Operational compliance has become paramount to the success of many cannabis businesses following new state regulations that went into effect earlier this year. For others, non-compliance has been a great downfall. Following the legalization of commercial cannabis, the state of California hastily drafted and passed emergency regulations which outlined licensing and operational requirements for cannabis businesses under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). These emergency regulations went into effect in December of 2017 to provide a temporary solution for the lack of cannabis legislation until more thorough regulations could be drafted and adopted by state agencies. Just three months ago, the Office of Administrative Law (OAL) approved new regulations which were immediately adopted by all three state licensing agencies. The new regulations include many significant changes from the previous emergency regulations and introduce more restrictive guidelines for cannabis businesses. Further, the new regulations define serious implications for businesses who violate the new guidelines – from fines up to $250,000 to loss of licensure. In recent months, a rapid number of compliance enforcement agencies have emerged at both the local and state level. Licensed cannabis businesses in California have experienced a peak in random compliance inspection visits, raids from local and state law enforcement, and seizure of cannabis products. With the commercial cannabis industry now in full effect, local and state agencies are beginning to focus less on setting the framework for the industry and more on enforcement of regulations.
A majority of licensed cannabis businesses are in some way in violation of current regulations despite their intentional efforts to comply. This is largely due to the cumbersome location-dependent nature of cannabis regulations. Although cannabis is legal in the state of California, commercial cannabis businesses are still federally illegal, and there is no federal legislation governing the licensing and operational compliance of cannabis businesses. As a result, cannabis regulations vary between states. Further convoluting the concept of cannabis compliance, regulations also vary within-state and are dependent on legislation issued by local authorities. All California cannabis businesses must adhere to statewide regulations enforced by the three state agencies – the Bureau of Cannabis Control (BCC), the California Department of Public Health (CDPH), and the California Department of Food and Agriculture (CDFA) – in addition to guidelines enforced by local agencies. For instance, outdoor cultivation is legal at the state level per the CDFA, but it is prohibited within the City of Los Angeles per the local Department of Cannabis Regulation (DCR). Cannabis businesses must also comply with local Fire Department safety codes which also vary by jurisdiction.
With compliance enforcement on the rise, it is crucial for all cannabis businesses to stay informed about both state and local regulations in order to avoid high penalties or business closure. Our firm offers full-coverage compliance counseling to licensed cannabis businesses. Our team is in regular attendance of local city hall and county government meetings pertaining to commercial cannabis in all areas of California and maintains current knowledge of the ever-changing regulations. We provide counsel in all areas of business compliance for cannabis retailers, distributors, cultivators, and microbusinesses. Our attorneys have a combined 20+ years of experience in the commercial cannabis industry and are active in compliance consulting throughout the state. We are able to provide our clients with expert contractors in building safety code pre-inspection, packaging and labeling compliance, product inventory and storage, advertisement restrictions, etc. We would love to help ensure that your cannabis business is successful and in compliance with all local and state regulations, giving you one less thing to worry about. If you have any questions or would like to speak with our attorneys to further discuss our compliance services, please feel free to reach us via email (email@example.com) or phone (323-253-9700).
Contra Costa County
On February 14th, Contra Costa officially issued a Request For Proposal form for new cannabis businesses, including storefront retailers. The number of retailer licenses (with or without delivery operations) will be capped at four.
The county’s deadline for letters of intent is April 4th, while full proposals will be due (by request only) on June 27th. Additionally, the county has released a zoning map showing the proposed areas that will be eligible for cannabis business locations.
City of Fresno
On December 12th, 2018, Fresno voted to allow up to seven medical cannabis retail licenses for the following year, with seven additional retail licenses to follow upon city approval in 2019. The current ordinance limits the number of cannabis retail businesses within the city to fourteen, but seven more may be allowed by a city council resolution.
Fresno limits cannabis retail businesses to locations zones DTN, DTG, CMS, CC, CR, CG, and CH. Additionally, no more than two cannabis retail businesses may be allowed in any one council district.
City of Martinez
On February 26th, the City of Martinez’s Planning Commission met to discuss the city’s newly released draft ordinance for cannabis businesses. The draft regulations would allow for a maximum of two storefront retail licenses, along with a maximum of two delivery licenses (to be associated with a storefront retail business). Retail cannabis businesses would be limited to commercial and light industrial zones. According to the Martinez Gazette, the Planning Commission sent these proposed regulations to the City Council, including a suggestion that the city raise the proposed number of licensed delivery services to three.
City of Pomona
On March 5th, the Pomona City Council met for the first reading of the city’s new cannabis ordinance. The draft regulations provide for licensing of both storefront and delivery-only cannabis businesses. However, the proposed caps on licenses and zoning/location restrictions for cannabis businesses have yet to be released.
City of South Lake Tahoe
On February 5th, the City of South Lake Tahoe released a new cannabis ordinance, allowing up to two retail operations and two microbusiness operations with on-site retail. Cannabis businesses will be restricted to the locations indicated on the city’s buffer map. The city has released its application form and guidelines: the submission period will last from March 11th to April 5th.
City of Ventura
On January 1st, new regulations from the California Bureau of Cannabis Control took effect, allowing delivery of adult-use and medical cannabis anywhere in the state. This overturned Ventura’s past cannabis ordinances, which had restricted retail cannabis activities within the city to deliveries by a maximum of three licensed businesses located outside of city limits. At a City Council meeting on March 4th, the city discussed new policy measures to bring Ventura’s policies in compliance with California law. Among the items on the agenda was the possibility of taxing and permitting cannabis activities within the city, an indication that Ventura is becoming more open to cannabis business.
Are we about to see more enforcement against unlicensed cannabis?
California Governor Gavin Newsom recently announced he is calling for the California National Guard to work with federal officials to target the California illicit market. Given the history of the war on drugs and the current federal laws imposing harsh criminal and civil sanctions for cannabis, the involvement of the National Guard and the federal government in a new crackdown is concerning. Governor Newsom’s announcement of this increased enforcement, however, comes amid growing frustration with perceived dysfunction in the state regulatory system and a persistent illicit market that crowds out regulated cannabis.
California has a thriving illicit market in cannabis, estimated by New Frontier Data to be valued at $3.7 billion last year. This is due to many factors, including California’s unregulated cannabis collectives and cooperatives that operated for years before licensing came, the slow speed at which state and local governments in California have issued licenses, the high taxes and burdensome regulations of the new licensing system, and the demand for California cannabis products throughout the country.
In a sense, the entire cannabis market is an illicit market, as cannabis remains illegal under federal law, which makes any inconsistent California state law allowing cannabis invalid under the Supremacy Clause of the US Constitution. This federal illegality has caused most banks to refuse to do business with cannabis-linked companies, resulting in a largely cash business that is more difficult to track and regulate than it would be if banks were involved. Federal illegality also makes it so the entire interstate market is illegal and unregulated, though lucrative.
The California Bureau of Cannabis Control, tasked with regulating cannabis retail sales, has issued a few enforcement actions against some unlicensed dispensaries, but the efforts have been largely symbolic, against only a tiny fraction of the unlicensed operators. Los Angeles and other cities have also filed misdemeanor cases against unlicensed operators for violations of local licensing laws, but unlicensed dispensaries seem to pop back up faster than they are shut down.
In order for California’s regulatory project to succeed going forward, the state will need to convince more operators to move to the regulated market, through some combination of greater enforcement and lower taxes and regulatory burdens.
The large illicit market and slow roll-out of the licensing process have shaken the confidence of many people who are attempting to comply with California laws. Hopefully, state and local regulators will take advice from frustrated operators, learn from their mis-steps and continue to develop a functioning system. The state and local governments are trying to find the right regulatory balance. Over-regulation makes it so difficult and burdensome to comply that only rich people and companies with lots of resources can operate, and an expensive final product that leads many consumers to buy from the illicit market.
For now, many license holders are playing the long game, hoping the illicit market will shrink over time, and more consumers throughout the state (and eventually the country and world) join the regulated cannabis market. Governor Newsom says that he expects it may take at least five years to develop its complex regulatory system. If the state gets it right, this can be an industry that drives the state economy, creating more resources and jobs for everyone.
One approach that could be successful would be to offer a more simplified and inexpensive process to get new cannabis businesses up and running. More burdensome regulations and higher taxes could kick in only after businesses have gotten through the startup phase and adapted to the regulations. There could be a tiered or graduated system of compliance, taxes, and enforcement that is welcoming to new operators. Startup costs for new businesses are already very expensive, and high licensing expenses and a burdensome application process can dissuade many people from pursuing licenses who might otherwise want to follow the law. Lowering the tax rates in the beginning, while businesses get off the ground, could also encourage new entrants to the regulated market. Once businesses become established and there is a healthy regulated market, taxes could be increased to desired levels. The government has many tools available to help establish a functioning market. We are optimistic that the future is bright for the cannabis economy in California.
There are currently 7 applications for Manufacturing and 6 for Distribution under review. There is no limit to the number of local licenses that will be issued for these types.
Despite all the talk about cannabis retail in the news, it can be difficult to tell exactly when and where it's possible for businesses to apply for a cannabis retail license. Here are a few jurisdictions where applications for cannabis retail are either currently open or planned to open in the near future.
Per the county planning department, Riverside is planning to give out a maximum of 19 retail licenses. While no date is currently set, the proposal process is scheduled to begin later this year.
Santa Barbara County
County is currently accepting cannabis permit applications. Storefront retail permits are limited to eight countywide, with no more than two in any supervisorial district.
City of Chula Vista
The city’s application for cannabis businesses will open on January 14th and remain open until the 18th (for Storefront Retail, Non-Storefront Retail, and Cultivation businesses) and the 25th (for Manufacturing, Distribution, and Testing Laboratory businesses.)
City of Desert Hot Springs
Conditional use permits for cannabis activities, including Cannabis Sale Facilities, are available on the city’s website.
City of Goleta
Goleta is currently accepting applications for up to 15 total storefront retail businesses.
City of Jurupa Valley
Jurupa Valley will accept priority applications for cannabis retail from January 22nd to February 6th, with non-priority applications opening on April 1st. The number of retail businesses permitted will be linked to the city's population, with 1 license given for every 15,000 residents. This currently means that the number of licenses given will be capped at 7.
City of Lompoc
Lompoc is currently accepting cannabis retail license applications.
City of Moreno Valley
In December, the city raised its cap on dispensary licenses from 8 to 23. In addition to admitting qualified applicants from the last round of applications, the city will make proposal forms for new applicants available online.
City of Pasadena
The city will license up to 6 retail establishments. The permit application process is open on the city website through January 31st.
City of San Diego
The city is currently accepting applications for cannabis outlets with retail sales, up to a limit of four businesses per council district.
City of San Luis Obispo
Applications for 3 storefront retail businesses and an indefinite number of delivery-only retail businesses are open on the city website through January 29th.
City of Vista
Per the ordinance released in December, the city will be granting 3 delivery-only (non-storefront) retail licenses this year.
- Disconnecting DWP utility services to unlicensed businesses
- Issuing citations to certain employees working in unlicensed businesses
- -Sending cease and desist letters to businesses and landlords
- Requiring all licensed retailers to display an emblem so the public knows whether a given business is licensed
- Sending letters to creditors and contractors of unlicensed businesses
- Bringing civil and criminal cases against unlicensed businesses
2. Opportunity to Appeal Rejected Dispensary Permits
Applicants who applied in Phase 1 and were found to be ineligible based on failure to qualify as an Existing Medical Marijuana Dispensary were given a chance to appeal the written findings of the DCR. These parties were given an opportunity to present their points, with back-and-forth discussion on the points of the appeal with members of the commission.
Each Applicant appealing was allowed either have a single person present the appeal or to have multiple witnesses – each side was allowed to submit any documents up until a week before hearing, and given 10 minutes to present arguments and evidence. The DCR was then allowed to present its case and findings for 10 minutes. The hearing officer could grant either side more time if appropriate, and the applicant was allowed 5 minutes at the end of the session to address DCR’s comments, followed by discussion and questions.
The main issues in the appeal were whether the Applicant had a 2017 L050 BTRC or, if no 2017 BTRC, if the Applicant had a L050 2015 or 2016 BTRC and met all the pre-ICO requirements, including registering for the ICO in 2007. One applicant was rejected who met all the requirements other than registering for the ICO in 2007 (the City reviewed records of office of city clerk regarding who was on the ICO registry), even though the business had BTRCs from 2007 to 2015 and had been paying taxes all along.
One applicant claimed another applicant mis-used the applicant’s ICO filing, applying under it for priority registration even though he was not an officer or director of the ICO registered entity. However, it turned out the ICO registered entity had registered as a sole proprietor “doing business as” a name similar to the current applicant, and the current applicant corporation was just using a similar same name as the 2007 entity but had a different legal name and different tax history and was a separate legal entity.
There were disputes during the appeals involving BTRCs issued with different account numbers or different entities, BTRCs that had been erroneously issued for addresses outside LA and then closed out, and BTRCs issued to related entities that had failed to follow merger process with the city. As a rule, only the same business entity that meets the eligibility requirements is eligible for priority processing.
Parties found ineligible for priority processing were encouraged to re-apply in Phase 3 general licensing, anticipated to open in 2019. Going forward, the DCR will prioritize annual licensing for Phase 1 and 2 applicants first, then registration for social equity applicants, and then Phase 3 will open.
For more information on the cannabis licensing and social equity process in Los Angeles, keep checking this blog or reach out to our cannabis attorneys at firstname.lastname@example.org.
Twilight is approaching in the state of commercial cannabis in California. Pursuant to the Medicinal and Adult-Use Cannabis Regulations and Safety Act (MAUCRSA), Business and Professions Code Section 26050.1, each of the state licensing authorities regulating commercial cannabis are subject to a Sunset Clause that prohibits the issuance or extension of temporary state licenses starting January 1, 2019.
What does this mean for you?
As a reminder, California has a dual-licensing system regulating commercial cannabis in the state. To operate legally, you must have both a local license issued by the local jurisdiction where your business is established, and a state license issued by one of the three state licensing agencies, the Bureau of Cannabis Control (BCC), California Department of Public Health (DPH), and California Department of Food and Agriculture (CDFA). Pursuant to MAUCRSA, the state temporary license enable business to operate while the state processes the annual license application. If you have already received a state temporary license and it expires prior to this date, you must submit an application for an annual license in order to receive the extension.
Each agency has set their own requirements dependent on the license type applied for and may be subject to compliance with ancillary agencies at the state level. Look through the application materials thoroughly, and consider consulting with an attorney to ensure you are in compliance with the necessary documentation.
To apply for a state temporary license, at a minimum you will need:
Evidence of Legal Right to Occupy
Should the state deem any part of your application incomplete, they will notify the primary contact with an opportunity to rectify any insufficiencies. This will inevitably delay the review of your application until all deficiencies are rectified. We would like to reassure our readers this is a normal part of the licensing process and is common practice to go back and forth with the state to ensure your application is in line with the regulations.
DO NOT DELAY
We advise sticking to the state’s December 1 recommended deadline to submit your application for a temporary license. The review period can take up to several weeks so make sure to submit the application timely to ensure there is sufficient time to receive the license. You may still apply for an annual license after the new year, but are subject to the state’s review period until they issue the annual license. The review period of the annual application can take up to several months. If you do not hold a valid local and state license you are prohibited from conducting commercial cannabis operations in the state.
This can have an significant repercussions for businesses to take into consideration. For example, if you are paying rent on the property and cannot operate can cause significant financial strains. We recommend consulting with an attorney in preparation of the annual license.
California Department of Public Health - Regulates Cannabis Manufacturing
California Department of Food and Agriculture - Regulates Cannabis Cultivation
Bureau of Cannabis Control - Regulates Cannabis Retail, Delivery, Distrbution, Testing, Microbusiness
As recreational cannabis becomes legal in California, the marijuana industry is expanding into a number of different spaces that previously were impossible to operate in legally. One of the most exciting of these new opportunities is the cannabis lounge. Made famous by Amsterdam’s marijuana cafés, lounges are cannabis retail businesses that also allow for the on-site consumption of cannabis – an exciting possibility for customers, business owners, and investors alike. However, while a great deal of interest in these businesses exists across the state, only a few jurisdictions in California plan to allow cannabis lounges, and only some of those locations currently are open to licensed cannabis lounge operations.
When it comes to cannabis lounges currently in operation, the Bay Area is ahead of the pack by a wide margin, with a number of cannabis lounges fully licensed and open for business – seven in San Francisco and one in Oakland, according to a recent Leafly article. No other jurisdiction, in California or elsewhere, has more individual lounges in operation. However, several other cities in California are in the process of opening up for fully licensed cannabis lounge business.
After the Bay Area, the Los Angeles area is furthest ahead in the process of cannabis lounge licensing. Earlier this year, West Hollywood opened applications for cannabis lounges, planning to grant a total of 16 licenses – 8 for edible-only lounges, and 8 for lounges allowing edibles, smoking, and vaping. These applications are still under review, but the city plans to announce its decisions by the end of November, meaning operational businesses may be only a few months away. The city of Los Angeles has also shown interest in social consumption lounges. Between LA City and West Hollywood, this indicates that LA county may not be far behind the Bay Area when it comes to cannabis lounges.
While San Francisco and Los Angeles are the largest California cities to move toward legalizing cannabis lounges, several other areas in the state are beginning to explore the possibility as well. Earlier this month, the city of Eureka voted to allow on-site consumption. After voting to approve cannabis lounges last year, the city of Palm Springs issued its first permit for on-site cannabis consumption this summer, and, though the business in question has yet to open, several other communities in Coachella Valley are considering following suit.
While cannabis lounges remain a controversial issue in many communities, with local residents concerned about the potential nuisances that may come with legal on-site consumption, many cities across California are also beginning to see their potential economic and social appeal. Given the large amount of consumer interest demonstrated in the cities that have already moved toward licensing on-site consumption, the number of jurisdictions embracing legal cannabis lounges can be expected to increase in the future.