Back in September, we published a blog post titled “Where Can I Get a Distribution License in California.” Now that the ordinances for the majority of jurisdictions in California have been reviewed and somewhat solidified, Margolin and Lawrence presents an updated list on the viable locations for distribution licenses in California.
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?
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 Provision” of 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 City’s 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 zone’s 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 City’s 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 Francisco’s 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.
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.
Under California’s SB-94 (aka MAUCRSA), the retail sale of marijuana products to consumers is only legal if the business owner holds a license for cannabis distribution. Since this covers all sales of cannabis products, from marijuana proper to derivatives like hash oil and CBD, these licenses are in high demand. Many clients often ask our cannabis lawyers what happened to the Transportation license. This was a license type under the MCRSA but that provision was repealed in SB 94 and the activities covered by the old Transportation license have now been merged into the Distribution license. So, the state license is now for the same activity but under a different name.
In order to qualify for the state license, your business must first hold a local license (or local authorization), which can only be granted by the municipality the business intends to operate in. For those eager to enter the world of cannabis distribution, the question is: which cities are giving out these licenses? Here are a few cities that have distribution in their ordinance and are either already issuing distribution licenses or are on the road towards doing so:
- California City
- Cathedral City
- Desert Hot Springs
- Long Beach
- Los Angeles (expected* but we will have to wait for the Ordinance to be sure)
- Nevada City
An ordinance does not necessarily mean that it will be easy to secure a license. Many cities put heavy restrictions on how many distribution licenses will be granted, and the regulations that must be complied with are robust.
Regarding Los Angeles, all indications appear that LA will allow this cannabis activity. However, the City has until September 30th to promulgate an ordinance, and we will not know for sure until we see the final version. The fact that they have included distribution in the draft location ordinance (which you can read more about here and here) and in the operating requirements suggests that they will. Stay tuned for updates from our LA cannabis attorneys as the City’s local regulations take shape.