Update: The MAUCRSA, which passed June 22, repealed the provisions of the MCRSA that placed restrictions on vertical integration. As of June 30, the state has confirmed in §26053(c) of the California Business and Professions Code that a business may hold more than one license. However, it's still unclear whether there will be a limit on the total number of licenses allowed.
As many of you are well aware, California is in the process of implementing two parallel regulatory regimes that will govern cannabis production, distribution, and sales: the MCRSA, which pertains to medical marijuana, and the AUMA (a.k.a. Prop 64), which pertains to “adult use” or recreational marijuana. Originally, the MCRSA and AUMA had very different treatments of how many activities a business could be licensed for. The MCRSA favored small producers by placing restrictions on the combinations of licenses a single business could hold. The AUMA, on the other hand, allowed for total vertical integration, so one license holder could be licensed for almost the full supply chain of activities.
In California, marijuana licenses are divided into six activities, covering the entire industry: Cultivation, Manufacturing, Testing, Dispensary, Distribution, and Transportation. To ensure that testing facilities remain disinterested, both the MCRSA and the AUMA don't allow a business with a Testing license to hold a license in any other category. On top of that, the MCRSA places a similar restriction on businesses with a Distribution license, and prevents any business from holding licenses in more than two categories. The AUMA forgoes these additional restrictions, making it much more lenient on licensing.
To reduce the confusion caused by the differences between the two acts, a draft trailer bill released on April 3, 2017 by Gov. Jerry Brown’s office proposes that the AUMA's licensing structure be used for both recreational and medical marijuana. Under this proposal, the MCRSA’s restrictions on which types of licenses one licensee can hold would be loosened, potentially allowing for vertical integration not only under the AUMA but also under the MCRSA. However, opinions are divided on whether this change would help or harm California's marijuana businesses.
Under the AUMA's licensing structure, a single business could operate in almost every section of the cannabis supply chain. The MCRSA's licensing structure was explicitly designed to prevent this kind of vertical integration, out of concern that lighter restrictions would allow large corporate interests to dominate the industry. However, the draft bill argues that, since the AUMA includes other anti-monopoly measures, small independent businesses would also benefit from access to vertical integration. Whatever the outcome, this change in licensing structure would present a major turning point for California's marijuana regulations.
Under California’s Administrative Procedure Act (APA), regulatory bureaus must present draft regulations and receive comments on those regulations from the public (a requirement called Notice & Comment). The California APA allows the public to participate in the adoption of state regulations in order to ensure that the regulations are clear, necessary, and legally valid. The MCRSA is no exception, and you have a few more days to make your voice heard. If you have an opinion about Vertical Integration, you can email California’s Bureau of Medical Cannabis Regulation at email@example.com. For more information on the AUMA and Prop 64, consult our guide to California's marijuana laws or email us at firstname.lastname@example.org.