California Cannabis Laws: Proposed Emergency Regulations

On November 16, 2017, California’s three state cannabis licensing authorities—the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health—released the proposed emergency licensing regulations for commercial cannabis licensure. The three licensing authorities anticipate that the emergency regulations will be effective in December in anticipation of beginning licensure January 1, 2018.

The proposed emergency rules put into effect a number of provisions that we have already seen from the original Medical Cannabis Regulation and Safety Act as well as the subsequent proposed text of the Medicinal and Adult-Use Cannabis regulation and Safety Act (MAUCRSA), and also includes a number important additions or alterations. While we cannot cover everything from the proposed emergency rules in this newsletter, here are some important highlights and takeaways:

1.The three licensing authorities committing to emergency rules before January 1, 2018 is a positive move forward. Until this point, the state and most local jurisdictions have appeared unwilling to commit to regulatory schemes (with a few notable exceptions). By releasing emergency rules, the state is starting to establish the ability to issues licenses as of January 1, subject to local compliance.

2.  Despite setting out rules for the application procedures for temporary licenses in addition to annual licenses, the state licensing authorities are leaving the burden of licensure on local jurisdictions. The emergency rules give us a better idea of what licensure will require, but make it clear that local compliance is going to be the biggest hurdle for prospective applicants trying to enter the legalized commercial cannabis market in California. Diligent research will be required to define what opportunities are available in specific local jurisdictions.

3. The state licensing authorities will allow a “transition period” until July 1, 2018, where enforcement of certain provisions will be relaxed. During the transition period, licensees may conduct business with any licensee, regardless of A-type or M-type license status. Additionally, until July 1, 2018 under the proposed emergency regulations, licensees may transport goods that do not meet the labeling requirements under the MAUCRSA, sell goods that are not in child-resistant packaging so long as the product ends up in child-resistant packaging before the time of sale to the end user, sell products that are over the THC limits per package under the Department of Public Health’s rules, and sell goods that have not undergone laboratory testing if that is disclosed on the package.

4. The Bureau will be instituting a “Notice to Comply” policy regarding minor violations to allow licensees to get compliant without receiving a notice of violation. This policy indicates a willingness to work with prospective licensees, but only applies to minor violations under the regulatory schemes.

5. Licenses are not transferrable at this time in California under the proposed emergency rules—licenses are not considered an asset of a business. This means that, in order to purchase a cannabis business, you have to join or buy the entity that holds the license.

Due to the complexity of the changing regulatory landscape in California, we recommend you read the regulations carefully and speak with an attorney about what it means for you and your business. We understand that you are trying to make informed business decisions regarding California’s transition into a more regulated market. Please note that any recommendations made by 7 Point Law are based on laws, regulations, and policies that are still not definitive or final. The draft regulations are likely to change frequently during the first year of adult use regulation in the California cannabis industry. Because of the speed and frequency with which we expect the regulations to change, the information in this post may become inaccurate as the the laws, rules, and regulations evolve.

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