The Department of Cannabis Regulation (DCR) has just confirmed that it is now processing requests for ownership changes to existing Phase 2 (non-retail) cannabis licenses in Los Angeles. This long-awaited news is a game-changer for savvy investors and license holders alike, as it opens opportunities to buy or sell shares of the 139 cultivation, manufacturing, and distribution businesses that are licensed under Phase 2 in Los Angeles.
Los Angeles City Council President Herb Wesson has called on the city's Department of Cannabis Regulation (DCR) to suspend all Round 1 applications in light of recent allegations that the online application process was compromised. In his letter to DCR's Executive Director, Wesson urges that the City "1) suspend all Retail Round 1 applications; 2) refund all monies paid by Retail Round 1 applicants and cancel all invoices; and 3) prepare a full audit and report by an independent third party not involved in the process -- unless there are other options like processing every application..."
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.
WHAT IS "UNDUE CONCENTRATION?"
Phase 3 applicants are subject to the “undue concentration rule” passed into LAMC which restricts business location eligibility based on data from the 2016 American Community Survey, not on any state law requirements. The rule sets a limit on the maximum number of licenses that can be issued in each Los Angeles Community Plan Area. The implementation of undue concentration in Los Angeles further complicates what is already a difficult task for many hopeful cannabis entrepreneurs who have been verified for the City’s Social Equity program, which aims to provide priority licensing and accessibility to individuals who have been disproportionately impacted by the war on drugs. Phase 3 Social Equity applicants must find properties that meet not only the plethora of other local requirements (e.g., correct zoning, 700 feet distance from any other dispensary or “sensitive use” areas) but also within specific communities that has not reached their license cap -- unless the candidate is able to successfully lobby City Council to approve them through the PCN process.
THE PUBLIC CONVENIENCE OR NECESSITY (PCN) PROCESS
The "Public Convenience or Necessity (PCN)" process. process was established by the City Council and passed into LAMC to provide applicants who wish to apply for a license in an area that has already met undue concentration a chance to appeal their ineligibility based on the undue concentration rule. Applicants must submit an online application and pay a $1,499 PCN request fee to be routed to the City Council. Then, applicants must lobby the City Council to receive their approval and become eligible to apply for a license in an area that is undue.
Six of the 36 Community Plan Areas in Los Angeles have already met undue concentration. These areas were deemed unduly concentrated (with zero licenses available) prior to the Round 1 application cycle which began on September 3rd. At that time, several other Community Plan Areas had as few as two or three licenses remaining. These numbers can be viewed for each Community Plan Area on the DCR’s interactive map. The DCR will only issue the number of licenses indicated as “available” on the map in each Community Plan Area during Round 1, and licenses will be distributed on a first-come-first-serve basis. Therefore, even individuals who applied for a Round 1 license in an area outside of the six that have already reached undue concentration are subject to the consequences of the regulation and may be routed to the PCN process. In its review of applications submitted during Round 1, the DCR will issue licenses to eligible applicants on a first-come-first-serve basis (i.e., applicants with an earlier application timestamp will be processed first).Once an area becomes unduly concentrated, Round 1 applicants with later submission timestamps will automatically be routed to the PCN process unless their location is within 700 feet of a sensitive use property or another dispensary. Although the application window for the 100 Round 1 licenses closed this morning, the online PCN application will remain open for applicants that did not apply during Round 1 and wish to apply for a license in an area of undue concentration.
Other cities and municipalities in California who have not enforced additional location requirements like the undue concentration rule -- including Oakland, the very city Los Angeles modeled its Social Equity program after -- attest to the rule’s redundant and excessive nature. The 187 businesses currently holding retail licenses in Los Angeles who applied in Phase 1 as Existing Medical Marijuana Businesses (EMMDs) were also not subject to this rule. In addition, places like the Oaksterdam cannabis dispensary district in downtown Oakland have been havens of community, not crime. Moreover, the unfairness that can result from a system like the PCN process -- which has essentially no guidelines and is subject to the very sticky nature of local politics -- would be eliminated if the City simply allowed everyone who applied to run a dispensary, so long as they respected the sensitive use requirements other than the intradispensary buffer. Our firm will continue to advocate for the eradication of the undue concentration restriction but is helping applicants navigate the requirement and its consequences since the situation does exist presently.
WHY YOU WANT US TO LOBBY FOR YOU
Over 800 applications were submitted in Round 1. It is likely that several more Community Plan Areas in addition to the existing six will become unduly concentrated and applicants in these Areas will be required to undergo the PCN process - regardless of whether or not their Area was one of the original six. Given the high degree of uncertainty regarding who will be subject to the PCN process, our team is proactively preparing to take the first steps of a PCN appeal for each and every one of our clients who applied during Round 1.
Margolin & Lawrence has obtained over 200 state and local cannabis licenses throughout California and one in Massachusetts. Our founding partners, Allison and Raza, have litigated cannabis and other drug cases throughout their careers ( 17 and 16 years, respectively ) across the state and federal courts of our country, and have appeared in Hawaii, Utah, Nebraska, and Nevada, just to name a few. Our years of experience trying marijuana cases in front of juries has trained us for the battleground that is city politics.
Their experience fighting the war on drugs and fighting for drug and marijuana defendants, specifically, gives them the credibility to discuss the Social Equity program and their clients' willingness to re-enfranchise those who have been systematically excluded. Our firm was founded on the same core values as those of the Los Angeles Social Equity program. Allison and Raza have demonstrated a passion for drug legalization and criminal justice reform throughout (and even before) their careers.
Allison began her drug law reform efforts at age 12 when she discovered the insanity of the drug war while writing her sixth grade DARE essay on the Medellín Cartel. Her parents' careers as criminal defense attorneys and advocacy for drug law reform gave her an early and rare insight into the traumas inflicted on people, by the criminal justice system. During her time as a Harvard law student, she published her thesis On the Right to Get High where she argues for the decriminalization of all drugs and states that current state and federal laws are unconstitutional.
Before working with Allison in 2009, Raza worked at the CATO Institute, the ACLU, and the Center for Individual Rights fighting on behalf of individuals who have been disproportionately impacted by the war on drugs. He was also a federal clerk for the 9th Circuit Court of Appeals. Together, Allison and Raza founded their 501c4-registered lobbying firm, Advocates for Healing America, in order to advocate for drug policy reform and provide support to political candidates with a like-minded agenda.
Margolin & Lawrence remains committed to our founding values and will continue to do everything in our power to ensure we help individuals who have been who have been disproportionately impacted by the war on drugs. Our current efforts are aimed towards ensuring that victims of this war have the access they deserve to reparative government programs such as the Los Angeles Phase 3 Social Equity licensing process.
If you have applied for a Round 1 retail license or if you are seeking to apply for a license via PCN or Round 2, we invite you to contact a member of our team immediately to discuss how we may be able to advocate on your behalf. We cannot take clients with retail properties that are within 700 feet of our current clients and are accepting new clients on a first-come-first-serve basis. Therefore, we recommend contacting a member of our team sooner than later to minimize the chances of conflict.
Recently, rumors and misinformation have circulated surrounding LA’s “undue concentration” rules for commercial cannabis licensing. The undue concentration rules have not been eliminated, as some have falsely claimed. LA has recently changed details about the policy, in a way that will allow more retail dispensary licenses to be issued sooner. Some have feared, however, that the latest changes may introduce an element of unfairness to the licensing process.
On Tuesday, May 28, the Los Angeles City Attorney Michael Feuer filed a draft ordinance regarding retail cannabis licensing.
Operational compliance has become paramount to the success of many cannabis businesses following new state regulations that went into effect earlier this year. For others, non-compliance has been a great downfall. Following the legalization of commercial cannabis, the state of California hastily drafted and passed emergency regulations which outlined licensing and operational requirements for cannabis businesses under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). These emergency regulations went into effect in December of 2017 to provide a temporary solution for the lack of cannabis legislation until more thorough regulations could be drafted and adopted by state agencies. Just three months ago, the Office of Administrative Law (OAL) approved new regulations which were immediately adopted by all three state licensing agencies. The new regulations include many significant changes from the previous emergency regulations and introduce more restrictive guidelines for cannabis businesses. Further, the new regulations define serious implications for businesses who violate the new guidelines – from fines up to $250,000 to loss of licensure. In recent months, a rapid number of compliance enforcement agencies have emerged at both the local and state level. Licensed cannabis businesses in California have experienced a peak in random compliance inspection visits, raids from local and state law enforcement, and seizure of cannabis products. With the commercial cannabis industry now in full effect, local and state agencies are beginning to focus less on setting the framework for the industry and more on enforcement of regulations.
A majority of licensed cannabis businesses are in some way in violation of current regulations despite their intentional efforts to comply. This is largely due to the cumbersome location-dependent nature of cannabis regulations. Although cannabis is legal in the state of California, commercial cannabis businesses are still federally illegal, and there is no federal legislation governing the licensing and operational compliance of cannabis businesses. As a result, cannabis regulations vary between states. Further convoluting the concept of cannabis compliance, regulations also vary within-state and are dependent on legislation issued by local authorities. All California cannabis businesses must adhere to statewide regulations enforced by the three state agencies – the Bureau of Cannabis Control (BCC), the California Department of Public Health (CDPH), and the California Department of Food and Agriculture (CDFA) – in addition to guidelines enforced by local agencies. For instance, outdoor cultivation is legal at the state level per the CDFA, but it is prohibited within the City of Los Angeles per the local Department of Cannabis Regulation (DCR). Cannabis businesses must also comply with local Fire Department safety codes which also vary by jurisdiction.
With compliance enforcement on the rise, it is crucial for all cannabis businesses to stay informed about both state and local regulations in order to avoid high penalties or business closure. Our firm offers full-coverage compliance counseling to licensed cannabis businesses. Our team is in regular attendance of local city hall and county government meetings pertaining to commercial cannabis in all areas of California and maintains current knowledge of the ever-changing regulations. We provide counsel in all areas of business compliance for cannabis retailers, distributors, cultivators, and microbusinesses. Our attorneys have a combined 20+ years of experience in the commercial cannabis industry and are active in compliance consulting throughout the state. We are able to provide our clients with expert contractors in building safety code pre-inspection, packaging and labeling compliance, product inventory and storage, advertisement restrictions, etc. We would love to help ensure that your cannabis business is successful and in compliance with all local and state regulations, giving you one less thing to worry about. If you have any questions or would like to speak with our attorneys to further discuss our compliance services, please feel free to reach us via email (firstname.lastname@example.org) or phone (323-253-9700).
Know Your Rights: Understanding State Hemp Regulations
February 28th, 2019
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
Proposed staffing plan
Complete and detailed diagram
Proposed security plan
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
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.
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.
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.
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:
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
California Department of Food and Agriculture - Regulates Cannabis Cultivation
Bureau of Cannabis Control - Regulates Cannabis Retail, Delivery, Distrbution, Testing, Microbusiness
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.
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:
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.
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.
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.
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:
- The business owner
- Own at least 40% of the business and be the CEO
- Own at least 51% of the business
- A board member of a non-profit cannabis business where most of the board also qualify as Equity Applicants
- 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:
- 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.)
- Have been arrested for or convicted of the sale, possession, use, manufacture, or cultivation of cannabis (including as a juvenile) from 1971 to 2016
- 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
- Lost housing in San Francisco after 1995 through eviction, foreclosure or subsidy cancellation
- Attended school in the San Francisco Unified School District for a total of 5 years from 1971 to 2016
- 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:
- 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.