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.
California is well underway in the business of commercial cannabis, and now the state has
opened its golden doors to licensing. The state is actively reviewing applications for annual state
licenses. Those who have successfully triumphed over their local jurisdiction are quickly
realizing that was only half the battle and are in process of applying for a state license. The
industry is experiencing some growing pains as it continues to transition into a regulated market,
and if you’ve felt the hurt, here are some things to consider on whether it’s time to hire a law firm
to represent your cannabis business.
Depending upon the activity applied for, the relevant agency regulating commercial cannabis at
the state level – the Bureau of Cannabis Control (BCC), California Department of Public Health
(CDPH), or California Department of Food and Agriculture (CDFA) – will contact the city or
county to verify the validity of the local license and that the business is in compliance with or exempt from the California Environmental Quality Act (CEQA), as required by state law. This should be an easy
tick off the checklist. However, we are finding the state is returning responsibility to the applicant
to provide evidence of CEQA. The language in the local ordinances, particularly in the smaller,
rural jurisdictions, can be vague and up to interpretation. Failure to provide evidence of
compliance with the CEQA, or with any of the regulations under state law and associated
governmental bodies, is subject to denial of the state license. As a result, all operations will be
forced to cease. Any operations occurring without a valid local and state license are subject to
heavy fines, as recently seen in Humboldt County, and could result in criminal prosecution. An
attorney will advise in navigating through all local and state requirements to protect your
business from shutting down.
A common issue aggravating many are problems arising due to incorrect zoning that can lead to
costly consequences. Before you sign a lease or purchase a property, verify the zoning. For
example, for those in the market for the City of Los Angeles during its second phase of
licensing, you may have noticed the maps to check zoning against sensitive use areas in each
of the 15 districts are no longer available. At the request of the Department of Cannabis
Regulation (DCR), the maps have been removed due to numerous issues arising from incorrect
zoning. Applicants were relying on the maps not realizing there may have been a school, EMMD,
or other sensitive use within the area. The city is allowing applicants the opportunity to find
another location that is in the correct zoning until at least September 13th , when this phase of
licensing closes. Finding a location in the correct zoning is no easy feat. Have the property
professionally mapped and consider hiring an attorney to negotiate the terms of the lease or
purchase contract, ensuring the property complies with all zoning and land use requirements
under the ordinance, and reducing the chance your license is denied.
If you are an investor looking to buy an existing license, beware of fraudulent deals and false
licenses. Does the license comply with CEQA? Is it in the correct zoning? What is the licensing
authority’s policy on transferring of cannabis licenses? Having an attorney do the due diligence
will help reduce the risk of your investment.
As the industry evolves, there is going to be more need for legal protection for entrepreneurs and
investors, so consider a business investment into a law firm well educated in the field of
cannabis law and protect your success.
This editorial, by Allison Margolin and Raza Lawrence, also appears in the July 25th, 2018 edition of The Daily Journal.
On June 25, the Food and Drug Administration announced that it was approving Epidiolex, a cannabidiol (CBD) oral solution for the treatment of seizures associated with two rare and severe forms of epilepsy. This is the first drug approved by the FDA comprised of an active ingredient derived from marijuana.
The approval is a sign of the growing acceptance of CBD, and cannabis generally, to treat various medical ailments. THC, not CBD, is the primary psychoactive (intoxicating) component of marijuana. But CBD is believed to have its own distinct health benefits for conditions ranging from anxiety to cancer, and has recently exploded in popularity. CBD-based products seem to be everywhere, including Walmart, although the 9th U.S. Circuit Court of Appeals ruled this year that CBD is properly banned as a controlled substance under federal law, and the FDA warned in its recent press release that it will continue to crack down on “illegal marketing of CBD-containing products with serious, unproven medical claims.”
California’s health department also recently made clear that state law forbids adding CBD products (whether from cannabis or industrial hemp) to any food. Regardless, the FDA’s ruling could open up CBD and cannabis generally to broader acceptance in government and society.
The FDA’s approval contradicts the federal classification of cannabis as a Schedule 1 substance, the same as heroin, which is defined as one with a high potential for abuse and no medical value. The FDA specifically found, as part of its approval of Epidiolex, that CBD has medical benefits that have been supported by rigorous scientific research and clinical studies. Litigants could use the FDA approval to challenge marijuana’s Schedule 1 status in court. Or, reading the tea leaves, the government could re-classify or de-classify marijuana on its own. Under the law, Congress, the president, and the heads of the
Drug Enforcement Administration and FDA would each have the power to remove marijuana from Schedule 1.
What happens next if cannabis is removed from Schedule 1? There are different possible paths. Under one scenario, feared by many in the cannabis industry, cannabis would become regulated by the FDA as a Schedule 2 (or 3 or 4 or 5) controlled substance. Complying with FDA regulations can be extremely expensive and time-consuming, which is why drug companies are all large corporations rather than “mom and pop” operations. The estimated cost of bringing a new prescription drug to market is $2.6 billion.
In California, the cannabis industry has operated for years under an informal system of non-profit “collectives,” with only vague legal guidelines and no regulation. This year, the state is transitioning to a new system of state and local licensing and regulations. California cannabis cultivators, manufacturers, distributors, and retailers are already struggling to comply with the new high taxes and complicated regulations imposed by California. If the FDA were to take over the regulation and licensing, the costs of compliance would likely be much higher, and only those with the deepest pockets would have the resources required to produce and sell cannabis. The costs of compliance would inevitably be passed on to consumers, who would face sky-high cannabis prices similar to those of prescription drugs.
Federal control and regulation of cannabis, however, is not inevitable. Many would prefer the approach taken by proposed federal legislation that removes federal penalties and allows each state to sets its own marijuana policy within its borders, similar to how alcohol is now treated. Under this approach, the FDA would not regulate cannabis like a prescription drug, but could still prevent misleading health claims or misrepresentations on labels, and enforce basic quality standards, as it does for dietary supplements.
Unlike synthetic drugs derived for billions of dollars in corporate labs, cannabis is just a plant. It is not toxic or physically addictive. People who use it for medical purposes can safely and effectively determine and adjust their own doses. States could set reasonable restrictions and regulations on commercial
cannabis as they do with alcohol, but would not need to subject it to the intense scrutiny of prescription drugs.
The approval of Epidiolex is promising to the extent it increases awareness and legitimacy of cannabis as medicine. But it also raises the concerning possibility that all cannabis may soon be regulated like prescription drugs, and controlled by large corporations, rather than by the people and small businesses who grew the industry up from the ground.
Since the Department of Cannabis Regulation opened up Phase II licensing in Los Angeles a couple of weeks ago, questions have been flooding in regarding the differences between state and local licensing. While the requirements set forth in local ordinances usually reflect the laws set forth by state agencies, there are some distinctions in terms of what is required for the purposes of applying for business licensing.
On the heels of the opening of Phase 2 of non-retail cannabis licensing, the Los Angeles Cannabis Regulation Commission convened a Special Meeting yesterday. Law enforcement officers ushered a diverse crowd of lawmakers, business owners, community members into the Civic Auditorium of the Los Angeles Police Administration Building to discuss legal cannabis. People waited for the meeting to start, Hawaiian shirts mingling with suits, a group with brightly colored “resistance” shirt found a seats right in the middle of the auditorium. People rushed to fill out comment cards for 60 seconds to address DCR directly.
by Terry Blevins, President/CEO of Armaplex Security
Many businesses are willing to put a security guard in their cannabis business, but don’t often think about the possible consequences (implications) of that decision.
I often ask business owners: Would you want your security guard to kill or injure an intruder in order to prevent him from taking your cannabis product or cash? The answer should be “no,” because the use of force to protect property is not allowed by security officers and would put you and your business in a precarious position from a liability perspective, not to mention causing a potential reputational issue. If the answer is “no,” then I ask: “Have you had that discussion with your security company and/or the guards that work in your business?” The use of physical force is a serious responsibility, especially if it is done by one of your employees or contractors, and at your request, and should not be taken lightly.
Even more serious is the use of a firearm by security guards, which can bring on a series of additional liabilities and concerns. How would you feel personally if one of your security guards killed or injured someone while trying to protect a small amount of product? How would you feel if an innocent bystander was killed during the incident? If you tell your guard not to draw his weapon in case of an attack, then you are defeating the purpose of having an armed guard and may be creating other liabilities with these instructions.
Are you aware that a security guard is the last measure you should put in place and only after you have secured the site with robust physical barriers, employee procedures and security technology?
You should be suspicious of security companies whose first line of defense is always a security guard. Most shrinkage or loss in the cannabis industry is due to factors that can be controlled by measures other than hiring a security guard. Every cannabis business will suffer some loss of product or cash on a monthly basis and most of the time there is some insider (employee, contractor or partner) involvement in this.
Some examples of measures that can prevent insider theft:
- Employees should not be allowed to have bags or baggy clothing in areas where product or cash is kept. Employee and contractor lockers should be used.
- Employee policies and procedures that require two individuals to be present when accessing large amounts of cash and/or product
- Alarm devices and access control systems that only allow certain employees, into certain areas, during certain hours
- A requirement that all transactions take place on camera can help to prevent theft and may also serve as verification if someone is wrongfully accused
Are you 100% sure that if one of your security guards injured or killed someone, your insurance would cover you? How about if they just touch someone and that person claims assault?
All insurance policies have exclusions, and many have “Assault and Battery” or other exclusions that mean the insurance company would not pay a claim if your security guard used physical force (any bodily contact) on a person, even in the course of his duties. Even if you contract with a licensed security company, its policy may have these same exclusions that place you, and them, at risk of not being properly covered. This exclusion may be as subtle as no coverage for providing security for a business that is involved in illegal activity (cannabis is still a Federal offense).
These are steps you can take to protect yourself and your business:
- If you hire guards directly, your insurance company must know that you are doing this in order for you to be covered in the case of an incident.
- If you contract with a security provider, you should ask this security company to list you as a co-insured on its insurance policy
- Have your attorney review both your policy, and the security company policy, to make sure that cannabis businesses are not excluded and insure that there are no other exclusions, such as “Assault and Battery,” that put you at risk.
Are you 100% sure that your security guards are fully licensed and compliant to perform their duties under local and state laws that regulate security companies, as well as cannabis companies?
All security companies are heavily regulated due to the need for trust and accountability as they are entrusted with our most valuable assets, and sometimes with our lives. Cannabis security companies and guards are even more heavily regulated and scrutinized than other security companies. State and local cannabis regulations require that security companies and/or guards that are used by cannabis companies must be properly licensed and insured.
Things you should do:
- Have your attorney review the contract with the security company and make sure that it meets the BCC and/or local requirements
- Visit, or call, the state and/or city agency that licenses security guard companies to make sure the company is licensed. (In California this site is: https://search.dca.ca.gov )
- Make sure that you have these documents on hand during any compliance check:
- A copy of the security company’s license
- The security guard’s personal card (city of L.A. also requires first aid card)
- Your contract with the security company
- The insurance binder from the insurance company that lists you as a co-insured
- Any other documents required by law or regulation
Were you aware that in most states you cannot hire security guards directly (even if they have guard cards) without your business being licensed as a Proprietary Private Security Employer?
Out of all the cannabis businesses that hire their guards directly, most have no idea that this is required. The supervision of security guards cannot be performed by someone who is not an expert in security. Any company that hires security guards must have a license to do so and must have a manager on staff who has proven experience in security management and completed a written test and background check (California requires this license). Your insurance company will also want to look at the manager’s qualifications in order to ensure the manager is experienced and doesn’t present a risk to the policy.
This is only a partial list: There are many other things that you should consider when hiring security personnel at your cannabis site, and you should do everything you can to be informed and to protect you and your business.
There are many misconceptions regarding security in the cannabis industry regarding what is required under state and local laws and even some security companies don’t fully understand these. The only way for you to protect your company is to be proactive, to work closely with your attorney and to use a reputable security company.
About Terry Blevins:
Terry Blevins has over 30 years of experience in Law Enforcement and Security and has worked as an Industrial Site Security Subject Matter Expert for the U.S. Department of State. With a master’s degree in Security Management and extensive training in conducting threat and risk assessments from private industry as well as the Federal government, Blevins is considered a qualified physical security expert.
Additionally, Blevins is considered one of the foremost cannabis security experts in the U.S. He has studied many cannabis businesses in California and other states, learning what works and doesn’t work, including industry better and next practices and has drawn from those to develop the security strategies that he includes in the numerous cannabis security plans he has completed. He has also studied local and state regulations and understand what must be provided with applications in order to successfully compete for a license.
Bureau of Security and Investigative Services
With a recent study, the state of New York signaled receptiveness to the possibility of legalizing cannabis for recreational use. Specifically, the report, commissioned by Governor Cuomo, recommends that adults be allowed to legally consume marijuana. While the study has yet to be finalized by the New York State Department of Health, its announcement indicates that New York is planning to embrace the marijuana industry to the same extent that states like California and Colorado have, switching from a relatively restrictive medical-only marijuana program to a system which legalizes the recreational use of cannabis. Given the size and influence of New York State’s population and economy, this shift would have major implications for the status of cannabis in the nation at large.
Currently, New York State’s regulations only allow marijuana to be legally used for medical purposes. Additionally, only 10 companies are licensed to operate as medical marijuana suppliers, a restriction with the potential to greatly limit patients’ access to marijuana and drive prices up. Further, patients aren’t even allowed to smoke marijuana – as of December 2017, the drug can only be legally taken in the form of cannabis extracts like oils, tinctures, and chewable tablets. According to the New York Times, these restrictions were initially put in place by Cuomo, out of concern that marijuana would become a “gateway” drug leading to use of other illicit substances. Therefore, this study, with its conclusion that marijuana (even when smoked) is not harmful for adult recreational use, indicates a major pivot on the governor’s part when it comes to legalization.
This shift may be due to the upcoming election for the governorship, where Cuomo’s most prominent challenger, Cynthia Nixon, has made marijuana legalization a central campaign issue. Nixon has positioned herself as even more pro-legalization than Cuomo, calling for a fully regulated and taxed recreational marijuana industry in New York as well as a statewide program to expunge past marijuana convictions. Therefore, whichever candidate wins the governorship, it seems likely that New York State will continue to liberalize its cannabis regulations. Together with New York City moving to limit marijuana arrests, this indicates that, while New York may not have a full recreational cannabis industry for some time, the region’s political climate has shifted significantly against the restrictive laws which are currently in place.
Governor Brown signed Assembly Bill 1810 [Insert link: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1810] this past week and it is immediately effective. SB 1810 is incorporated through Penal Code section 1001.36, which creates a discretionary pre-trial diversion procedure for any defendant that suffers from most mental disorders listed in the Diagnostic and Statistic Manual [Insert link: https://psychcentral.com/disorders/ ]. PC 1001.36 diversion is available where the mental disorder can be treated, and it played a significant role in commission of the crimes alleged. The diversion program is available only “pretrial,” so it is important to explore this option early. Diversion takes place for less than two years, and can be done either in a residential setting in the community or an outpatient program.
Through the Social Equity Program, Drug War Victims Will Help Build LA’s Green Economy
As of July 2nd, here is the latest news on Phase 2 of cannabis licensing for the City of LA:
- Phase 2 will open August 1st and will be open for 30 business days. This phase is for existing cannabis cultivators, manufacturers, and distributors who were operating in the City of LA before 2016 and were suppliers to an EMMD (a pre-ICO medical marijuana collective in compliance with Proposition D) before 2017.
- Detailed instructions for Phase 2 applications will be released on July 18th, and the full Phase 2 application will be released on August 1st.
- Proof of participation in social equity program, and passing a pre-licensing inspection, will not be required for the provisional approval for Phase 2.
- The City will create a process where Phase 2 delinquent taxpayers can pay their taxes for past years at the same time as they are applying for licensing.
Among the other recent changes to the LA ordinance that take effect today and July 23rd:
- Both Tier 1 and Tier 2 social equity applicants will now receive priority processing for new retail applications on a 2:1 ratio with all non-social equity applicants (i.e., 2 out of 3 new retail licenses will go to Tier 1 and Tier 2 social equity applicants). Previously, only Tier 1 social equity applicants received this priority for new retail licenses.
- Eligibility for Tier 1 of the Social Equity Program is expanded to include applicants with a prior California cannabis arrest, but not a conviction. Previously, the ordinance appeared to require a conviction. The new definition makes anyone eligible for Tier 1 Social Equity who is both low income and has “an arrest or conviction in California for any crime under the laws of the State of California or the United States relating to the sale, possession, use, manufacture, or cultivation of Cannabis that occurred prior to November 8, 2016” (excluding arrests or convictions for violating Proposition D).
- Social equity program “incubators,” which will include everyone applying in Phase 2 who is not a Tier 1 or Tier 2 social equity applicant, will now be given the option to pay into a fund instead of providing 10% of their space to a social equity partner.