AUTHORED BY : JONATHAN STORPER

The Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA” ), which became effective January 1, 2018, is the governing law for both medical and adult use of cannabis in California. The rules are complex. Cannabis businesses seeking to do business in California should consult with an attorney prior to engaging in any project to ensure full understanding of the most up-to-date rules.

Regulatory Agencies

The Bureau of Marijuana Control (“Bureau”) oversees cannabis transportation, storage, distribution, sales, and testing. The Department of Food and Agriculture, through its CalCannabis Cultivation licensing program, oversees cannabis cultivation, issues plant tags, and is developing and implementing the track and trace program. The State Department of Public Health, through its Office of Manufactured Cannabis Safety (“OMCS”), oversees cannabis manufacturers. Finally, there are additional state agencies with smaller roles, such as the Department of Pesticides, the California State Board of Equalization, the State Water Resources Control Board, the Department of Fish and Wildlife, the Department of Justice, and state law enforcement. These State agencies promulgated emergency regulations effective through June 31, 2018 which they have now extended as amended through December 31, 2018.

TRANSITION PERIOD ENDS JULY 1, 2018

The transition period in the licensing authorities’ regulations allowing exceptions from specific regulatory provisions ends on June 30, 2018. Beginning July 1, 2018, cannabis goods must meet all statutory and regulatory requirements. Cannabis goods that do not meet all statutory and regulatory requirements must be destroyed in accordance with the rules pertaining to destruction.

LABORATORY TESTING REQUIREMENTS

Beginning July 1, 2018, a licensee may only sell cannabis goods that have been tested and passed all testing requirements in effect at the time of testing.

Untested cannabis goods cannot be sold by a retailer and must be destroyed. A retailer may not send cannabis goods to a distributor for testing.

Untested cannabis goods manufactured or harvested before January 1, 2018, in possession of a distributor that are owned by the distributor must be destroyed.

Untested cannabis goods manufactured or harvested before January 1, 2018, in the possession of a distributor owned by a manufacturer or cultivator may be returned to the licensee who owns the cannabis goods. If a cultivator or manufacturer chooses to sell the returned cannabis goods, the cannabis goods must be sent to a distributor for testing and must meet all of the testing requirements in effect at the time of testing before transported to a retailer for sale.

PACKAGING AND LABELING REQUIREMENTS

Beginning July 1, 2018, all packaging and labeling must be performed prior to cannabis goods being transported to a retailer.

A retailer shall not accept cannabis goods that are not properly packaged and labeled. A retailer shall not package or label cannabis goods, even if the cannabis goods were in inventory before July 1, 2018. However, for medicinal sales, retailers will place a sticker on cannabis goods stating, “FOR MEDICAL USE ONLY” upon sale to a qualified medicinal consumer, unless the statement is already printed on the package.

A retailer may not send unpackaged cannabis goods to another licensee for packaging or labeling. Cannabis goods in possession of a retailer that do not meet packaging and labeling requirements must be destroyed.

Exit packaging is not required to be child-resistant and can no longer be used to satisfy the child-resistant packaging requirements. All cannabis goods must be in child-resistant packaging prior to delivery to a retailer.

THC LIMITS FOR EDIBLE CANNABIS PRODUCTS

Beginning July 1, 2018, edible cannabis goods may not exceed 10 milligrams of THC per serving and may not exceed 100 milligrams of THC per package.

THC LIMITS FOR NON-EDIBLE CANNABIS PRODUCTS

Beginning July 1, 2018, non-edible cannabis products must meet package THC restrictions.

Non-edible cannabis products shall not contain more than 1,000 milligrams of THC per package if intended for sale only in the adult-use market.

Non-edible cannabis products shall not contain more than 2,000 milligrams of THC per package if intended for sale only in the medicinal market.

INGREDIENTS AND APPEARANCE OF CANNABIS PRODUCTS

Beginning July 1, 2018, a retailer may only sell cannabis products that meet the requirements set by the California Department of Public Health for ingredients or appearance.

ADDITIONAL IMPORTANT STATE LAW PROVISIONS

  • Obtaining a state license requires a local jurisdiction permit to operate. Local jurisdictions are not required to permit cannabis businesses. While there is no residency requirement to own or operate a medicinal or adult-use cannabis business at the state level, local jurisdictions may attempt to impose residency restrictions. Colocation of medical and adult use/means are permitted.
  • Vertical integration is permitted and there are no limitations on how many licenses a person may hold, except testing labs must remain separate from all other license types. Local governments may attempt to impose their own limits on how many licenses someone can own. Any license type, other than a testing licensee, may hold a distributor license.
  • Ownership is defined as any person or entity owning a twenty percent or greater stake, or any person with the power to control management decisions. Owners are subject to background investigation. Additional financial interests, as defined, must be disclosed.
  • Licensees may also seek issuance of a temporary event license to operate at a county fair or district agricultural association event, which would permit on-site cannabis consumption, provided there is no local jurisdictional ban and the licensee complies with certain other requirements (i.e., no alcohol or tobacco consumption would be allowed on premises, customers must be over twenty-one, etc.). Retailers must separately report on state designated fairground sales beginning July 1, 2018.
  • California requires testing of cannabis for pesticides, mold, mildew, and other contaminants and explicitly prohibits the use of banned pesticides and sets standards for certification of organic cannabis. Businesses may be allowed to sell untested products, if labeled “untested,” for a set period of time to prevent delays or interruptions in product availability. Cannabis and cannabis products must be packaged in opaque packaging and identify infused edibles with a created universal symbol.
  • Cultivators must identify their water source and obtain all necessary state and local permits for water usage. The Department of Food and Agriculture has the authority to limit the issuance of unique identifying tags (required for all legally grown plants) if there are adverse impacts to the environment caused by the cultivation. Growing or processing cannabis where these activities result in a violation of specified laws relating to the unlawful taking of fish and wildlife is a felony.
  • Microbusinesses need a license from the Bureau, as well as approval from Departments of Food & Agriculture and Public Health.
  • Appellation of origin standards will be established by January 1, 2021.
  • Medicinal ID cards are issued at the county level.
  • MAUCRSA imposed online advertising restrictions in addition to the prior laws governing advertising, adulteration, and misbranding restrictions; including no depictions of minors under 18 years of age.
  • There are increased opportunities for tax collection at the state and local level. Tax levels may vary by local jurisdiction.
  • MAUCRSA protected assets of licensed operators and building owners.
  • MAUCRSA provided three million dollars to fund DUI impairment training and research.
  • No Type 5, 5A, or 5B licenses will be issued prior to January 1, 2023.
  • License fees differ between types and even within sublicense types so it is important to check the most up-to-date fees online.
  • Social Equity programs provide opportunities for those with low incomes, or that live in an area impacted by the War on Drugs, have criminal records because of past cannabis prohibition and who plan to hire local workforce personnel, and other possible criteria, to obtain priority local permits, but check local jurisdictions for specifics as they vary.

Licensing

License TypeSizeNotes
Type 1 —Cultivation — Specialty Outdoor; SmallUp to 5,000 sq. ft.; up to 50 mature plantsNo artificial light
Type 1A— Cultivation — Specialty Indoor; Small501- 5,000 sq. ft.Artificial light
Type 1B —Cultivation — Specialty Mixed-Light; Small2,501- 5,000 sq. itCombination of natural and artificial light
Type 1C — Cultivation — Specialty Cottage; SmallUp to 2500 sq. ft for mixed light, up to 25 outdoor mature plants, or 500 sq. ft. of indoor cultivationCombination of natural and artificial light, all on one premise
Type 2 —Cultivation — Small Outdoor5,001-10,000 sq. ft.No artificial light
Type 2A— Cultivation— Small Indoor5,001-10,000 sq. ft.Artificial light
Type 2B — Cultivation — Small Mixed-Light5,001-10,000 sq. ft.Combination of natural and artificial light
Type 3 − Cultivation — Outdoor; Medium10,001 sq. ft. — 1 acreNo artificial light
Type 3A −Cultivation — Indoor; Medium10,001 sq. ft. — 22,000 sq. ft.Artificial light
Type 3B−Cultivation — Mixed-Light; Medium10,001 sq. ft. — 22,000 sq. ft.Combination of natural and artificial light
Type 4 − Cultivation; NurseryNo size designation currently availableProducing clones, immature plants, and seeds
Type 5 − Cultivation; Large Outdoor+ 22,000 sq. ft.No artificial light
Type 5A− Cultivation; Large Indoor+ 22,000 sq. ft.Artificial light
Type 5B − Cultivation; Large Mixed-Light+ 22,000 sq. ft.Combination of natural and artificial light
Type 6−Manufacturer 1No size restrictionsUsing non-volatile solvents
Type 7−Manufacturer 2No size restrictionsUsing volatile solvents
Type 8 −Testing LaboratoryNo size restrictionsCannot own any other license type
Type 9 −Non Storefront RetailerLicensed premisesSells & delivers cannabis products
exclusively by delivery
Type 10− Storefront RetailerLicensed premises
No size restrictions
Sells cannabis products; open to public; may deliver
Type 11−DistributerNo size restrictionsDistributes cannabis products between producers and retailers
Type 12− MicrobusinessesUp to 10,000 sq. ft of cultivation, no size restrictions on distributor and retailer license types under this categoryMust do at least 3 of these:

-Cultivation

-Manufacture

-Distribution

-Retail

Type 13− Distributor TransportDistributor Transport Only
Type 14− Event OrganizerCannabis event organizer
Type – Temp Cannabis EventUp to 4 days; allows onsite sale and consumption
Type N – InfusionsInfusions (Ex.: using pre-extracted oils to create edibles, beverages, capsules, vape cartridges, tinctures or topicals
Type P – PackagingPackaging and labeling only
Type S – Shared SpaceProduct Types: edibles, concentrates, topicals, capsules, vape cartridges, tinctures, other products

Activities: Extraction, infusion, packaging and labeling

Extraction method: Butter and food-grade oil only

Type – ProcessorTrimming, drying, curing, grading,
and packaging and labeling of non-
manufactured cannabis products


Priority Grant of Licenses

Businesses that were operating in compliance with state law before September 1, 2016, will have priority during licensing. Cannabis businesses that were lawfully operating under California state law and with relevant local licensing before January 1, 2018, may continue operating while their applications are reviewed. The Bureau will determine whether an applicant was lawfully operating by reviewing the date on which the applicant began actively conducting the same commercial cannabis activity as the license type for which the applicant is applying, and evidence to prove compliant operations.

Medicinal cannabis businesses who opt not to apply for a state license on or before January 1, 2018, will continue to receive protections from criminal prosecution provided by state law for one year after the first state licenses are issued. However, criminal defenses do not provide protections from state regulatory enforcement beginning January 1, 2018, thereby exposing businesses operating under the prior collective or cooperative model to the risks of civil or regulatory enforcement if they continue to operate without a state or local license after January 1, 2018. In the spring of 2019, operators without a license will likely no longer be able to assert defenses to criminal prosecution under the collective or cooperative model.

Prior law required that cannabis operations be solely operated under a non-profit model. There are numerous hurdles for businesses operating under the prior law to transition to a fully regulated for profit model. Transition to a for profit model is complex. Competent California counsel should be consulted with a deep knowledge of the industry and regulatory scheme.

© Jonathan Storper