Cannabis Compliance: Operating Legally in California in 2018

Posted by Margolin & Lawrence on April 10, 2018

California’s transition into a regulated market has many operators wondering what the universe of compliance looks like and where they fit into the process. In order to operate legally in California after January 1, 2018, you need both a local authorization and a state license. Temporary licenses from the state of California are sufficient to continue operating, though you will eventually need to obtain an Annual License. To date, 954 cannabis businesses in California have received Cease and Desist letters from the Bureau of Cannabis Control. While some were in error, others were operating without the required licenses for California.

It’s important to understand that licensure is not the end-all-be-all of compliance -- in fact, it is the minimum requirement for your business to operate legally. In addition to having a state license (which requires local authorization), you will need to begin thinking about how to set up your business with compliance processes that facilitate and enable adherence to state regulations for your activities: cannabis microbusiness, retail, manufacturing, cultivation or testing. The below infographic is an overview of the entire licensing/compliance process.


Where does your business fit in?


Current Status of San Francisco City Cannabis Licensing

Posted by Margolin & Lawrence on March 29, 2018

The City of San Francisco began its process of licensing retailers to sell adult-use cannabis on January 6, 2018. Any MCD (Medical Cannabis Dispensary) businesses that conducted delivery, cultivation, manufacturing, testing, or any other cannabis activity were required to register the activity with the Office of Cannabis between September 26, 2017 and November 30, 2017. Those that registered were then required to get their temporary permit(s) from the City. To continue each of these activities in 2018, temporary licensing must be obtained from the State. Any applicant who did not register as an existing business before November 30, 2017, must apply for a permit as a new cannabis business. The Transition Provisionof City Ordinance 230-17 declares that existing MCD applicants temporarily permitted to sell cannabis starting January 1, 2018 cannot cultivate cannabis without new licensing as of April 1, 2018.

Beginning in 2018, all applicants must apply to the Equity Program (see eligibility requirements) either as individuals or incubators before applying for cannabis licensing. Since San Francisco was consistently targeted by the War on Drugs, the City is determined to make amends through this initiative, and compliance is mandatory for all cannabis businesses.

All new businesses require a license from the San Francisco Office of Cannabis and the State of California in order to sell cannabis in San Francisco. To be eligible for a temporary permit in the City of San Francisco, applicants must comply with the Citys zoning codes. These can be found on the SF City Planning website - check out the zoning for cannabis retail businesses. The Land Use Regulations for the City are have also been outlined in a table by the San Francisco Office of Cannabis, which provides useful zoning requirements for all retail and non-retail cannabis businesses (including cultivation, manufacturing and distribution). Mobile cannabis dispensaries will not be permitted in San Francisco.

At this time all cannabis licensing is temporary, subject to review by each municipal zones governing body and the State before permanent licensing can be applied for through the Office of Cannabis. According to Section 1605 of Article 16 in San Francisco Citys Ordinance 230-17 Amending the Administrative, Business and Tax Regulations, Health, and Police Codes,all cannabis businesses awarded a temporary license must apply for permanent licensing within 30 days of the date when the Office of Cannabis makes such permits available. Once permanent licensing becomes available, temporary licensing will no longer be offered to new businesses.

In summary, whether you are looking to start a business in cultivation, manufacturing, retail, distribution, a combination of the above (microbusiness), or testing, you will need to obtain temporary licensing from the City of San Franciscos Office of Cannabis. The window for existing MCDs to register with the City has passed, but these businesses can still apply for new licensing along with all other new cannabis business applicants. The Office of Cannabis in San Francisco has not yet announced when permanent licensing will become available to businesses awarded temporary licenses by both the City and the State. More information about the application process and requirements can be found on the San Francisco Office of Cannabis website.

Federal Cannabis Update: 2018 Spending Bill Keeps Rohrabacher-Blumenauer Amendment

Posted by Margolin & Lawrence on March 27, 2018

Last week, despite controversy, criticism from both sides of the aisle, and talk of a veto, President Trump agreed to sign the federal government’s omnibus spending bill for 2018. To the relief of many in the legal cannabis industry, the spending bill retains a provision known as the Rohrabacher-Blumenauer (or Rohrabacher-Farr) amendment, which provides limited protection from federal prosecution for state-level legal cannabis activity.

Given both Trump’s and Attorney General Jeff Sessions’ tough talk on drugs and threats to crack down on the cannabis industry, the continued presence of this amendment is a silver lining for those anxious about the future of legal cannabis. While this won’t mean a change in the federal treatment of marijuana – the amendment has been included in every spending bill since 2014 – it does indicate that the government intends to keep on its current course with regard to cannabis, as the provision has to be renewed every year to remain in effect.

Likewise, though the actual protections afforded by the Rohrabacher-Blumenauer amendment are limited, its being signed into law was, and remains, an important indication of the federal government’s shift in attitude regarding cannabis: as the LA Times reported following the provision’s first inclusion in the spending bill, “Congress for years had resisted calls to allow states to chart their own path on pot. The marijuana measure, which forbids the federal government from using any of its resources to impede state medical marijuana laws, was previously rejected half a dozen times.” In this light, the amendment was a notable pivot from a top-down to a state-level approach to cannabis regulation.

California cannabis consumers and business owners shouldn’t get too comfortable, though: not only does the amendment not change anything about the federal government’s cannabis policy in and of itself, its terms only apply to medical marijuana, not recreational cannabis. So far, the government has rejected proposed amendments that would grant recreational cannabis operations the same protection from federal intervention. For the time being, California cannabis business owners’ best bet is to stay in full compliance with state and local law as the federal situation develops.

LA City Council Update: New Cannabis Rules in Development

Posted by Margolin & Lawrence on March 6, 2018

As of this year, cannabis business is legal in Los Angeles, but the process of drafting and refining the laws and regulations that will actually govern the legal cannabis industry is still in its early stages.

To that end, over the past month, the LA city council met to adopt the following items:

  • Item #22: Prop D Dispensaries, MMD's, AUMA
  • Item #23: MAUCRSA, Prop D, Land Use, Preparation of Ordinance, AUMA
  • Item #24: New hires at the DCR, Cannabis Business Fees, Interim Position Authority
  • Item #25: Medicinal and Adult-Use Cannabis Regulation and Safety Act / State-Chartered Bank / Cannabis Banking Activities

While none of these items are extremely surprising in their own right, they may have significant consequences for the nature of Los Angeles’ cannabis industry.

For instance, Item #23 lays out a path to adjust the LA municipal code, adding “provisions to allow for the Cannabis Regulation Commission to make exceptions to the 600-foot school restriction for non-retail cannabis activities subject to a California Environmental Quality Act of 1970 analysis of environmental impacts and conditions to address public health, safety and welfare considerations, as well as a public hearing.” This means that buildings that were not in the correct zoning could be, if the City finds after the environmental analysis that there are not negative effects from having a cannabis cultivation or manufacturing operation near a school. A change to this rule would potentially mean that, as long as they were in keeping with public health and safety, cannabis businesses could be located in far more locations across LA. Note that under state law, local jurisdictions can allow for closer than 600 feet. 

Other ideas in these items may also have major impacts on the LA cannabis industry. For instance, Item #23 also provides for mixed-light cultivation and social consumption lounges, two activities that the city’s cannabis ordinances haven’t allowed in the past, while Item #25 expresses the city’s support for a State-chartered bank that would allow cannabis businesses to bank their money in California. Each of these changes would be a major step toward full legal legitimacy for marijuana in the Los Angeles area.

While these items are significant in their own right, they also reflect a trend of increasing acceptance of the cannabis industry in LA. Establishing regulations however,  is an ongoing process. For more information, check our guide to California cannabis business law or contact us at info@margolinlawrence.com to speak with one of our Los Angeles cannabis lawyers.

Contact us

How Do I Find a Compliant Cannabis Property in Los Angeles?

Posted by Margolin & Lawrence on January 25, 2018

As cannabis entrepreneurs and investors learn about the legal requirements to operate a compliant cannabis business, the next question many arrive at is - so how do I find a compliant property?

Ask A Cannabis Trademark Lawyer: How Do I Apply For A State Trademark?

Posted by Margolin & Lawrence on January 9, 2018

 As of January 1st, 2018, the long wait is over: cannabis business owners can apply for California state trademarks. The application form can be obtained here: http://bpd.cdn.sos.ca.gov/ts/forms/tm-100.pdf. Because cannabis is still federally illegal and cannabis products themselves cannot be trademarked, this is a viable avenue for many California cannabis brands that will protect your business marks within the state. You can read our prior post about USPTO Trademarks here.

According to the website for the Office of the California Secretary of State:

“Beginning January 1, 2018, customers may register their cannabis-related Trademark or Service Mark with the California Secretary of State's office so long as:

1.The mark is lawfully in use in commerce within California; and 

2.Matches the classification of goods and services adopted by the United States Patent and Trademark Office.  

If the application submitted to register a Trademark or Service Mark is found deficient, the application will be returned to the registrant for correction.

Note: Not all cannabis-related products can be registered under current law due to the inability to meet federal classifications.”

This means that in order to obtain your state marks, you must be lawfully using the marks in commerce at the time of the application. Therefore, you will need to be licensed in compliance with SB 94,  both at the local and state level, before you’re eligible for trademark approval. Otherwise, if you claim an unlicensed use, you may run into issues with the Secretary of State. Further, once your license is obtained, you must also show that you’re making actual, bona fide use of the trademarks on your products in the stream of commerce. That means that customers are identifying you by your brand when they purchase your goods or services in the marketplace.

California Redefines Volatile Manufacturing

Posted by Margolin & Lawrence on December 1, 2017

Our Los Angeles cannabis attorneys are often faced with questions about which substances count as "volatile solvents" when it comes to cannabis manufacturing. The state has added clarity in the new regulations released on November 17th, which define the solvents for volatile and nonvolatile manufacturing of cannabis extract. You can read the full set of regulations here: regulations on Manufactured Cannabis Safety.

The distinction between “volatile” and “nonvolatile” is relevant to the process of cannabis manufacturing because there are different license types for each type, and some jurisdictions allow one but not the other. Additionally, the zoning and sensitive-use requirements can be different for the two types of cannabis manufacturing.

Cannabis-infused products like marijuana edibles, tinctures, and oils comprise a large part of the legal cannabis industry’s sales, and are only increasing in popularity. A key ingredient of these products is cannabis extract – the pure, often high-THC-content cannabis distillate that can be combined with other products to create goods ranging from weed brownies to CBD bath soaps. To create this distillate, it’s necessary to use chemical solvents to extract the active ingredients from whole marijuana flowers. However, these solvents are often flammable, pressurized chemicals like butane, which, if used improperly during the extraction process, can be dangerous.

To limit potential dangers, California split the activity of cannabis manufacturing into two different categories, distinguished by whether or not they used “volatile solvents,” and placed differing restrictions on the two categories, with additional precautions required for manufacturing operations that used volatile solvents.  In June 2017’s Medicinal and Adult-Use Cannabis Regulation and Safety Act, a “volatile solvent” was defined as a solvent that “is or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures.”

Cannabis manufacturers who use non-volatile solvents or no solvents at all (e.g. operations that only packaged or labeled goods, or that created cannabis-infused products using distillate purchased from a third party) are treated as “Level 1 Manufacturers,” while manufacturers who dealt with volatile solvents are “Level 2 Manufacturers.” To qualify for a Level 2 Manufacturer operating license, businesses would have to meet a much more strict set of criteria than the Level 1 Manufacturers would.

Since two of the most popular solvents used in the cannabis extraction process – butane and ethanol – counted as volatile solvents by this standard, and relatively few municipalities in California allow for Level 2 cannabis extraction, many were concerned that these regulations would make it too difficult for new small-scale extraction operations to get their businesses up and running. Additionally, some cannabis manufacturers argued that ethanol, a substance that’s food-safe, safe to handle, and is only ignitable as vapor in extremely high concentrations, shouldn’t be treated as “volatile” for the sake of cannabis manufacturing. By responding to these concerns and downgrading ethanol from “volatile” to “nonvolatile,” the Department of Public Health has taken an important step toward making cannabis extraction more accessible to California marijuana businesses.

Locally, the City of Los Angeles will be issuing cannabis licenses for both volatile and non-volatile cannabis manufacturing. Stay tuned for updates for updates, and contact us at info@margolinlawrence.com to speak with one of our LA Cannabis attorneys about the latest on Measure M.

Ask a Cannabis Trademark Lawyer: What About Trade Dress?

Posted by Margolin & Lawrence on November 2, 2017

If you have been looking into protecting your cannabusiness' intellectual property, you may have heard the term “trade dress” tossed around. Trade dress is a legal term for the visual components, design/shape, and packaging of a product. It encompasses the “bells & whistles,” so to speak, and is generally intended to protect the overall visual appearance of a product, minus any elements that are functional. The name comes from its historical origins, i.e., how a product is “dressed up.” And even though trade dress is a commonly forgotten right, it is actually quite important when it comes to cannabis law.

Trade dress protection has been extended to everything from restaurant “atmospheres” (Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992); Fuddruckers, Inc. v. Doc’s B.R. Others, Inc., 826 F.2d 837, 843 (1987)) to the unique setting of a golf course’s “signature hole.” (Pebble Beach Co. v. Tour 18 I, Ltd., 942 F.Supp. 1513 (S.D.Tex. 1996)). The gist of it is the “dressing” must be distinctive enough that consumers identify the source of your product by looking at its total appearance and packaging.

So can cannabusiness owners get trade dress protection? As with many questions in marijuana law, the answer is yes and no.

Just as with a trademark, you have common law rights to your trade dress that you can assert in bringing a lawsuit against infringers that pass off their products as yours. The basis is section 43(a) of the Lanham Act, which establishes civil liability for false designations of origin. However, trade dress owners asserting common law rights in court have the additional burden of showing that the “dressing” serves a non-functional purpose. For this reason (as well as the statutory damages established in the Lanham Act) it is preferable to obtain trade dress registration beforehand wherever possible.

Here we run into the same issues as with trademark: CSA-based rejections. The USPTO has caught on to the emerging cannabis industry, and currently has four trademark examining attorneys that that look at all of the cannabis-based applications coming in. There are many ways around a CSA refusal, and many of the strategies we have discussed for trademarks apply here as well.  

If you are thinking of trade dress protection already, then good news – you’re already ahead of the game. Speak with our cannabis law attorneys when you’re ready to take the next step!

How Can I Advertise My Cannabis Business?

Posted by Margolin & Lawrence on August 24, 2017

One of the most frequent questions our cannabis lawyers get from savvy business owners is: How can I legally market my cannabis products? As with many branches of marijuana law, cannabis business advertising regulations are complex because they fall under an overlapping set of legal regimes, some of which are in conflict with each other. When considering advertising cannabis four bodies of law apply: Federal, State, Local, and Internet TOS (the terms of service and operating contracts that govern your relationships with digital advertising hosts). Cannabis marketers must navigate all four sets of regulations here.

Federal Law places an absolute ban on cannabis advertising under the Controlled Substances Act of 1970. The Act stipulates: “It shall be unlawful for any person to place in any newspaper, magazine, handbill, or other publications, any written advertisement knowing that it has the purpose of seeking or offering illegally to receive, buy, or distribute a Schedule 1 controlled substance.” Further, “It shall be unlawful for any person to knowingly or intentionally use the Internet, or cause the Internet to be used, to advertise the sale of, or to offer to sell, distribute, or dispense, a controlled substance where such sale, distribution, or dispensing is not authorized by this subchapter or by the Controlled Substances Import and Export Act.” In other words, as far as federal law is concerned, there's no such thing as a legal marijuana advertisement.

California has recently placed regulations on marketing under the MAUCRSA (aka SB-94). This means that, if the regulations are followed, an advertisement can be in compliance with California law. Among its requirements are that advertisements must identify the license number of the advertiser, must not be targeted at individuals younger than 21, and must not contain false or misleading information about the products advertised. While these standards are relatively straightforward, figuring out how to advertise within the existing marijuana laws can be tricky even for California-based businesses. Local laws may differ from the state regulations, and a host of pending legislation like AB-175 (Marijuana: county of origin: marketing and advertising) and AB-76 (Adult-use marijuana: marketing) may change the state’s standards even further.

On top of that, the terms of service of online sites which host advertisements, such as Google and Facebook, often ban any mention of marijuana, on the basis that federal law still forbids it – since, of course, any online advertisement can be seen outside of California. This rapidly evolving area of law will be discussed at the State of Marijuana Conference this weekend in downtown Los Angeles, where attorney Allison Margolin will be leading a panel on Next-Gen Cannabusiness Marketing. For more information, check our guide to California cannabis business law or contact us at info@margolinlawrence.com to speak with one of our Los Angeles cannabis lawyers.

Contact us

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.

Categories

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.