Know Your Rights: Understanding State Hemp Regulations
February 28th, 2019
These two words were expressed throughout last week’s city council meeting on the current state of cannabis affairs in the city of Los Angeles. Business owners, hopeful entrepreneurs, private citizens and council members reverberated this sentiment from the city’s long delayed licensing process and yet to be fulfilled promise of a social equity program.
The Department of Cannabis Regulation (DCR) held its regular meeting before city council on February 28th to report on the progress the department has made to date and forecast expectations for the future of cannabis licensure in Los Angeles and the long awaited opening of phase 3. Executive Director Cat Packer sat before the council and highlighted the department’s substantial progress since its commencement in 2017, but made clear that “we still have a long way to go.”
A call was made for a more inclusive social equity program to expand the demographic of eligible applicants to other disenfranchised communities impacted by the war on drugs particularly, hispanics. However, strains on resources and available funding have left little for the social equity program to get off the ground.
To date, 55 temporary approvals have been granted to phase 2 applicants and 178 to phase 1 applicants. There are hundreds left to wade through pushing back the opening of phase 3 to sometime in spring or summer. The DCR proposed a bifurcated application process for phase 3 general processing when the time comes that would split the application process in two parts. Part One would establish a lottery or first-come first-serve process and Part Two would be a merit based system. The two part process is suggested to mitigate fairness and allow those who do not have access to resources a fair chance to participate for a license.
Cat also pointed out the large disparity between the number of retail licenses that will be available for phase 3 eligible program applicants. To comply with the city’s regulations for undue concentration, in the city that is home to some 4 million residents, granting one license per 10,000 residents allows for approximately 200 retail licenses available to some 10,000 plus people who are eligible for the social equity program.
An immediate need was called for increased enforcement to shut down illegal and unlicensed cannabis businesses from operating in the city. The black market is not only harming licensed businesses by taking customers from paying high dispensary prices but the city. In order for the city to provide funding generated from tax revenues requires a crack down on the black market.
With all eyes on Cat Packer for answers, she in turn responded to city council asking for direction and guidance on how the department is to proceed. A motion was submitted in support of immediate funding to implement the program and expand the demographic of eligible applicants to participate in the Los Angeles cannabis market and increased enforcement to crack down on the black market.
March 5th, 2019
The Cannabis Regulations Commission met on March 5th and presented their recommendations to the City Attorney that would establish policies for processing of phase 3 applications. Phase 3 would begin with a 60 day pre-vetting process of Social Equity applicants to verify Tier 1 or Tier 2 qualification. Verified Tier 1 or Tier 2 applicants will then be eligible to move forward into the first phase of the licensing process. The DCR will issue 100 licenses in this initial phase allocating 75 to qualified Tier 1 applicants. Qualified Tier 1 applicants would receive priority receiving 75% of the available licenses during this initial phase so long as all basic application requirements are met, including:
A signed lease with proof of payment or deposit, or a property deed
Meet all sensitive use requirements, including undue concentration
Payment of required license fees
Ownership organizational structure
Proposed staffing plan
Complete and detailed diagram
Proposed security plan
Labor peace agreement
Current Certificate of Occupancy
Compliance with the Equity Share Rules
The second phase will allocate an additional 100 licenses establishing no priority between Tier 1 or Tier 2 applicants. The second phase will establish a “first-come, first-serve” process that will allow the first 100 qualified applicants will move forward. Basic qualifications required to be met are payment of the required license fees or deferment approval; ownership organizational structure; financial information; indemnification; and, labor peace agreement. The remaining qualifications mentioned above would be required within 90 days.
The Commission also recommended the implementation of a pilot program for Type 9 Retail Non-Storefront delivery services. A total of 40 licenses would be available allocating 20 licenses to pre-vetted Tier 1 Social Equity applicants. The pilot program will also allow verified applicants who could not obtain a Type 10 retail license due to undue concentration limits will receive priority for a Type 9 delivery license. This will allow licensees to remain in their building and operate as a non-storefront retailer in lieu of having to locate and secure another compliant location. Eligible phase 2 applicants will also have an opportunity to amend their application to include delivery so long as they are compliant with the city’s zoning and regulatory requirements.
Phase 3 Licensing Estimated Timeline
Phase 3 Application Processing
60 day Pre-Vetting Period
Basic Tier 1 or Tier 2 qualification
14 day application window
Qualified Tier 1 or Tier 2 applicants will be processed for 100 retail licenses (75% reserved for Tier 1 applicants). Pre-vetted applicants will receive 15 days notice of when the first phase application window is to open.
Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.
30 day application window
Pre-vetted Tier 1 or Tier 2 applicants who meet basic qualifications (see above) on a “first-come, first-serve” basis.
Applicants will have an additional 90 days to submit the remaining application requirements
Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.
Delivery Pilot Program:
Pre-vetted Tier 1 or Tier 2 applicants will receive 15 days notice for when Type 9 delivery licenses will become available
Pre-vetted Tier 1 or Tier 2 applicants subjected to undue concentration limits will have priority
Eligible phase 2 applicants will have opportunity to amend their application to include delivery
Deficient applications will have 5 days from the start of their application to rectify insufficiencies or issues with the basic qualifications.
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.
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
Cannabidiol (CBD for short) is a naturally-occurring element of the cannabis plant that has recently exploded in popularity and availability. Like tetrahydrocannabinol (THC), CBD is believed to have therapeutic and medical benefits, but unlike THC, CBD has no intoxicating effects. Across the country, people can now find CBD products everywhere. But are they safe and legal?
Many products advertised as CBD are imported from other countries or produced in unregulated, unlicensed operations, with no verification that they are free from toxic compounds or that they even contain CBD. Even if the products contain “pure” CBD, knowledgeable experts contend that CBDs have little or no benefits when they are stripped from THC and other cannabinoids and compounds naturally occurring in the marijuana plant. CBDs appear to exhibit their medical and healing properties only when they are left combined with the other cannabinoids like THC, as they are found in nature.
CBD Production and Sales Remain a Federal Crime Without FDA Approval and a Doctor's Prescription
The law on CBD products is confusing, due to conflicts among local, state, federal, and international laws. Under the Supremacy Clause to the US Constitution, federal law controls to the extent it conflicts with state or local law. State law also controls to the extent it conflicts with city or county laws. Federal law in this area is moving, but it is not clear in what direction. Some predict the federal government will relinquish all regulation of CBDs and cannabis generally to the states, and keep a hands-off approach. Others expect the federal government to strictly regulate CBDs and cannabis as they do with prescription drugs through the FDA, leaving the states with little control. This approach was foreshadowed by the DEA’s recent memo announcing that drugs including CBD with THC content below 0.1% will be taken off of Schedule 1 of the controlled substances schedules, and moved to Schedule 5, which allows CBD products to be sold through traditional pharmacies with a doctor’s prescription so long as the particular product is first approved by the FDA. The order also disallows any importing or exporting of CBD products without a permit.
Under federal law, CBD with THC content above 0.1% remains classified as a Schedule 1 controlled substance, subject to severe criminal sanctions. The Rohrbacher-Farr amendment creates a limited exception, preventing the DOJ from prosecuting anyone in strict compliance with state medical marijuana laws (adult-use or recreational uses of CBD products may still be prosecuted).
Without Commercial Cannabis License, CBDs Are Banned in California Food Products
In California, the Department of Public Health recently issued a memo confirming that CBD products are not allowed in any food products in the state (unless the products are regulated as commercial cannabis edibles, which by definition contain THC levels of at least 0.3%). Thus, under state law, CBDs are allowed to be sold and ingested as long as they include THC, and are banned in food if they come from industrial hemp with little or no THC. The reason CBD products with no THC are banned by state law is that California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food. Currently, the United States Food and Drug Administration (FDA) has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.
This is regardless of the source of the CBD – i.e., whether the CBD is derived from cannabis or industrial hemp. CBD used as a topical or smokeable product could arguably be allowed under either federal or state law as it may not be considered to be a food that is ingested.
Los Angeles Allows CBD Businesses Without a Cannabis License to Register for Business Tax Certificate to Engage in Commercial Activities
The City of Los Angeles recently issued a form for businesses seeking a Business Tax Registration Certificate to engage in commercial activities related to industrial hemp and/or CBD derived from industrial hemp in the City of Los Angeles. This form allows your business to pay local taxes, but it does not protect you from criminal prosecution under state or federal law. It likely also signals that enforcement of state CBD laws is not a high priority of the Los Angeles Police Department.
International Treaties Ban All Cannabis Extracts Including CBDs
In addition to local, state, and federal law, international treaties place obstacles to the sale of CBD products. The United Nations has had a series of International Drug Control Conventions (treaties of which the US and Canada are part), and while CBD is not specifically listed in the schedules of the Conventions, "extracts" of cannabis are apparently included within Schedule 1, meaning they are prohibited.
Given the controls required by the UN Conventions, the US would be unable to keep its obligations under the treaties if CBD products were de-controlled under federal law. The Federal Controlled Substances Act, moreover, indicates that scheduling decisions will be made in accordance with treaty obligations. For example, under section201(d)(I) of the CSA, if control of a substance is required under an international treaty or convention in effect on October 27, 1970, the Attorney General is required to impose controls on the substance by placing it under the schedule he deems most appropriate to carry out such obligations.
The World Health Organization Expert Committee on Drug Dependence is scheduled to review the UN’s classification of CBD, THC, and cannabis in general at its November 2018 meeting, which could lead to a change in the international treaty.
The result of all these different layers of law leave many confused. We expect that the laws will adapt over time to allow for open sales of CBD products, whether or not they also contain THC. For now, however, the law is full of problems for CBD products and cannabis in general, and we applaud those working to reform the laws for these products that are all around us.
Guest post by Donna Thompson, customlabels.net
Medical marijuana has been legalized in more than half of the states in the U.S. It is used for easing the symptoms of pain, nausea and vomiting, glaucoma, post-traumatic stress disorder (PTSD), and epilepsy. Although the number of people that advocate legalization of marijuana for medical purposes is on the rise, not all states in the U.S. have said “yes” to the legalization.
That’s why there is no federal law, and there are variations in medical marijuana laws in different states.
While some states allow the use of medical marijuana extract only, in other states it is allowed to use the whole plant.
When it comes to ways of obtaining medical marijuana, in some states dispensaries are the only place where you can buy it, but in others, like Michigan, you are also allowed to cultivate the plant in your own home.
Also, lists of medical conditions that qualify for medical marijuana treatment differ from state to state. That means that if you get a medical marijuana card in one state, you can buy a medical marijuana product in some other state only if that state lists your condition as one that can be treated with medical cannabis.
The absence of federal laws affects both consumers and producers of medical marijuana.
Besides all of these differences, states that legalized marijuana usage for medical purposes have different requirements for labeling and packaging medical marijuana products. Thus, when medical marijuana producers want to put their product on the market, they must comply with state specific regulations. For example, when it comes to packaging, products need to be tamper-proof and child-proof. As for labeling, the following infographic shows what common labels for medical marijuana products look like in the states that have legalized marijuana:
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.
California cannabis entrepreneurs have to go through the often lengthy and cumbersome process of applying for local and state commercial cannabis licenses. But that is only the beginning of the journey to becoming a successful, fully-compliant business in this emerging industry.
Entrepreneurs interested in operating a cannabis business in California must decide how their business will operate and what business structure will work best for their specific business goals. They must consider the commercial, legal, and tax implications that come with deciding which business structure they want to operate under.
Once entrepreneurs have decided which business structure will best work for their specific business goals, the next step is to begin the entity formation process. This process consists of deciding what the Company name will be and drafting the entity formation documents that will determine how your cannabis business will operate.
As a full-service cannabis law firm, we represent many clients who have gone through this process already. Two of the most common business structures we have seen entrepreneurs decide to start their cannabis business as have been Limited Liability Companies (LLCs) and Corporations. Although there are some similarities between both business structures, there are some major differences that entrepreneurs need to understand prior to beginning the entity formation process.
At Margolin & Lawrence, our cannabis attorneys can help you with all the formation and governing documents for your LLC, such as the articles of organization, operating agreements, and statements of information. If you decide on structuring your cannabis business as a corporation, our cannabis attorneys can help you with your corporate formation documents such as bylaws and articles of incorporation.
Additionally, we understand how important it is for new businesses to raise capital to continue to grow their business. Given that cannabis is still illegal under federal law, entrepreneurs looking to raise capital for their cannabis business need to seek private investment capital. In order to do so, there are a series of important documents private investors want to examine before they decide to invest in your cannabis business.
For instance, companies looking to raise capital need private placement memoranda (PPMs) and subscription agreements. A PPM is a legal document that is given to prospective investors when selling stock or any other security interest in a business. The PPM provides prospective investors with an in-depth look at your business, including management, analysis of operations, risks factors, financial information, among other things. The goal of the PPM is for prospective investors to be fully informed about all aspects of your cannabis business.
A subscription agreement is an agreement between a corporation and the investor (the subscriber) in which the corporation promises to sell a certain number of shares at a specific price to the subscriber and, in return, the subscriber promises to buy the shares at the agreed upon price.
At Margolin & Lawrence, our cannabis attorneys can help you and your business with any capital-raising compliance and legal representation. Additionally, our cannabis attorneys can help you decide which business structure best meets your cannabis business goals. And we can help your cannabis business remain compliant with all the governing laws every step of the way, including ongoing compliance with state and local commercial cannabis regulations and employment laws, avoiding and minimizing the expenses of civil litigation, addressing the implications of federal illegality of cannabis, and helping to informally resolve any internal or external disputes that jeopardize the business operation.
Commercial cannabis is heating up on the central coast. Here’s a look at what’s green:
The City of Goleta began accepting cannabis planning applications on August 17th. Applicants will need to obtain either a Land Use Permit or Conditional Use Permit issued by the Planning & Environmental Review (PER) Department. A Cannabis Business License will only be issued upon approval by the PER Department. Applicants are required to submit an Odor Abatement Plan and Certification approved by a Professional Engineer or Certified Industrial Hygienist. In addition, cultivators will need to show proof of consultation with Southern California Edison (SCE) showing participating in SCE’s Savings by Design Program as well as participation in the Resource Innovation Institute’s Calculate Powerscore Tool. More information on Conditional Use Permits and Land Use Permits for cannabis operators in the City of Goleta can be found here.
Cannabis Business Licenses will be valid for one year from January 1 to December 31, regardless of when the license was issued. Something to consider as we approach the latter end of the year, as all businesses will need to renew their license prior to January 1 and pay the applicable renewal fee. The amount of retail licenses the city will issue has been limited to 15. The city will review applications on a first-come, first-serve basis and will implement a waitlist for potential retailers. More information on Cannabis Business Licenses for the City of Goleta can be found here.
The City of Lompoc is open for all cannabis operators with the exception of outdoor cultivators. Currently, there is no cap to the amount of licenses the city will issue and will allow for onsite consumption. Prospective operators will need to obtain a commercial cannabis use license issued by the City. Application materials and information on the city’s laws and regulations can be found here.
Santa Barbara County is expected to open by the end of the year for new businesses. Prospective applicants will first need to obtain either a Land Use Permit or Conditional Use Permit. Permit type is dependent on whether you are located inside or outside the Coastal Zone and distance to sensitive use receptors. Check here for information on land use and zoning in Santa Barbara County. A maximum of 8 licenses will be issued for retailers and all outdoor cultivation has been prohibited in the Coastal Zone. Once you have received the applicable land use or conditional use permit, you will then need to apply for a Cannabis Business License. Application materials for a Cannabis Business License will be made available here. Supplemental information may be required such as, environmental and energy conservation measures dependent on your zone. Be sure to check through the application requirements carefully and thoroughly or consider hiring an attorney to breakdown the process.