Additional State Licensing Requirements and Permits

Posted by Margolin & Lawrence on October 2, 2018

Getting a commercial cannabis license in California is complicated enough when coordinating your proposed business activities with a variety of government agencies. Depending on what activity (or activities) your business plans to conduct, every commercial cannabis license will ultimately be processed by one of three state agencies: the Bureau of Cannabis Control (BCC), the California Department of Food and Agriculture (CDFA) or the California Department of Public Health (CDPH). In addition to applying through these departments, your business may need permission from regulatory agencies that manage peripheral elements of the cannabis industry. This may include attaining water permits, landscaping protocols, motor carrier permits, and certification of processing equipment. This will, however, depend on what activities your business seeks to engage in, and will require due diligence and -in many cases - subcontract work. All license applications require the business to register for a seller’s permit with the California Department of Tax and Fee Administration (CDTFA). Every applicant must also comply with the Department of Toxic Substances Control’s database, known as EnviroStor, which tracks cleanup, permitting, enforcement, and investigation efforts at hazardous waste facilities and sites with known or suspected contamination issues. The other type of compliance required for all activities is through the California Environmental Quality Act (CEQA), which is primarily enforced by the Bureau of Cannabis Control. However, CEQA compliance was recently resolved for all licensees in an Environmental Impact Report.

For commercial cannabis cultivators (or “growers”), licensing type is based on four lighting conditions: indoor, outdoor, mixed-light (tier 1) and mixed-light (tier 2). Indoor grows rely solely on artificial light to propagate cannabis plants at all stages of life, while outdoor grows rely solely on natural light in an open-air environment. All outdoor grow operations will have seasonal photoperiods that are based on natural light levels and intensity. According to the California Code of Regulations, “mixed-light cultivation” refers to growing mature cannabis in a greenhouse, hoop-house, glasshouse, conservatory, hothouse, or other similar structure using a combination of natural light or light deprivation and/or one of the following artificial lighting models: (1) “Mixed-light Tier 1” the use of artificial light at a rate of six watts per square foot or less; (2) “Mixed-light Tier 2” the use of artificial light at a rate above six and below or equal to twenty-five watts per square foot (see CCR, Title 3, Div. 8, Ch. 1). As such indoor cultivation is generally less energy efficient than outdoor cultivation or grows that adopt a mixed-light model. Based on a report prepared for CalCannabis to ensure compliance with CEQA, indoor and mixed lighting accounts for the majority of energy costs associated with cultivation. A Notice of Determination was made regarding the environmental impact of cannabis cultivation, which was deemed not to have a significant environmental impact, though mitigation measures are required for each project.

The main permits specifically associated with cultivation application include the State Water Resources Control Board (SWRCB) Diversion Authorization, and an agreement issued by the California Fish and Wildlife Department (CDFW) indicating any final lake or streamed alteration completed during the cultivation project. These are required for all cultivation licensing applications, regardless of whether the project is indoor or outdoor. While many businesses will employ municipal utility services for water (and electrical) supplies, there are businesses in rural and unincorporated areas that do not have ease of access to these services. This makes applying for permits from the SWRCB and CDFW more challenging as it requires biological and geological surveys of the property and surrounding land in order to accurately assess the environmental impact of the proposed project. It is strongly recommended that outdoor cultivators hire both a certified biologist and geologist to draw up separate reports on the potential level of impact to bodies of water and wildlife in the area.

The additional permits required for manufacturers and distributors follow a less rigorous application process. For manufacturers, the main thing to consider is whether the business plans on using a closed loop extraction system. According to the final regulations issued by the Department of Public Health, any closed loop system needs to be certified by a California-licensed engineer such that, “ the system was commercially manufactured, safe for its intended use, and built to codes of recognized and generally accepted good engineering practices” (CCR, Title 17, Div. 1, Ch. 13, §40225). The certificate document must be stamped by an appropriate engineer, and the system must also get approval from the local fire code official who determines whether the system meets fire, safety and building codes (e.g. National Fire Protection Association). Distributors are required to obtain a motor carrier permit from the Department of Motor Vehicles for every vehicle transporting cannabis goods (Vehicle Code, Division 14.85, Chapter 2, §34620). This can only be obtained after applying for a CHP number from the California Highway Patrol. Finally, it should be noted that testing laboratories will require an ISO/IEC 17025 certificate of accreditation that attests to competency of testing production variables like cannabinoids, heavy metals, microbial impurities, microbial impurities, residual pesticides and solvents (CCR, Title 16, Div. 42, Ch. 6, §5702). However, this ISO/IEC certificate is not required before applying for a provisional license.

That covers the majority of the permits required to conduct each activity along with business licensing and additional health and safety inspections that are required by the state. Outdoor cultivators have generally had the toughest time applying for SWRCB and CDFW permits, as several surveys and reports are required through environmental specialist research.

For more guidance navigating the regulatory process and ancillary permits associated with cannabis business licensing, please contact Margolin and Lawrence at (323) 653-9700 or via email at info@margolinlawrence.com

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This blog is not intended as legal advice and should not be taken as such. The possession, use, and/or sale of marijuana is illegal under federal law.