New Cannabis Regulations Approved in California

 

On January 16, 2019 the California Office of Administrative Law (OAL) approved the final regulations that were submitted by California’s three licensing agencies, the Bureau of Cannabis Control (BCC), the Department of Food and Agriculture (CDFA) and the Department of Public Health (CDPH), in December.  These new, approved regulations went into effect immediately, meaning the previous emergency regulations (under which the industry has been operating for the past year) are no longer in effect.  The regulations can be viewed here.

In a joint press release issued by the three agencies, BCC Chief Lori Ajax stated: ““These approved regulations are the culmination of more than two years of hard work by California’s cannabis licensing authorities.  Public feedback was invaluable in helping us develop clear regulations for cannabis businesses and ensuring public safety.”

We previously highlighted the key changes affecting retailers, distributors, microbusinesses, and testing laboratories proposed by the BCC here.  BCC spokesman Alex Traverso confirmed to Marijuana Business Daily that the OAL did not make any major substantive changes to the rules the regulators submitted in December.

In this post, we will summarize the key changes to the regulations applicable to manufacturers and cultivators in California.

Changes to CDPH Rules for Cannabis Manufacturers

  • Phasing Out of Transitional Policies:
    • After January 1, 2019, no additional temporary licenses will be issued. All existing licenses may remain in effect through expiration but temporary licenses will not be extended beyond expiration.
    • Priority licensure for established compassionate use businesses in operation prior to September 1, 2016 will expire on December 31, 2019.
  • Applications:
    • Abandoned application fees are non-refundable. The applicant may reapply, but will owe the application fee again.
    • Withdrawal of applications does not prevent the Department from proceeding against the applicant for a denial or entering an order for denial. There will be no refunds for withdrawn applications.
    • All applicants—new and renewal—will need to provide a Gross Annual Revenue Calculation. For new applicants this is based on expected revenue for the first calendar year of operation.
  • Labeling and Packaging Requirements
    • Product containers that are separable from outer containers must be labeled in accordance with the regulations either with primary panel label information or, for inhaled products, the universal symbol.
    • New labeling requirements have been added for pre-rolls and packaged flower which largely mirror other labeling requirements already included in the regulations for other products.
    • Informational panel requirements for manufactured cannabis products may largely be met through the use of supplemental labeling such as a package insert, fold-out, booklet label, or hanging tag.
    • A new section on cannabinoid content labeling has been added with the following notable changes to the disclosure of cannabinoid content:
    • Cannabinoid content may be included on the product label at the manufacturing site or at the distribution site following regulatory compliance testing.
    • Cannabinoid content may be included on either the primary panel or an informational panel, however it must appear on the outer packaging of the product and be at least 6-point font.
  • Operations and Safety:
    • If there is more than one employee, the company must have at least one each Cal/OSHA trained supervisor and employee.
    • Cannabinoid concentrates and extracts used in manufacturing must come from licensed cannabis cultivators.
    • Manufacturers are forbidden from operating in a location that is operating as a retail food establishment or a processed food registrant or that is licensed by the Department of Alcoholic Beverage Control.
    • Although cannabinoid concentrate or extract may not be simply applied to a commercially available candy or snack food item without further processing, the new regulations clarify that they may be used as ingredients in cannabis products so long as they are rendered unrecognizable and the packaging does not note that the final product contains the commercially available item.
  • Changes in Licensed Operations:
    • Changes that now require pre-approval by the Department:
    • The addition of closed-loop extraction methods to the operation.
    • The addition of any extraction method that necessitates a substantial or material change to the premises.
    • The addition of infusion operations if they are not yet included on the license.
    • Any substantial or material alteration to the premises including: removing, relocating, or adding a door or wall as well as any change to the activity or use of an area from the way it was identified on the premises diagram on file with the department.
    • Any change in the product list requires notification of the Department through MCLS & the provision of a new list within 10 business days.
    • The fee for changes has been reduced from $1000 to $700.
  • Ownership and Financial Interests:
    • When an entity is an owner of more than 20% of a cannabis business, the CEO and board of directors of that entity will also be considered owners.
    • Owners must report changes in the ownership information that was submitted under § 40130 of the regulation within 10 business days of the change
    • Licensees must give notice of any change in the list of financial interest holders within 10 calendar days of the change.
  • New Section on Death, Incapacity, or Insolvency of Licensee:
    • The owner’s successor in interest must give written notice within 10 business days of death, incapacity, receivership, assignment for the benefit of creditors, or any other event that makes one or more owner incapable of performing the duties associated with licensure.
    • Procedures are now in place for the successor in interest to cancel or continue operations of the cannabis business. In either event, the Department will require documentation to be filed.
  • License Renewal Procedure Clarifications:
    • More detail has been added to clarify the procedures for renewal of licenses.
    • Applications for renewal may not be submitted earlier than 60 days before expiration.
    • Upon expiration of a license, no commercial cannabis activities may be performed until the license has been renewed.
  • Inspections and Compliance:
    • The Department may collect evidence and make copies of books and records pursuant to investigations of violations.
    • A procedure for issuance of notice to comply as enforcement of corrective actions has been added to the regulations.
    • Provisions allowing emergency orders to halt violations and prevent public harm have been added including administrative hearing procedures for licensees to challenge Departmental orders.

Changes to CDFA Rules for Cannabis Cultivators

  • Licensees with Multiple Licenses (“License stacking”)
    • Licensees can continue to hold more than one license of the same type
    • However, when a licensee holds multiple licenses, they may not share the following types of areas: packaging areas, processing areas, non-canopy areas with immature plants, designated areas for segregating cannabis or administrative holding areas.
    • Shared areas must be contiguous, indicated on the premises diagram, and be one or more of the following: pesticide and agricultural chemical storage areas, composting areas, and secured areas for cannabis waste. Multiple licensees may also share common-use areas such as hallways, bathrooms, or break rooms.
  • License Renewal
    • License renewal procedures align with those in the Department of Public Health regulations.
    • Licensees may request to change license designation between A-license and M-license during annual license renewal.
  • Surrender, Revocation, or Suspension of License
    • More detail was added to these regulations to provide for procedures when revocation or suspension proceedings are pending
    • The regulations now clarify that a surrender does not affect the licensee’s civil or criminal liability for acts predating the surrender and that the department’s power to investigate and examine does not terminate with surrender, revocation, or suspension of a license.
  • Track-and-Trace
    • The track-and-trace account manager must be an owner in the licensee’s organization—previous regulations allowed designation of any natural person in the organization.
    • The authorized user must report to the Department any losses of access to the system exceeding three business days.
    • The new regulations give more detail on when events are reportable. For example, in addition to reporting a harvest, additional details about the yield and timing of the harvest are reportable.
  • Violations and Fines
    • The table of violations located in § 8601 now includes violations of newly added provisions and removes provisions that have been deleted.
    • Each violation is assigned a level (minor, moderate, serious) and a corresponding monetary fine range.
    • A new section on recordkeeping violations has been added at § 8602 along with its own table of violations and fines.
  • Emergency Decisions
    • The Department removed the “Administrative Hold Procedure” section and, in its place, inserted a more thorough procedural provision on “Emergency Decisions”.
    • This section provides for issuance of emergency decisions and orders for temporary relief for situations including:
      • Sale, transfer, or transport of illegal cannabis
      • Premises conditions dangerous to worker or public health and safety
      • Illegal diversion of cannabis
      • Destruction of evidence of illegal activities or violations
      • Immediate threats to the environment
    • These new regulations create a procedure for administrative holds, temporary suspensions of licenses, and other temporary, interim relief.

For more information on the new regulations, please contact Jennifer Briggs Fisher in our San Francisco office.