Displayed with permission from Above The Law
This past Friday I chaired a “Medical and Recreational Marijuana in Southern California” seminar in Santa Monica. During the seminar, Governor Brown signed into law the three bills that comprise the California Medical Marijuana Regulation and Safety Act (MMRSA). Needless to say, this was big news for all of us at the seminar.
This is also, of course, big news for California and especially for its medical marijuana operators. These bills mean California will soon be moving away from an unregulated gray marijuana marketplace to a state-law-regulated medical marijuana regime. These bills mean that California will be getting the “robust regulations” the federal government requires from the states for the Department of Justice to be even minimally disengaged from what goes on with cannabis within the state. These bills also mean that California will be entering a new era where the Department of Justice (hopefully) finally cools its heels in the Golden State.
Throughout the seminar on Friday, attendees wanted to know how the MMRSA would operate, what local power would look like now, how licensing and any “priority” would work, and how some of the ambiguities in the bills would be sorted out moving forward. I was lucky enough as chair to have California Assembly Member Reginald Jones-Sawyer as a speaker, especially since he played a large part in crafting the language that now makes up a solid majority of the MMRSA. Assembly Member Jones-Sawyer gave attendees valuable insight into how this legislation came to be and what most concerned state lawmakers. It should be no surprise that the legislature’s biggest concerns were edibles, youth access to cannabis, and the impact marijuana businesses would have on their communities.
It’s important to recognize that the MMRSA is made up of three bills–Assembly Bill 266, Assembly Bill 243, and Senate Bill 643, with each bill having a different function, while at the same time containing overlapping, identical language regarding certain aspects of medical marijuana control. I examine each of these three bills below:
AB 266 focuses on MMRSA’s overall regulatory and licensing set up by specifically doing the following:
- Legalizing all “commercial cannabis activity” undertaken pursuant to a state medical marijuana operational license (and pursuant to a local license or permit, if required by your city or county).
- Where California’s medical marijuana economy is currently made up of non-profit mutual benefit corporations or non-profit cooperatives, AB 266 allows for-profit businesses to obtain operational medical marijuana licenses from the state.
- Establishing the Bureau of Medical Marijuana Regulation (BMMR), which will be part of the Department of Consumer Affairs, under the supervision and control of the Director of Consumer Affairs. The BMMR is vested with the power and authority to develop and implement any and all rules necessary to enforce the MMRSA.
- Giving The Department of Consumer Affairs, the Department of Food and Agriculture, and the State Department of Public Health the power to promulgate and pass any rules necessary to implement the MMRSA.
- Setting up 17 different kinds of medical marijuana operational license types and prohibiting vertical integration (barring one exception below). A licensee may only hold a state license in up to two separate license categories out of the 17 and the state only permits certain combinations of licenses. Moreover, for growers, regardless of license combination, the state only allows up to 4 acres of total canopy to be cultivated while the license or license combination is valid.
- Providing for one difficult to attain carve-out for vertical integration. If your city or county has an ordinance that requires or permits vertical integration and your business was vertically integrated before July 1, 2015, and you’ve been continuously operating and registered with the Board of Equalization, you get to stay vertically integrated in the new licensing system until January 1, 2026, when that privilege will be repealed.
- Permitting cities and counties to regulate medical marijuana businesses beyond the requirements set forth under the MMRSA and the BMMR’s rules. The bill also allows cities and counties to ban medical marijuana businesses within their borders.
- Mandating local approval of your marijuana business by providing that “[a] licensee shall not commence activity under the authority of a state license until the applicant has obtained, in addition to the state license, a license or permit from the local jurisdiction in which he or she proposes to operate, following the requirements of the applicable local ordinance.” Note that the revocation of your local permit or license means you cannot operate in that city or county even if you still have your state license.
- Giving local jurisdictions the power to tax and assess fees against medical marijuana businesses.
- Setting forth the requirements for marijuana deliveries in California. Delivery of marijuana by a dispensary to qualifying patients or designated primary care givers will be licensed by the state only if it is also allowed in the local jurisdiction in which the dispensary licensee operates.
- Prioritizing licensing for certain medical marijuana businesses. In issuing licenses, the state must prioritize any facility or entity that can demonstrate to the state’s “satisfaction” that it was “in operation and in good standing with [its] local jurisdiction by January 1, 2016.” In addition, an MMJ business that is operating in compliance with local zoning ordinances and other state and local requirements on or before January 1, 2018, may continue its operations until its application for licensure is approved or denied. So in other words, if you can get your cannabis business up and running by the end of this year with local approval where required, you will likely have priority when it comes to licensing under the MMRSA. I and my firm’s other California-licensed cannabis lawyers are already getting calls and emails from existing and new clients seeking help on this.
- Providing the following special carve-out for the City of Los Angeles, with its long embattled local marijuana laws:
Issuance of a state license or a determination of compliance with local law by the [state] shall in no way limit the ability of the City of Los Angeles to prosecute any person or entity for a violation of, or otherwise enforce, Proposition D, approved by the voters of the City of Los Angeles on the May 21, 2013, ballot for the city, or the city’s zoning laws. Nor may issuance of a license or determination of compliance with local law by the [state] be deemed to establish, or be relied upon, in determining satisfaction with the immunity requirements of Proposition D or local zoning law, in court or in any other context or forum.
AB 243 focuses on regulating marijuana cultivation for medical use and on California’s environmental concerns regarding marijuana cultivation. This bill:
- Gives the California Department of Food and Agriculture the power to promulgate any and all rules necessary to accomplish the regulation of medical marijuana cultivators. The Department of Food and Agriculture will also be the one issuing and overseeing all cultivators licenses.
- Tasks the California Department of Pesticide Regulation, in consultation with the California Department of Food and Agriculture, with dealing with pesticide usage and safety as those relate to marijuana cultivation.
- Calls for the California Department of Food and Agriculture to work with the Department of Fish and Wildlife and the State Water Resources Control Board to ensure that “individual and cumulative effects of water diversion and discharge associated with cultivation do not affect the instream flows needed for fish spawning, migration, and rearing, and the flows needed to maintain natural flow variability.”
- Provides for the same standards set forth in AB 266 regarding local control and licensing and permitting to apply in AB 243. Nonetheless, “[i]f a city, county, or city and county does not have land use regulations or ordinances regulating or prohibiting the cultivation of marijuana, either expressly or otherwise under principles of permissive zoning, or chooses not to administer a conditional permit program pursuant to this section, then commencing March 1, 2016, the [state] shall be the sole licensing authority for medical marijuana cultivation applicants in that city, county, or city and county.”
- Does not apply to qualifying patients engaged in personal cultivation if the cultivation area does not exceed 100 square feet and if the qualifying patient does not sell, distribute, donate, or provide marijuana to any other person or entity. It also does not apply to designated primary care givers growing for qualifying patients if the cultivation area does not exceed 500 square feet, he or she cultivates marijuana exclusively for the personal medical use of no more than five specified qualified patients for whom he or she is the primary caregiver, and he or she does not receive remuneration for these activities, except for compensation provided in full compliance with Section 11362.765(c) of the California Health and Safety Code.
- Calls for the California State Department of Public Health to develop standards for producing and labeling all edible medical cannabis products. The Department of Public Health will also almost certainly be in charge of regulating the edible potencies as well.
Just like its companion bills, SB 643 contributes to the regulatory and oversight structure of the MMRSA. It also specifically sets forth standards for licensed medical physicians and doctors of osteopathy (“physicians”) who recommend marijuana for medical use and it delves into the criminal background standards for applicants. The main points of this bill are the following:
- Tasks the California Medical Board with prioritizing investigations of physicians who excessively recommend cannabis for medical use, fail to have a bona-fide patient relationship with those persons for whom they recommend cannabis, or fail to adhere to sufficient record keeping regarding their cannabis recommendations.
- Makes it a misdemeanor for a physician to recommend medical cannabis to a patient and then to accept, solicit, or offer any form of remuneration from or to a state-licensed medical marijuana business if the physician or his or her immediate family have a “financial interest” in that business.
- Mandates that applicants for any medical marijuana license must submit fingerprints to the Department of Justice for a criminal background check.
- The state can deny a license application if “[t]he applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made. . .” In determining which offenses are “substantially related to the qualifications, functions, or duties of the business or profession for which the application is made,” the state will take into account the following:
- felony convictions for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance
- violent felony convictions
- serious felony convictions
- felony convictions involving fraud, deceit, or embezzlement
- Allows for the denial of a license application if the applicant has any history of local sanctions, fines, or penalties for violations of local ordinances, including those related to medical marijuana commercial activity, and for any revocation of a local license within the three years prior to the application for a state license.
- Requires applicants to “[p]rovide evidence of the legal right to occupy and use the proposed location.” Applicants for a cultivator, distributor, manufacturing, or dispensary license must also provide the state with “a statement from the owner of real property or their agent where the cultivation, distribution, manufacturing, or dispensing commercial medical cannabis activities will occur, as proof to demonstrate the landowner has acknowledged and consented to permit cultivation, distribution, manufacturing, or dispensary activities to be conducted on the property by the tenant applicant.”
- Compels applicants for a cultivator or a dispensary license to provide the state with “evidence” that their proposed location is at least 600 feet from a school. “School” has not yet been defined.
- Mandates that applicants with twenty or more employees provide the state with a “statement” that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.
- Requires that those seeking to cultivate, distribute, or manufacture medical cannabis must submit a detailed operational plan disclosing to the state their plans for cultivation, their extraction and infusion methods, their transportation processes, and their inventory and quality control procedures.
- Tasks the state with developing an “organic certified” standard for medical marijuana in California by January 1, 2020, “if permitted [to do so] under federal law and the National Organic Program.”
All of the bills also mandate that various state agencies set up rules and systems for the following:
- Tracing cannabis product
- Record keeping
- Anti-diversion systems for transporting cannabis product
- Quality assurance testing standards
- Robust labeling and packaging
- Safe product handling
- Security requirements
We will need to see how the various California state agencies use their rule making authority to fill in the blanks left by the three bills. For example, licensing and renewal fees have yet to be set, we don’t yet know exactly how edibles and infused products will be regulated under the bills, residency requirements (if any) and investment regulations need to be set, and none of the bills directly discuss how medical marijuana businesses will (or will not) be able to advertise their products and services. These issues, and more, will be addressed through state agency rule making that will take place until at least January 2018.
In our practice at Canna Law, we’ve handled licensing applications for all kinds of complicated and heavily regulated state licensing regimes with comprehensive and complicated barriers to entry, including in New York, Washington, Oregon, Alaska, Florida, Nevada, Minnesota, Maryland, and Illinois. It is obvious to us that in crafting its own three medical cannabis bills, California borrowed language from already existing laws and regulations in many of these states. It is also clear to us that California is going to have one of the most comprehensive and complicated medical marijuana licensing regimes in the country. Consequently, California medical marijuana businesses should start preparing now for this future of extremely robust regulation. Though California probably will not issue licenses until well after January 1, 2018, it is never too early to prepare your business for the radical changes this new and massive regulatory system will bring.
Hilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at firstname.lastname@example.org.