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.

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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. 

Ask a Cannabis Lawyer: What Do I Need to Do for a Temporary License?

Posted by Margolin & Lawrence on February 21, 2018

Since mid-December, California has been issuing temporary state licenses to cultivators, manufacturers, retailers, distributors, microbusinesses, testing laboratories, and event organizers operating in the commercial cannabis market. These temporary licenses became effective as of January 1, 2018, and are currently being reviewed and approved by the Bureau of Cannabis Control (BCC) and the California Department of Food and Agriculture (CDFA) per the Business and Professions Code, section 26050.1. As of today, over 2,500 temporary state licenses have been issued. 

So what is this license and why do you need it? The temporary license is a conditional license that allows cannabusinesses to engage in commercial cannabis operations in the state of California for 120 days (about 4 months). The license is only available to applicants that have first obtained a local license, and allows cannabusinesses to operate before receiving their full state license. Within this 120 day period, the temporary licensee must apply for the state license. However, if the state license isn’t received by the end of that four-month period, California may grant extensions of 90-days to the temporary license as necessary. According to Lori Ajax, Chief of the BCC, California will routinely extend the licenses if the failure to obtain a state license is no fault of the licensee. “If it’s on us,” she says, “we will continue to give extensions so you can keep operating.” 

What is required for the temporary license? Besides obtaining a local license, the temporary license application requires a number of additional pieces of information from the applicant, including:

 

  • Applicant & Business Information: Physical address of the premises and name of the applicant(s) or business entity requesting the license, including the primary contact information of the applicant(s)
  • Owner information: The name, mailing address, and contact information  for each “owner” of the business, as defined in Business and Professions Code §26001
  • License information: Specification of the license types applied for (such as distribution, or microbusiness, for example)
  • Operational Activities: product type and activity information
  • Local Jurisdiction: Local jurisdiction contact information
  • Local Authorization: Documentation of authorization to operate from the city/county in which the business premises are located, consisting of a copy of the valid license, permit or other authorization
  • Property Authorization: Either documentation of title or deed to the property or a lease agreement (or other such authorization) from the landlord demonstrating a right to occupy the premises and engage in the applied-for commercial cannabis use
  • Property Site Plan: A diagram of the physical layout of the property and business premises

  

The required information varies depending on the type of license a business is applying for. For example, the Manufactured Cannabis Safety Branch of the Department of Public Health processes temporary license applications for manufacturing, while the BCC processes the applications for distributors, microbusinesses, testing laboratories, and event organizers. For more information on the licensing process, check our guide to California cannabis laws.

 

If you have obtained your local license, or are close to receiving it and looking to obtain your temporary state license, contact our cannabis attorneys today!

Ask a Cannabis Lawyer: Which license do I need for cannabis events? 

Posted by Margolin & Lawrence on January 30, 2018

With the rise in popularity of cannabis related events in California such as Kush Stock, Chalice, High Times' Cannabis Cup, Hempcon, and the Secret Sesh; many event organizers and vendors are uncertain as to the new laws relating to cannabis events now that marijuana is legal in California. Our Los Angeles Cannabis attorneys are often asked about events and licensing. The Bureau of Cannabis Control recently issued guidance on just this topic. 

In short, everyone must be licensed. All cannabis event organizers will be required to obtain a cannabis event organizer license from the Bureau of Cannabis Control. The one exception to this is if you are hosting a private event. If your event is open to the public and you are selling tickets to the public, you need an event license. 

The Bureau recently clarified what will be expected of event organizers moving forward in order to comply with all regulations. If you want to sell cannabis products at your event, you will either need vendors who have a retail license there to do the sales, or you will need a retailer license yourself.

The State license fees will be determined by the number of events the organizer plans to produce during that year. However, this event license does not authorize the event organizer to cultivate, distribute, manufacture, or sell cannabis or cannabis products. In order to participate in the sale, cultivation, distribution or manufacturing or cannabis, the organizer must obtain separate licenses to engage in those commercial cannabis activities. This also means that compensation to a cannabis event organizer may not be tied to the sale of cannabis goods.

Once an event organizer obtains their event organizer license from the Bureau, the organizer must then ensure that all cannabis goods transported to the event site are transported by a licensed distributor and that the only vendors permitted to sell at the event to retail customers are a licensed retailer or microbusiness. To further ensure compliance by all participants, event organizers will be required to provide to the Bureau with a list of all licensees selling cannabis on-site at the event.

All cannabis goods sales at the event and access to the area where cannabis consumption is allowed must be limited to individuals 21 years of age and older, and cannabis products and cannabis consumption can’t be visible from any public place or non-age- restricted area. Food trucks are still allowed, but the consumption of alcohol and tobacco is not at cannabis events.

Currently, the State of California is issuing temporary cannabis event licenses for cannabis events that last no longer than four consecutive days. To obtain a temporary cannabis event license, the cannabis event organizer licensee must submit an application to the Bureau at least 60 days before the first day of the cannabis event and must obtain a license for each individual cannabis event from the Bureau for the specific dates and location of the event. Finally, the event organizer must obtain written approval from the local jurisdiction authorizing on-site cannabis sales and consumption by individuals 21 and older. This leaves it up to each individual municipality to determine whether they will allow cannabis events to take place. For example, the Orange County Fair Board members recently voted to prohibit marijuana-related events at the Costa Mesa Fairgrounds. The first cannabis event State license was issued to the Burn Out Music, Art and Cannabis festival scheduled to take place in Tulare County, but was subsequently cancelled by City Officials just two days before the event.

To start the process of applying for your event, you can do so directly on the Bureau of Cannabis Control’s website. For legal advice to ensure the success of your cannabis event, Contact us

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.

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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.