4 October 2016

Significantly, new legislation will remove criminal penalties for medical cannabis manufacturers under Health & Safety Code § 11379.6, commonly referred to as the “meth house statute,” as long as those cannabis manufacturers can meet specified requirements.

 The new legislation requires that a “collective or cooperative” may manufacture cannabis as long as they utilize only manufacturing processes that are either solventless, employ only nonflammable, nontoxic solvents or use solvents exclusively within a closed-loop system that also meet specific requirements.

Additional legislative changes now provide for a Type 1C License known as the “Specialty Cottage” license category, in addition to the other 12 state-license categories. The addition of the 13th state-licensing category will fall under the State Department of Agriculture’s administration in issuing cultivation licenses. A.B. 821 was also signed into law and allows the Board of Equalization to accept methods of payment other than electronic fund transfers from medical cannabis businesses holding a valid Seller’s Permit issued by the BOE.

Greenspoon Marder’s Cannabis Law practice has drafted a more detailed summary (below) of the legislative changes,

DETAILED SUMMARY

New California State Regulations for Cannabis Manufacturers and “Specialty Cottage” Farmers 

Cannabis Manufacturers

On Thursday, Governor Jerry Brown signed into law three bills affecting the state’s medical cannabis laws. The most significant of which will remove criminal penalties for cannabis manufacturers under Health & Safety Code § 11379.6, commonly referred to as the “meth house statute,” as long as those cannabis manufacturers can meet specified requirements.

In 2004, California’s state legislature passed S.B. 420, or the Medical Marijuana Program Act (MMPA), which provides patients and caregivers protection from specific criminal liability under the state’s Health & Safety Code. However, these protections only included criminal prosecution for possession; cultivation; possession for sale; transportation; maintaining a place to give away marijuana; storage or distribution of marijuana; and nuisance liability. Not included in these protections was manufacturing concentrated cannabis.

Manufacturing of a controlled substance in violation of Health & Safety Code § 11379.6 warrants a much more severe punishment than other drug-related crimes, with a sentence of up to seven years and a fine of $50,000. If children reside on the premises, an additional five year enhancement is added. Originally passed by the Legislature in 1984, during the height of America’s “War on Drugs,” the law was intended to prosecute methamphetamine labs.  However, since its inception, the offense has been widely applied to arrests involving the production of medical cannabis including “hash” and “honey oil,” which can produce a higher concentration of THC in medical cannabis products.

But on Thursday, Governor Brown changed all of this by signing into law A.B. 2679, which now provides protection from criminal prosecution to a medical cannabis manufacturer. “Manufacturing” is defined as: “compounding, converting, producing, deriving, processing, or preparing, either directly or indirectly by chemical extraction or independently by means of chemical synthesis, medical cannabis products.” H&S 11362.775

Under the new law a “collective or cooperative” may manufacture cannabis as long as they meet the following requirements:

  1. The collective or cooperative does either or both of the following:
  1. Utilizes only manufacturing processes that are either solventless or that employ only nonflammable, nontoxic solvents that are generally recognized as safe pursuant to the federal Food, Drug, and Cosmetic Act (21 U.S.C. Sec. 301 et seq.); and/or
  2. Utilizes only manufacturing processes that use solvents exclusively within a closed-loop system that meets all of the following requirements:
    1. The system uses only solvents that are generally recognized as safe pursuant to the federal Food, Drug, and Cosmetic Act (21 U.S.C. Sec. 301 et seq.).
    2. The system is designed to recapture and contain solvents during the manufacturing process, and otherwise prevent the off-gassing of solvents into the ambient atmosphere to mitigate the risks of ignition and explosion during the manufacturing process.
    3. A licensed engineer certifies that the system was commercially manufactured, safe for its intended use, and built to codes of recognized and generally accepted good engineering practices, including, but not limited to, the American Society of Mechanical Engineers (ASME), the American National Standards Institute (ANSI), Underwriters Laboratories (UL), the American Society for Testing and Materials (ASTM), or OSHA Nationally Recognized Testing Laboratories (NRTLs).
    4. The system has a certification document that contains the signature and stamp of a professional engineer and the serial number of the extraction unit being certified.

In addition to those requirements listed above, a collective or cooperative must also:

  1. Receive and maintain approval from the local fire official for the closed-loop system, other equipment, the extraction operation, and the facility;
  2. Meet required fire, safety, and building code requirements in one or more of the following:
    1. The California Fire Code.
    2. The National Fire Protection Association (NFPA) standards.
    3. International Building Code (IBC).
    4. The International Fire Code (IFC).
    5. Other applicable standards, including complying with all applicable fire, safety, and building codes in processing, handling, and storage of solvents or gasses.
  3. Is in possession of a valid seller’s permit issued by the State Board of Equalization; and
  4. Is in possession of a valid local license, permit, or other authorization specific to the manufacturing of medical cannabis products, and in compliance with any additional conditions imposed by the city or county issuing the local license, permit, or other authorization.

“Specialty Cottage” Farmers

The Medical Cannabis Regulation and Safety Act now provides for a Type 1C License known as the “Specialty Cottage” license category, in addition to the other 12 state-license categories. The addition of the 13th state-licensing category will fall under the State Department of Agriculture’s administration in issuing cultivation licenses.

Type 1C licenses will apply to cultivation of medical cannabis on one premises that:

  1. Uses a combination of natural and supplemental artificial lighting at a maximum threshold determined by the department, and is
  2. 2,500 square feet or less of total canopy size for mixed-light cultivation, or
  3. up to 25 mature plants for outdoor cultivation; or
  4. 500 square feet or less of total canopy size for indoor cultivation

AB 821 was also signed into law and allows the Board of Equalization to accept methods of payment other than electronic fund transfers from medical cannabis businesses holding a valid Seller’s Permit issued by the BOE.

In addition, Governor Brown vetoed the following bills related to medical cannabis:

  • Assembly Bill 2385, which authorized issuance of a state license to Measure D compliant dispensaries in L.A. – the Governor stated the bill was inconsistent with the dual-licensing requirements established by MCRSA.
  • Assembly Bill 567, which authorized a tax amnesty period – the Governor stated this bill was “premature” to state regulations.

CA State Medical Cannabis License Categories 

Cultivation:

  • Type 1-Specialty outdoor: No artificial lighting, less than or equal to 5,000 sq. ft. total canopy size, or up to 50 mature plants.
  • Type 1A-Specialty indoor: Only artificial lighting between 501 and 5,000 sq. ft. total canopy size.
  • Type 1B-Specialty mixed-light: Natural & artificial lighting between 2,501 and 5,000 sq. ft.  total canopy size.
  • *New Type 1C– Specialty Cottage*
  • Type 2-Outdoor; No artificial lighting between 5,001-10,000 sq. ft. total canopy size.
  • Type 2A-Indoor;: Only artificial lighting between 5,001 – 10,000 sq. ft. total canopy size.
  • Type 2B-Mixed-light; Natural & artificial lighting at a maximum threshold to be determined by the licensing authority, between 5,001 – 10,000 sq. ft. total canopy size.
  • Type 3-Outdoor; No artificial lighting from 10,001 sq. ft. to (1) acre total canopy size.
  • Type 3A-Indoor: Only artificial lighting between 10,001 – 22,000 sq. ft. total canopy size.
  • Type 3B-Mixed-light: Natural and supplemental artificial light at a maximum threshold to be determined by the licensing authority, between 10,001 – 22,000 sq. ft. total canopy size.
  • Type 4-Nursery

Non-Cultivation Licensed Categories:

  • Type 6-Manufacturer 1: Nonvolatile chemicals.
  • Type 7-Manufacturer 2: Volatile chemicals
  • Type 8-Testing
  • Type 10-General Dispensary
  • Type 10A-Producing Dispensary
  • Type 11- Distribution
  • Type 12-Transporter