CWCB Los Angeles 9/29/2018 Investing in Cannabis Edibles feat. Kim Geraghty, CEO of Madame Munchie and M&L Attorney Lauren Estevez. Topics covered include: emerging market trends in CA cannabis in 2018; legal and regulatory hurdles for operators like marketing & testing; how CA compares to more mature markets like the Canadian cannabis market and Colorado. Full panel video available soon on CWCB site.
By Raza Lawrence and Allison Margolin
On September 28, 2018, the DEA issued a rule announcing that drugs including CBD with THC content below 0.1% will be taken off of Schedule 1 of the controlled substances schedules, and moved to Schedule 5, which allows CBD products to be sold through traditional pharmacies with a doctor’s prescription, so long as the particular product is first approved by the FDA. The order also disallows any importing or exporting of CBD products without a permit.
It is important to note that the ruling is narrow in that it only applies to CBD products with less than 0.1% THC. However, products with higher THC content could continue to be sold under state law and without federal FDA or DOJ regulation under the Rohrabacher–Farr amendment. Ironically, the new federal policy is to tolerate sales of CBD products with high levels of THC, but to restrict sales of CBD products with low levels of THC by requiring FDA approval, a huge task in itself. Some sources indicate that it can cost more than $1 billion to bring one FDA-approved product to the market, including approximately $50-840 million to bring treatments through the stages of Basic Research/Drug Development and Pre-Clinical/Translational Research, and approximately $50-970 million to complete the Clinical Trials (Phases 1, 2, and 3).
The new ruling is bad news for anyone hoping to sell CBD with no or low levels of THC and without FDA approval. Already, in July 2018, the California Department of Public Health ruled that hemp-derived CBD would not be allowed in food or drinks for humans or pets in California.
CBD products could potentially be sold as edible cannabis products under California state law if the producers obtain commercial cannabis manufacturing licenses from the state and local government, and the products are distributed and sold through outlets with state and local commercial cannabis licenses. Even if everyone involved complied with California state cannabis laws, they would still be subject to enforcement, punishment and being shut down by the FDA, unless they contain over 0.1% THC, in which case they could be sold under state law with no federal interference.
The Rohrabacher–Farr Amendment would not protect any low- or no-THC CBD distributors, even those who strictly complied with state law, from enforcement actions from the FDA, as Rohrabacher–Farr only restricts the DOJ from interfering with state regulation of medical marijuana. The FDA is part of the Department of Health and Human Services, not the DOJ, and thus retains the ability to regulate CBD – its regulations trump any state laws relating to CBD under the supremacy clause of the US Constitution.
It is possible that today’s DEA ruling could later lead to reclassification of all cannabis from a Schedule 1 to Schedule 5 substance, which would mean that all cannabis could fall under the jurisdiction of the FDA and could only be sold through pharmacies with doctor’s prescriptions and must be produced by companies with FDA approval (i.e., large drug companies).
Since 2009, the FDA has had the authority to regulate tobacco products, which are now controlled by only a few large corporations, as are many other drugs regulated by the FDA. The same could happen to cannabis. Individuals and organizations in the cannabis community should lobby the government to prevent this monopolization by ensuring that cannabis is descheduled as a controlled substance.
Earlier this year, the FDA's parent agency stated that CBD has little potential for abuse – hopefully the government's future approach to CBD will follow this lead and remove CBD's schedule 1 classification.
Check out our very own Lauren Estevez on CNBC discussing Canadian Cannabis stocks.
The logistics of running a legal cannabis operation involve many questions that may seem surprising or daunting to both current and aspiring business owners. As a California cannabis law firm, here are a few of the issues that we’ve seen cannabis businesses need answers for. If you’ve found yourself asking any of these questions about your own operation, our lawyers may be able to help.
How much can I expect to spend?
At present, the capital requirements to start a cannabis business are very high; on top of the normal costs of starting a business, like buying real estate and hiring employees, the industry is very tightly regulated, and it’s not possible to get an outside loan. That means your business has to be privately fundraised, so it’s important to figure out exactly how much money you have and how much you’re willing to spend.
The application fees alone for cannabis licensing are often several thousand dollars, and many jurisdictions require both proof of funding and a detailed business plan before they consider a cannabis licensing application complete. A cannabis lawyer can help you find this information in order to start your licensed operation.
Is my property in an eligible location for cannabis business?
Zoning requirements vary widely based on your jurisdiction and which type of cannabis activity you’re interested in, so it’s not always easy to tell whether a given property or address is eligible for a particular activity. In addition to restrictions on which zones a given activity can be located in (for instance, cannabis cultivation might be banned in commercial zones but allowed in industrial ones), many municipalities have setback restrictions that prevent cannabis businesses from being located within a certain distance of schools, parks, residential areas, or other cannabis businesses.
Interpreting the local zoning regulations to determine for what activities your business is eligible is another service that cannabis lawyers can provide.
What information do I need to apply for a cannabis business license?
Applying for a cannabis business license isn’t just a matter of filling out an application form – most state and local licensing authorities will require a large amount of information about the business and its owners, including a complete operating plan describing how your establishment will meet all legal requirements for cannabis business activity.
On top of this information, you’ll also need to have business documents such as a seller’s permit, federal employer ID number, and certificate of good tax standing in order. On top of that, most applications will require you to provide accurate financial information, insurance documentation, and enough personal documentation for each member of your business to pass a full background check.
Finding these documents and preparing them for your final application is just one service that cannabis lawyers can provide for your business.
Should I get a license for medical-use or adult-use cannabis?
At the present moment, many states and municipalities have separate regulatory regimes for medical-use and adult-use cannabis, often with very different legal requirements. For your cannabis business to succeed, you’ll need to decide which license (or combination of licenses) is best for your business, then master the licensing and compliance processes for the type of cannabis business you choose. A cannabis lawyer can help guide you through this process, from choosing the right activity to applying for a license to remaining in compliance with the law once your business is operational.
What cannabis activity should I apply for?
In addition to medical-use and adult-use, cannabis business licenses are broken down into different activities, such as cultivation, manufacturing, and retail. Additionally, many of these categories are split into subcategories such as indoor and outdoor cultivation or storefront and non-storefront retail. As with medical and adult-use cannabis, these different types of cannabis activities often have very different requirements.
Some jurisdictions also offer boutique categories with special requirements such as Microbusiness, impose restrictions on how many licenses can be granted, or limit which types of licenses a single business can hold simultaneously. For your cannabis business to succeed, you’ll need to optimize which activities to apply for – another task that a cannabis lawyer can help with.
How can I ensure that my business is licensed as quickly as possible?
Given that legal cannabis licensing is a complex, highly regulated bureaucracy currently receiving a large number of applications, it can be difficult for a cannabis business owner to predict how long it will take their business license application to be approved, or to optimize their application in order to be licensed and operational as soon as possible.
Some areas offer a fast track to licensing under their Social Equity Program, in order to ensure that business owners who are disadvantaged or disproportionately affected by the War on Drugs have a quicker path to licensed operation than other applicants. Our cannabis lawyers can help you find out whether you qualify for one of these programs.
Whether or not you qualify for a Social Equity Program, the best way to ensure that you’re licensed as soon as possible is to choose the right license for your business and make sure that the information in your application is complete and correct.
What license should I apply for if I plan to expand my operation?
Especially for new cannabis businesses, the size of a cannabis business at the time of initial licensing might not be the same as the size of the business you hope to run in two or three year’s time. However, cannabis license application fees often vary based on the size of the operation in question, and applications often require businesses to provide details that depend on the size of their operation, including what types of equipment they plan to use, their planned hours of operation, and how many employees they’ll hire (including their labor practices and management structure).
Our cannabis lawyers can help you figure out how to reflect your long-term growth plans in your licensing application, including the multi-year pro forma budgeting and income documents that many municipalities require.
Will I need to apply for additional licenses or permits?
For many businesses, the cannabis license itself is only one of a number of licenses you’ll need for a fully licensed operation. To begin with, new cannabis businesses will need to apply for their tax registrations and seller’s permits. Additionally, depending on your activity, you may need to apply for Conditional Use Permit or Land Use Permit from your local planning department before you can apply for a cannabis business license.
For some activities, like outdoor cultivation, this may require further permits, such as for diversion of water, tree removal, or environmental review. On the other hand, businesses located in cities may be required to apply for enrollment in local Social Equity or community benefits programs. Our cannabis lawyers can help you find out what additional permits you need and help you apply for them.
Australia has a state and Federal system of government with many similarities to the
way the US operates. The Australian system, just like the US system exposes
differences between the views (sometimes expressed as laws) between Federal
authorities and bodies acting on the States’ behalves.
One such example was evident in Mid-2018. One state – South Australia – SA –
extended the severity of sentences for drug related crime, calling out Marijuana
specifically for harsher treatment. On the same day, Tasmania, the island State and
home of the cartoon ‘devil’ (there really are Tasmanian Devils you know – they are
small mammals – Google it!) expressed support for the legalization of recreational
South Australia comes down hard on pot smokers
It is still not legal to buy cannabis in Australia for recreational use. However, possession
was decriminalized in South Australia in 1978. As part of its “war on drugs,” and in
something of a reversal of that criminalization, the South Australian Government wants
to increase penalties for possession of marijuana possession as follows:
- Quadruple the maximum fine for cannabis possession to $2,000. The law is for
debate in Parliament.
- A prison sentence of two years maximum, identical to those imposed
possession of ecstasy or heroin and other illegal drugs will be introduced.
The current penalty for possession of fewer than 25 grams of cannabis is $125.
Cannabis possession has been decriminalized since 1987.
According to South Australia’s Attorney-General, Vickie Chapman, marijuana should be
treated in the same manner as the other illegal drugs. She compared the current
treatment of marijuana possession to jaywalking.
The increase in fines for cannabis possession was an election promise as part of the
Liberals’ (an Australian conservative political party) "war on drugs" slogan.
The State government’s actions were not limited to the courts. They have also
suggested the use of drug-sniffing dogs in schools. Ms. Chapman said that they are
trying to treat marijuana in the same manner as they do with other illegal drugs.
Australian National University's Australian Medicinal Cannabis Observatory clinical lead,
Dr David Caldicott asked whether the new laws would lessen the use or negative effects
of marijuana. Dr Caldicott said that maybe the new penalties if for generating revenue
because harsher penalties don’t lessen the use or harm from marijuana.
Greens MLC Tammy Franks considers the proposed laws as "a war on the homeless,
Aboriginal people and the poor;" because they are not able to defend themselves in
court. Ms Franks added that worldwide, “prohibition does not work when it comes to
Luckily, the plan to implement jail sentences for people who are caught in possession of
cannabis is not likely to get through the state’s parliament and find itself manifest as
law. The opposition will oppose the bill for many of the same reasons that the Law
Meanwhile, on the other side of the Australian continent, and on the same day…..
Most Tasmanians support recreational cannabis legalization
A poll in Tasmania showed that the majority of the respondents support the
decriminalisation of recreational marijuana. The telephone poll of over 1,100 Tasmanians found an average of 59 per cent supported the move to decriminalize marijuana while 28 per cent opposed it.
Jarrod Edwards, a federal by-election candidate, said the policy to decriminalize is
centered around marijuana because policing it uses a takes up such a huge amount of
police time, manpower and other resources.
He added that it “greatly impedes and impacts on young people in our community if,
during their formative years, they get drug charges on their record.” The drug charges
can affect an individual’s chances to gain employment, travel abroad as well as
negatively affect the qualification to purchase houses in the future.
The Attorney-General considers the current drug diversion program as too lenient
because it gives the offender the “chance to have treatment instead of a penalty.”
There is hope for Australia amid all this confusion
The very fact that Australia is so schizophrenic about its state and Federal views on
Cannabis could present an opportunity for those who would see it made legal.
Just as in the USA, bold states have taken the step to legalese, ultimately, one
Australian State seems likely to suggest it down here.
If the Federal government is open to allowing these sorts of strong feelings and different
behaviors by the States, when it comes to recreational cannabis use, they will have to
accept a state which wants to legalize it.
Neil Aitken is CEO of Cannabis Express, a website dedicated to providing the facts and information Australians need to decide how to vote on the subject of whether Australia should legalize recreational cannabis for personal use.
The state regulators have released the annual fees for cannabis licensees - manufacturing fees are determined by the CDPH, cultivation by CalCannabis, and testing, microbusiness, retail and delivery fees are set by the BCC. We have compiled all of these fees into a calculator you can use to estimate your costs for the state annual license into one place.
Originally, Senate Bill (SB) 1459 was written to allow the county agricultural commissioners (CACs) to include cannabis among reports about the condition, acreage, production, and value of the county’s agricultural products as submitted to the Secretary of Food and Agriculture. The bill was first introduced in the California State Senate on February 16th, 2018, by Senator Cannella (coauthored by Senators Galgiani and McGuire, Assembly Members Caballero and Wood). The impetus for suggesting that CACs report cannabis as an agricultural product was based on the National Agricultural Statistics Services assessment that “providing crop statistics is basically a way to stabilize the agricultural marketplace." Such action would ultimately facilitate the integration of cannabis cultivation into the marketplace, and moreover encourage unlicensed growers to legitimize their businesses. After passing the Assembly Appropriations Committee 13-4 on August 8th, SB 1459 then received a majority vote upon a third reading on the Senate floor.