San Luis Obispo California cannabis
SLO is thinking through its options for cannabis.

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

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

Today’s post is on the City of San Luis Obispo (not the County). We’ll provide an update on what the County is up to next week.

Welcome to the California Cannabis Countdown.

LocationSan Luis Obispo (affectionately referred to as SLO) is a city in San Luis Obispo County and is home to California Polytechnic State University (well sort of, since Cal Poly’s campus sits just outside the City limits and is part of the County). SLO is located in California’s Central Coast at about the halfway point if you’re driving from San Francisco to Los Angeles. If you need to spend the night or make a pit stop, check out the quirky Madonna Inn.

History with Cannabis: San Luis Obispo currently prohibits all commercial and industrial cannabis business activities. The City, like a many number of other California jurisdictions, enacted its ban prior to January 01, 2018 (SLO enacted its cannabis prohibition ordinance in March of 2017). The City’s prohibition wasn’t meant to be permanent as nearly sixty-eight percent of SLO voters approved the Adult-Use of Marijuana Act (a/k/a Prop 64). Instead, the purpose of the City’s ban was to act as a temporary stopgap while the City sought community feedback for a long-term cannabis solution. This “prohibit while we study the issue dance” is currently playing out throughout California. Since its moratorium, the City held a number of hearings and workshops in order to engage the community so that it could begin to develop a cannabis regulatory structure. To that end the City’s Community Development Director (CDD) prepared a report for the City Council to discuss today, February 20th.

Proposed Cannabis Laws: The CDD report is the first step in enacting a cannabis ordinance. When drafting the report, the CDD used community feedback and cannabis regulations in other jurisdictions as guideposts. The goal of the report is to propose an ordinance that will regulate the cannabis marketplace and that is acceptable to the City Council and the community. Here are some of the report’s highlights:

  • It authorizes both medical and adult-use cannabis activities.
  • Authorizes up to three retail licenses.
  • Delivery is allowed.
  • Outdoor cultivation is prohibited.
  • There will be three types of indoor cultivation license types: Special Cultivator (up to 5,000 square feet), Small Cultivator (up to 10,000 square feet), and Nursery (up to 10,000 square feet).
  • Special and Small cultivators can include processing.
  • There will be a citywide cultivation cap of 70,000 square feet.
  • Only non-volatile cannabis manufacturing is allowed.
  • Distribution and testing are allowed.
  • Onsite consumption and cannabis events are prohibited.
  • Applications would be reviewed and ranked by a third party consultant (the City is still working on a criteria for ranking applications).
  • The CDD asked whether cannabis products with high concentrations of THC should be banned.
  • The CDD asked whether persons under the age of 21 (regardless of medical recommendation) should be prohibited from dispensaries.

The CDD report is by no means a finished product, as further direction from the City Council and input from the community can drastically alter (for better or worse) what the final cannabis regulation will look like for SLO. If all goes well, the City will hold another hearing in front of the Planning Commission on March 28 and potentially adopt a resolution on May 01. We’ll be sure to keep you posted.

california cannabis events
Coming soon to a cannabis friendly town near you?

We receive calls on a weekly basis from clients and prospective clients who want to know what steps they must take to host a cannabis event. We’ve heard plans for cooking classes, dinner parties, shows at art galleries with on-site consumption, and the list goes on. And while the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”) does provide for state temporary event licenses, those licenses are unfortunately extremely limited.

Pursuant to MAUCRSA, a state licensing authority may issue a state temporary marijuana event license to a licensee authorizing onsite cannabis sales to, and consumption by, persons twenty-one years of age or older at a “county fair or district agricultural association event, provided that certain other requirements are met.” No other venue is allowed.

The hypothetical events I listed above do not constitute a “county fair” or a “district agricultural event,” and so technically, even if a local jurisdiction were entirely willing to issue a special event license for one of these types of events, it would not be permissible under state law. Assembly Bill 2641, introduced on February 15th, seeks to remedy this problem.

AB 2641 would authorize the Bureau of Cannabis Control (“BCC”) to issue the temporary event licenses, and would authorize a state temporary event license to be issued for “an event to be held at any other venue expressly approved by the local jurisdiction.” The BCC would not be authorized to approve a state temporary cannabis event license for a given event unless the local jurisdiction in which the event is to be held has approved.

The bill would also authorize the BCC to issue a temporary cannabis retailer license to a licensed cannabis manufacturer or a licensed cannabis cultivator for the retail sale and deliver of cannabis or cannabis products to customers at a licensed temporary cannabis event, and the license would be valid only for the duration of that particular temporary cannabis event.

Temporary cannabis retailer licensees would need to be valid manufacturing or cultivation licensees. A temporary cannabis retailer licensee would only be authorized to sell cannabis or cannabis products manufactured or cultivated by that licensee. And of course, temporary cannabis retailer licensees must comply with all other requirements imposed on retailers.

Perhaps because cannabis events are such a desirable option for many people, AB 2641 is not the only bill of its kind. Last week, we covered Assembly Bill 2020, which also gives local jurisdictions the right to approve and permit events. The bills are quite similar, with AB 2641 slightly more detailed on requirements that event licensees sell only cannabis that they themselves have cultivated.

Given the demand for a wide array of cannabis events, we see the overlapping proposals of AB 2641 and AB 2020 as a welcome moves that would grant local jurisdictions flexibility in determining what types of special events they wish to approve. And it may mean that soon, our clients will finally be able to host all those creative events they’ve been planning.

California marijuana packaging and labeling
What are the packaging and labeling requirements for new marijuana products?

California is just starting to get its cannabis packaging and labeling regulations right under MAUCRSA. The state has a mandated transition period from January 1 to July 1, 2018, during which time adult use and medical marijuana licensees can do business with each other, and temporary and annual state licensees can transport and sell cannabis products already in their possession in the newly regulated market. This means there are two packaging and labeling standards during this transition period: one for products that licensees bring into the marketplace from before January 1, 2018 and another for products cultivated or made on or after January 1, 2018. I covered transition period product packaging and labeling in a previous post. This post will cover the packaging and labeling requirements for those products made or cultivated on or after January 1, 2018 (collectively, “New Products”).

Retailers

For New Products, retailers won’t package or label anything. Instead, all New Products will come to retailers already packaged and labeled by either cultivators, processors, manufacturers, or distributors. The only packaging requirement retailers have for New Products is exit packaging. Specifically, per section 5413 of the Bureau of Cannabis Control Emergency MAUCRSA rules, “[c]annabis goods purchased by a customer shall not leave the retailer’s premises unless the goods are placed in an opaque exit package.”

Distributors

While distributors have lost a lot of power via MAUCRSA, they may still package, label, re-package, and re-label flower for retail sale (in line with cultivation packaging and labeling rules). That said, they cannot package, label, re-package, and re-label manufactured products unless they also own a manufacturing license and they’re dealing with their own manufactured products. The lone exception for manufactured products is if lab testing shows that the tetrahydrocannabinol (THC) content, per package or serving, was labeled incorrectly but is still within allowable THC limits. In that case, the distributor may then re-label the package with the correct amount of THC. Lastly, “transport only” distributors can’t package, label, re-package, or re-label any cannabis goods at all.

Manufacturers

For manufactured New Products, manufacturers (and Type Ps that label, package, re-label, and re-package cannabis products) must ensure that the label is in English and that all required labeling is “unobstructed and conspicuous” so that it can be “read by the consumer”. Moreover, all required labeling must go on the outside of the package or container (supplemental product information and “side effects” information can go on the inside of the packaging through inserts). There are two mandatory panel labeling requirements for manufactured New Products: the primary label and the informational label.

The primary label must contain the following items, in no less than 6-point font and in relation to the size of the primary panel and container/package:

  1. the identity of the product in a text size reasonably related to the most prominent printed matter on the panel;
  2. the net weight or volume of the contents of the package; and
  3. the THC content and cannabidiol (CBD) content for the package in its entirety (even if the CBD content is zero), expressed in milligrams per package.

If the manufactured New Product is an edible, the following requirements also apply:

  1. the words “cannabis-infused” must go immediately above the identity of the product in bold type and a text size larger than the text size used for the identity of the product; and
  2. the THC content and CBD content per serving, expressed in milligrams per serving; and
  3. this crazy symbol must be included:

You can include additional product information on the primary panel, but the foregoing MUST be on the outside label as relevant.

The informational label must also contain (in no less than a 6-point font in relation to the size of the primary panel and container/package, with limited exceptions depending on how much room you have with the label):

  1. the licensed manufacturer and its contact number or website address;
  2. the date of the cannabis product’s manufacture;
  3. the following statement: “GOVERNMENT WARNING: THIS PRODUCT CONTAINS CANNABIS, A SCHEDULE I CONTROLLED SUBSTANCE. KEEP OUT OF REACH OF CHILDREN AND ANIMALS. CANNABIS PRODUCTS MAY ONLY BE POSSESSED OR CONSUMED BY PERSONS 21 YEARS OF AGE OR OLDER UNLESS THE PERSON IS A QUALIFIED PATIENT. THE INTOXICATING EFFECTS OF CANNABIS PRODUCTS MAY BE DELAYED UP TO TWO HOURS. CANNABIS USE WHILE PREGNANT OR BREASTFEEDING MAY BE HARMFUL. CONSUMPTION OF CANNABIS PRODUCTS IMPAIRS YOUR ABILITY TO DRIVE AND OPERATE MACHINERY. PLEASE USE EXTREME CAUTION;
  4. if the product is intended for the medical market, the statement “For Medicinal Use Only”;
  5. a list of all product ingredients in descending order of predominance by weight or volume;
  6. if an edible product that contains an ingredient, flavoring, coloring, or an incidental additive that bears or contains a major food allergen, the word “contains,” followed by a list of the applicable major food allergens;
  7. if an edible product, the names of any artificial food colorings contained in the product and the amount, in grams, of sodium, sugar, carbohydrates, and total fat per serving; Instructions for use, such as the method of consumption or application, and any preparation necessary prior to use (which is completely up to the manufacturer); and
  8. the product expiration date, “use by” date, or “best by” date, if any; and, when available from the state, the UID and, if used, the batch number.

For the required packaging of all manufactured New Products, manufacturers must have packaging that is:

  1. capable of protecting the product from contamination and that shall not expose the product to any toxic or harmful substance;
  2. tamper-evident, which means that the product shall be packaged in packaging that is sealed so that the contents cannot be opened without obvious destruction of the seal;
  3. child-resistant, which means the package shall be designed or constructed to be significantly difficult for children under five years of age to open or otherwise obtain access to the product contained therein within a reasonable time, and shall not be difficult for normal adults to open or obtain access to the product contained therein;
  4. not imitating any package used for products typically marketed to children;
  5. if an edible New Product, opaque; and
  6. if the package contains more than one serving of cannabis product, re-sealable so that child-resistance is maintained throughout the life of the package.

Cultivators and Processors

Cultivators can grow and process their own flower. Processors only trim, dry, cure, grade, package, and/or label flower or non-manufactured cannabis: they don’t grow anything. Both are charged with the following packaging and labeling requirements for cultivated New Products headed for retail sale (including the same font, conspicuous placement, and English language requirements as manufacturers):

  1. all cannabis has to be labeled and placed in a resealable, tamper-evident, child-resistant package and must include, once available, a unique identifier for the purposes of identifying and tracking cannabis and cannabis products;
  2. the following statement in bold print:  “GOVERNMENT WARNING: THIS PACKAGE CONTAINS CANNABIS, A SCHEDULE I CONTROLLED SUBSTANCE. KEEP OUT OF REACH OF CHILDREN AND ANIMALS. CANNABIS MAY ONLY BE POSSESSED OR CONSUMED BY PERSONS 21 YEARS OF AGE OR OLDER UNLESS THE PERSON IS A QUALIFIED PATIENT. CANNABIS USE WHILE PREGNANT OR BREASTFEEDING MAY BE HARMFUL. CONSUMPTION OF CANNABIS IMPAIRS YOUR ABILITY TO DRIVE AND OPERATE MACHINERY. PLEASE USE EXTREME CAUTION.”;
  3. the net weight of cannabis in the package;
  4. identification of the source and date of cultivation, the type of cannabis, and the date of packaging;
  5. the appellation of origin, if any;
  6. list of pharmacologically active ingredients, including, but not limited to THC, CBD, and other cannabinoid content, the THC and other cannabinoid amount in milligrams per serving, servings per package, and the THC and other cannabinoid amount in milligrams for the package total; and
  7. information associated with the unique identifier issued by the state Department of Food and Agriculture.

Additionally, a flower label may specify the county of origin only if 100% of the cannabis or nonmanufactured cannabis product contained in the package was produced within the designated county, as defined by finite political boundaries. For more on cannabis appellations in California, see here.

In all, the packaging and labeling requirements for California cannabis products are extremely detailed and must be followed to a T by any business that wishes to maintain its medical or adult use license. All prospective licensees should begin preparations today.
Stay tuned for Part 3 of this series on California cannabis packaging and labeling, where I’ll cover the warnings and disclaimers that should go on your products (not covered under or mandated by MAUCRSA), including how to handle new Prop. 65 rules.
marijuana employment cannabis
This might not be true in California anymore.

Thirty states and the District of Columbia have laws that legalize marijuana for adult recreational use and/or medical use. Many of those states also protect employees’ off-work use of medical marijuana. However, some of those states, including California, Oregon and Washington, have statutes or case law allowing employers to terminate employees for off-work use of marijuana– even employees legally using it under the state’s medical marijuana laws. Oregon recently tried to pass legislation protecting off-work use of marijuana, but the bill failed to gain traction and fizzled at the committee level. California is the latest state to attempt to pass legislation to protect employee’s off-work use of medical marijuana. Let’s hope it happens!

California Assembly Bill 2069 (AB 2069), introduced last week, proposes to protect medical marijuana patients’ off-work use of marijuana. AB 2069 would amend California’s anti-discrimination statute by expanding the list of protected classes to include medical marijuana patients. This means that if an employer discovered that an employee or potential employee was a medical marijuana patient, or that the employee had tested positive for marijuana, it would be illegal for the employer to:

“refuse to hire or refuse to select the person for a training program leading to employment, or to bar or to discharge the person from employment or from a training program leading to employment or to bar or to discharge the person from employment or from a training program leading to employment or to discriminate against the person in compensation or in terms, conditions, or privileges of employment”.

California’s proposed bill is similar to other states that have successfully passed legislation to protect off-work use. AB 2069 also includes an important provision to protect employers who would lose money or licensing related benefits under federal law or regulations. Because marijuana remains a Schedule I substance under the federal Controlled Substances Act, companies that contract with the federal government must ensure a drug-free workplace. Under the proposed bill, such companies would not violate AB 2069 for terminating employee’s off-work marijuana use. This important safe harbor makes it seem more likely the bill will pass.

Note that AB 2069 would not provide protections for employees who use medical marijuana on the premises, or employees who are intoxicated while working, if company policy prohibits these things. Regardless of whether AB 2069 becomes law, it is important to be clear with your employees when it is acceptable to use marijuana and when it is not. Those rules, along with other employment-related requirements, must be spelled out in the cannabis business’s employee handbook.

Marijuana will continue to be legalized across the country in 2018. California has been on forefront of medical marijuana policy since Proposition 215 over 20 years ago, so it’s fitting that the Golden State may be next to protect off-work medical marijuana use by patient employees. AB 2069 is to be heard in committee next month, and we expect this bill to get some traction. Make sure to write your representative. And if you want to track this bill going forward, go here.

In the meantime, for more on employees and off-duty cannabis use, check out the following posts by our attorneys:

 

blockchain cannabis california

We have previously discussed blockchain technology and the effect it can have on the cannabis industry here and here. This post serves as a more detailed analysis of how blockchain can and may disrupt the tracking of cannabis from seed to sale, specifically within the new California adult use market.

Currently, cannabis businesses are spending significant amounts of money to implement track and trace systems compatible with Franwell’s Metrc. Metrc is a government-designed software that many states have elected to use, including California, that allows regulators to ensure that cannabis products are not being diverted to illegal markets. Cannabis products are given a radio frequency identification (“RFID”) tag, which licensees along the supply chain must input into their systems. This allows regulators to track the chain of custody of marijuana products. Under this system, however, licensees and regulators spend significant time ensuring compliant transfers.

Enter blockchain. In its simplest form, blockchain is a dispersed ledger. Transactions, or “blocks,” are added in a linear fashion, or “chain”, after they have been verified by other members of the blockchain as valid. All transactions on the chain are trackable to the initial entry. A blockchain platform can have various levels of supply chain information gathering, such as record keeping, tracking, assigning verifications, linking products together and sharing information.

Using blockchain technology, cultivators can input details about each crop: e.g., the date the flower was harvested, pesticide levels throughout the growth cycle, and information about cross-pollinated plants. The data can be stored and verified via blockchain, and instantaneously shared with all parties on the blockchain platform. These parties can be other members of the cultivation team, cultivators in different facilities, potential retailers or producers, and even end-use consumers. This data will travel with the flower from seed to sale.

When the product is ready for pick-up from a grow site, the blockchain platform can verify that a distributor is licensed. Implementing blockchain can therefore prevent unlicensed distributors with fabricated paperwork from stealing goods. The platform will also maintain all records of a transaction or series of transactions: e.g. shipping manifests, receipts, purchase orders, lab results, etc. Blockchain can also help ensure that products are being properly labeled. When a label is created, a photograph or file of the label can be uploaded to the blockchain. Members of the blockchain can verify that the label is correct before it reaches the product.

Because all information recorded in blockchain is verifiable by other members on the platform, blockchain will remove the need for tedious paperwork at each step in the supply chain. Cannabis will be able to move freely from licensee to licensee without any added hassle. Regulators will gain a streamlined audit tool, and customers will be able to ensure that they are only getting the best and safest products. Ultimately, blockchain can improve the overall integrity of the track and trace system, and minimize the time it takes for the product to get from seed to sale.

The million dollar question with all of this is whether and when blockchain will burst through and finally become mainstream enough for adoption by a state regulatory body, like California in the case of cannabis. There are a range of opinions on the inevitability and timing of blockchain (for just a few of the many examples, see here, here and here). In our view, blockchain and cannabis are a perfect marriage of emerging trends. We will continue to partner with individuals and businesses interested in this technology, and we foresee a bright future for blockchain and cannabis once the implementation and educational hurdles are cleared– hopefully, in a few years at most. In the meantime, California businesses and regulators will have to muddle along with Franwell’s Metrc product.

California marijuana businesses Culver City
Cannabis businesses are finally coming to the Heart of Screenland.

Culver City plans to release its commercial cannabis applications before the end of March. On monday, the City Council voted to adopt its proposed cannabis business permit application process. Based on the released draft application documents, getting a commercial cannabis permit in Culver City is not going to be an easy process.

Here is a breakdown the application processes per license type:

Storefront Retail Applications:

In the first phase of the application process, applicants must submit live scans, zoning verification documents, and their cannabis business application. City staff and the Culver City Police Department will review that information and, if sufficient and complete, applicants will move on in the process. A three-person panel of City staff members will review and rank the applications; reviewers will read business plans, security plans, and design/location documents and rank each application on a point scale.

The panel will then choose a minimum of three and a maximum of six applicants with the highest average ranking to proceed. Other applicants will be put on hold pending the outcome of the permitting process. A five-person review committee composed of City staff members will then interview the ranked applicants. At least two of the largest equity holders and the day-to-day operations manager of the applicant must be present for the interview. The three applicants with the highest average scores will then proceed in the licensing process. In the event of any tie amongst applicants, a lottery will be used to choose who moves on.

Only after interviews or the potential lottery will these 3-6 applicants finally apply for a Conditional Use Permit (“CUP”) and other required Los Angeles County permits. Upon applying for the CUP, applicants will present their building and operational proposals at a public City Council meeting, and the Council will either approve or deny the permits accordingly. If the Council approves, the applicants will then apply for their Culver City Business Tax Certificate (“BTC”), all required City permits, and begin moving forward with their build-outs. Applicants will then pay permit fees, complete their build-outs, and City staff will perform on-site inspections. If everything checks out, the CUP and BTC will finally issue to the applicant.

Non-Storefront Retail Applications (i.e., Manufacturing, Distribution, Delivery-only retail, Cultivation, and Testing Labs):

In the first phase of the application process, applicants must submit live scans, zoning verification documents, and part one of their cannabis business application. City staff and the Culver City Police Department will review that information and, if approved, applicants will move forward. If more than the maximum number of permits allowed (6 manufacturing, 6 distribution, 3 cultivation, and 4 testing laboratories) qualify, then the City will use a lottery to determine the applicants that will ultimately receive a permit.

Successful applicants will then apply for a BTC, all applicable permits from LA County Department of Public Health, all required City permits, and submit part two of their cannabis business application.

Without a doubt, Culver City will be one of the most competitive jurisdictions in L.A. County. In such a setting, potential operators need to prepare themselves by organizing their business and operational plans as well their communal impact and outreach plans and methods, which will take significant preparation. Because the City plans to release its cannabis permit applications as soon as the middle of next month, would-be operators should start organizing themselves now: it’s going to be an uphill (and expensive and time-consuming) process in the Heart of Screenland.

marijuana event california
Like this, but with cannabis.

In order for a business to succeed, it has to create a connection with customers. This is especially true if the product sold is one that customers consume. Think about the importance of tasting rooms for wineries, or of tap rooms for breweries (especially craft brewers). These venues allow customers to connect with a product in a social setting, giving those businesses a valuable marketing platform.

When the California state legislature passed the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), it granted local jurisdictions authority to regulate on-site marijuana consumption for retailers and microbusinesses, and temporary cannabis events. The focus of this post is on temporary events, but first, a quick refresher on the microbusiness license type is in order. A microbusiness is a cannabis licensee that must engage in at least three of the following commercial cannabis activities:

  • Cultivation (up to 10,000 square feet);
  • Manufacturing (Type 6 only);
  • Distribution; or
  • Retail.

All three (or four) of the commercial cannabis activities need to take place on the same premises. If a microbusiness chooses to cultivate, manufacture, and conduct sales, it would give that business a great opportunity to directly connect with its customers and tell a story. This is even truer if the local jurisdiction allows for on-site consumption. (For additional information on the microbusiness license type, see my thoughts here for Leafly Magazine.)

Now, back to temporary cannabis events. The Bureau of Cannabis Control (BCC) is the agency in charge of regulating and issuing temporary cannabis event licenses. If done right, participating in a cannabis event is another great way to connect and build up your consumer base and brand. There are a number of regulations that cover what is allowed at temporary cannabis events. Here are just a couple of highlights:

  • A temporary cannabis event license can only be issued to a cannabis event organizer.
  • A cannabis event organizer licensee is not authorized or licensed to cultivate, distribute, manufacture, or retail cannabis or cannabis products without first obtaining the appropriate licenses or authorizations to engage in such commercial cannabis activities.
  • No temporary cannabis event license will be issued for more than 4 days. Temporary cannabis event licenses will not be issued separately for consecutive days for the same event.
  • An application for a temporary cannabis event license shall be submitted to the BCC no less than 60 days before the first day of the cannabis event.
  • Cannabis sales at the event can only be conducted by a licensed cannabis retailer or microbusiness license holder.
  • Cannabis goods sold on site must be transported to the site by a licensed cannabis distributor.
  • Cannabis consumption is allowed but access to the consumption area shall be restricted to persons 21 years of age or older.
  • All cannabis goods at a cannabis event shall be in compliance with the state’s testing, labeling, packaging, and track and trace requirements.
  • Sale or consumption of alcohol or tobacco shall not be allowed on the premises.

What I didn’t mention is where these cannabis special events can take place. Under MAUCRSA, cannabis special events can only take place at a county fair or district agricultural association event. Restricting cannabis events to these locales eliminates California’s largest cities from hosting them. State Assemblyman Bill Quirk is seeking to rectify this through Assembly Bill 2020 (AB 2020). This bill was introduced last week and its most important provision can be found in Section 26200 (a)(1)(e), which provides:

“This division does not prohibit the issuance of a state temporary event license to a licensee authorizing onsite cannabis sales to, and consumption by, persons 21 years of age or older at a county fair or fair event, district agricultural association event, or at another venue expressly approved by a local jurisdiction for the purpose of holding temporary events of this nature, provided that the activities, at a minimum, comply with the requirements of paragraphs (1) to (3), inclusive, of subdivision (g), that all participants are licensed under this division, and that the activities are otherwise consistent with regulations promulgated and adopted by the bureau governing state temporary event licenses. These temporary event licenses shall only be issued in local jurisdictions that authorize such events.”

The goal of AB 2020 is to give ALL local jurisdictions the flexibility to determine when, where, or if they want to hold a cannabis special event within their borders. One of the first supporters of AB 2020 is the city of Oakland, which has shown an interest in adding cannabis sales at its Art and Soul Festival. If Oakland is able to add cannabis to an already popular festival – which might prove difficult, since Art and Soul is an all ages event – other cities are sure to follow.

AB 2020 is eligible to be heard in committee next month. We will be sure to keep you posted on its progress.

Santa Barbara marijuana cannabis
Get ready for a LOT of cannabis rules.

On February 6th, the Santa Barbara County Board of Supervisors met to consider an ordinance and policy amendments for land use activities associated with commercial cannabis. Currently and historically, all commercial cannabis activities have been prohibited within unincorporated Santa Barbara County. The Board of Supervisors approved the proposed ordinances “in concept,” together with some revisions regarding buffer zones, a delay in instituting energy conservation plans, an elimination of odor control requirements on certain large parcels in the AG-2 zone, a limit on where outdoor marijuana cultivation is allowed, and a cap on the number of retail locations. The ordinances will receive a second reading at the next meeting on February 13th, and will likely be adopted.

One of the highlights from the meeting was the decision to cap the number of available marijuana retail licenses at eight. These licenses will certainly be prized. Note that initially, the county had no cap, and there would have been 284 parcels where retail stores were allowed, a number that the Board of Supervisors deemed excessive and “outrageous.”

Here are some of the highlights from the proposed ordinances:

  • No commercial cannabis activity will be allowed in the areas of Montecito that are subject to the Montecido Land Use and Development Code (MLUDC) regulations.
  • For areas subject to the MLUDC’s regulations, the following would be allowed.
    1. Commercial cannabis cultivation and nurseries, subject to a Land Use Permit (LUP) in the AG-I, AG-II, C-3, M-RP, M-2 and M-2 zones;
    2. Non-volatile manufacturing, subject to an LUP, in the AG-I, AG-II, C-1, C-2, C-3, CS, SC, M-RP, M-1, M-2, MU, CM-LA, OT-R/LC, and OT-R/GC zones;
    3. Volatile manufacturing subject to a Major Conditional Use Permit (CUP) in the AG-I-AG-II, M-1, and M-2 zones;
    4. Testing, subject to an LUP in the C-3, PI, MR-P, M-1, and M-2 zones;
    5. Retail sales, subject to an LUP, in the C-1, C-2, C-3, SC, M-1, MU, CM-LA, OT-R/LC, and OT-RGC zones;
    6. Distribution subject to a Minor CUP (MCUP) in the AG-1 zone, and subject to an LUP in the AG-II, C-3, M-RP, M-1, and M-2 zones; and
    7. Microbusinesses, subject to a CUP in the AG-II, C-1, C-2, C-3, CS, M-1, and M-2 zones.
  • For areas subject to the Coastal Zoning Ordinance (CZO) regulations, the following would be allowed:
    1. Commercial cannabis cultivation and nurseries subject to an LUP in the AG-I, AG-II, and M-RP zones;
    2. Non-volatile manufacturing subject to an LUP in the AG-I, AG-II, C-1, C-2, and M-RP zones;
    3. Volatile manufacturing subject to a CUP in the AG-I and AG-II zones;
    4. Testing subject to an LUP in the PI and MR-P zones;
    5. Retail sales subject to an LUP in the C-1 and C-2 zones;
    6. Distribution subject to a MCUP in the AG-I zone, and subject to an LUP in the AG-II and M-RP zones; and
    7. Microbusinesses subject to a CUP in the AG-II, C-1, and C-2 zones.
  • Commercial cannabis cultivation, nursery, non-volatile manufacturing, distribution, or retail uses would not be permissible within 600-feet of a school, day care, or youth center.
  • Volatile manufacturing would not be permissible within 1,200-feet of a school, day care, or youth center.
  • Manufacturing and distribution uses would only be permissible as accessory uses to cannabis cultivation in the AG-I and AG-II zones.
  • Commercial cannabis cultivation on lots that are located in an Existing Developed Rural Neighborhood (EDRN), as well as cultivation that would require the use of a roadway located within an EDRN as the sole means of access to the lot on which the cultivation would occur, would require a CUP.
  • Commercial cannabis activity would also be subject to general development standards including:
    1. Compliance with state and local regulations;
    2. Preparation of archaeological and paleontological surveys;
    3. Preparation and implementation of an energy conservation plan;
    4. Fencing and security plan;
    5. Landscape and screening plan;
    6. Lighting plan;
    7. Noise plan;
    8. Odor abatement plan; and
    9. Tree protection, habitat protect, and wildlife movement plans.

While these aren’t the most onerous local permitting requirements we’ve seen, they are certainly extensive. The Board of Supervisors recognized that enforcement against illegal cannabis operations in the County has been difficult, and has pledged, regardless of whether this ordinance passes, to significantly increase enforcement resources aimed at unlicensed cannabis operations. It will therefore be imperative for anyone operating or seeking to operate in Santa Barbara County to follow the development and adoption of these regulations, and to be prepared for the license application process once it begins. As always, we’ll be following these developments closely.

California marijuana banking
A public marijuana bank is a red herring.

It seems like every state in its own way has tried to grapple with a state-legislated solution to the notorious banking issue across the cannabis industry. And now California is going to study its own banking solution that, in all reality, probably isn’t going to go anywhere.

California is predicted to take in $7 billion by 2020 because of adult-use legalization. Its licensed operators have nowhere reliable to put all of that cash, and you can be sure that the California Department of Tax and Fee Administration doesn’t want those operators trucking hundreds of thousands of tax dollars to Sacramento. Additionally, the cash epidemic was complicated by the fact that Attorney General Sessions’s rescission of the 2014 Department of Justice (DOJ) Financial Crimes memo, which allowed financial institutions to bank marijuana businesses in states with “robust regulation”, in concert with the 2014 FinCEN guidelines. Thankfully, those guidelines still exist, but the Department of Treasury is currently looking at them in the wake of Sessions’s decision.

Back to California.

This month, Treasurer John Chiang announced that his office (along with the California State Attorney General’s office) would undertake a two-part feasibility study around forming a state-backed bank to serve California cannabis businesses. In his office’s November 2017 report, Chiang admitted that creating and supporting a state cannabis bank would be a “formidable” task and that the “definitive solution” is for the federal government to either legalize cannabis or for Congress to create some kind of legal safe harbor for financial institutions that bank the industry. Nonetheless, Chiang’s report proposed two options for a state cannabis bank:

  • “A public institution that would either (1) finance public infrastructure and expand banking for underserved groups, including the cannabis industry; or (2) take deposits, make loans, and provide other services primarily to cannabis producers, distributors, retailers, and related businesses.” Or,
  • “A privately owned bankers’ bank, supported by the state, which would not take retail or small business deposits, but instead provide financial services, compliance services, and technical assistance to financial institutions serving the cannabis industry.”

Chiang’s report goes into great detail about the pros and cons of choosing either a public financial institution or the banker’s bank model. The report runs the gamut of concerns over federal asset forfeiture risks, industry volatility, special problems with closed loop banking and the Federal Reserve, public costs, profitability, capitalization, federal and state regulatory issues, the inability to secure federal depository insurance, and various and complicated ownership structures over either model. Overall though, both models sound nearly impossible to create, capitalize, and sustain due to exiting federal regulations that are insurmountable in every way, because “marijuana” is still a Schedule I controlled substance.

While we appreciate the state’s desire to find a banking solution for cannabis operators, a state-owned, operated, and financially backed bank would have a gargantuan task just to get started–just ask Massachusetts and Colorado. Federal deposit insurers want nothing to do with a bank that is focused on marijuana businesses, regardless of whether it is state-owned. The Federal Reserve also seems unlikely to grant a master account to any newly chartered financial institution whose reason for being is to serve marijuana businesses. Without that master account, the bank wouldn’t have access to the federal money transfer system, a key aspect of banking.

California would be wise to examine state-legal marijuana banking in the Northwest. Washington and Oregon boast a small but stable number of banks and credit unions that provide services to state-licensed marijuana businesses. Private banking in those jurisdictions grew slowly as those states developed their regulations, and the vast majority of rules are promulgated by state government.

California has only just started, and banks that would serve marijuana businesses there would only now be in a position to start working with California cannabis operators. Additionally, with the level of control that California regulators allow local authorities, marijuana businesses in different, local jurisdictions still face significantly different hurdles from one another. It is more challenging for institutions in California to keep up with the myriad of state and local rules that have been promulgated, most of which are still untested and with new ambiguities being found daily.

Now that the 2014 DOJ Financial Crimes enforcement memo is gone, it’s anyone’s guess as to what Treasury will do going forward and whether increased MAUCRSA regulation will matter to banks and credit unions in California. If banks are going to participate, regulations need to be significant enough that banks believe that they are as “robust” as the Treasury guidance requires, but simple enough that a bank can feel confident about its ability to judge whether or not one of its account holders is complying with state law.

Ultimately, a public bank of any kind is a red herring for the cannabis industry. Instead, existing financial institutions need to be sufficiently supported by the states so that they feel comfortable taking on the risk of servicing cannabis accounts.

Editor’s Note: A version of this post previously ran in the author’s Above the Law column.

Last week, Santa Cruz County hosted two public meetings to discuss the County’s path toward regulating commercial cannabis cultivation, manufacturing and distribution within the County. The County presented a good deal of information for those interested in pursuing these non-retail commercial cannabis licenses that we’ll outline in this post.

One of the most significant proposals is a recommendation that project-level environmental review be required in lieu of Board certification of the current draft Environmental Impact Review, which provided exhaustive analysis of the existing and proposed commercial cannabis industry in Santa Cruz County. This means that each future non-retail commercial cannabis license would be considered a separate project, and would be subject to discretionary land use permit review and associated environmental review based on site-specific conditions.

The County also presented a proposed final Santa Cruz County Code (SCCC) 7.128, as well as amendments to SCCC 13.10 which will serve to regulate all non-retail cannabis cultivation, manufacturing and distribution in Santa Cruz County. SCCC 7.128 will establish operational requirements for cannabis businesses as well as a cannabis licensing program. And the amendments to SCCC 13.10 will establish zoning restrictions and land use permitting requirements for cannabis businesses.

The Planning Commission will meet again on February 28th to review proposed mitigation, monitoring and reporting measures in the form of a Best Management and Operational Practices Plan (BMOP) as well as an enforcement plan. According to the County, the BMOP will address issues including use of rodenticides, grading limitations, fencing requirements, neighborhood compatibility (lighting, site screening, etc.), and biological surveys among other topics.

The following is an overview of some of the important changes to these proposed ordinances:

  • New canopy limits;
  • Co-location of licensees will be possible in all zones subject to certain limits and CLO official approval;
  • Master planned facilities will be possible in all zones subject to certain limits and CLO official approval;
  • There will be limits to activity on Timber Production zoned properties, including no more than 0.25 acres of new expansion for any cannabis-related development, land clearing or grading.

For manufacturers, the County will offer three licenses types:

  • Class 1: Infusions (no extractions of any kind);
  • Class 2: Non-volatile extractions; and
  • Class 3: Volatile extractions.

And the following is an overview of some of the proposed changes to the SCCC 13.10 zoning ordinance:

  • All cannabis activity will require a discretionary permit in addition to a license (findings must be made and conditions of approval may be attached, and permits will be processed at the same time as applications).
  • Wherever possible, the permit process for cannabis activity mirrors the process for similar types of non-cannabis activities.
  • The activity allowed and the type of permit required depends on 1) the zone district; 2) the type and scale of the activity; and 3) whether the property is urban or rural, and in or outside the Coastal zone plus a one mile buffer.

We will be following developments in Santa Cruz County closely, and expect to have more information following the Planning Commission’s meeting on February 28th. Stay tuned.