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.
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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?
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.
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.