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.

How Would a White Labeling Ban Affect Cannabis Business?

Posted by Margolin & Lawrence on December 3, 2018

What is white labeling, and how might the proposed white labeling ban affect commercial cannabis deal structures?

Both established and nascent players in the cannabis industry have turned to white labeling – rebranding an existing product under a different producer's name – as a means to carve out their niche. For instance, some manufacturers in the process  of obtaining proper local and state licenses have entered into contractual arrangements whereby they source product from licensed cultivators or manufacturers before branding and distributing the product as their own. Other deals see established brands, traditionally unassociated with cannabis, staking their industry claim by offering their intellectual property (branding) and promotional efforts in joint ventures with licensed manufacturers looking to find brand awareness for their product.

Despite the fact that white labeling is standard operating procedure in product manufacturing at large, the current version of the California Bureau of Cannabis Control’s proposed regulations have been interpreted by industry stakeholders who are disturbed at what is being called an outright ban on intellectual property licensing. While §5032 seems to be taking aim at arrangements whereby non-licensees are purchasing, packaging and selling cannabis without a license, the language has been interpreted to reach as far as to ban licensees from entering into trademark licensing agreements with brand owners. Such interpretation could even prohibit a parent company from holding its licensed cannabis manufacturing operations in one entity and its unlicensed brand in another – suggesting the need for license options to facilitate trademark licensing in the cannabis space:


If  §5032 is promulgated as currently drafted, the strictest interpretation would force parties currently engaged in white labeling to re-structure their deals or get proper licensing. Established brands may need to sell rather than license trademarks – effectively forcing or keeping brand owners out of the cannabis industry and companies holding their brands in separate entities may need to obtain additional licenses – an expensive and time consuming endeavor.

Other types of arrangements may or may not meet regulatory requirements. For instance, would it be OK for a cannabis brand to operate as an unlicensed subsidiary of a licensed manufacturer? What if the unlicensed cannabis brand acquires an ownership interest in the licensed manufacturer, but remains unlicensed itself? At the moment, the answers to these questions are unclear.


Until the industry is provided with some official guidance from the BCC or the regulations are tested, many licensees and non-licensees operating in cannabis will need to examine and possibly modify their business relationships or look into licensing options in attempt to stay compliant.

Fun fact: Wine industry folks who purchase bulk wine before bottling/branding/selling it as their own combine two licenses (17/20) to achieve ABC compliance. A type 17 is a beer/wine wholesaler license and a type 20 is an off-premise beer/wine retailer license.

For more information on cannabis business and licensing, reach out to our California cannabis attorneys at info@margolinlawrence.com.

Los Angeles Cannabis Update: November 29 LA Cannabis Regulation Commission Meeting

Posted by Raza Lawrence on November 30, 2018
Our cannabis attorneys attended yesterday's meeting of the LA Cannabis Regulation Commission. Here are our main takeaways on what was discussed.
 
1.  Enforcement Tactics Against Unlicensed Dispensaries
 
The following enforcement tactics are being considered by City Council:
  • Disconnecting DWP utility services to unlicensed businesses
  • Issuing citations to certain employees working in unlicensed businesses
  • -Sending cease and desist letters to businesses and landlords
  • Requiring all licensed retailers to display an emblem so the public knows whether a given business is licensed
  • Sending letters to creditors and contractors of unlicensed businesses 
  • Bringing civil and criminal cases against unlicensed businesses

2. Opportunity to Appeal Rejected Dispensary Permits


Applicants who applied in Phase 1 and were found to be ineligible based on failure to qualify as an Existing Medical Marijuana Dispensary were given a chance to appeal the written findings of the DCR. These parties were given an opportunity to present their points, with back-and-forth discussion on the points of the appeal with members of the commission.

Each Applicant appealing was allowed either have a single person present the appeal or to have multiple witnesses – each side was allowed to submit any documents up until a week before hearing, and given 10 minutes to present arguments and evidence. The DCR was then allowed to present its case and findings for 10 minutes. The hearing officer could grant either side more time if appropriate, and the applicant was allowed 5 minutes at the end of the session to address DCR’s comments, followed by discussion and questions.

The main issues in the appeal were whether the Applicant had a 2017 L050 BTRC or, if no 2017 BTRC, if the Applicant had a L050 2015 or 2016 BTRC and met all the pre-ICO requirements, including registering for the ICO in 2007.  One applicant was rejected who met all the requirements other than registering for the ICO in 2007 (the City reviewed records of office of city clerk regarding who was on the ICO registry), even though the business had BTRCs from 2007 to 2015 and had been paying taxes all along.

One applicant claimed another applicant mis-used the applicant’s ICO filing, applying under it for priority registration even though he was not an officer or director of the ICO registered entity. However, it turned out the ICO registered entity had registered as a sole proprietor “doing business as” a name similar to the current applicant, and the current applicant corporation was just using a similar same name as the 2007 entity but had a different legal name and different tax history and was a separate legal entity.

There were disputes during the appeals involving BTRCs issued with different account numbers or different entities, BTRCs that had been erroneously issued for addresses outside LA and then closed out, and BTRCs issued to related entities that had failed to follow merger process with the city. As a rule, only the same business entity that meets the eligibility requirements is eligible for priority processing.

Parties found ineligible for priority processing were encouraged to re-apply in Phase 3 general licensing, anticipated to open in 2019.  Going forward, the DCR will prioritize annual licensing for Phase 1 and 2 applicants first, then registration for social equity applicants, and then Phase 3 will open.

For more information on the cannabis licensing and social equity process in Los Angeles, keep checking this blog or reach out to our cannabis attorneys at info@margolinlawrence.com.

Sunset Clauses and California Cannabis

Posted by Jenna Rompel on November 27, 2018

Twilight is approaching in the state of commercial cannabis in California. Pursuant to the Medicinal and Adult-Use Cannabis Regulations and Safety Act (MAUCRSA), Business and Professions Code Section 26050.1, each of the state licensing authorities regulating commercial cannabis are subject to a Sunset Clause that prohibits the issuance or extension of temporary state licenses starting January 1, 2019.

What does this mean for you?

As a reminder, California has a dual-licensing system regulating commercial cannabis in the state. To operate legally, you must have both a local license issued by the local jurisdiction where your business is established, and a state license issued by one of the three state licensing agencies, the Bureau of Cannabis Control (BCC), California Department of Public Health (DPH), and California Department of Food and Agriculture (CDFA). Pursuant to MAUCRSA, the state temporary license enable business to operate while the state processes the annual license application. If you have already received a state temporary license and it expires prior to this date, you must submit an application for an annual license in order to receive the extension.

Each agency has set their own requirements dependent on the license type applied for and may be subject to compliance with ancillary agencies at the state level. Look through the application materials thoroughly, and consider consulting with an attorney to ensure you are in compliance with the necessary documentation.

To apply for a state temporary license, at a minimum you will need:

  • Local Authorization

  • Premises Information

  • Evidence of Legal Right to Occupy

Should the state deem any part of your application incomplete, they will notify the primary contact with an opportunity to rectify any insufficiencies. This will inevitably delay the review of your application until all deficiencies are rectified. We would like to reassure our readers this is a normal part of the licensing process and is common practice to go back and forth with the state to ensure your application is in line with the regulations.

DO NOT DELAY

We advise sticking to the state’s December 1 recommended deadline to submit your application for a temporary license. The review period can take up to several weeks so make sure to submit the application timely to ensure there is sufficient time to receive the license. You may still apply for an annual license after the new year, but are subject to the state’s review period until they issue the annual license. The review period of the annual application can take up to several months. If you do not hold a valid local and state license you are prohibited from conducting commercial cannabis operations in the state.

This can have an significant repercussions for businesses to take into consideration. For example, if you are paying rent on the property and cannot operate can cause significant financial strains. We recommend consulting with an attorney in preparation of the annual license.   

California Department of Public Health - Regulates Cannabis Manufacturing

https://www.cdph.ca.gov/Programs/CEH/DFDCS/MCSB/Pages/MCSB.aspx

California Department of Food and Agriculture - Regulates Cannabis Cultivation

http://calcannabis.cdfa.ca.gov

Bureau of Cannabis Control - Regulates Cannabis Retail, Delivery, Distrbution, Testing, Microbusiness

https://bcc.ca.gov/

CBD Confusion

Posted by Raza Lawrence on November 14, 2018

Cannabidiol (CBD for short) is a naturally-occurring element of the cannabis plant that has recently exploded in popularity and availability.  Like tetrahydrocannabinol (THC), CBD is believed to have therapeutic and medical benefits, but unlike THC, CBD has no intoxicating effects.  Across the country, people can now find CBD products everywhere.  But are they safe and legal?

Many products advertised as CBD are imported from other countries or produced in unregulated, unlicensed operations, with no verification that they are free from toxic compounds or that they even contain CBD.  Even if the products contain “pure” CBD, knowledgeable experts contend that CBDs have little or no benefits when they are stripped from THC and other cannabinoids and compounds naturally occurring in the marijuana plant. CBDs appear to exhibit their medical and healing properties only when they are left combined with the other cannabinoids like THC, as they are found in nature.

CBD Production and Sales Remain a Federal Crime Without FDA Approval and a Doctor's Prescription

The law on CBD products is confusing, due to conflicts among local, state, federal, and international laws.  Under the Supremacy Clause to the US Constitution, federal law controls to the extent it conflicts with state or local law.  State law also controls to the extent it conflicts with city or county laws.  Federal law in this area is moving, but it is not clear in what direction.  Some predict the federal government will relinquish all regulation of CBDs and cannabis generally to the states, and keep a hands-off approach.  Others expect the federal government to strictly regulate CBDs and cannabis as they do with prescription drugs through the FDA, leaving the states with little control.  This approach was foreshadowed by the DEA’s recent memo announcing that drugs including CBD with THC content below 0.1% will be taken off of Schedule 1 of the controlled substances schedules, and moved to Schedule 5, which allows CBD products to be sold through traditional pharmacies with a doctor’s prescription so long as the particular product is first approved by the FDA. The order also disallows any importing or exporting of CBD products without a permit.

Under federal law, CBD with THC content above 0.1% remains classified as a Schedule 1 controlled substance, subject to severe criminal sanctions. The Rohrbacher-Farr amendment creates a limited exception, preventing the DOJ from prosecuting anyone in strict compliance with state medical marijuana laws (adult-use or recreational uses of CBD products may still be prosecuted).

Without Commercial Cannabis License, CBDs Are Banned in California Food Products

In California, the Department of Public Health recently issued a memo confirming that CBD products are not allowed in any food products in the state (unless the products are regulated as commercial cannabis edibles, which by definition contain THC levels of at least 0.3%). Thus, under state law, CBDs are allowed to be sold and ingested as long as they include THC, and are banned in food if they come from industrial hemp with little or no THC. The reason CBD products with no THC are banned by state law is that California incorporates federal law regarding food additives, dietary use products, food labeling, and good manufacturing practices for food.  Currently, the United States Food and Drug Administration (FDA) has concluded that it is a prohibited act to introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.

This is regardless of the source of the CBD – i.e., whether the CBD is derived from cannabis or industrial hemp. CBD used as a topical or smokeable product could arguably be allowed under either federal or state law as it may not be considered to be a food that is ingested.

Los Angeles Allows CBD Businesses Without a Cannabis License to Register for Business Tax Certificate to Engage in Commercial Activities

The City of Los Angeles recently issued a form for businesses seeking a Business Tax Registration Certificate to engage in commercial activities related to industrial hemp and/or CBD derived from industrial hemp in the City of Los Angeles. This form allows your business to pay local taxes, but it does not protect you from criminal prosecution under state or federal law.  It likely also signals that enforcement of state CBD laws is not a high priority of the Los Angeles Police Department.

International Treaties Ban All Cannabis Extracts Including CBDs

In addition to local, state, and federal law, international treaties place obstacles to the sale of CBD products. The United Nations has had a series of International Drug Control Conventions (treaties of which the US and Canada are part), and while CBD is not specifically listed in the schedules of the Conventions, "extracts" of cannabis are apparently included within Schedule 1, meaning they are prohibited.

Given the controls required by the UN Conventions, the US would be unable to keep its obligations under the treaties if CBD products were de-controlled under federal law. The Federal Controlled Substances Act, moreover, indicates that scheduling decisions will be made in accordance with treaty obligations.  For example, under section201(d)(I) of the CSA, if control of a substance is required under an international treaty or convention in effect on October 27, 1970, the Attorney General is required to impose controls on the substance by placing it under the schedule he deems most appropriate to carry out such obligations. 

The World Health Organization Expert Committee on Drug Dependence is scheduled to review the UN’s classification of CBD, THC, and cannabis in general at its November 2018 meeting, which could lead to a change in the international treaty.

The result of all these different layers of law leave many confused. We expect that the laws will adapt over time to allow for open sales of CBD products, whether or not they also contain THC.  For now, however, the law is full of problems for CBD products and cannabis in general, and we applaud those working to reform the laws for these products that are all around us.

Everything You Need to Know from the Pasadena Application Workshop

Posted by Raza Lawrence on November 14, 2018
On Tuesday   night, the city of Pasadena hosted a presentation on cannabis licensing with a planning consultant. Here is what we learned from the meeting.  
 
Regulations for cannabis businesses were voted in on   June 5th  by Pasadena voters. As a pragmatic and conservative city, Pasadena's licensing focuses on exercise of local control – with the aim of protecting its residents from secondary effects through land use regulation. 
 
The application period is from   January 1st to January 31st at   11:59 p.m.  There will be a notice of the 30-day period on   December 14th. Currently there is a draft of the review criteria available. The final criteria will be released on   December 14th.  
 
The whole application, as well as payments, may be submitted electronically. Pasadena's selection committee will not give special weight to applications submitted on   January 1st  versus   January 31st, and will not look at anything until the application window closes. The application fee will be approximately $10,000 per category. 
 
The application requires qualifications of the operator, cover letter, business plan, background, experience dealing with government agencies, neighborhood compatibility and enhancement, and security plan. The limit is 50 pages of text and images. You do not have to have a confirmed site in order to apply. 
 
When the application portal closes, there will be an initial screening of applications - did the applicant answer all questions? is the application in full compliance? - to ensure the application is complete and responsive. 
 
Once applications are scored, top applicants will be notified and will have the  opportunity to go forward and secure land use permits and public  health permits – this is period when you need to lock down your sites,  look at buffer zones, and so on.  These sites must also be located at least 1,000 feet from  any other cannabis retailer.
 
All the scoring will be based on written submissions, but the city reserves the right to start an interview process of the final applicants. 
 
Pasadena will allow up to 6 retail permits in the city, one per council district, so long as they meet the required separation from schools, parks, and residential properties. 
 
Another point about delivery: people with licenses in other cities are allowed to deliver in Pasadena. Pasadena will not have separate delivery licenses, but the retail licenses will allow both storefront and delivery. 
 
Pasadena will allow up to 4 cultivation sites in the city, indoor only. These cultivation sites must be in commercial general and industrial general zones. 
Pasadena will also allow 4 testing laboratories in the city where other medical labs are allowed. 
 
For more information from the workshop, see the handouts at the City of Pasadena website. These include details of the proposed scoring system. 
 

Medical Marijuana Labeling Requirements 101

Posted by Donna Thompson on November 6, 2018

Guest post by Donna Thompson, customlabels.net

Medical marijuana has been legalized in more than half of the states in the U.S. It is used for easing the symptoms of pain, nausea and vomiting, glaucoma, post-traumatic stress disorder (PTSD), and epilepsy. Although the number of people that advocate legalization of marijuana for medical purposes is on the rise, not all states in the U.S. have said “yes” to the legalization.

That’s why there is no federal law, and there are variations in medical marijuana laws in different states.

While some states allow the use of medical marijuana extract only, in other states it is allowed to use the whole plant.

When it comes to ways of obtaining medical marijuana, in some states dispensaries are the only place where you can buy it, but in others, like Michigan, you are also allowed to cultivate the plant in your own home.

Also, lists of medical conditions that qualify for medical marijuana treatment differ from state to state. That means that if you get a medical marijuana card in one state, you can buy a medical marijuana product in some other state only if that state lists your condition as one that can be treated with medical cannabis.

The absence of federal laws affects both consumers and producers of medical marijuana.

Besides all of these differences, states that legalized marijuana usage for medical purposes have different requirements for labeling and packaging medical marijuana products. Thus, when medical marijuana producers want to put their product on the market, they must comply with state specific regulations. For example, when it comes to packaging, products need to be tamper-proof and child-proof. As for labeling, the following infographic shows what common labels for medical marijuana products look like in the states that have legalized marijuana:

Cannabis and the 2018 Midterm Elections

Posted by Erin Williams on November 5, 2018
The 2018 Midterm Elections are perhaps the most important in recent memory. They are the first, best, and last hope the Democrats have to set a blue wave through Congress and provide some much-needed resistance to the actions of the Trump administration. However, the excitement has overshadowed the conversation on cannabis. 
 
On   November 6th, Michigan and North Dakota will vote on statewide measures to legalize recreational cannabis. Meanwhile, Utah and Missouri will consider legalizing medical marijuana.  
 
Although California is one of the most pot-friendly states in the nation, the future of the legal cannabis industry does depend on a few races. 
 
In the governor's race, Lt. Gov. Gavin Newsom is predicted to beat Governor Jerry Brown. Gov. Brown has said unflattering things about cannabis users in the past. However, in recent months he has approved a bill giving   privacy  to recreational marijuana users and signed another bill that   expunged many marijuana-related crimes. Still, Lt. Gov. Newsom, a former San Francisco mayor, is the frontrunner and a longstanding supporter of cannabis reform.
 
For the U.S. Senate, eyes are on Sen. Diane Feinstein (D) to be re-elected. Feinstein has evolved her position over the years from supporting the war on drugs to supporting states' rights to set cannabis policy. It is also worth mentioning that as a member of the Senate Judiciary Committee, Sen. Feinstein recently co-sponsored a bill that would deschedule cannabis. 
 
Another incumbent, U.S. House Representative Dana Rohrabacher (R-Huntington Beach) faces Democratic challenger Harley Rouda.  Rep. Rohrabacher was one of the creators of the Rohrabacher-Farr Amendment, which protected legal medical marijuana users from federal prosecution. But Rohrabacher's vocal support of Russia and Putin could lead to his defeat   on Tuesday. A recent   New York Times  poll  shows Rohrabacher and Rouda tied. Rouda has not come forward with any cannabis policy and is assumed to be neutral.
 
For more information on cannabis this midterm season, Leafly has an excellent   piece. Find your polling place   here
 
And from everyone at Margolin & Lawrence, GO VOTE!

Where are Cannabis Lounges Allowed?

Posted by Margolin & Lawrence on November 1, 2018

As recreational cannabis becomes legal in California, the marijuana industry is expanding into a number of different spaces that previously were impossible to operate in legally. One of the most exciting of these new opportunities is the cannabis lounge. Made famous by Amsterdam’s marijuana cafés, lounges are cannabis retail businesses that also allow for the on-site consumption of cannabis – an exciting possibility for customers, business owners, and investors alike. However, while a great deal of interest in these businesses exists across the state, only a few jurisdictions in California plan to allow cannabis lounges, and only some of those locations currently are open to licensed cannabis lounge operations.

When it comes to cannabis lounges currently in operation, the Bay Area is ahead of the pack by a wide margin, with a number of cannabis lounges fully licensed and open for business – seven in San Francisco and one in Oakland, according to a recent Leafly article. No other jurisdiction, in California or elsewhere, has more individual lounges in operation. However, several other cities in California are in the process of opening up for fully licensed cannabis lounge business.

After the Bay Area, the Los Angeles area is furthest ahead in the process of cannabis lounge licensing. Earlier this year, West Hollywood opened applications for cannabis lounges, planning to grant a total of 16 licenses – 8 for edible-only lounges, and 8 for lounges allowing edibles, smoking, and vaping. These applications are still under review, but the city plans to announce its decisions by the end of November, meaning operational businesses may be only a few months away. The city of Los Angeles has also shown interest in social consumption lounges. Between LA City and West Hollywood, this indicates that LA county may not be far behind the Bay Area when it comes to cannabis lounges.

While San Francisco and Los Angeles are the largest California cities to move toward legalizing cannabis lounges, several other areas in the state are beginning to explore the possibility as well. Earlier this month, the city of Eureka voted to allow on-site consumption. After voting to approve cannabis lounges last year, the city of Palm Springs issued its first permit for on-site cannabis consumption this summer, and, though the business in question has yet to open, several other communities in Coachella Valley are considering following suit.

While cannabis lounges remain a controversial issue in many communities, with local residents concerned about the potential nuisances that may come with legal on-site consumption, many cities across California are also beginning to see their potential economic and social appeal. Given the large amount of consumer interest demonstrated in the cities that have already moved toward licensing on-site consumption, the number of jurisdictions embracing legal cannabis lounges can be expected to increase in the future.

New Cannabis Legislation in Riverside County

Posted by Margolin & Lawrence on October 30, 2018

Last Tuesday, the Board of Supervisors in Riverside County approved an ordinance allowing the following commercial activities starting on 26th December: Testing, Manufacturing, Distribution and Wholesale Nurseries. There is now a 60-day deliberative period regarding the cannabis businesses in Riverside based on the newly approved ordinance. The Board also voted to allow a limited number of dispensaries and cultivators to operate in 2019. Up to nineteen dispensaries and fifty grows will be permitted in unincorporated Riverside County as decided by a 3-2 vote following a public hearing that last nearly four hours. The Board also approved an “Implementation Plan for Retail and Cultivation” uses that is scheduled for process in early January 2019. The proposal process will include pre-registration by interested applicants, and the issuance of a Request for Proposals by the Planning Department. However, there are certain conditions that will be enforced regarding additional taxation and fees associated with each of these activities as determined by the Planning Commission.

Is Marijuana Legal in Your Country?

Posted by Herbonaut on October 23, 2018

Marijuana remains a controversial issue in many countries other than the United States, and entrepreneurs interested in cannabis business may be curious about the legal status of marijuana in other nations.

Courtesy of Herbonaut, here's an infographic breaking down the legality of cannabis use across Europe:

Cannabis Business Law

Posted by Margolin & Lawrence on October 19, 2018

California cannabis entrepreneurs have to go through the often lengthy and cumbersome process of applying for local and state commercial cannabis licenses.  But that is only the beginning of the journey to becoming a successful, fully-compliant business in this emerging industry.

Entrepreneurs interested in operating a cannabis business in California must decide how their business will operate and what business structure will work best for their specific business goals. They must consider the commercial, legal, and tax implications that come with deciding which business structure they want to operate under.  

Once entrepreneurs have decided which business structure will best work for their specific business goals, the next step is to begin the entity formation process. This process consists of deciding what the Company name will be and drafting the entity formation documents that will determine how your cannabis business will operate.

As a full-service cannabis law firm, we represent many clients who have gone through this process already. Two of the most common business structures we have seen entrepreneurs decide to start their cannabis business as have been Limited Liability Companies (LLCs) and Corporations. Although there are some similarities between both business structures, there are some major differences that entrepreneurs need to understand prior to beginning the entity formation process.  

At Margolin & Lawrence, our cannabis attorneys can help you with all the formation and governing documents for your LLC, such as the articles of organization, operating agreements, and statements of information. If you decide on structuring your cannabis business as a corporation, our cannabis attorneys can help you with your corporate formation documents such as bylaws and articles of incorporation.

Additionally, we understand how important it is for new businesses to raise capital to continue to grow their business. Given that cannabis is still illegal under federal law, entrepreneurs looking to raise capital for their cannabis business need to seek private investment capital. In order to do so, there are a series of important documents private investors want to examine before they decide to invest in your cannabis business.

For instance, companies looking to raise capital need private placement memoranda (PPMs) and subscription agreements. A PPM is a legal document that is given to prospective investors when selling stock or any other security interest in a business. The PPM provides prospective investors with an in-depth look at your business, including management, analysis of operations, risks factors, financial information, among other things. The goal of the PPM is for prospective investors to be fully informed about all aspects of your cannabis business.

A subscription agreement is an agreement between a corporation and the investor (the subscriber) in which the corporation promises to sell a certain number of shares at a specific price to the subscriber and, in return, the subscriber promises to buy the shares at the agreed upon price.

At Margolin & Lawrence, our cannabis attorneys can help you and your business with any capital-raising compliance and legal representation. Additionally, our cannabis attorneys can help you decide which business structure best meets your cannabis business goals. And we can help your cannabis business remain compliant with all the governing laws every step of the way, including ongoing compliance with state and local commercial cannabis regulations and employment laws, avoiding and minimizing the expenses of civil litigation, addressing the implications of federal illegality of cannabis, and helping to informally resolve any internal or external disputes that jeopardize the business operation.

Central Coast Update

Posted by Jenna Rompel on October 16, 2018

Commercial cannabis is heating up on the central coast. Here’s a look at what’s green:

The City of Goleta began accepting cannabis planning applications on August 17th. Applicants will need to obtain either a Land Use Permit or Conditional Use Permit issued by the Planning & Environmental Review (PER) Department. A Cannabis Business License will only be issued upon approval by the PER Department. Applicants are required to submit an Odor Abatement Plan and Certification approved by a Professional Engineer or Certified Industrial Hygienist. In addition, cultivators will need to show proof of consultation with Southern California Edison (SCE) showing participating in SCE’s Savings by Design Program as well as participation in the Resource Innovation Institute’s Calculate Powerscore Tool. More information on Conditional Use Permits and Land Use Permits for cannabis operators in the City of Goleta can be found here.

Cannabis Business Licenses will be valid for one year from January 1 to December 31, regardless of when the license was issued. Something to consider as we approach the latter end of the year, as all businesses will need to renew their license prior to January 1 and pay the applicable renewal fee. The amount of retail licenses the city will issue has been limited to 15. The city will review applications on a first-come, first-serve basis and will implement a waitlist for potential retailers. More information on Cannabis Business Licenses for the City of Goleta can be found here.

The City of Lompoc is open for all cannabis operators with the exception of outdoor cultivators. Currently, there is no cap to the amount of licenses the city will issue and will allow for onsite consumption. Prospective operators will need to obtain a commercial cannabis use license issued by the City. Application materials and information on the city’s laws and regulations can be found here.

Santa Barbara County is expected to open by the end of the year for new businesses. Prospective applicants will first need to obtain either a Land Use Permit or Conditional Use Permit. Permit type is dependent on whether you are located inside or outside the Coastal Zone and distance to sensitive use receptors. Check here for information on land use and zoning in Santa Barbara County. A maximum of 8 licenses will be issued for retailers and all outdoor cultivation has been prohibited in the Coastal Zone. Once you have received the applicable land use or conditional use permit, you will then need to apply for a Cannabis Business License. Application materials for a Cannabis Business License will be made available here. Supplemental information may be required such as, environmental and energy conservation measures dependent on your zone. Be sure to check through the application requirements carefully and thoroughly or consider hiring an attorney to breakdown the process.

For more information on cannabis licensing, check out our guide to California cannabis laws or reach out to us at info@margolinlawrence.com.

San Francisco Cannabis Licensing & Equity Program

Posted by Xochilt Gama on October 4, 2018

San Francisco’s Golden Gates have opened for those interested in running their cannabis business in the City and County of San Francisco. Although the San Francisco Office of Cannabis is currently accepting applications, not everyone is welcomed to apply just yet.

Currently, the San Francisco Office of Cannabis is accepting applications only for applicants who are applying through the Equity Program or as an Equity Incubator. Those who do not meet the criteria to apply under the Equity Program or as an Equity Incubator, will need to wait to apply after the San Francisco Office of Cannabis opens applications, which they expect will open before 2019.

In order to apply as an Equity Applicant, there are numerous requirements the applicant needs to satisfy. First, the equity applicant must:

  • Apply as a person, which means that a company cannot apply under the Equity Program
  • Have net assets below established limits for each household (click here for more details)
  • Be one of the following:
  1. The business owner
  2. Own at least 40% of the business and be the CEO
  3. Own at least 51% of the business
  4. A board member of a non-profit cannabis business where most of the board also qualify as Equity Applicants
  5. An individual with a membership interest in a cannabis business formed as a cooperative.

Additionally, the equity applicant must meet 3 out of the following 6 equity conditions:

  1. Have a household income below 80% of the average median income in San Francisco for 2017. This amount is calculated based on how many people are in your household (click here for more details.)
  2. Have been arrested for or convicted of the sale, possession, use, manufacture, or cultivation of cannabis (including as a juvenile) from 1971 to 2016
  3. Have a parent, sibling or child who was arrested for or convicted of the sale, possession, use, manufacture, or cultivation of cannabis (including as a juvenile) from 1971 to 2016
  4. Lost housing in San Francisco after 1995 through eviction, foreclosure or subsidy cancellation
  5. Attended school in the San Francisco Unified School District for a total of 5 years from 1971 to 2016
  6. Have lived in San Francisco census tracts for a total of 5 years from 1971 to 2016 where at least 17% of the households had incomes at or below the federal poverty level. To determine whether you satisfy this condition, please click here to see a map showing areas of significant poverty in San Francisco. 

Those who satisfy the criteria to be an Equity Applicant will not have to pay the $5,000 permit fee for this year. However, equity applicants will have to pay for renewals.

Equity Incubators will also provide Equity Applicants with rent free space for 3 years or technical assistance to help Equity Applicants run their business. Once the Equity Applicant has satisfied the eligibility criteria, the San Francisco Office of Cannabis will help equity applicants partner with an equity incubator business. The Office of Cannabis will send a list of verified equity applicants, which will help equity applicants and incubator businesses find one another.

To find out more about the Equity Incubator program, click here.

Equity Applicants can apply for the following licenses:

  • Cultivation
  • Distribution
  • Manufacturing (volatile or non-volatile)
  • Retail (medical and adult use)
  • Delivery only retailer (medical and adult use)
  • Medicinal cannabis retailer (medical only)
  • Testing Laboratory
  • Microbusiness (can conduct up to 4 activities: cultivation (less than 10,000 sq. ft.), manufacturing (non-volatile only), distribution, and retail.

More information about the application process and requirements can be found on the San Francisco Office of Cannabis website.

Additional State Licensing Requirements and Permits

Posted by Margolin & Lawrence on October 2, 2018

Getting a commercial cannabis license in California is complicated enough when coordinating your proposed business activities with a variety of government agencies. Depending on what activity (or activities) your business plans to conduct, every commercial cannabis license will ultimately be processed by one of three state agencies: the Bureau of Cannabis Control (BCC), the California Department of Food and Agriculture (CDFA) or the California Department of Public Health (CDPH). In addition to applying through these departments, your business may need permission from regulatory agencies that manage peripheral elements of the cannabis industry. This may include attaining water permits, landscaping protocols, motor carrier permits, and certification of processing equipment. This will, however, depend on what activities your business seeks to engage in, and will require due diligence and -in many cases - subcontract work. All license applications require the business to register for a seller’s permit with the California Department of Tax and Fee Administration (CDTFA). Every applicant must also comply with the Department of Toxic Substances Control’s database, known as EnviroStor, which tracks cleanup, permitting, enforcement, and investigation efforts at hazardous waste facilities and sites with known or suspected contamination issues. The other type of compliance required for all activities is through the California Environmental Quality Act (CEQA), which is primarily enforced by the Bureau of Cannabis Control. However, CEQA compliance was recently resolved for all licensees in an Environmental Impact Report.

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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.