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Will California Create A Bank That Serves Legal Cannabis Businesses?

Posted by Margolin & Lawrence on August 11, 2017


One of the questions any Los Angeles cannabis lawyer encounters most frequently is: what about the banking issue? Cannabis remains a largely unbanked industry. And while you are still required to pay all of your federal, state, and local taxes, that often means dealing with large amounts of cash, which creates security and accounting risks for legal cannabis businesses. A stateside bank that services legal cannabis businesses could close some of these gaps, but still faces the risk of federal asset forfeiture.

On August 10th, the Cannabis Banking Working Group (CBWG) and California State Treasurer John Chiang held the last of six meetings in Los Angeles to address these concerns, as well as how a public bank that services legal cannabis businesses could generate revenue for the state. Since California is the world’s sixth largest economy, the way the state implements a banking system will be a bellwether for other states that have implemented medical marijuana regulations, as well as a game changer for legal cannabis operators in general.  

Kevin Klowden, economist and Executive Director of the Milken Institute, stated that in order for public banks to operate, they would need to generate a depository system that is specifically designated to cannabis businesses, creating a “safe alternative to an all-catch operation” which would be separate from the federal government. This public bank model would allow for small- and medium-sized deposits, turning them into targeted loans which could be used to make money. In order to do so, a public bank would require a master account number, similar to a routing number, which would assist in identifying the sources of funds and entities. This master account number would also allow for basic bank services, such as check deposits and transferring of funds. With federal oversight, the government would have the ability to oversee and approve such transactions. If money is coming from an institution that they have flagged as suspicious, e.g. cannabis businesses, they have the ability to block such transactions. To avoid this, the state would need to create a situation where the federal government cannot interfere with small deposits. The structure of such deposits must be separated and clearly distinct between any chartered public bank.

The Bank of North Dakota (BND), the only public state-owned bank in the country, has created a similar business loan program. The deposits made into BND are insured by the state, as opposed to the FDIC. Because BND has control over their institution, their default rate has been extremely low. As such, BND’s public bank model has proven to be effective and profitable. A program fitting this model, if adopted in Californiam could provide services to legal cannabis businesses. That said, as long as cannabis is classified as a Schedule I drug, the federal government can still intervene at any time. Nevertheless, implementing an alternative route for cannabis businesses to deposit their funds creates a “safe haven” for these businesses.

Public banking systems would create security plus opportunity, predictability, and sustainability for the primary stakeholders in California’s transition to a “new cannabis economy.” Unless the state of California handles cannabis currency first, private banks will continue to be reluctant to do so. The only “magic bullet” here, as Chiang mentioned in his opening remarks, is to remove cannabis from being classified as a Schedule I drug under the Controlled Substances Act altogther. However, that change seems to be a long way off. In the interim, though it will be complicated, there is growing momentum and consensus behind the need for a public bank that services legal cannabis businesses in California, and we’ve already seen that it is possible to create such a bank in another state.

Contact us for more information. 

Palm Springs Opens Cannabis Business Applications

Posted by Margolin & Lawrence on August 10, 2017

As of this Monday, the resort community of Palm Springs, California has begun accepting permit applications for a full range of adult-use cannabis businesses. Like several other cities in the Inland Empire and Coachella Valley, Palm Springs already allows for marijuana cultivation and medical marijuana dispensaries. However, the city’s new regulations go a step further toward opening the region up to the full range of the California cannabis industry. In particular, the sections of City Ordinance 1933 which deal with adult-use cannabis suggest that Palm Springs plans on alleviating its restrictions on the type and number of marijuana businesses permitted to operate. This has the potential to significantly expand the region’s marijuana industry.

Until the passage of this ordinance, Palm Springs had firm restrictions on the distribution sector of the cannabis industry: the previous regulations only allowed medical cannabis collectives to operate dispensaries, and, of these collectives, only allowed a maximum of six operations to hold permits at any one time. Though it isn’t clear how many businesses will be granted permits to distribute adult-use cannabis in the future, the new ordinance notably doesn’t include an analogous restriction on the maximum allowable number of adult-use distribution permits, which may indicate that the city won’t extend these limits in its future approach to cannabis licensing.

The other major change introduced in the ordinance is the expansion of licensing to the other sectors of the marijuana industry, as described in our blog post on California's types of cannabis licenses. While marijuana permits were previously limited to distribution and cultivation, the new regulations allow for licenses in manufacturing, testing, and transportation to be granted for both medicinal and adult-use cannabis. This change would allow for the entire cannabis industry to be represented in Palm Springs – not only growing marijuana plants and the sale of the finished product, but also all the steps in between.

Of course, as is often the case in California marijuana law, none of the changes described in the ordinance will take place in the imminent future. The city will have to pass a ballot measure this November establishing the taxation regulations for cannabis businesses before any of these licenses are actually given out, and no adult-use cannabis licenses will go into effect before 2018. Still, these new regulations suggest that Palm Springs is taking an active role in embracing the ongoing process of marijuana legalization.

Do I Need A Cannabis Lawyer To Advise My Business?

Posted by Margolin & Lawrence on August 3, 2017

As California gears up for the full legalization of adult-use commercial cannabis, entrepreneurs across the state are considering breaking into the marijuana industry. However, the entry costs for marijuana businesses can be high, and the exact legal requirements for starting an operation are often confusing. Given this background, a would-be cannabis enterpreneur might wonder: is it worth it for a new marijuana business to hire an attorney?

On this subject, it's fair to take a cannabis law firm's comments with a grain of salt – a little like asking a barber whether you need a haircut. That said, as lawyers with years of experience providing legal support to california's top cannabis businesses, we're familiar with the legal demands of the cannabis industry in California. Given this inside perspective, we will advise you that the state and local laws which marijuana businesses must adhere to are extremely complex and intertwined, with harsh consequences possible for even relatively minor violations. In this context, our view is that it's a dangerous gamble to try to maintain a business in the cannabis industry without a cannabis attorney. 

Of course, we can’t advise anyone to enter the industry in the first place – according to federal law, possessing, using, or selling marijuana in any capacity is still entirely illegal. The only thing protecting California marijuana consumers and businesses from federal prosecution is the Department of Justice's decision to allow “state and local authorizes [sic] to address marijuana activity through enforcement of their own narcotics laws.” While this federal deference to state law has been the norm since 2013, there's no guarantee that this won't change in the near future, especially given that Trump administration appointees like Attorney General Jeff Sessions have announced their intent to crack down on marijuana use. To avoid federal prosecution, then, it's crucial to stay within the bounds of state and local law. However, in a state as large as California, this is easier said than done.

While California currently affords limited immunity from prosecution to certain marijuana businesses, many cities and counties don't, which means that even a business which follows state law to the letter could be operating in a manner that violated local regulations. Our Los Angeles cannabis lawyers have advised hundreds of businesses who ran into issues with Prop D and have defended their rights since even before that regulation was passed. With the new cannabis regulations being introduced into the City of LA, it is important to speak to a los angeles cannabis attorney who is familiar with the regulations and can advise you on how to set up your business for success. (For more on these changes, see our recent blog posts on LA marijuana licensing.)

Retaining a cannabis lawyer provides a degree of access and ease in interpretation of these regulations that a private citizen doesn't have. Though it's easy to find information online, but the amount of outdated, contradictory, misleading, or outright false advice on marijuana business on the internet is nothing short of overwhelming.

For these reasons, it's worth considering hiring a california cannabis attorney for your business. Not only does having legal counsel help you stay within the law, it helps offset the financial risk inherent to any new business by ensuring that your organization's paperwork and cannabis licensing applications are in order. For more information or to arrange a consultation with one of our los angeles cannabis lawyers, check our brief overview of California's marijuana laws or email us at info@margolinlawrence.com.

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Ask A Cannabis Lawyer: What Are The Zoning Laws In California?

Posted by Margolin & Lawrence on July 31, 2017


Under S.B. 94, the 482 Cities and and 58 Counties within California have authority to regulate land use and zoning within their jurisdictions. The zoning for cannabis businesses depends on the activity - for example, dispensaries often have different zoning than cannabis manufacturing businesses. Our cannabis lawyers have found that many jurisdictions and ordinances allow for light industrial as one of the more popular zones for cannabis businesses, but it is important to check your local ordinance as it is a location-specific analysis for each city/county. (Moreover, counties or cities that have bans on cannabis activity in place will not provide any zoning information because they have not updated their municipal or county codes to do so).

The City of Los Angeles introduced a Draft Location Ordinance in June 2017. The Draft Location Ordinance specifies the zones where cannabis businesses will be allowed to operate, by activity.  Cannabis cultivation (indoor) and manufacturing will be allowed in limited commercial and industrial zones within the City of Los Angeles. There will also be designated special zones for cannabis businesses such as the Sports and Entertainment Specific Plan Zone and the Los Angeles International Airport Specific Plan Zone.

Retailers or cannabis dispensaries will be properly zoned if they are in the limited commercial and industrial zones in Los Angeles, and are also 800 ft. from recognized existing medical marijuana dispensaries, school, park, public library, rehab center, etc.

Note that for Delivery Operators who exclusively use a building for delivery, sensitive use distancing and buffer zones are not required.

Without the proper zoning, obtaining approval for your building is a non-starter.

Contact us to learn more about the draft Ordinance for the City of Los Angeles, or to discuss the zoning in any other jurisdiction in California with one of our cannabis attorneys.

CA State Agencies Withdraw Draft Regulations

Posted by Margolin & Lawrence on July 26, 2017

New Regulations will be released in Fall 2017 and the agencies will use emergency rulemaking to pass them. 

From the Bureau of Medical Cannabis Regulation: 

Earlier this spring, the Department of Consumer Affairs’ Bureau of Cannabis Control, Department of Public Health and Department of Food and Agriculture released proposed regulations for the Medical Cannabis Regulation and Safety Act. These licensing authorities held public hearings and accepted written comments regarding the proposed regulations. However, in late June, the Legislature passed and the Governor signed into law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act, which creates one regulatory system for both medicinal and adult-use cannabis. As a result, the licensing authorities will withdraw the proposed medical cannabis regulations noticed for public comment on April 28 and May 5, 2017. The withdrawal is likely to happen early next month.

The three cannabis licensing authorities are each developing new proposed regulations based on the new law for the commercial medicinal and adult-use cannabis industries. During this process, the licensing authorities will consider the robust and valuable public comment received regarding the proposed medical cannabis regulations.

The licensing authorities will use the emergency rulemaking process for the new proposed regulations. The emergency regulations are expected to be published in fall 2017. The implementation date for the issuance of commercial cannabis licenses remains the same: January 2, 2018.

For additional information about the Bureau, or to subscribe to email alerts to hear about updates as they become available, please visit our website www.bmcr.ca.gov.

Answers to Your Top 10 Cannabis Business Law FAQs

Posted by Margolin & Lawrence on July 26, 2017

It sounds like a dream, but it's not – a billion dollar black market is now a legitimate business option. If you are an entrepreneur already in the industry and looking to legalize your business, you may be confused or lack foundational knowledge about the new state and local regulations on operating a compliant cannabis business. Below are answers our Los Angeles cannabis lawyers receive most often:

1) Are owners of commercial adult-use and commercial medicinal cannabis companies required to be California residents in order to obtain a license?
No. The residency requirements of the AUMA have been repealed by the MAUCRSA. In other words, “out of staters” and even residents of other countries can freely participate. Read more about the new State Laws in our Guide


2) What area of the commercial cannabis industry is the easiest to break into?
Delivery Service requires the least start up capital and has the fewest barriers to entry.


3) Where is the best place to get a license?

There are 482 cities and 58 counties in California. Each municipality has different requirements. Call us to find out what’s best for you!


4) What type of licenses are available?
Distribution, Cultivation, Manufacturing, Testing, Micro business, Nursery and Retailer.


5) What type of Business Organization do commercial cannabis companies have to be?
Every commercial cannabis business must currently operate as a non-profit (see H&S Code 11362.765(a)), although the laws are expected to change to allow for-profit entities.

 

6) Will my cannabis businesses be discontinued by the federal government?
Hopefully not, as long as you are in strict compliance with state & local laws and your commercial activities are strictly medical.

 

7) How many licenses can an owner have?
The MCRSA does not specifically limit the number of licenses a person may hold of a particular license type; however, it does limit the types of licenses a person may hold at one time. Specifically, testing lab or large cultivation license holders may only hold a license in that specific area.

 

8) Can I have my old marijuana felony dismissed or reduced to a misdemeanor?
In many circumstances, yes. Call us to discuss.

 

9) Do I still need a recommendation to buy cannabis?
At the moment, yes! The law for commercial adult use does not go into effect until January 2018.

 

10) Where can I get my complex questions answered?
Contact us   to set up a meeting with our team in Los Angeles or San Francisco. 

Where is Volatile Cannabis Manufacturing Allowed?

Posted by Margolin & Lawrence on July 18, 2017

'Dabbing' and vape pens are some of the newest and most popular methods of consuming cannabis. Instead of smoking marijuana flowers, users ingest cannabis concentrate, otherwise known as wax or oil.

One of the main ways to extract this cannabis concentrate is legally referred to as “volatile manufacturing." "Manufacturing" here refers to all aspects of the cannabis extraction and/or infusion processes, including the processing, preparing, holding, storing, packaging, and/or labeling of cannabis products, as well as the various components and ingredients involved in the production of cannabis. "Volatile," meanwhile, refers to the use of "volatile solvents," which California Senate Bill 94 defines as “volatile organic compounds and dangerous poisons, toxins, or carcinogens."

These types of solvents produce a flammable gas or vapor that, when present in the air in sufficient quantities, will create an explosion or ignite a flame. Of these solvents, the one most commonly used in cannabis extraction is butane. Manufacturing using butane is highly effective for mass production of oil, but it can also be highly dangerous. The major burn treatment centers at two hospitals in Northern California reported in 2015 that nearly 10 percent of severe burn cases were attributed to butane hash oil explosions – more than the amount attributed to car accidents and house fires combined. Due to these hazards, California cannabis manufacturers must obtain a Type 7 / "Manufacturing Level 2" license in order to use volatile solvents. Currently, the cities of Davis, Nevada City, Coachella, Long Beach, and California City are issuing these Type 7 licenses. 

In order to further ensure safe manufacturing, each locality is also requiring chemical extractions using volatile solvents to be subject to the following requirements: (a) Hydrocarbon-based solvents shall be at least 99 percent purity, and (b) all extractions shall be performed in a closed loop extraction system. California is very specific about the nature of the closed loop extraction system: it's required to be commercially manufactured, to be certified by a licensed engineer, and to bear a permanently affixed and visible serial number. The certification document must contain the signature and stamp of a professional engineer, and the serial number of the extraction unit must also be certified. Moreover, professional closed loop systems, the equipment used in conjunction with the extraction operation, and the entire manufacturing facility must be approved for use by the local fire code official and meet any additional fire, safety, and building code requirements.

For more information about California marijuana business and cannabis manufacturing, check our guide to California cannabis laws or email us at info@margolinlawrence.com.

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LA's Draft Cannabis Regulations Should Strive For Fairness And More Fun - Our Cannabis Law Op-Ed In The LA Daily News

Posted by Margolin & Lawrence on July 13, 2017

As med. cannabis lawyers, we think LA's regulations should allow for those operators already existing who have had prop D violations to still apply. Moreover, karaoke and cannabis should not make an illegal combo.

Today's Los Angeles Daily News includes a guest editorial on LA's new marijuana regulations by M&L partners Allison Margolin and Raza Lawrence!

Read more on our previous blog posts on Prop D compliance and social equity measures for more information on this field of cannabis law – or email us at info@margolinlawrence.com with any questions!

Ask A Cannabis Lawyer – Are Edibles Legal Under The MAUCRSA?

Posted by Margolin & Lawrence on July 11, 2017

Reflecting the fact that cannabis edibles have become an increasingly popular alternative to smoking marijuana, California's MAUCRSA introduces new regulations on edible cannabis manufacturing. Cannabis manufacturers must take heed of these new limits and regulations to ensure that their products are not only within compliance, but also effective and safe for human consumption.

The MAUCRSA defines an “edible cannabis product” as manufactured cannabis intended for human consumption, either in whole or in part. “Manufacturing” of cannabis is the production, preparation, propagation or compounding of cannabis products. This includes the extraction and infusion processes, packaging, repackaging, labeling and relabeling of manufactured medical cannabis or cannabis products.

According to theLEAFonline, many other forms of manufactured cannabis, including tinctures, have a maximum of up to 1,000 mg of THC. However, under the proposed regulations, edible cannabis products will only be allowed to contain 10 mg of THC per serving, with the finished product capping no more than 100 mg of THC per package. This caution speaks to a key concern about edible cannabis: consistency.

Due to its being absorbed through the stomach rather than the lungs, edible cannabis doesn't usually reach its full potency for at least an hour after consumption. When combined with inconsistent labeling, this makes edibles easy to consume to excess before their full effects are felt. As WikiLeaf writes, this may cause side effects like anxiety, paranoia, cottonmouth, and lethargy. Nevertheless, these effects often differ from person to person, depending on factors such as the frequency of use, size and weight of the user, and whether the edibles are taken on an empty stomach. Consistent dosage helps to prevent these possible adverse effects. For this reason, edible products that contain more than a single serving must be recorded, defined, or otherwise marked to indicate how many servings they contain. 

Under the MAUCRSA, manufacturers would be required to take reasonable measures to ensure that their products successfully communicate:

  • How many milligrams of THC are in each serving

  • What the recommended dosage would be based on specific criteria, such as weight, size, etc.

  • What, if any, side effects may occur if taken in excess

With these THC dosage limits in place, a consumer can easily understand how many servings are needed to achieve their desired results without any side effects.

The proposed regulations have also stated that edible cannabis products cannot contain any infused alcoholic beverages, nor any non-cannabinoid additives such as caffeine and nicotine. This is to ensure that these additives don't combine to increase the potency, addictive potential, or toxicity of cannabis edibles.

The MAUCRSA is vague, however, in determining whether natural caffeine is permissible; some caffeinated edible cannabis products, such as tea to alleviate pain and insomnia, are currently available for medical use, but it's unclear what their status would be under the new regulations. Manufacturers may bear the greater burden when it comes to remanufacturing their products to comply with state law.

LA Cannabis Licensing & Social Equity

Posted by Margolin & Lawrence on June 29, 2017

As explained in our previous blog post, “compliance” will be a major factor in the distribution of marijuana licenses in Los Angeles – and cannabis lawyers around the city are fielding a number of questions about what, exactly, LA’s priority licensing process will entail.

The draft regulations the City has released extend a certain amount of privilege to existing marijuana sellers when it comes to licensing. Businesses and dispensaries that have operated “in substantial compliance” with prior iterations of marijuana law will be given priority, allowing them to continue operating while their license approvals are pending. Clearly, this confers a major business advantage, which has raised concerns about whether a compliance-based approach to awarding priority is equitable.

Disqualifying potential cannabis business owners for past violations, but opening the door to “compliant” newcomers, threatens to reinforce inequality. As Drug Policy Alliance policy director Cat Packer, slated to head the City of LA’s Cannabis Commission, explained in an interview with Merry Jane, “The impact of marijuana prohibition and the drug wars was heaviest in black and brown latino communities. If you say people with prior arrests and convictions can’t participate, it automatically has a disproportionate effect on communities that were punished by the War on Drugs.” In other words, privileging “compliance” could compound the negative effects of marijuana prohibition, blocking communities which have historically been more likely to be punished for cannabis use from gaining access to the benefits of the new, legal marijuana industry. As attorneys who have practiced in cannabis law for many years, we have seen the damage prohibition has done to these communities, and are fully supportive of a restorative approach to justice through the licensing process.

The LA City Council recently moved to create a Social Equity Program for marijuana licensing, intending to serve “those individuals and communities that were disproportionately harmed by cannabis prohibition.” This follows in the path of a similar program in Oakland, which reserved half of new dispensary permits for residents who lived in certain neighborhoods, had below-average annual incomes, or had previously faced cannabis convictions. Given how much larger Los Angeles' marijuana industry is than Oakland's, however, the mechanics of the LA program may need to be worked out, and it may not be able to mirror the Oakland model in every way.

Whatever the exact parameters of LA's Social Equity Program end up being, (and however they'll be affected by recent changes to state and city licensing regulations,) the priority-based system will continue to play a major role in deciding which marijuana businesses are allowed to operate. At present, the city plans to reserve a special round of applications for organizations that fit a profile similar to the requirements Oakland used. For more on priority and marijuana laws to the new state law (MAUCRSA), check our previous blog posts or guide to Prop 64, or email us 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.