It’s summer of 2018 and the commercial cannabis market is heating up.  As licensing continues, more and more cities and counties are enacting regulatory programs, continuing to expand the marketplace.  And the transition period is over.  Starting just a few days ago, as of July 2nd, every licensed commercial cannabis business must comply with all the regulations of operating a cannabis business in 2018.  The regulations are fierce and unforgiving.  Between the three licensing agencies, there are hundreds of pages of emergency (soon to be final) regulations.  And that is just the beginning.  California cannabis business is the most highly regulated industry on the planet. We haven’t fact checked that, but challenge anyone to prove us wrong.

Beyond the emergency regulations, and not to mention the long list of other laws governing California “unregulated” business, there are the underlying California cannabis codes (BPC, HSC, TRC, and so on) governing all aspects of cannabiz, along with multiple lateral state agencies’ rules and regulations to follow.  Oh … and your local cannabis laws also must be complied with.

Take for instance a typical pizzeria business in California.  You have the routine CA business laws to comply with (Employee/HR, Payroll, State/Local Tax, etc.) and maybe some detailed regulations from the Health Department.  Not too difficult, not too painful if a small mistake is made.  You can give a patron food poisoning and face nothing more than a scathing review on Yelp.

Now take a state licensed cannabis distributor.  All the same routine biz laws as the pizzeria. AND …

Stiff local permit and operational compliance. Permit and license renewals. Operations: security compliance, recording (video and documentary), motor carrier permit and compliance, insurance compliance, waste management compliance, reporting compliance, shipping/transport compliance, vehicle compliance, employee compliance.  Products: packaging/labeling, quality assurance, product reconciliation (req’d every 14 days).  Testing Compliance: sampling, video recording and retention, chain of custody. Excise and Sale/Use Tax compliance (FTB, CDTFA). Track and trace compliance. And there are so many more legal requirements  to list but we have been told a blog post should be rather short.

Take a look at California Code of Regulations, Title 16, Division 42. for 122 arduous pages of regulations that must be complied with by a distributor.  It seems an unfair task to require any business to accomplish such a burden, but compliance is not optional.

The State’s enforcement arms have already begun monitoring compliance.  And history proves that state agency enforcement branches are vigilant, active, aggressive and effective.  State fines and/or penalties in other California regulated industries can begin mounting easily into the hundreds of thousands of dollars and shockingly reach the tens of millions.  And city/county fines and penalties are similar and often piggy back each other compounding the damage to the business.

The state cannabis codes and regulations are structured and intended to produce the same results.  One compliance violation can lead to exposure and additional citations, multiplying the monetary penalties (and potential de-licensure which is fatal to the business).  The cost to defend the violations can also be painfully expensive.

California state agencies have often been called predatory in their proliferation of violations, fines and penalties.  But true or not, that is immaterial.    Because there is an ultimate defense to such an attack.  Operational compliance.  No longer can a cannabis business afford to neglect regulatory compliance.  Get ahead of the state and establish compliance control.  Your business depends on it.  And the cost of a full time Chief Compliance Officer or retaining a qualified attorney will save you $$$$ in the short term and long run.  Avoidance of just one violation can justify the cost of the preemptive management for years to come.

We aim to help you avoid not just one, but any compliance violation, by providing and implementing a tailored system of operational compliance designed to forge your business a path free from regulatory roadblocks.

For more information regarding Regulatory Compliance Control, contact Jasun Molinelli or Adrian Lambie.

If your State Temporary license was issued with an effective date of January 1, 2018, it expires at the end of this month!  April 30th!

You heard that right.   Your state temp license will expire by April 30th,  if you don’t submit your Annual License application, stated the Bureau of Cannabis Control in a public announcement issued this afternoon.  If you want to extend your temporary license for another period of at least 90 days, you have to file your annual application before April 30th!

Please also beware if your Temp License was issued with an effective date anytime after Jan. 1, 2018.  If you do not file an Annual License application before your Temp License expires (90 days from effective date), you also will lose the right to operate pending filing and granting of your Annual License application.

For anyone in this boat and who has not yet started paddling upstream, you have absolutely no time to waste.  You must complete and file your Annual License application before your Temp License expires or you will be left without commercial access to the state market and barred from operating pending the State awarding you an Annual License (certain exceptions may apply.)

The Annual License application is the full meal ticket, nothing like the skinny temp license meal deal.  For one, you must pay the state’s Application Fee, unlike the Temp License which was free of charge.  Second, and more significantly, you must provide mountains of information related to your operation, business, practices, compliance with all other local and state agencies, live scan, contingency plans, security plans, site plans, employee plans, insurance, bonding and so on.

Much of the information sought on the Annual License application may have already been obtained or created during your local permit process.  But all remaining information must be created, collected and submitted by April 30th.

If you have a State Temp License with an effective start date of Jan.1, 2018, and have questions regarding the Annual License application process, TIME IS OF THE ESSENCE.   If you need help, please contact us. We can answer your questions and evaluate and implement your best options.

Pursuant to Business & Professions Code Section 26013, California’s cannabis licensing authorities; the Department of Food and Agriculture’s CalCannabis Cultivation Licensing program, the Department of Consumer Affairs’ Bureau of Cannabis Control, and the Department of Public Health’s Manufactured Cannabis Safety Branch were empowered to make “reasonable rules and regulations” in order to “implement, administer and enforce” the Medical Marijuana Regulation and Safety Act.

And so the three licensing authorities did just that. In early 2017, they began the emergency rulemaking process. After holding stakeholder meetings across the State and accepting public comments, a first set of drafts was published in the Spring. They were soon retracted however, following the passage of the Medical and Adult Use of Cannabis Regulation and Safety Act (“MAUCRSA”), which merged the medical cannabis and recreational/adult use cannabis laws. In November of 2017, the revised emergency regulations were released to the public; the MCSB Emergency Regulations, the BCC Emergency Regulations and the CalCannabis’ Emergency Regulations of Cannabis Cultivation, regulating every aspect of cannabis business in California.

The key word for all the new State Cannabis License applicants in Business & Profession Code Section 26013(a) is “reasonable.” As stated above, the rules and regulations promulgated by the State must be reasonable. And given the complex, unique and original nature of this new industry, that is no small burden for the government drafters to achieve. But what exactly does “reasonable” mean?

Section 26013(c) proffers a definition what “reasonable” means in the context of the State’s cannabis laws. That section reads:

“Regulations issued under this division shall be necessary to achieve the purposes of this division, based on best available evidence, and shall mandate only commercially feasible procedures, technology, or other requirements, and shall not unreasonably restrain or inhibit the development of alternative procedures or technology to achieve the same substantive requirements, nor shall such regulations make compliance so onerous that the operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent businessperson.” [Emphasis added.]

The set of emergency regulations total 264 pages of regulatory provisions governing all forms of cannabusiness in California. At 264 pages, the regulatory requirements placed on commercial cannabis operations are voluminous and will present a tremendous challenge for any business aspiring to run a fully compliant and lawful operation. And with so many intricate and complicated regulatory requirements, it will be extremely costly and difficult to operate in full compliance. So, the question lingers. Are the draft regulations reasonable? Are they commercially feasible or are they so onerous that operation of a cannabis business would deter a reasonably prudent businessperson from entering the industry?

The grumblings of the industry have begun. Many would-be entrepreneurs have already passed on entry into the cannabis business world due to the perceived difficulty and exorbitant cost to comply with the new regulations. And still, the regulations must balance the State’s duty to the public interest to create a safe and responsible industry involving a potentially dangerous controlled substance against their duty to enact reasonable regulations which do not render cannabis operations commercially unfeasible.

But, as emergency regulations under the pertinent provision of the Government Code in the Administrative Procedure Act, they will expire after 180 days (and a potential two 90 day extension periods), during which time, as part of the regular rulemaking process, including another round of public comments, permanent regulations will be filed with the Office of Administrative Law for enactment estimated to occur in the Spring of 2018. The same requirement of reasonableness will apply.

The State has expressed a sincere desire to avoid over regulation of the cannabis industry and have been careful to follow the rule making process by conducting research, stakeholder meetings and considering public comment. But it will not be until the dust settles and the industry is in full swing, will the answer to the question of their reasonableness become apparent. And if the final regulations are so onerous as to have a chilling effect on California cannabis business, recourse will only be found through a challenge to the regulations for violation by the State of Section 26013(c).