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.

Do you Want Your Security Guard to Kill or Injure Someone to Protect Your Product or Cash?

Posted by Terry Blevins on July 25, 2018

by Terry Blevins, President/CEO of Armaplex Security

Many businesses are willing to put a security guard in their cannabis business, but don’t often think about the possible consequences (implications) of that decision.


I often ask business owners: Would you want your security guard to kill or injure an intruder in order to prevent him from taking your cannabis product or cash? The answer should be “no,” because the use of force to protect property is not allowed by security officers and would put you and your business in a precarious position from a liability perspective, not to mention causing a potential reputational issue. If the answer is “no,” then I ask: “Have you had that discussion with your security company and/or the guards that work in your business?” The use of physical force is a serious responsibility, especially if it is done by one of your employees or contractors, and at your request, and should not be taken lightly.

Even more serious is the use of a firearm by security guards, which can bring on a series of additional liabilities and concerns. How would you feel personally if one of your security guards killed or injured someone while trying to protect a small amount of product? How would you feel if an innocent bystander was killed during the incident? If you tell your guard not to draw his weapon in case of an attack, then you are defeating the purpose of having an armed guard and may be creating other liabilities with these instructions.

Are you aware that a security guard is the last measure you should put in place and only after you have secured the site with robust physical barriers, employee procedures and security technology? 

You should be suspicious of security companies whose first line of defense is always a security guard. Most shrinkage or loss in the cannabis industry is due to factors that can be controlled by measures other than hiring a security guard. Every cannabis business will suffer some loss of product or cash on a monthly basis and most of the time there is some insider (employee, contractor or partner) involvement in this.

Some examples of measures that can prevent insider theft:

  • Employees should not be allowed to have bags or baggy clothing in areas where product or cash is kept. Employee and contractor lockers should be used.
  • Employee policies and procedures that require two individuals to be present when accessing large amounts of cash and/or product
  • Alarm devices and access control systems that only allow certain employees, into certain areas, during certain hours
  • A requirement that all transactions take place on camera can help to prevent theft and may also serve as verification if someone is wrongfully accused

Are you 100% sure that if one of your security guards injured or killed someone, your insurance would cover you? How about if they just touch someone and that person claims assault? 


All insurance policies have exclusions, and many have “Assault and Battery” or other exclusions that mean the insurance company would not pay a claim if your security guard used physical force (any bodily contact) on a person, even in the course of his duties. Even if you contract with a licensed security company, its policy may have these same exclusions that place you, and them, at risk of not being properly covered. This exclusion may be as subtle as no coverage for providing security for a business that is involved in illegal activity (cannabis is still a Federal offense).


These are steps you can take to protect yourself and your business:


  1. If you hire guards directly, your insurance company must know that you are doing this in order for you to be covered in the case of an incident.
  2. If you contract with a security provider, you should ask this security company to list you as a co-insured on its insurance policy
  3. Have your attorney review both your policy, and the security company policy, to make sure that cannabis businesses are not excluded and insure that there are no other exclusions, such as “Assault and Battery,” that put you at risk.

Are you 100% sure that your security guards are fully licensed and compliant to perform their duties under local and state laws that regulate security companies, as well as cannabis companies?


All security companies are heavily regulated due to the need for trust and accountability as they are entrusted with our most valuable assets, and sometimes with our lives. Cannabis security companies and guards are even more heavily regulated and scrutinized than other security companies. State and local cannabis regulations require that security companies and/or guards that are used by cannabis companies must be properly licensed and insured.


Things you should do:


  1. Have your attorney review the contract with the security company and make sure that it meets the BCC and/or local requirements
  2. Visit, or call, the state and/or city agency that licenses security guard companies to make sure the company is licensed. (In California this site is:  https://search.dca.ca.gov )
  3. Make sure that you have these documents on hand during any compliance check:
    1. A copy of the security company’s license
    2. The security guard’s personal card (city of L.A. also requires first aid card)
    3. Your contract with the security company
    4. The insurance binder from the insurance company that lists you as a co-insured
    5. Any other documents required by law or regulation

Were you aware that in most states you cannot hire security guards directly (even if they have guard cards) without your business being licensed as a Proprietary Private Security Employer?


Out of all the cannabis businesses that hire their guards directly, most have no idea that this is required. The supervision of security guards cannot be performed by someone who is not an expert in security. Any company that hires security guards must have a license to do so and must have a manager on staff who has proven experience in security management and completed a written test and background check (California requires this license). Your insurance company will also want to look at the manager’s qualifications in order to ensure the manager is experienced and doesn’t present a risk to the policy.


This is only a partial list: There are many other things that you should consider when hiring security personnel at your cannabis site, and you should do everything you can to be informed and to protect you and your business.


There are many misconceptions regarding security in the cannabis industry regarding what is required under state and local laws and even some security companies don’t fully understand these. The only way for you to protect your company is to be proactive, to work closely with your attorney and to use a reputable security company.


About Terry Blevins:

Terry Blevins has over 30 years of experience in Law Enforcement and Security and has worked as an Industrial Site Security Subject Matter Expert for the U.S. Department of State. With a master’s degree in Security Management and extensive training in conducting threat and risk assessments from private industry as well as the Federal government, Blevins is considered a qualified physical security expert. 

Additionally, Blevins is considered one of the foremost cannabis security experts in the U.S. He has studied many cannabis businesses in California and other states, learning what works and doesn’t work, including industry better and next practices and has drawn from those to develop the security strategies that he includes in the numerous cannabis security plans he has completed. He has also studied local and state regulations and understand what must be provided with applications in order to successfully compete for a license.


Bureau of Security and Investigative Services

http://www.bsis.ca.gov/about_us/laws/pssact.shtml

Don't Be Intimidated by LA's Social Equity Program - All are welcome to Apply

Posted by Margolin & Lawrence on July 9, 2018

Through the Social Equity Program, Drug War Victims Will Help Build LA’s Green Economy

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). 

LA Phase II Update

Posted by Margolin & Lawrence on June 20, 2018

Today the Los Angeles City Council held a special meeting, where a passionate and energized public audience made it clear that they want to see the tax revenue collected from the commercial cannabis industry to be reinvested into social equity programs. The specific tax revenues being discussed were the proposed “Cannabis Reinvestment Act,” as well as a provision that would increase tax rates once the cannabis industry within LA reaches an aggregate of $1.5 Billion in total gross receipts.

Do Free Samples get Taxed?

Posted by Margolin & Lawrence on May 1, 2018

 

Update: This blog post does not apply to Los Angeles, as the distribution of free samples is non-compliant under the LA Ordinance 185344 Rules and Regulations for Cannabis Procedures, Regulation No. 10. Operational Requirements and Violations. Section D.

 

Since the pot-prohibition era has ended, there has been much ambiguity around the transition from an illegal market to one that is becoming strongly regulated. The cannabis tax rates for California were definitely met with much opposition, with both merchants and customers appalled by the exorbitant tariffs on California’s favorite vice (read more here).

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.

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.

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

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!

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.