Don't panic. Although the first application cycle for cannabis retail licensing in the City of Los Angeles closed this morning, the real fun is only beginning. After today, the City’s Department of Cannabis Regulation (DCR) will begin to process and review applications submitted in Round 1. Over 800 applications were submitted in the first round, but only 100 applicants will be issued a license through this electronic process. Applicants who are unable to obtain a license in Round 1 of Phase 3 will be eligible to apply for one of the 150 licenses to be issued in Round 2, although it is anticipated that the final round will yield an even larger applicant turnout. However, applicants can apply for a license in an area of undue concentration, and there is no limit on the number of licenses that can be issued through the undue concentration process. Under Los Angeles Municipal Code (LAMC) SEC. 104.20 (Part a.), the number of Social Equity licenses to non-Social Equity licenses is 2:1, which means that if 190 licenses were issues through Measure M Priority Round 1, 380 should be issued through a combination of Round 1 and Round 2 Phase 3 processing, and the "Public Convenience or Necessity (PCN)" process (for areas of undue concentration) described below. If the city abides by its own ratio, 130 retail storefront licenses will be authorized in addition to the 250 through the electronic process.
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.
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.
Allison Margolin, founder and partner of Margolin & Lawrence, spoke on Wednesday about dosing regulations at the State of Cannabis conference in Queen Mary, Long Beach. The maximum dosage is 100 mg of THC for packaged edible products, and each serving can contain no more than 10 mg. This was established in the final re-adoption of the emergency regulations (CCR, Title 17, Division 1, Chapter 13, §40305), and while these limits may frustrate consumers with a higher tolerance, larger doses of concentrated cannabis products are allowed in non-edible forms. Under §40306 of the regulations, topical products, concentrates and other non-edible products (including tinctures and capsules) may be sold in amounts up to 1,000mg per package. a special recommendation to get a larger dose (up to 1,000mg) without medical prescription. Up to 2,000mg per package is also permitted under this provision, but only for medicinal-use customers and with appropriate labelling.
Originally, Senate Bill (SB) 1459 was written to allow the county agricultural commissioners (CACs) to include cannabis among reports about the condition, acreage, production, and value of the county’s agricultural products as submitted to the Secretary of Food and Agriculture. The bill was first introduced in the California State Senate on February 16th, 2018, by Senator Cannella (coauthored by Senators Galgiani and McGuire, Assembly Members Caballero and Wood). The impetus for suggesting that CACs report cannabis as an agricultural product was based on the National Agricultural Statistics Services assessment that “providing crop statistics is basically a way to stabilize the agricultural marketplace." Such action would ultimately facilitate the integration of cannabis cultivation into the marketplace, and moreover encourage unlicensed growers to legitimize their businesses. After passing the Assembly Appropriations Committee 13-4 on August 8th, SB 1459 then received a majority vote upon a third reading on the Senate floor.
As of January 1st, 2018, the long wait is over: cannabis business owners can apply for California state trademarks. The application form can be obtained here: http://bpd.cdn.sos.ca.gov/ts/forms/tm-100.pdf. Because cannabis is still federally illegal and cannabis products themselves cannot be trademarked, this is a viable avenue for many California cannabis brands that will protect your business marks within the state. You can read our prior post about USPTO Trademarks here.
According to the website for the Office of the California Secretary of State:
“Beginning January 1, 2018, customers may register their cannabis-related Trademark or Service Mark with the California Secretary of State's office so long as:
1.The mark is lawfully in use in commerce within California; and
2.Matches the classification of goods and services adopted by the United States Patent and Trademark Office.
If the application submitted to register a Trademark or Service Mark is found deficient, the application will be returned to the registrant for correction.
Note: Not all cannabis-related products can be registered under current law due to the inability to meet federal classifications.”
This means that in order to obtain your state marks, you must be lawfully using the marks in commerce at the time of the application. Therefore, you will need to be licensed in compliance with SB 94, both at the local and state level, before you’re eligible for trademark approval. Otherwise, if you claim an unlicensed use, you may run into issues with the Secretary of State. Further, once your license is obtained, you must also show that you’re making actual, bona fide use of the trademarks on your products in the stream of commerce. That means that customers are identifying you by your brand when they purchase your goods or services in the marketplace.
Reflecting the fact that cannabis edibles have become an increasingly popular alternative to smoking marijuana, California's MAUCRSA introduces new regulations on edible cannabis manufacturing. Cannabis manufacturers must take heed of these new limits and regulations to ensure that their products are not only within compliance, but also effective and safe for human consumption.
The MAUCRSA defines an “edible cannabis product” as manufactured cannabis intended for human consumption, either in whole or in part. “Manufacturing” of cannabis is the production, preparation, propagation or compounding of cannabis products. This includes the extraction and infusion processes, packaging, repackaging, labeling and relabeling of manufactured medical cannabis or cannabis products.
According to theLEAFonline, many other forms of manufactured cannabis, including tinctures, have a maximum of up to 1,000 mg of THC. However, under the proposed regulations, edible cannabis products will only be allowed to contain 10 mg of THC per serving, with the finished product capping no more than 100 mg of THC per package. This caution speaks to a key concern about edible cannabis: consistency.
Due to its being absorbed through the stomach rather than the lungs, edible cannabis doesn't usually reach its full potency for at least an hour after consumption. When combined with inconsistent labeling, this makes edibles easy to consume to excess before their full effects are felt. As WikiLeaf writes, this may cause side effects like anxiety, paranoia, cottonmouth, and lethargy. Nevertheless, these effects often differ from person to person, depending on factors such as the frequency of use, size and weight of the user, and whether the edibles are taken on an empty stomach. Consistent dosage helps to prevent these possible adverse effects. For this reason, edible products that contain more than a single serving must be recorded, defined, or otherwise marked to indicate how many servings they contain.
Under the MAUCRSA, manufacturers would be required to take reasonable measures to ensure that their products successfully communicate:
How many milligrams of THC are in each serving
What the recommended dosage would be based on specific criteria, such as weight, size, etc.
What, if any, side effects may occur if taken in excess
With these THC dosage limits in place, a consumer can easily understand how many servings are needed to achieve their desired results without any side effects.
The proposed regulations have also stated that edible cannabis products cannot contain any infused alcoholic beverages, nor any non-cannabinoid additives such as caffeine and nicotine. This is to ensure that these additives don't combine to increase the potency, addictive potential, or toxicity of cannabis edibles.
The MAUCRSA is vague, however, in determining whether natural caffeine is permissible; some caffeinated edible cannabis products, such as tea to alleviate pain and insomnia, are currently available for medical use, but it's unclear what their status would be under the new regulations. Manufacturers may bear the greater burden when it comes to remanufacturing their products to comply with state law.
As explained in our previous blog post, “compliance” will be a major factor in the distribution of marijuana licenses in Los Angeles – and cannabis lawyers around the city are fielding a number of questions about what, exactly, LA’s priority licensing process will entail.
The draft regulations the City has released extend a certain amount of privilege to existing marijuana sellers when it comes to licensing. Businesses and dispensaries that have operated “in substantial compliance” with prior iterations of marijuana law will be given priority, allowing them to continue operating while their license approvals are pending. Clearly, this confers a major business advantage, which has raised concerns about whether a compliance-based approach to awarding priority is equitable.
Disqualifying potential cannabis business owners for past violations, but opening the door to “compliant” newcomers, threatens to reinforce inequality. As Drug Policy Alliance policy director Cat Packer, slated to head the City of LA’s Cannabis Commission, explained in an interview with Merry Jane, “The impact of marijuana prohibition and the drug wars was heaviest in black and brown latino communities. If you say people with prior arrests and convictions can’t participate, it automatically has a disproportionate effect on communities that were punished by the War on Drugs.” In other words, privileging “compliance” could compound the negative effects of marijuana prohibition, blocking communities which have historically been more likely to be punished for cannabis use from gaining access to the benefits of the new, legal marijuana industry. As attorneys who have practiced in cannabis law for many years, we have seen the damage prohibition has done to these communities, and are fully supportive of a restorative approach to justice through the licensing process.
The LA City Council recently moved to create a Social Equity Program for marijuana licensing, intending to serve “those individuals and communities that were disproportionately harmed by cannabis prohibition.” This follows in the path of a similar program in Oakland, which reserved half of new dispensary permits for residents who lived in certain neighborhoods, had below-average annual incomes, or had previously faced cannabis convictions. Given how much larger Los Angeles' marijuana industry is than Oakland's, however, the mechanics of the LA program may need to be worked out, and it may not be able to mirror the Oakland model in every way.
Whatever the exact parameters of LA's Social Equity Program end up being, (and however they'll be affected by recent changes to state and city licensing regulations,) the priority-based system will continue to play a major role in deciding which marijuana businesses are allowed to operate. At present, the city plans to reserve a special round of applications for organizations that fit a profile similar to the requirements Oakland used. For more on priority and marijuana laws to the new state law (MAUCRSA), check our previous blog posts or guide to Prop 64, or email us at email@example.com.
Update: The MAUCRSA, which passed June 22, repealed the provisions of the MCRSA that placed restrictions on vertical integration. As of June 30, the state has confirmed in §26053(c) of the California Business and Professions Code that a business may hold more than one license. However, it's still unclear whether there will be a limit on the total number of licenses allowed.
As many of you are well aware, California is in the process of implementing two parallel regulatory regimes that will govern cannabis production, distribution, and sales: the MCRSA, which pertains to medical marijuana, and the AUMA (a.k.a. Prop 64), which pertains to “adult use” or recreational marijuana. Originally, the MCRSA and AUMA had very different treatments of how many activities a business could be licensed for. The MCRSA favored small producers by placing restrictions on the combinations of licenses a single business could hold. The AUMA, on the other hand, allowed for total vertical integration, so one license holder could be licensed for almost the full supply chain of activities.
In California, marijuana licenses are divided into six activities, covering the entire industry: Cultivation, Manufacturing, Testing, Dispensary, Distribution, and Transportation. To ensure that testing facilities remain disinterested, both the MCRSA and the AUMA don't allow a business with a Testing license to hold a license in any other category. On top of that, the MCRSA places a similar restriction on businesses with a Distribution license, and prevents any business from holding licenses in more than two categories. The AUMA forgoes these additional restrictions, making it much more lenient on licensing.
To reduce the confusion caused by the differences between the two acts, a draft trailer bill released on April 3, 2017 by Gov. Jerry Brown’s office proposes that the AUMA's licensing structure be used for both recreational and medical marijuana. Under this proposal, the MCRSA’s restrictions on which types of licenses one licensee can hold would be loosened, potentially allowing for vertical integration not only under the AUMA but also under the MCRSA. However, opinions are divided on whether this change would help or harm California's marijuana businesses.
Under the AUMA's licensing structure, a single business could operate in almost every section of the cannabis supply chain. The MCRSA's licensing structure was explicitly designed to prevent this kind of vertical integration, out of concern that lighter restrictions would allow large corporate interests to dominate the industry. However, the draft bill argues that, since the AUMA includes other anti-monopoly measures, small independent businesses would also benefit from access to vertical integration. Whatever the outcome, this change in licensing structure would present a major turning point for California's marijuana regulations.
Under California’s Administrative Procedure Act (APA), regulatory bureaus must present draft regulations and receive comments on those regulations from the public (a requirement called Notice & Comment). The California APA allows the public to participate in the adoption of state regulations in order to ensure that the regulations are clear, necessary, and legally valid. The MCRSA is no exception, and you have a few more days to make your voice heard. If you have an opinion about Vertical Integration, you can email California’s Bureau of Medical Cannabis Regulation at firstname.lastname@example.org. For more information on the AUMA and Prop 64, consult our guide to California's marijuana laws or email us at email@example.com.