What Should I Know for My Cannabis Business?

Posted by Margolin & Lawrence on September 18, 2018

The logistics of running a legal cannabis operation involve many questions that may seem surprising or daunting to both current and aspiring business owners. As a California cannabis law firm, here are a few of the issues that we’ve seen cannabis businesses need answers for. If you’ve found yourself asking any of these questions about your own operation, our lawyers may be able to help.

How much can I expect to spend?

At present, the capital requirements to start a cannabis business are very high; on top of the normal costs of starting a business, like buying real estate and hiring employees, the industry is very tightly regulated, and it’s not possible to get an outside loan. That means your business has to be privately fundraised, so it’s important to figure out exactly how much money you have and how much you’re willing to spend.

The application fees alone for cannabis licensing are often several thousand dollars, and many jurisdictions require both proof of funding and a detailed business plan before they consider a cannabis licensing application complete. A cannabis lawyer can help you find this information in order to start your licensed operation.

Is my property in an eligible location for cannabis business?

Zoning requirements vary widely based on your jurisdiction and which type of cannabis activity you’re interested in, so it’s not always easy to tell whether a given property or address is eligible for a particular activity. In addition to restrictions on which zones a given activity can be located in (for instance, cannabis cultivation might be banned in commercial zones but allowed in industrial ones), many municipalities have setback restrictions that prevent cannabis businesses from being located within a certain distance of schools, parks, residential areas, or other cannabis businesses.

Interpreting the local zoning regulations to determine for what activities your business is eligible is another service that cannabis lawyers can provide.

What information do I need to apply for a cannabis business license?

Applying for a cannabis business license isn’t just a matter of filling out an application form – most state and local licensing authorities will require a large amount of information about the business and its owners, including a complete operating plan describing how your establishment will meet all legal requirements for cannabis business activity.

On top of this information, you’ll also need to have business documents such as a seller’s permit, federal employer ID number, and certificate of good tax standing in order. On top of that, most applications will require you to provide accurate financial information, insurance documentation, and enough personal documentation for each member of your business to pass a full background check.

Finding these documents and preparing them for your final application is just one service that cannabis lawyers can provide for your business.

Should I get a license for medical-use or adult-use cannabis?

At the present moment, many states and municipalities have separate regulatory regimes for medical-use and adult-use cannabis, often with very different legal requirements. For your cannabis business to succeed, you’ll need to decide which license (or combination of licenses) is best for your business, then master the licensing and compliance processes for the type of cannabis business you choose. A cannabis lawyer can help guide you through this process, from choosing the right activity to applying for a license to remaining in compliance with the law once your business is operational.

What cannabis activity should I apply for?

In addition to medical-use and adult-use, cannabis business licenses are broken down into different activities, such as cultivation, manufacturing, and retail. Additionally, many of these categories are split into subcategories such as indoor and outdoor cultivation or storefront and non-storefront retail. As with medical and adult-use cannabis, these different types of cannabis activities often have very different requirements.

Some jurisdictions also offer boutique categories with special requirements such as Microbusiness, impose restrictions on how many licenses can be granted, or limit which types of licenses a single business can hold simultaneously. For your cannabis business to succeed, you’ll need to optimize which activities to apply for – another task that a cannabis lawyer can help with.

How can I ensure that my business is licensed as quickly as possible?

Given that legal cannabis licensing is a complex, highly regulated bureaucracy currently receiving a large number of applications, it can be difficult for a cannabis business owner to predict how long it will take their business license application to be approved, or to optimize their application in order to be licensed and operational as soon as possible.

Some areas offer a fast track to licensing under their Social Equity Program, in order to ensure that business owners who are disadvantaged or disproportionately affected by the War on Drugs have a quicker path to licensed operation than other applicants. Our cannabis lawyers can help you find out whether you qualify for one of these programs.

Whether or not you qualify for a Social Equity Program, the best way to ensure that you’re licensed as soon as possible is to choose the right license for your business and make sure that the information in your application is complete and correct.

What license should I apply for if I plan to expand my operation?

Especially for new cannabis businesses, the size of a cannabis business at the time of initial licensing might not be the same as the size of the business you hope to run in two or three year’s time. However, cannabis license application fees often vary based on the size of the operation in question, and applications often require businesses to provide details that depend on the size of their operation, including what types of equipment they plan to use, their planned hours of operation, and how many employees they’ll hire (including their labor practices and management structure).

Our cannabis lawyers can help you figure out how to reflect your long-term growth plans in your licensing application, including the multi-year pro forma budgeting and income documents that many municipalities require.

Will I need to apply for additional licenses or permits?

For many businesses, the cannabis license itself is only one of a number of licenses you’ll need for a fully licensed operation. To begin with, new cannabis businesses will need to apply for their tax registrations and seller’s permits. Additionally, depending on your activity, you may need to apply for Conditional Use Permit or Land Use Permit from your local planning department before you can apply for a cannabis business license.

For some activities, like outdoor cultivation, this may require further permits, such as for diversion of water, tree removal, or environmental review. On the other hand, businesses located in cities may be required to apply for enrollment in local Social Equity or community benefits programs. Our cannabis lawyers can help you find out what additional permits you need and help you apply for them.

Why You Should Consider Hiring an Attorney for Your Cannabis Business

Posted by Jenna Rompel on August 27, 2018

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.

Applying for a Commercial Cannabis License: State vs. Local

Posted by Margolin & Lawrence on August 13, 2018

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.

LA Phase II – July 2nd Update

Posted by Margolin & Lawrence on July 2, 2018

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.

July 1st Deadline Update

Posted by Margolin & Lawrence on June 29, 2018
Sixth months have almost passed under the transition regime and the July 1st deadline for the Emergency Regulations approaches soon. Many dispensaries are in a state of crisis because there has not been enough time for businesses to come into compliance given the very few licensed testing facilities - only 19 active of the 30 licenses granted as of May. Compare that number with the over 3,800 cultivation licenses and the 800 manufacturing licenses. The United Cannabis Business Association has done the math, and the math does not add up: a testing facility can handle 100-120 samples per day, which works out to only about 4 cultivation batches per day on average.  With problematic and confusing rule changes on packaging requirements, including labels and child-resistant rules, the supply of compliant packaging is too low. And, as a result of these issues as well as various other regulatory delays and obstacles, there's an enormous backstock of product that is out of compliance with Section 5029(b)(5). 

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?


Will California Lower the Cannabis Tax Rates?

Posted by Margolin & Lawrence on March 23, 2018

Legalization has been a bumpy road for California cannabis operators, and since January 1, owners are learning that it also comes at a price. The state’s steep taxes on cannabis businesses – with effective tax rates as high as 57% for some cannabis activities – have many operators bracing, and calling for a reduction in these so-called sin taxes. Consumers are also encountering price increases -- prices are up about 15% compared to last year.

I Have My Temporary Distribution License. Now What?

Posted by Margolin & Lawrence on March 13, 2018

The state of California has officially begun to grant temporary licenses for cannabis distribution, pending applications and processing of full state licenses. Temporary licenses are “a conditional license that allows a business to engage in commercial cannabis activity for a period of 120 days.” They can only be granted to businesses which have already received their local licenses, and are intended to allow locally-licensed businesses to operate while waiting for their full state license to be reviewed.

When it comes to record-keeping, in particular, the requirements of temporarily-licensed cannabis distributors are different from those of annually-licensed ones. The reason for this difference is that the track-and-trace system which California will use to record the movements of cannabis products has yet to be fully implemented. While annual license holders will be required to use this system, based on the Franwell METRC software, to keep track of their inventory, CalCannabis states that temporary license holders must manually document their sales using “paper sales invoices or shipping manifests”.

For the temporary distribution licensee, then, keeping in compliance with state regulations is not only about following the operating requirements, but also about keeping track of a relatively complicated set of information for the sake of record-keeping. Distributors need:

  • Local cannabis recordkeeping requirements (usually keeping business, inventory, & patient records for a several-year period)
  • State cannabis record retention requirements (listed in California Code of Regulations, Title 16, Division 42, §5037) – financial, personnel, training, security, etc.
  • The California Board of Equalization’s general record-keeping requirements for businesses (keeping track of the sales & use taxes, receipts, deductions, and purchase prices for 4 years).
  • Paper sales invoices or shipping manifests for all sales
  • A resale certificate for all sales intended for resale

If a distributor plans on reselling cannabis rather than just distributing it, they’ll need to make sure their seller’s permit is in order as well. For more information on resale certificates, check our recent post on the subject.

While all this paperwork may seem daunting at first, a licensed distribution operation should be more than qualified to handle it – and, once the California METRC system is implemented, keeping records of sales and inventory should be streamlined considerably.

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

What happens after the temporary cannabis license?

Posted by Margolin & Lawrence on March 2, 2018

On January 1, 2018 the state of California began issuing temporary licenses for cannabis operators. We are about halfway through the 120-day period allotted for temporary licenses and the state has allowed an additional 90 day extension so long as businesses submit a complete application for the annual license. Our Los Angeles cannabis attorneys are facing many questions about what happens when the temporary license expires. The answer is that you need to submit for an annual cannabis license from the state. 

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.