry operators and investors in our area.

So by popular demand from attendees and clients, we’re hosting another investment forum at the end of this month. But this time it will be in Los Angeles and this time I will be the moderator.

Please join us on Thursday, November 30th, for an educational discussion on investing in Southern California’s newly regulated cannabis industry. Hosted by Harris Bricken‘s Los Angeles office, the Southern California Cannabis Investment Forum will bring together top investors and leading companies in Southern California’s cannabis and ancillary industries.

The Forum will begin at 6:30 p.m. with a keynote from me that addresses the many recent changes to California’s medical and adult use cannabis laws under MAUCRSA. From 6:45 to 8 p.m., I will then moderate a panel comprised of the following:

Our panelists will cover:

Audience questions will be taken throughout the presentation. If you’d like to submit a question to the panel beforehand, please write to firm@harrisbricken.com. A cocktail networking session will follow the panel and will last until 9:30 pm.

The Southern California Cannabis Investment Forum will be held at Wanderlust in Hollywood. Hors-d’oeuvres and drinks will be provided. Doors open at 5:30 pm. Early bird tickets are on sale now at $55, rising to $75 on November 16. Please go here for details and to sign up.

We look forward to seeing you there!

Santa Cruz cannabis regulations
Santa Cruz is in the forefront of California cannabis

We wrote last week about the City of Santa Cruz’s efforts in adopting and implementing adult-use cannabis regulations, and on Tuesday, the Santa Cruz County Board of Supervisors voted unanimously to allow the twelve existing legal medical marijuana dispensaries in the County to sell adult-use cannabis as well. The dispensaries will of course need a state license in addition to local approval, but this move by the County will position these dispensaries to be among the first in the state able to apply for adult-use retail licenses come January 1st.

Santa Cruz County now joins a very small list of California jurisdictions that have taken proactive steps toward implementing adult-use cannabis regulations. Most California cities and counties are still waiting for guidance from the state’s Bureau of Cannabis Control (BCC), which is not set to release proposed state rules governing both adult-use and medical cannabis until mid to late November. Without guidance from the state, local governments have been reluctant to put resources into drafting cannabis regulations when those state rules could necessitate substantial revisions.

Both Santa Cruz City and County have been working to stay at the forefront of cannabis industry development. I had the opportunity to attend the City of Santa Cruz Planning Commission meeting last week, and the Commission voted to propose that the City Council make certain amendments to the proposed ordinance:

  • Additional privacy protections for retail store managers, including removing the requirement that managers’ addresses be public information;
  • Clarification that multiple cultivation licensees can operate on the same premises, so long as they are separate and distinct, and meet all other state licensing requirements; and
  • Rather than prohibiting deliveries from outside the City of Santa Cruz, expanding this restriction to allow for deliveries from retail stores anywhere within Santa Cruz County.

There was some talk about opening up the downtown retail core to cannabis businesses, and reducing the buffer from 600 feet to 300 feet, but the Commission ultimately decided these would be changes to discuss down the road, after the licensing program had been established and operating. Santa Cruz’s City Council is scheduled to read its proposed ordinance on November 14th, after reviewing the Planning Commission’s recommendations. The City of Santa Cruz will cap the number of available retail licenses at five, with the two existing, legal medical dispensaries having priority for adult-use licenses. And Santa Cruz County, which has moved to give its twelve existing dispensaries priority for adult-use licenses, has authorized only fourteen dispensaries as eligible for licenses. According to the County, they do not anticipate licensing additional dispensaries for either medical or recreational cannabis at this time, although that could change with upcoming rules implementation.

 

 

The cannabis laws of the Cities of Los Angeles CountyOur Los Angeles cannabis lawyers (of which I am one) are constantly being asked about the cannabis laws of various of the 88 incorporated cities in Los Angeles County.

Because it is both important and difficult to decipher each individual city’s local laws, we thought it would be helpful to provide you with charts to help. We divided the county into 4 regions and we will over the next few weeks trickle out the charts for each of these regions to keep you updated on each of the cities and their current laws.

Here is what’s going on in the 24 cities located in the Westside/South Bay Region of Los Angeles:

City Dispensing Cultivating Manufacturing Distributing Pending Changes
Avalon

No

Medical marijuana dispensaries are prohibited in the city.

No

Cultivation of marijuana shall be considered a prohibited use in all zoning districts of the city.

Silent Silent City council met 10/3/17 to discuss considering regulating cannabis. Recommended council direct city attorney develop an ordinance to regulate cannabis.
Beverly Hills

No

Commercial cannabis activity (profit or not-for-profit) is prohibited in the city.

No

Commercial cannabis activity (profit or not-for-profit) is prohibited in the city. Exception for personal cultivation of 6 or fewer plants.

No

Commercial cannabis activity (profit or not-for-profit) is prohibited in the city.

No

Commercial cannabis activity (profit or not-for-profit) is prohibited in the city.

City adopted an ordinance on 8/8/17 expressly prohibiting all forms of cannabis-related business in the city, with the exception of medical marijuana delivery to residents.
Carson

No

Municipal code explicitly prohibits medical marijuana dispensaries.

Silent Silent Silent On 11/8/16 the city passed Measure KK which would impose a tax on cannabis business activity. Also, the city council has been meeting to address allowing cannabis business activities, but nothing is certain yet. Scheduled to have an ordinance in effect by 12/7/17.
Compton

No

Commercial cannabis activities of any type or nature are expressly prohibited in all zones in the city.

No

Cultivation of cannabis for commercial or non-commercial purposes, including cultivation by a qualified patient or primary caregiver, is expressly prohibited in all zones. Does not apply to the personal cultivation of up to 6 plants.

No

Currently, a moratorium is in place for the establishment of all commercial medical marijuana uses in the city.

No

Currently, a moratorium is in place for the establishment of all commercial medical marijuana uses in the city.

Emergency ordinance issuing a moratorium on cannabis activities is currently in place. City council has directed the city attorney prepare a report on effect and impact of proposed marijuana initiative.
Culver City

Silent

The municipal code makes no mention of cannabis.

Silent Silent Silent On 9/11/17 the city council met to consider recommendations from marijuana task force to permit commercial cannabis activity in the city and directed staff to return with proposed ordinances that would allow manufacturing and distribution. Staff recommendation is to allow retail, cultivation, manufacturing, distributing, and laboratory testing.
El Segundo

No

No license can be issued for, nor shall any person operate a retail marijuana store, marijuana establishment, or any commercial marijuana activity in the city.

No

No license can be issued for, nor shall any person operate a marijuana cultivation facility, marijuana establishment, or any commercial marijuana activity in the city. Cultivation for personal use is permitted of not more than 6 plants.

No

No license can be issued for, nor shall any person operate a marijuana product manufacturing facility, marijuana establishment, or any commercial marijuana activity in the city.

No

No license can be issued for, nor shall any person operate a marijuana testing facility, marijuana establishment, or any commercial marijuana activity in the city.

Planning commission is held a study session on 10/12/17 with city staff to discuss new state marijuana laws and to recommend the city council approve an ordinance regulating marijuana-related land uses.
Gardena

No

Commercial marijuana activities of all types are expressly prohibited in all zones in the city.

No

Commercial marijuana activities of all types are expressly prohibited in all zones in the city. Personal cultivation is permitted.

No

Commercial marijuana activities of all types are expressly prohibited in all zones in the city.

No

Commercial marijuana activities of all types are expressly prohibited in all zones in the city.

Planning commission recommended council to approve an ordinance that will prohibit all commercial cannabis activity within the city on 9/5/17.
Hawthorne

No

Marijuana dispensaries are prohibited in all zones of the city (ordinance approved 1/26/17).

No

Marijuana cultivation is prohibited in all zones of the city (ordinance approved 1/26/17).

No

Marijuana processing is prohibited in all zones of the city (ordinance approved 1/26/17).

Silent No mention in city council meetings since issued ordinance 1/26/17.
Hermosa Beach

No

Marijuana dispensaries are prohibited in all zones throughout the city.

No

Marijuana cultivation is prohibited in all zones within the city. No person shall cultivate any amount of cannabis in the city.

No

No person shall establish, operate, conduct, or allow commercial cannabis activity anywhere in the city. Definition of commercial cannabis activity includes manufacture and processing.

No

No person shall establish, operate, conduct, or allow commercial cannabis activity anywhere in the city. Definition of commercial cannabis activity includes distribution.

Staff recommended city council provide direction for preparing an ordinance banning or regulating sale, manufacture, cultivation, and delivery of adult-use cannabis and residential cultivation of cannabis on 9/12/17 (no action has been taken).
Inglewood

No

The sale or dispensing of marijuana for medical purposes or otherwise at any medical marijuana dispensary is prohibited in all zones.

No

Any use involved in the sale, possession, cultivation, use and/or distribution of marijuana for medical purposes is prohibited in all zones.

Silent

No

Any use involved in the sale, possession, cultivation, use and/or distribution of marijuana for medical purposes is prohibited in all zones.

Staff recommended council amend the zoning code to prohibit all commercial activity associated with cannabis production, transport and dispensing in all zones on 9/26/17.
Lawndale

No

Marijuana dispensaries are expressly prohibited in all zones throughout the city.

No

Marijuana cultivation is prohibited in all zones throughout the city.

No

Marijuana manufacturing is not a permitted use and is prohibited in all zones throughout the city.

No

Marijuana distribution is not a permitted use and is prohibited in all zones throughout the city.

On 5/1/17 the city council adopted an ordinance that prohibits all commercial marijuana uses that may be authorized under Prop. 64.
Lomita

No

Commercial cannabis activities of all types are expressly prohibited in all zones in the city.

No

Commercial cannabis activities of all types are expressly prohibited in all zones in the city.

No

Commercial cannabis activities of all types are expressly prohibited in all zones in the city.

No

Commercial cannabis activities of all types are expressly prohibited in all zones in the city.

None since municipal code updated on 2/2/2016 by prohibiting commercial cannabis activities 2/2/16.
Los Angeles

No

It is unlawful to operate, establish, own, use or permit the establishment or operation of a medical marijuana business in the city (unless already established prior to Sept. 2007).

No

It is unlawful to operate, establish, own, use or permit the establishment or operation of a medical marijuana business in the city (unless already established prior to Sept. 2007).

No

It is unlawful to operate, establish, own, use or permit the establishment or operation of a medical marijuana business in the city (unless already established prior to Sept. 2007).

No

It is unlawful to operate, establish, own, use or permit the establishment or operation of a medical marijuana business in the city (unless already established prior to Sept. 2007).

Currently waiting on the city council to approve regulations under Measure M to  allow all commercial marijuana businesses of all types.
Lynwood

No

Marijuana dispensaries are prohibited in all zoning districts.

Yes

Marijuana cultivation related businesses are permitted in the Manufacturing Zone.

Yes

Marijuana manufacturing related businesses are permitted in the Manufacturing Zone.

Silent

Do allow a transporter to carry or move cannabis within the city if comply with State law.

Council allowing approval of development agreements for permits to operate cultivation and/or manufacturing facilities in the city.
Malibu

Yes

Medical marijuana dispensaries are permitted.

Silent Silent Silent On 2/22/16 city council directed staff to prepare ordinance limiting dispensaries and provide options for regulating commercial cultivation (no results yet).
Manhattan Beach

No

Medical marijuana dispensaries are prohibited.

No

Indoor and outdoor cultivation of marijuana for commercial or non-commercial purposes is expressly prohibited.

No

Commercial medical marijuana activities of any type or nature are expressly prohibited in the city. Definition of commercial medical marijuana activities includes manufacture and processing.

No

Commercial medical marijuana activities of any type or nature are expressly prohibited in the city. Definition of commercial medical marijuana activities includes distribution.

On 9/13/17 the planning commission held a public hearing to decide whether to recommend the city council adopt an ordinance prohibiting commercial cannabis activity in the city.
Palos Verdes Estates

No

Commercial cannabis activity of all types are expressly prohibited in all zones in the city.

No

Marijuana cultivation is prohibited in all zones within the city’s jurisdictional limits.

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city.

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city.

City council has met to amend an ordinance to allow certain types of cultivation.
Rancho Palos Verdes

Silent

 

No

Code explicitly prohibits marijuana cultivation.

Silent

 

Silent

 

No action since cultivation prohibition was instituted.
Redondo Beach

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city. Dispensaries of medical cannabis are expressly prohibited in all zones throughout the city.

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city. Cultivation of medical cannabis for non-commercial purposes is prohibited in all zones.

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city.

No

Commercial cannabis activity of all types is expressly prohibited in all zones in the city.

Planning commission held a public hearing on 7/20/17 to amend zoning ordinance to continue to prohibit recreational commercial cannabis businesses, but allow delivery of medical cannabis.
Rolling Hills

Silent

 

Silent

 

Silent

 

Silent

 

Planning commission held a public hearing on 9/19/17 to consider banning all commercial cannabis activities, except allowing for delivery of medical cannabis and regulating personal cultivation.
Rolling Hills Estates

No

Medical marijuana dispensaries are expressly prohibited.

No

The establishment or operation of a marijuana cultivation facility is prohibited within the city limits.

No

All commercial cannabis activity within the city is prohibited.

No

All commercial cannabis activity within the city is prohibited.

No mention since code updated 2/23/16.
Santa Monica

Yes

Allows for 2 medical marijuana dispensaries in city. Staff anticipates selection process for 2 will be in early 2018 (no timelines available until 10/24/17).

Silent

 

Silent

 

Silent

 

City council had study session on 3/7/17 to review options for allowing manufacturing of cannabis products that do not use volatile solvents. Expect ordinance regulating cannabis soon.
Torrance

No

Dispensaries of medical cannabis are expressly prohibited in the city.

No

Cultivation of medical cannabis is expressly prohibited in the city.

No

All commercial cannabis activity within the city is prohibited.

No

All commercial cannabis activity within the city is prohibited.

City council adopted an urgency ordinance establishing a temporary moratorium on marijuana uses on 6/27/17. On 8/8/17 council held a public hearing to consider extending the ban through December 2017.
West Hollywood

Yes

Municipal code expressly allows medical marijuana collectives.

Silent

 

Silent

 

Silent

 

At 8/21/17 meeting council supported staff’s recommendations to allow dispensaries, cultivation, manufacturing, and testing. On 10/5/17 planning commission held a public hearing to consider a recommendation to council to amend the code to regulate cannabis-related land uses allowed under state law.