DCR’s New Tool to Aid Prospective Phase 3 Retail Applicants in Their Property Search & State to Issue Provisional Licenses to Qualified Temporary License Holders

Posted by Zachary Tucker on March 29, 2019

DEPARTMENT OF CANNABIS REGULATION’S NEW INTERACTIVE MAP

The Department of Cannabis Regulation (DCR), the governing agency regulating commercial cannabis activities for the City of Los Angeles, released a new interactive map this week which highlights the number of retail licenses available for applications in each of the 35 Community Plan Areas in the City. The map shows the maximum number of retail licenses approved (i.e., “license capacity”) for each Community Plan Area as well as how many of those licenses are available or otherwise occupied by retailers currently in operation.

The interactive map will be particularly useful for prospective applicants who want to pursue a dispensary license during the next and final round of licensing for the City and need to identify eligible properties for a potential retail location. Many retail licenses have already been distributed which has greatly limited the number of remaining licenses available for application in each Community Plan Area. The limited number of vacant licenses has further complicated the property search process for prospective applicants -- a process already restricted by distance and sensitive use requirements defined by the Los Angeles Municipal Code (LAMC). LAMC mandates that all retail locations be at least 700’ away from other licensed cannabis retailers and other “sensitive use” properties (e.g., public parks, public libraries). Further, it restricts the location of potential retail establishments to nine zones as defined by the City’s planning website through Zimas.

Eligible Zones for Cannabis Retail Locations as Defined by The LA Department of City Planning:

  • C1 Limited Commercial Zone

  • C1.5 Limited Commercial Zone

  • C2 Commercial Zone

  • C4 Commercial Zone

  • C5 Commercial Zone

  • CM Commercial Manufacturing Zone

  • M1 Limited Industrial Zone

  • M2 Light Industrial Zone

  • M3 Heavy Industrial Zone


 

STATE TO ISSUE PROVISIONAL LICENSES BEFORE EXPIRATION OF TEMPORARY LICENSES

Today, the Bureau of Cannabis Control, California Department of Public Health, and California Department of Food and Agriculture announced a plan to prevent lapses in licensure for retailers who have active temporary commercial cannabis licenses that will soon expire. The three licensing agencies are tracking the expiration dates of all active temporary licenses and intend to issue a provisional license to eligible retailers who currently have a temporary license prior to its expiration. To qualify for a provisional license, applicants must:

(1) Hold or have held a temporary license for the same premises and the same commercial cannabis activity for which the provisional license will be issued; and

(2) Have submitted a completed license application to the licensing authority, which must include a document or statement indicating that California Environmental Quality Act (CEQA) compliance is underway.

In today’s announcement, the three licensing agencies urged that any temporary license holders who are contacted by their state licensing authority reply promptly in order to avoid a lapse in licensure.

Hemp and CBD updates

Posted by Margolin & Lawrence on March 20, 2019

Know Your Rights: Understanding State Hemp Regulations

 

Los Angeles Cannabis Regulations Commission Announces Recommendations for Phase 3 Processing

Posted by Margolin & Lawrence on March 11, 2019

The Cannabis Regulations Commission met on March 5th and presented their recommendations to the City Attorney that would establish policies for processing 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 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
  • Financial information
  • Proposed staffing plan
  • Indemnification
  • Complete and detailed diagram
  • Proposed security plan
  • Radius map
  • Labor peace agreement
  • Current Certificate of Occupancy
  • Compliance with the Equity Share Rules

 

Second phase 

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
  • Indemnification

 

 Phase 3A:

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.

 

 Phase 3B:

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

March Report: Where We Are with Los Angeles Phase 3 Licensing

Posted by Margolin & Lawrence on March 8, 2019

February 28th, 2019

“I’m frustrated.”

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

  • Financial information

  • Proposed staffing plan

  • Indemnification

  • Complete and detailed diagram

  • Proposed security plan

  • Radius map

  • 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

  • Indemnification

Phase 1:

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.

Phase 2:

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.

CA Cannabis Retail Update

Posted by Margolin & Lawrence on March 7, 2019

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.

Governor Newsom Calls In the National Guard

Posted by Raza Lawrence on February 19, 2019

Are we about to see more enforcement against unlicensed cannabis?

California Governor Gavin Newsom recently announced he is calling for the California National Guard to work with federal officials to target the California illicit market.  Given the history of the war on drugs and the current federal laws imposing harsh criminal and civil sanctions for cannabis, the involvement of the National Guard and the federal government in a new crackdown is concerning.  Governor Newsom’s announcement of this increased enforcement, however, comes amid growing frustration with perceived dysfunction in the state regulatory system and a persistent illicit market that crowds out regulated cannabis.

California has a thriving illicit market in cannabis, estimated by New Frontier Data to be valued at $3.7 billion last year.  This is due to many factors, including California’s unregulated cannabis collectives and cooperatives that operated for years before licensing came, the slow speed at which state and local governments in California have issued licenses, the high taxes and burdensome regulations of the new licensing system, and the demand for California cannabis products throughout the country.

In a sense, the entire cannabis market is an illicit market, as cannabis remains illegal under federal law, which makes any inconsistent California state law allowing cannabis invalid under the Supremacy Clause of the US Constitution. This federal illegality has caused most banks to refuse to do business with cannabis-linked companies, resulting in a largely cash business that is more difficult to track and regulate than it would be if banks were involved.  Federal illegality also makes it so the entire interstate market is illegal and unregulated, though lucrative. 

The California Bureau of Cannabis Control, tasked with regulating cannabis retail sales, has issued a few enforcement actions against some unlicensed dispensaries, but the efforts have been largely symbolic, against only a tiny fraction of the unlicensed operators.  Los Angeles and other cities have also filed misdemeanor cases against unlicensed operators for violations of local licensing laws, but unlicensed dispensaries seem to pop back up faster than they are shut down.

 In order for California’s regulatory project to succeed going forward, the state will need to convince more operators to move to the regulated market, through some combination of greater enforcement and lower taxes and regulatory burdens. 

The large illicit market and slow roll-out of the licensing process have shaken the confidence of many people who are attempting to comply with California laws.  Hopefully, state and local regulators will take advice from frustrated operators, learn from their mis-steps and continue to develop a functioning system.  The state and local governments are trying to find the right regulatory balance.  Over-regulation makes it so difficult and burdensome to comply that only rich people and companies with lots of resources can operate, and an expensive final product that leads many consumers to buy from the illicit market.

For now, many license holders are playing the long game, hoping the illicit market will shrink over time, and more consumers throughout the state (and eventually the country and world) join the regulated cannabis market.  Governor Newsom says that he expects it may take at least five years to develop its complex regulatory system.  If the state gets it right, this can be an industry that drives the state economy, creating more resources and jobs for everyone.

One approach that could be successful would be to offer a more simplified and inexpensive process to get new cannabis businesses up and running.  More burdensome regulations and higher taxes could kick in only after businesses have gotten through the startup phase and adapted to the regulations.  There could be a tiered or graduated system of compliance, taxes, and enforcement that is welcoming to new operators.  Startup costs for new businesses are already very expensive, and high licensing expenses and a burdensome application process can dissuade many people from pursuing licenses who might otherwise want to follow the law.  Lowering the tax rates in the beginning, while businesses get off the ground, could also encourage new entrants to the regulated market.  Once businesses become established and there is a healthy regulated market, taxes could be increased to desired levels.  The government has many tools available to help establish a functioning market.  We are optimistic that the future is bright for the cannabis economy in California.

LA Cannabis Update: New Recommendations from the Los Angeles Department of Cannabis Regulation

Posted by Raza Lawrence on February 15, 2019

Cannabis attorney Raza Lawrence attended today’s special meeting of the Los Angeles Rules, Elections, and Intergovernmental Relations Committee. At the meeting, the discussion focused on three main points:

  • The City of LA is considering and discussing different possible ways to process Phase 3 applications, including a first-come first-served method, a lottery, a “merit-based” system, or some combination of these three methods.

  • It’s possible that the city will lower the percentage of a Tier 1 or Tier 2 social equity business that is required to be owned by the individual who satisfies the social equity criteria.

  • The DCR’s lack of funding, and the need for more funds in order to move forward and process all the applications from Phases 1, 2, and 3.

The current situation with regard to cannabis retail is tense – the city has considered cracking down on non-compliant businesses by shutting off their water and power, among other methods.

To help streamline the city's regulations and ameliorate the pressure that cannabis businesses currently face, the DCR released a report including a set of recommended amendments to the city’s cannabis procedures. The recommendations, as filed with the city, are as follows:

1. REQUEST the City Attorney, with the assistance of the Department of Cannabis Regulation (DCR), to prepare and present an ordinance to amend Section 104 of Article 4 of Chapter X of the Los Angeles Municipal Code and the Rules and Regulations as necessary to:

a. Modify the definition of “owner” in conformance with state regulations, including clarifying that the meaning of “owner” does not apply to the managers, officers, directors, and equity-holders of the management company.

b. Allow DCR to grant Temporary Approval to a Phase 3 storefront retail license applicant after DCR recommends that the Commission issue the applicant a license.

c. Amend “Program Site Specific Conditions” from the Social Equity Applicant to allow for site specific conditions only as required by CEQA, public health and safety, or as necessary under a DCR, State of California, or City enforcement action in conformance with other sections of the rules and regulations.

d. Eliminate a Tier 2 applicant’s obligation to provide business, licensing, and compliance support to a Tier 1 applicant.

e. Require Tier 3 applicants with Temporary Approval to enter into a Social Equity Agreement within 60 days of the enactment of this ordinance or from the time of application, whichever is later.

f. Allow DCR to issue non-storefront retail licenses in the manner provided in LAMC Sec. 104.06(b) and exempt non-storefront retail license applicants from the community meeting requirement in LAMC Sec. 104.04.

g. Clarify that DCR may require an applicant to submit additional information documents after DCR deems an application complete as necessary to make a licensing decision.

h. Remove the requirement in Regulation No. 10 D. 4. that a retailer store all cannabis goods in a vault or safe during non-retail hours.

i. Revise Regulation No. 7 to provide that DCR shall process applications for licenses in a manner consistent with LAMC Section 104 and these Rules and Regulations.

j. Conform the City’s delivery regulations with state regulations with respect to operational requirements.

K. Allow DCR to enter into Social Equity Agreements with a Tier 3 applicant without Commission approval.

l. Clarify LAMC Section 104.20(i)(9) to state that after the term of a Social Equity Agreement is completed, a Tier 1 or Tier 2 Social Equity Applicant license holder may only transfer control or ownership of a License after first providing the other ownership interests in the business the right of first refusal to buy, at market-rate.

m. Clarify the definition of limited access areas to only include those areas required under the rules and regulations of the State of California.

n. Clarify that any applicant or landowner with evidence against them with respect to illegal cannabis activity at any time since January 1, 2018 will be banned from participation in Phase 3 retail and delivery processing.

2. INSTRUCT the DCR to report back at the next Rules, Elections, and Intergovernmental Relations Committee meeting with a further analysis of the recommendations for Phase 3 Storefront Retail processing and Non-storefront Retail processing, including consideration of a social equity applicant registry platform similar to the City of San Francisco.

3. INSTRUCT the DCR to suspend any Phase 3 processing until the enhanced Social Equity analysis for the San Fernando Valley, Boyle Heights, and Downtown Los Angeles is completed.

4. INSTRUCT the DCR to provide an updated map online within two weeks oft he Council action with respect to the current locations of all Phase 1 and Phase 2 applicants that have received local authorization, temporary approval, or any form of local and state licensure. This shall also include an online document with respect to undue concentration areas by community planning areas, and the capacity left for Phase 3 applicants.

5. INSTRUCT the Department of City Planning (DCP) to include amending the pending draft ordinances pertaining to cannabis in conformance with state regulations with respect to alleyway access, ingress, egress, and door location.

6. INSTRUCT the DCP to include amendments to the pending draft ordinances pertaining to cannabis in a similar manner to the City of Seattle, Washington in which two retail establishments may co-locate within 1,000 feet of each other, and the next retail establishment must be 1,000 feet away from both retail establishments.

7. INSTRUCT the City Clerk to hold Council File No. 14-0366-S5 open and active, including the DCR report on file, for further deliberations by the Rules, Elections, and Intergovernmental Relations Committee.

California Hemp & CBD Update

Posted by Margolin & Lawrence on February 4, 2019

This article is a companion post to our prior update on CBD’s federal legal status.

California Continues to Restrict CBD

The California Department of Public Health has made it clear that CBD is not allowed in food products within California: the Department of Public Health issued a memo in July 2018 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, CBD products 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.  

The Department of Public Health has cited the Sherman Law as the authority allowing it to restrict the production and sale of CBD products. The Sherman Law regulates food, drugs, and cosmetics in California.  “Drug” is defined in section 109925 of the state law as follows:

“Drug” means any of the following:
(a) Any article recognized in an official compendium.
(b) Any article used or intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in human beings or any other animal.
(c) Any article other than food, that is used or intended to affect the structure or any function of the body of human beings or any other animal.
(d) Any article used or intended for use as a component of any article designated in subdivision (a), (b), or (c) of this section.

Further, “Food” is defined under section 109935 of the state law as “[a]ny article used or intended for use for food, drink, confection, condiment, or chewing gum by man or other animal.”  This definition of food includes pet food, but does not include products containing cannabis with at least 0.3% THC (which are, as described above, cannabis edibles). California law incorporates the federal laws prohibiting the addition of CBD or THC to food products.

CDPH: Topicals and Vape Pens Are Illegal, Even if Not Marketed with Health Claims

The California Department of Public Health’s position on CBD in food is set forth in a clear written policy – it is not allowed.  Some have asked, however, whether CBD might be lawfully produced and sold in California in non-food products – such as vape pens or other smokable products or creams or other topical treatments.  While there may be legitimate arguments that this is at least a gray area in the law, representatives of the Department of Public Health are currently informing members of the public that CBD-based vape pens and topicals are prohibited under state law (specifically the Sherman law).  

The CDPH’s position is that any vape pens or topicals containing CBD, but no THC, are considered illegal by the State of CA – even though the products are not foods or dietary supplements, and even if they are not marketed with any health claims, they are still considered “unapproved drugs” because they contain the same active ingredient (CBD) as is found in an FDA-approved drug.  

While CDPH representatives maintain that CBD-based topicals and vape pens are all unlawful under state law, there is no clear written policy or statement from California authorities on the issue of CBD in non-food products, and this area of law seems to be in a state of flux.

Non-Food CBD and Hemp in California

For the moment, non-food CBD and hemp products, such as creams, topicals, and cosmetics, seem to be in a legal gray area. The CDFA recommends that manufacturers and sellers check with their local health agencies about any products they plan to make or sell – since enforcement currently seems to be taking place almost entirely at the local level, this is probably the best way to find out whether a particular product is allowed.

According to the CDFA, California law does not currently provide any requirements or issue any licenses for the manufacturing, processing, or selling of non-food industrial hemp or hemp products. Neither the CDPH nor federal agencies have released any guidelines or restrictions describing the allowable uses of non-food hemp or hemp-derived CBD products.

Local environmental health agencies are responsible for enforcing the state guidelines, but, according to the LA Times, local enforcement of restrictions on CBD and hemp products can vary significantly. Likewise, although the FDA has cracked down on CBD businesses that make unsubstantiated or false claims about their products, indicating that they plan to regulate CBD products to some degree, they’re less clear about the future legal status of hemp-derived CBD and non-edible hemp derivatives in general.

Penalties

In California, adulterated or misbranded food, drugs, and cosmetics are penalized under CDPH’s Food, Drug, and Cosmetic Law. All products are considered to be misbranded if they misstate their ingredients or make unproven medical claims, while food products are considered to be adulterated if they contain CBD.

Violations are punishable by imprisonment for not more than one year in the county jail or a fine of not more than one thousand dollars ($1,000), or both the imprisonment and fine. If the violation is committed after a previous conviction under the same code that has become final, or if the violation is committed with intent to defraud or mislead, or if the violation was intentional / intended to cause injury, the person who committed the violation will be subject to imprisonment for not more than one year in the county jail, imprisonment in the state prison, or a fine of not more than ten thousand dollars ($10,000), or both the imprisonment and fine.

The FDA also has the right to enforce federal food, drug, and cosmetic laws, where the fines range from up to $100,000 (for a misdemeanor by an individual that does not result in death) to up to $200,000 (for a misdemeanor by a corporation that does not result in death). The maximum imprisonment for a misdemeanor remains a year for each offense.

Local health authorities may also enforce their own restrictions on hemp and CBD. For instance, food operators in LA County found to be selling products adulterated with hemp will be cited with a violation on their health inspection reports.

Los Angeles Continues to Issue and Promote Tax Registration Certificates to Sell CBD Products

The City of Los Angeles offers a form on the website of the Department of Cannabis Regulation that is to be used for businesses seeking a Business Tax Registration Certificate (BTRC) to engage in commercial activities related to industrial hemp and/or cannabidiol (CBD) derived from industrial hemp in the City of Los Angeles (City). The Department of Cannabis Regulation (DCR) does not regulate the sale of CBD oil, CBD products or hemp products if they are derived from industrial hemp, as defined in Section 11018.5 of the Cal. Health and Safety Code. No cannabis-specific City license is required to sell those products. Therefore, to receive a BTRC and engage in commercial activities related to industrial hemp, you must attest that the products you intend to sell are derived from industrial hemp.

Registration for this tax certificate does not authorize any business to violate state or local law.  It signifies, however, that the government anticipates a continuing market in CBD-based products, and that the government may be preparing to openly allow and regulate these products.

Federal Hemp & CBD Update – What’s Legal and What’s Not?

Posted by Margolin & Lawrence on January 24, 2019

CBD products are everywhere – including tinctures, creams, gummies, pills, and drinks. But is it legal to buy, sell, and produce them?  The answer may depend on where you are. In the December 2018 Farm Bill, the federal government removed CBD (and industrial hemp and all cannabis derivatives with less than 0.3% THC) from the Controlled Substances Act altogether.  But that is not the end of the story, as the FDA continues to regulate CBD products through enforcement of the Food, Drug & Cosmetic Act, and state governments also have restrictions. Federal and state laws are changing quickly in this area, so anyone involved with these products is encouraged to consult with a lawyer and stay informed on recent developments.

Federal Farm Bill Removes Hemp and CBD from the Controlled Substances Act

In September 2018, the federal Drug Enforcement Administration (part of the Department of Justice) issued a memorandum announcing that drugs including CBD with THC content below 0.1% would 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 disallowed any importing or exporting of CBD products without a permit.  

On December 20, 2018, the federal government took a further step, removing industrial hemp and all derivatives of cannabis with less than 0.3% THC – including CBD products – from the Controlled Substances Act.  This means that CBD products are no longer an inherently illegal substance under federal law, so long as they contain less than 0.3 percent THC. They are not Schedule 1, Schedule 5, or any Schedule – they have been de-scheduled. CBD products with THC content above 0.3% remain 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).

Does this mean that people nationwide now have free reign to buy, sell, and produce products with CBD as long as they don’t have too much THC?  Not quite.

Federal Law Still Restricts CBD

In June 2018, several months before the federal government removed CBD and industrial hemp from the Controlled Substances Act, the FDA announced that it had approved Epidiolax, the first drug comprised of an active ingredient derived from marijuana – CBD – to treat rare, severe forms of epilepsy.

Due to CBD’s new status as the active ingredient in a federally-approved drug, federal laws continue to restrict the use of CBD in specific circumstances, including in the use of food and non-approved drugs.  The federal Food, Drug, and Cosmetic Act is enforced by the federal Food and Drug Administration, which released a statement on the day the Farm Bill was passed, clarifying the federal status of CBD.  

It Remains Illegal Under Federal Law to Market CBD Products with Certain Health Claims Without FDA Approval

As explained by the FDA, it remains illegal under federal law to “introduce[ ] into interstate commerce” any CBD product  “that is marketed with a claim of therapeutic benefit, or with any other disease claim,” without the product first having been “approved by the FDA for its intended use.”  This same rule applies to any other product marketed as a drug for human or animal use. This means that “[c]annabis and cannabis-derived products claiming in their marketing and promotional materials that they’re intended for use in the diagnosis, cure, mitigation, treatment, or prevention of diseases (such as cancer, Alzheimer’s disease, psychiatric disorders and diabetes) are considered new drugs or new animal drugs and must go through the FDA drug approval process for human or animal use before they are marketed in the U.S.”

It Remains Illegal Under Federal Law to Add CBD to Food

The FDA also explained in its latest statement that it remains illegal under federal law to add either THC or CBD to any food products.  

“Additionally, it’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived. This is because both CBD and THC are active ingredients in FDA-approved drugs and were the subject of substantial clinical investigations before they were marketed as foods or dietary supplements. Under the FD&C Act, it’s illegal to introduce drug ingredients like these into the food supply, or to market them as dietary supplements. This is a requirement that we apply across the board to food products that contain substances that are active ingredients in any drug.”

Under federal law, then, CBD products may now be produced, bought, and sold, so long as they are not marketed with any claims of therapeutic benefit, and so long as CBD is not added to food or marketed as a dietary supplement. That is not the end of the story, however, as state laws may create additional restrictions. 

Many States Allow CBD and Other Hemp-Based Products to be Produced and Sold

According to the National Conference of State Legislatures, 39 states had some kind of industrial hemp cultivation or production program as of August 2018.

As of 2018, the states with existing commercial hemp programs are:

  • Arizona

  • California

  • Colorado

  • Indiana

  • Kentucky

  • Maine

  • Massachusetts

  • Minnesota

  • Montana

  • North Dakota

  • Oregon

  • Rhode Island

  • South Carolina

  • Tennessee

  • Vermont

  • Virginia

  • West Virginia

Now that the farm bill has legalized hemp, some states are updating their regulations on hemp and hemp-derived CBD, with more expected to follow suit in the near future. For instance, Alabama has reportedly authorized the production of hemp-derived CBD, Pennsylvania plans to allow the full commercial production of industrial hemp, Michigan no longer counts hemp-derived products as marijuana, Colorado has loosened funding restrictions on commercial hemp farming, and Utah has begun registering businesses to legally sell hemp and CBD.

In order to determine whether any CBD-based business is allowed, it is important to look at current state and local laws, to set up production operations in an area that is friendly to these products, and to make sure the business is only selling products in areas that allow them. Since the status of industrial hemp programs, as well as various laws allowing CBD-based products for medical or other purposes, are subject to change, businesses should stay in contact with local authorities to ensure they’re in compliance with the existing law.

California is one of the states that has laws in place authorizing the production of industrial hemp. However, California has not yet fully set up its industrial hemp registration and licensing system – once it does so, there will likely be more legal guidance and clarity on the sales of hemp and CBD-based products.  According to the California state Department of Food and Agriculture:  “All growers of industrial hemp for commercial purposes must register with the county agricultural commissioner prior to cultivation. Registration is not yet available. The fees and process for registration will be developed by CDFA, which will consider recommendations from the Industrial Hemp Advisory Board.”

For more information on California’s laws, check this space next week for a blog post on the current state of California’s hemp and CBD laws.

North San Diego County Cannabis Update

Posted by Margolin & Lawrence on January 18, 2019
While most of the attention on cannabis business in San Diego County has focused on the area in and around the City of San Diego, there are also a few jurisdictions in the northern half of the county with open cannabis license applications. Here's a breakdown of the licensing application processes in the cities of Vista and Oceanside.
 
City of Vista
 
The City of Vista is offering business licenses for medical dispensaries only, limited to one business per 10,000 residents of Vista (so the limit is currently 10).
 
Applications will open on January 22nd and remain open for 7 days. During this period, applicants must submit complete applications (including site plans, security plans, etc.) and a $100,000 deposit to be held by the city during the application process. Applications are limited to pre-existing registered collectives/cooperatives. If fewer than 6 businesses are granted licenses, another application period will be opened at a later time. 
 
The application form can be found online here.
 
Additionally, the city has released a list of potentially eligible locations where cannabis businesses may be located.
 
City of Oceanside
 
The city of Oceanside is  currently accepting applications for cultivation, distribution, manufacturing, testing, and non-storefront retail. From the city website:
 
The City has a limit of 5 licenses for Cultivation. There are currently 16 applications under review for cultivation.
The City has a limit of 2 local licenses for Non-Storefront Retail. There are currently 4 applications under review for Non-Storefront Retail.
There are currently 7 applications for Manufacturing and 6 for Distribution under review. There is no limit to the number of local licenses that will be issued for these types. 
The City has received no applications for Testing Labs.
 
To apply, businesses must obtain a zoning verification letter confirming their property's eligibility, and submit an application (including a business plan, security plan, etc.) along with an initial $3,471 application fee (not including the background check fees). Additional fees will be charged for each phase of the licensing application process.
 
The application form can be found online here.
 
Oceanside has also released a map of eligible zones, which can be found online here.
 
For more information on cannabis l icensing requirements in San Diego County or elsewhere in California, check our   guide to California's cannabis laws   or reach out to our cannabis attorneys directly at  info@margolinlawrence.com .
 

Mergers & Acquisitions in the Cannabis Industry

Posted by Tiffany Carrari on January 18, 2019

As the cannabis industry grows, businesses at every level are participating in mergers and acquisitions, despite regulatory hurdles. Some of the biggest players in cannabis are continuing to consolidate their holdings, while smaller operations and entrepreneurs are also seeking a way forward.

2018 saw massive expansion in the cannabis industry, led by both U.S. and Canadian industry frontrunners such as Cronos Group, MedMen, and Aurora Cannabis.

  • Aurora Cannabis

Canada’s Aurora Cannabis is now the largest producer of cannabis following its acquisitions of CanniMed and MedReleaf in 2018, as well as funding construction projects to expand production facilities. Aurora is one of many companies funding consolidation and infrastructure development projects by raising funds from investors through publicly traded securities  and bought-deal offerings.

Aurora became one of the first cannabis companies listed on a stock exchange after completing a reverse takeover to join the Canadian Securities Exchange (CSE) in 2014 and started trading on the Toronto Stock Exchange (TSX) in 2017 before having its shares listed on the New York Stock Exchange (NYSE) in October 2018. Canadian firms like Aurora Cannabis that do not have cannabis assets within the U.S. are able to list on the TSX and NYSE – both of which have restrictions against listing cannabis companies operating in the U.S. for as long marijuana remains federally illegal. Meanwhile, cannabis companies with U.S. operations such as MedMen have been listing on the more receptive CSE which does not restrict firms with U.S. operations.

In a world where traditional financing methods remain scarce, the reverse takeover model (RTO) has been a popular vehicle for both Canadian and U.S. cannabis companies looking to tap into public markets to raise capital. A reverse takeover is an attractive alternative to an initial public offering (IPO) because it allows a private company to bypass the lengthy and complex process of going public by taking control of and merging with a dormant company that is already publicly traded.

  • MedMen 

MedMen is one of several U.S. based companies now listed on the CSE following a reverse takeover last May. MedMen’s CSE listing was the company’s quickest route to access liquid capital– a move that has inspired droves of U.S. firms to seek out reverse takeover deals as a way to raise money. MedMen was steady in its efforts to raise money and consolidate throughout 2018, entering into a $120 million bought-deal financing and making the largest ever U.S. cannabis acquisition when it purchased medical-marijuana retailer PharmaCann in a $682 million all-stock transaction  that gave the firm access to 79 retail and cultivation licenses in 12 states. The acquisition of PharmaCann effectively doubled MedMen’s footprint, now the largest U.S. cannabis company.

Bought-deal financings occur when a company sells common stock, convertible debt, stock options, and/or warrants to an investor or group of investors to raise cash. Stock options, warrants and convertible debt allow an investor to purchase shares for a certain price at a later date. For instance, MedMen’s $120 million bought-deal financing deal saw the Company sell Units comprised of Class B Shares and Class B Share Purchase Warrants. Each warrant entitles the holder of such warrant to purchase one Class B Share for $10.00 for a period of three (3) years following the deal’s closing.

MedMen’s expansion sees no signs of stopping in 2019. Just this month, the company announced a new plan to raise capital by spinning its real estate out into a newly formed Real Estate Investment Trust (REIT) created in partnership with Venice, CA investment firm Stable Road Capital. The REIT has raised $133 million dollars to purchase cannabis real estate owned by MedMen and others. The REIT will then lease back retail stores, production and cultivation facilities to MedMen who will use sale proceeds for funding the company’s continued growth.

  • Cronos Group

In addition to mergers and acquisitions, we are seeing partnerships and joint ventures between companies such as Canadian cannabis producer Cronos Group, Inc. (Cronos) and MedMen. The two companies intend to form a jointly-owned third company (MedMen Canada Inc.) to bring Cronos cannabis to Canada’s retail market via MedMen branded stores.

Last month, Cronos announced that it has entered into a subscription agreement with Altria Group, Inc. pursuant to which Altria will make a $2.4 billion equity investment in exchange for common shares and warrants, resulting in Altria holding a 45% ownership interest and a total potential ownership position of 55% dependent on exercise of the warrants. Marlboro maker parent Altria’s investment in Cronos marks the dawn of big business entering the cannabis space in 2018.

Growing Pains

With so many mergers and acquisitions, both at home and abroad, there is much conjecture about which “pot stocks,” if any, are an investor’s best bet going into 2019. U.S. federal illegality has created an interesting situation where cannabis companies with U.S. based operations cannot list on NASDAQ so instead list on the CSE. Conversely, Cannabis companies with Canada based operations are able to list on the TSX and NASDAQ. Therefore, companies like MedMen have the advantage of developing operations in both countries and still list on the CSE, despite not having access to mainstream securities exchanges. While companies like Cronos and Aurora have the advantage of listing on the TSX and NASDAQ, they cannot expand operations into the U.S. – where consumer spending on legal cannabis  is expected to climb to nearly $21 billion by 2021 as compared to only $4.5 billion in Canada.

A general criticism applicable to pot stocks using bought-deal financing to fuel growth is that the continued issuance of new stock, convertible debt, stock options and warrants can result in long-lasting share dilution. Shares are diluted when outstanding share counts balloon leading to a substantial reduction in  per-share profit. The impact of dilution isn’t always immediate since convertible debt, stock options and warrants can build up for years, leading to unanticipated increases in share counts down the road. However, until access to non-dilutive forms of financing and basic banking services for cannabis companies becomes readily available, bought-deal offerings will continue as the preferred method for raising capital.

M&A Locally

Meanwhile, smaller industry players and hopeful investors are jockeying for position at the local level, focused on securing licenses, building out facilities, expanding operations and developing brands - presumably in a bid to position themselves as acquisition or partner targets for larger groups like MedMen.

Like most jurisdictions throughout California, the City of Los Angeles is still in the process of reviewing commercial cannabis license applications for cultivation, manufacturing, distribution and retail operations within the City. Many of the applicants are persons and pre-existing businesses already in operation, having been “grandfathered” in and protected as part of LA’s Social Equity Program which also mandates priority consideration in favor of applicants who meet certain criteria.

Investors are chomping at the bit to acquire existing cannabis businesses and take advantage of the priority consideration afforded to social equity applicants in Los Angeles. Likewise, applicant-operators and social equity applicants are enthusiastic about the prospect of cashing in on their advantageous position. However, investors and applicants face challenging regulatory hurdles because applicants (even those already in operation) are just that – applicants.

So long as an application for licensure is pending at the local or state level, there is no “asset” to transfer because no license has issued. The local authorizations and state temporary licenses issued by licensing authorities are not “transferable” and neither is any pending application or the right to pursue licensure as a social equity candidate. Despite these roadblocks, investors, applicant operators and social equity candidates are looking to negotiate pre-licensing agreements to bring investor capital and management support to ‘authorized’ operations, as well as financial and business development support while applicants await final licensure and until those licenses become transferable.

Furthermore, LA’s Social Equity Program mandates that some social equity candidates are required to retain certain ownership percentages in a licensee business. While these regulations are intended to protect the interests of social equity candidates, practical business considerations related to capital contributions and operating capital are more likely to dictate profit distributions among investors and social equity owners in a licensee business. Further, such regulations could inhibit social equity candidates from selling their ownership stake in a business license. Until permanent licenses are issued and become transferable, investors and applicants negotiating pre-licensing deals will need to exercise high-risk tolerance and accept that all parties will be obligated to participate in the business and license application process until the licenses become transferable assets.

Peculiarities associated with license transferability issues are giving rise to various work-around solutions and complex deal structures emphasizing the rights and obligations of investors and applicants during the period of non-transferability. For instance, in the case of an investor who desires to purchase the assets and pending license of an applicant-operator’s business, a deal may involve an initial ‘closing’ and the parties’ execution of ancillary agreements setting forth terms associated with transferring the license at a later date. Such ancillary agreements generally require an applicant to continue directing business operations, as well as remain engaged in prosecution of license applications. The applicant is then required to cooperate in transferring permanent license(s) once they become transferable. Obligations of the investor(s) include financial and management obligations during the interim period between the closing and ultimate transfer of the license. One tricky issue to deal with is how payments are made to managing parties. Such payments must be reasonably related to the work being performed and any payments based on a percentage of profits must be disclosed to both local and state authorities. Furthermore, only an applicant/licensee can direct or control the licensed activity and therefore must remain in charge of business operations pending transfer of the license(s).

Not only is the enforceability of these agreements questionable, but they also require investors and applicants to perform obligations and remain “in bed” with one another for an indeterminable amount of time. Despite inherent risks, investors are more than willing to engage in pre-licensing deals as a way to get in at the ground floor in California – the world’s largest cannabis market.

Guest Blog: Los Angeles Teachers' Strike

Posted by ELR on January 15, 2019

Yesterday, teachers in 900 schools across the Los Angeles Unified School District went on strike, forming picket lines in the rain to protest unfair working conditions. For more context on the situation, we're presenting a guest blog post by an individual with experience working as a teacher in the LA school system. 

"If all the raindrops were lemon drops and gumdrops, oh, what a rain that would be!  Standing outside with my mouth open wide…ah, ah, ah, ah, ah, ah, ah, ah, ah, ah!"

A perfect children’s song for such a rainy day, but not for today in the city of LA.  If I had to re-write the lyrics, it would sound like: the sky is crying today, as thousands of teachers are marching throughout LA. Oh, what a shame this is.

The Los Angeles education system is in crisis! Humpty Dumpty has fallen off the wall! The bough has been broken and the cradle has fallen!

Did we not see the writing on the wall this day was coming? Politicians have turned their heads, with fingers in their ears for 30 years, while our teachers have tried to manage over crowded classrooms.

The “Old Lady in the Shoe…” Sound familiar? Why do teachers have to beg for additional staff support, as well as a few extra dollars to replace out of pocket expenses?

The Los Angeles Unified School District teachers have bent over backwards! We have witnessed many accounts of disrespect from top administration, parents, and sadly from the very ones that we are expected to educate.

How did we get here?

During my primary years of education in the Los Angeles school system, there was no way that the thought to sass an adult, never the less a teacher, entered my mind.  A teacher was guarded in the same way as a parent. They were a step below your mother. You listened, you obeyed and you honored them!

The teachers of yesteryear gained support from parents, top administration and the community.  The classrooms were well-managed, with aides rotating to reinforce the day’s lesson. The administration provided opportunities for exposure with electives such as sewing, cooking, automotive, electronics and typesetting – just to name a few – that helped shape me!

Education was important! Children were important!  Again, how did we get here?

Did it start with the misuse of standardized testing? I’m just saying! Maybe? Perhaps?

I pray that Humpty Dumpty can be put back together again!

To the teachers of the Los Angeles Unified School District, thank you for wanting more than “curds and whey!”

Strike on!

- "ELR," LA supporter and mother

California Jurisdictions Open for Cannabis Retail

Posted by Margolin & Lawrence on January 8, 2019

Despite all the talk about cannabis retail in the news, it can be difficult to tell exactly when and where it's possible for businesses to apply for a cannabis retail license. Here are a few jurisdictions where applications for cannabis retail are either currently open or planned to open in the near future. 

Riverside County

Per the county planning department, Riverside is planning to give out a maximum of 19 retail licenses. While no date is currently set, the proposal process is scheduled to begin later this year.


Santa Barbara County

County is currently accepting cannabis permit applications. Storefront retail permits are limited to eight countywide, with no more than two in any supervisorial district.


Cathedral City

Applications for retail businesses are currently open, with an application form available on the city website.


City of Chula Vista

The city’s application for cannabis businesses will open on January 14th and remain open until the 18th (for Storefront Retail, Non-Storefront Retail, and Cultivation businesses) and the 25th (for Manufacturing, Distribution, and Testing Laboratory businesses.)


City of Desert Hot Springs

Conditional use permits for cannabis activities, including Cannabis Sale Facilities, are available on the city’s website.


City of Goleta

Goleta is currently accepting applications for up to 15 total storefront retail businesses.


City of Jurupa Valley

Jurupa Valley will accept priority applications for cannabis retail from January 22nd to February 6th, with non-priority applications opening on April 1st. The number of retail businesses permitted will be linked to the city's population, with 1 license given for every 15,000 residents. This currently means that the number of licenses given will be capped at 7. 

 

City of Lompoc

Lompoc is currently accepting cannabis retail license applications.


City of Moreno Valley

In December, the city raised its cap on dispensary licenses from 8 to 23. In addition to admitting qualified applicants from the last round of applications, the city will make proposal forms for new applicants available online.


City of Pasadena

The city will license up to 6 retail establishments. The permit application process is open on the city website through January 31st.


City of San Diego

The city is currently accepting applications for cannabis outlets with retail sales, up to a limit of four businesses per council district.


City of San Luis Obispo

Applications for 3 storefront retail businesses and an indefinite number of delivery-only retail businesses are open on the city website through January 29th.


City of Vista

Per the ordinance released in December, the city will be granting 3 delivery-only (non-storefront) retail licenses this year.

Asylum Seekers' Stories From the DHS "Ice Box"

Posted by Margolin & Lawrence on January 4, 2019

Last week, Senator Dianne Feinstein called for a Senate Judiciary Committee hearing on the Department of Homeland Security’s detention practices. In December, two children who were detained for attempting to cross the US border died while in government custody. As the department overseeing the Border Patrol and Customs and Border Protection, the DHS has faced intense scrutiny for its role in these deaths, as well as for the practice of child detention in general. In particular, United Nations human rights experts are investigating whether the children were being held in a type of cell known as a hielera, or “ice box.” These cells are notorious for poor conditions that reportedly include low temperatures, overcrowding, and little access to food or water. The following are accounts from other individuals who have been detained while seeking asylum, as told to attorney Jennie Stepanian.

Contra Costa Cannabis Update

Posted by Margolin & Lawrence on January 2, 2019

In November, a measure to tax and regulate cannabis businesses in Contra Costa County was approved by more than 72 percent of the county’s voters. Given that the election indicated overwhelming local approval for legal cannabis, the county has been moving toward finalizing its cannabis regulations, focusing on the county’s land use restrictions for cannabis businesses and its application process for potential cannabis operators. In December, the county’s Board of Supervisors met to discuss these issues in an open hearing. As of January, here’s where the county stands on the two matters.

Land Use Restrictions

Contra Costa currently plans to limit the number of permits granted for certain commercial cannabis activities. The proposed restrictions are as follows:

  • 4 Permits for Storefront Retail

  • 10 Permits for Cultivation

  • 2 Permits for Manufacturing in Agricultural Zoning Districts

The county has provided an interactive online map allowing prospective applicants to look up a property in order to determine its eligibility for a given cannabis activity, as well as which permits will be required to do business.

A complete list of permits that may be required for a specific property/activity, including health and water use requirements, can be found on the county’s Commercial Cannabis Permitting website.

Application Process

The Contra Costa Board of Supervisors released a preliminary draft of the county’s Request for Proposals (RFP) form. Designed as an invitation for cannabis business applicants, the RFP lays out the Contra Costa cannabis licensing process for the numerically-limited activities listed above.

First, applicants will submit a Letter of Intent (LOI) containing the basic information about their proposed business. The LOIs will be reviewed by the county, which will invite some businesses to submit full proposals. These proposals will make up the main part of the application, including complete descriptions of the prospective operation and the applicant’s qualifications.

Once an applicant’s proposal has been reviewed and selected by the county, the business will be eligible for a Land Use Permit for their commercial cannabis activity. Permits for non-numerically-limited commercial cannabis activities, on the other hand, can be applied through directly through the county’s Land Use Permit process, without the added LOI/RFP requirement.

The county currently plans to release its final RFP form on January 24, with LOIs due by February 14, proposals due by April 18, and permit eligibility granted in June/July. However, the terms of the RFP, including these estimated dates, are still subject to change. The application process, including the RFP, will be revised and brought before the Board of Supervisors again on January 22.

What the First Step Act Means for Criminal Justice Reform

Posted by Tom McMahon on December 21, 2018

On Tuesday, the First Step Act passed the Senate with overwhelming bipartisan support, 87-12. If it passes the vote in the House of Representatives, as experts predict it will, then President Trump has pledged to sign it into law.

Proponents of the Bill praise it as sensible criminal justice reform. Among its provisions, it will offer a number of changes aimed at inmate rehabilitation: more good-time credits to federal prisoners, more training and work opportunities, and the chance to earn money for escrow accounts that would service post-release expenses. There are a number of sentencing reforms as well, including giving judges more flexibility on “mandatory minimums,” where the conviction is for nonviolent drug crime. Importantly, estimates are that this relaxation could result in the reduction of sentences for 2,000 people every year. SB3649 also addresses the disparity in charges for crack and powder cocaine offenses which have historically disproportionately targeted black Americans – finally making the 2010 Fair Sentencing Act retroactive for 2,600 inmates. In addition, it also promises to ban the shackling of pregnant inmates.

However, the Bill is not without its criticisms. Backed by the Koch brothers, the Bill is designed to benefit the private prison companies, such as the multibillion-dollar giant GEO that currently runs the detention facilities warehousing immigrant families in Karnes City and Dilley, Texas. By increasing the use of electronic monitoring  of those released, it will increase their bottom line. The bill also prevents sentence reduction for those sentenced for violent crimes, excluding them from participation in the same rehabilitative programs. And though the bill would reduce mandatory minimum sentences prospectively, it does not have any retroactive effect on those already serving such sentences. Finally, excepting extreme circumstances, the shackling of pregnant women has been banned in federal prison since 2008. The bill's promise to solve this 'problem,' is disingenuous. Indeed, according to the Marshall Project, many of the provisions in the act are merely attempts to enact policies that are already in place – but have simply been ignored by the Bureau of Prisons. 

There are also significant limitations to the scope of the Bill as well. It does not remove the threat of federal prosecution in states where cannabis is legal, or lift restrictions on federally insured banks, currently barred from working with cannabusinesses. Senator Cory Gardner had worked diligently to add such an amendment, but he was blocked by Majority Leader Mitch McConnell. It is also worth nothing that the roughly 2 million prisoners in local and state custody will not be affected because it only addresses the federal inmate population of approximately 181,000Ultimately, the bill may indeed be a good “first step,” but meaningful criminal justice reform still has a long way to go.  

Lessons From the Cape

Posted by Margolin & Lawrence on December 20, 2018
By Allison Margolin with Erin Williams
 
Last week, I travelled to Brewster, Massachusetts, a small town on Cape Cod, to speak to the city planning board about a client's proposed cannabis cultivation license. The client's proposal was the first of its kind in Brewster. Since Massachusetts legalized cannabis in 2016, so far there are only three recreational dispensaries in the whole state, with more expected to open in the coming months. Nearly 80 towns have issued bans and about 90 others have moratoriums. In other words, the change has been slow. 
 During this meeting with the planning board, I quickly realized the city seemed open to the plan, but had some basic questions on what a grow and potential retail location would mean for their small community. A few board members voiced their concerns on the effects of cultivation on groundwater and the energy costs, the town traffic (a key issue for an area with two lane highways), and potential increases in crime in the area. 
 Personally, I found these questions very encouraging. When Raza and I first started our practice almost a decade ago, the stigma against marijuana use was high, especially outside of California. Now that 33 states and the District of Columbia have legalized either recreational or medical cannabis, public opinion has shifted, too. None of the questions I heard in this meeting were about the morality of using cannabis. Instead, they were all practical concerns on the industry's impact on the environment and town safety. Here I will try to address these broad concerns.
 
Impact on Environment 
 
Obviously, this will vary with each site proposal, but what I can guarantee is that a regulated cannabis market will take the necessary precautions in meeting each state and city's guidelines than the illegal cannabis market. 
One environmental concern is water use. Cannabis plants are a  thirsty bunch, which poses more of a problem for desert climates like Southern California than places like Cape Cod. Still, it is far better to have a regulated cannabis grow in your town than an illegal grow, which might divert water or disrupt irrigation. 
Another issue is the potential clearing of forests and the effects on soil as well as the potential for pollution through the use of pesticides, herbicides, and fertilizers. Many in the industry are combatting this issue by using plant nutrients and fertilizers with a low environmental impact. 
There is also the issue of energy usage. Colder climates like Massachusetts' Cape will almost always use indoor cultivation, which will require a lot of electricity. There are ways to offset these energy costs by using solar panels, LED grow lights, etc. The more that area has renewable energy options, the better things will go for the city. 
In short, there will be environmental costs, but it will not be any more harmful than say, driving an SUV or eating too much factory-farmed meat.
 
Impact on Crime Rates 
 
Although I did not get any questions on the potential for crime – probably because Brewster is one of the safest cities in the region – this is another common question for places new to legal cannabis. Will legal weed will make your town more dangerous?
In the  5 years since Colorado and Washington became the first states to legalize recreational cannabis, there has been a decrease in violent crime for both states and a decrease in youth use of marijuana. The legal market also led to an economic boom in these states. The negative result is that there is an increase in impaired driving and traffic accidents.
Ultimately, as long as there is federal prohibition, the cannabis industry will be inherently riskier than other industries. Still, the evidence shows that legal cannabis is safer than the unregulated black market, not only for cities and states but for individual consumers which requires product testing. 
 
Harm Reduction 
 
Although I never got the chance to dive into this subject at the planning board meeting, there is evidence showing that places with legal cannabis are not being hit as hard by the nationwide opiate crisis. After 14 years of steady increases in opioid-related deaths in   Colorado, there was a 6.5% reduction in 2014. This result is consistent across other places with legal cannabis, whether medical or recreational. 
Cape Cod, a vacation area that sees little business for nine months of the year, has been deeply impacted by the opioid epidemic. A 2018  report in the  Cape Cod Times showed rescuers responded to 15% more overdose calls on the Cape in 2017 than they had in 2016. The expanded use of the opioid overdose reversing drug Narcan saved a lot of lives. Even as the rest of the state saw a decrease in opioid-related deaths for the first time in 6 years in 2017, the problems facing the Cape remain. The community is aging and the lack of opportunities have driven its youth to the major cities inland like Boston. The research implies that the medical benefits of marijuana, as well as the economic opportunities that marijuana businesses provide, would only support the Cape's community.
 I believe there will always be some potential for risk when introducing a new industry to a community, especially when that industry is centered on a federally illegal substance. However, I think the rewards far outweigh the risks. 
 

Attorney Allison Margolin on Hemp Legalization & The Farm Bill

Posted by Margolin & Lawrence on December 18, 2018

In a new video for Cheddar, Allison Margolin explains some common misconceptions about hemp legalization and the 2018 Farm Bill: 

Click here to watch the full video on Cheddar's site.

The 2018 Farm Bill: What it Means for Hemp and CBD

Posted by Margolin & Lawrence on December 11, 2018

The House Committee on Agriculture is in the process of finalizing the 2018 Farm Bill, which is expected to go into effect later this month. It’s likely that the bill’s provisions will include the legalization of hemp, in the form of the removal of the plant from the government’s list of Schedule I Controlled Substances. Not only will this mean that hemp can be grown much more widely, it will also affect the production of hemp derivatives, including hemp-derived CBD. However, the legality of CBD products remains more complicated than this news may suggest.

As discussed in a prior blog post, the legal status of CBD can be very confusing to consumers, businesses, and lawmakers alike. As a substance that is derived from the cannabis plant, but is not cannabis’ main active ingredient, CBD currently occupies an unclear middle ground – particularly in California, where the state has imposed additional rules affecting how the various types of CBD may be legally used.

The legalization of hemp, though a step forward in the overall process of cannabis legalization, doesn’t do much to resolve the confusion surrounding CBD products. Even after hemp is legalized, CBD will be considered a drug and therefore subject to regulation by the FDA. Though the FDA has approved certain cannabis-derived CBD medications, CBD’s status as a drug makes it illegal to use as an ingredient in any kind of food or food additive.

Topicals, oils, and other non-edible forms of hemp-derived CBD, on the other hand, may not necessarily be banned once hemp is legalized. However, the FDA has yet to make a statement regarding this possibility – though they have sent unambiguous legal warnings to CBD businesses that make unsubstantiated or false claims about their products, indicating that they plan to regulate all CBD products to some degree, they’re less clear about the future legal status of hemp-derived CBD and non-edible hemp derivatives in general. 

In California, the law on CBD edibles will remain paradoxical even after hemp is legalized. While CBD products with THC levels of 0.3% or more will be treated as cannabis edibles and therefore legal, CBD products with lower THC levels – or no THC at all – will be considered food products and therefore banned, regardless of whether they’re derived from cannabis or hemp. However, hemp-based non-edible CBD products are not currently regulated by any state agency, meaning their legal status remains unclear. For the sake of the state’s cannabis consumers and businesses, hopefully California will respond to the new Farm Bill by clarifying the legal status of these products.

For more information on the legal status of hemp and CBD, check our Guide to California Cannabis Laws or contact our cannabis attorneys at info@margolinlawrence.com

Cannabis Update: New York / New Jersey

Posted by Margolin & Lawrence on December 5, 2018

Steps toward the legalization of cannabis in New York and New Jersey have been in the news recently. But how close are these states to having fully licensed legal cannabis supply chains? Here's a brief overview of the two states' marijuana laws and where they stand in regard to cannabis licensing.

NY State Licensing Overview

Currently, there are ten (10) “Registered Organizations” responsible for manufacturing and distributing medical marijuana in New York State. Pursuant to the Compassionate Care Act (CCA), which established New York’s comprehensive medical marijuana program in July 2014, each Registered Organization is authorized to have up to four (4) dispensing facilities. 

New York’s State Department of Health (NYSDOH) began accepting applications for registrations for a Registered Organization on April 27, 2015, with a deadline for receipt of applications on June 5, 2015. Of the original 43 applicants, five (5) Registered Organizations were approved July 31, 2015; another five (5) were registered by NYSDOH on August 1, 2017. The NYSDOH has yet to announce opening another application window for additional prospective Registered Organizations.

While New York’s Medical Marijuana Program is currently closed to would-be applicants looking to manufacture and dispense medical marijuana under the CCA, a spokesperson for Gov. Andrew Cuomo recently stated that the administration expects to introduce a comprehensive proposal for legalizing and regulating recreational adult-use marijuana in 2019. Therefore, cannabis businesses interested in becoming licensed in New York State should be looking down the road to determine next steps in preparation for licensure.

NJ State Licensing Overview

Currently, there are six (6) “Alternative Treatment Centers” (ATCs) responsible for manufacturing and distributing medical marijuana in New Jersey, pursuant to the Compassionate Use Medical Marijuana Act, which established the state's medical marijuana program in 2011. In August 2018, the New Jersey Department of Health (NJDOH) accepted 146 applications in response to its request to add up to six (6) additional ATCs. Despite a November 1st target date, NJDOH has yet to announce the successful applicants, stating that additional time is needed to complete a full review of the applications submitted. The NJDOH is not currently accepting applications to open additional ATCs. But on November 26th, the state Senate and Assembly budget committees passed Senate Act S2426, which, once passed by the full Senate and Assembly and signed into law by Gov. Phil Murphy, would require the NJDOH to issue licenses for 34 new dispensaries and six new cultivation facilities within 90 days.

Additionally, the most recent version of the New Jersey Cannabis Regulatory and Expungement Aid Modernization Act (the NJ Act) was released last week and also passed by the state Senate and Assembly budget committees yesterday, November 26th. The next step for New Jersey is a vote by the full Senate and Assembly slated for mid-December. Until then, negotiations between Gov. Phil Murphy and NJ’s legislature will continue, mostly with regard to the tax rate and how much power the proposed Cannabis Regulatory Commission will exercise over the industry.

Next Steps

Because New York is at the inception of legalizing recreational marijuana, regulations and licensing requirements for adult-use cannabis businesses have not yet been implemented. That being said, a review of the NYSDOH Medical Marijuana Program Application for Registration as a Registered Organization (https://www.health.ny.gov/forms/doh-5138.pdf) is likely a good place to start for prospective medical and recreational cannabis businesses alike.

New Jersey is closer than New York to recreational legalization, and could have a bill passed before 2019. It is important for anyone looking to establish a medical cannabis business in New Jersey to keep an eye on the passage of S2426, which would mandate NJDOH’s licensure of 34 new dispensaries and 6 cultivation facilities within ninety (90) days. However, it remains unclear whether the NJDOH would open another application window, or choose from the 146 applications submitted in August 2018. In the meantime, it would behoove any prospective cannabis business licensee to take a look at both the NJ Act (S2703), as well as the ATC permit request application materials (https://www.nj.gov/health/medicalmarijuana/alt-treatment-centers/applications.shtml). Because the NJ Act gives local governments the power to enact their own cannabis regulations and ordinances – prospective licensees will first need to make sure their cannabis business will be permitted by their local jurisdiction.

While we recognize that any future recreational adult-use business license applications will differ from the above-mentioned applications for Registered Organizations and ATCs, much of the information requested will most certainly be the same. As is standard throughout jurisdictions that have legalized the use of both medical and recreational marijuana, any cannabis business seeking licensure will need to make full disclosures of entity, ownership and financial information, as well as identify and describe proposed facility locations, buildings and equipment. Additionally, those seeking licensure will need to provide licensing authorities with an extensive operating plan with detailed descriptions of policies and procedures related to its operations including but not limited to: processes, devices, security, quality assurance, recalls, staffing and record keeping.

To get a head start as the regulatory frameworks for cannabis businesses in New York and New Jersey continue to develop, anyone looking to establish a cannabis business in either state should be taking steps to create a tentative operating plan, focusing on those aspects and information that can be reasonably assumed as required for any future licensing application.

For more information on cannabis licensing in New York, New Jersey, and any other state, contact our cannabis attorneys at info@margolinlawrence.com.

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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.