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meaning the previous emergency regulations (under which the industry has been operating for the past year) are no longer in effect.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.”
On December 27, 2018, the Northern District of California dismissed a civil RICO claim brought against the owners and operators of a Sonoma County cannabis growing operation and the operation’s landlord. See Bokaie v. Green Earth Coffee LLC, 3:18-cv-05244-JST, 2018 WL 6813212 (N.D. Calif. Dec. 27, 2018). The lawsuit was filed by neighbors who alleged that the operation’s “skunk-like stench” interfered with the enjoyment of their property and drove down their property values. The Bokaie court found that such alleged harms did not constitute a “RICO injury,” and thus dismissed plaintiffs’ claim (albeit without prejudice, allowing 30 days to amend).
The Bokaie case is part of a growing trend of RICO lawsuits filed in legalized states—to date, roughly a dozen have been filed in California, Colorado, Massachusetts and Oregon—that seek to exploit the tension between state law and the federal Controlled Substances Act (CSA). RICO defines “racketeering activity” to include CSA violations, and a civil lawsuit can proceed upon allegations that an enterprise’s pattern of racketeering activity caused damage to the plaintiffs’ business or property. 18 U.S.C. §§ 1961(1), 1962(c), 1964(c). RICO’s civil remedy provision awards prevailing plaintiffs triple damages and attorneys’ fees, id. § 1964(c), thus giving “not in my backyard” plaintiffs and their attorneys a powerful tool against their neighbors. By alleging that the smell of cannabis interferes with the enjoyment of their property and drives down their property value, plaintiffs in these cases are effectively elevating common law nuisance claims into federal RICO lawsuits.
The three agencies that regulate the cannabis market in California, the Bureau of Cannabis Control, Department of Food and Agriculture, and Department of Public Health, submitted a final version of regulations to the Office of Administrative Law (“OAL”) in California this month. The OAL reviews regulations for compliance with procedural requirements and substantive standards under California law. The OAL has 30 working days — until January 16, 2019 — to review the regulations.
The Bureau of Cannabis Control is the state agency designated under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) as responsible for issuing licenses to and regulating distributors, retailers, delivery-only retailers, microbusinesses, and testing labs.
The BCC issued emergency regulations in November 2017, and has now proposed readopting those regulations for another 180 days. Based on feedback from the public and stakeholders in the industry, the BCC has proposed some changes to these regulations.
This blog post will highlight the changes to the BCC emergency regulations and identify key issues for distributors, retailers, delivery-only retailers, microbusinesses, and testing labs. In separate posts, we will be describing the changes made by the California Department of Food and Agriculture and the California Department of Public Health. Those posts can be found here and here.
Changes to Emergency Regulations:
The BCC has removed the distinction of A and M Licenses and now only requires one application and applicants will only have to pay one licensing fee. Additionally, license fees have been reduced. Previously you had to submit two applications and pay two separate licensing fees if you wanted to operate in the medicinal and adult-use market.
A delivery employee may now complete multiple deliveries of cannabis goods if they are prepared by the retailer prior to the delivery employee leaving the licensed premises. The total amount of cannabis goods in the delivery vehicle may be up to $10,000, the previous limit was set at $3,000.
The definition of owner has been amended to specify that the chief executive officer and/or the members of the board of directors of any entity that own 20% or more of a commercial cannabis business will be considered “owners.”
The definition of financial interests has been amended to include “an agreement to receive a portion of the profits of a commercial cannabis business.” Commercial cannabis business and service providers will have to review their agreements and applications to determine if certain amendments will need to be made to include other people or businesses as having a “financial interest” in a commercial cannabis business. Interestingly, this change was not made in the definition of “financial interest” under the CDFA and CDPH regulations.
Retail stores may not sell or deliver cannabis goods through a drive-through or pass-out window and sales cannot be made to people within motor vehicles.
License applications must now include:
Cannabis waste procedures; and
Delivery procedures, if applicable.
These changes show that the BCC and the other regulatory agencies are being responsive to their stakeholders and while not all changes are positive, we believe this is a step in the right direction for cannabis businesses in California.If you have any questions about the regulations, please contact Jennifer Briggs Fisher in our San Francisco office or Justin Santarosa in our Los Angeles office.
While the Cole Priorities were in place, that guidance provided a clear path for banking cannabis industry participants adhering to the Cole Priorities. FinCen’s guidance is still in place, and banking cannabis is still possible, but confusion about how to do so without the Cole Priorities as guideposts has caused greater reluctance on the part of banks.
Enter proposed legislation in California, SB-930, which passed in the California Senate yesterday. Not a complete solution to the banking problem by a long shot, but progress nonetheless. If it becomes law SB-930, would result in the establishment of a California-chartered bank that would permit California cannabis industry participants to deposit the proceeds of their state-lawful cannabis activities, and would provide to them limited banking services that would allow for payment of taxes and vendors by check.
As reported in the Sacramento Business Journal, the Bill’s sponsor, Sen. Bob Hertzberg (D-Van Nuys), characterized SB-930 as an attempt alleviate the public safety concerns resulting from the federal government’s current hands off approach to banking cannabis. As Herzog stated, “It’s not only impractical from an accounting perspective, but it also presents a tremendous public safety problem. This bill takes a limited approach to provide all parties with a safe and reliable way to move forward on this urgent issue.”
The California Department of Food and Agriculture (CDFA), through its CalCannabis Cultivation Licensing division, is the state agency designated under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) as responsible for issuing licenses to commercial cannabis cultivators in California.
The CDFA issued emergency regulations for cannabis cultivators in November 2017, and has now proposed readopting those regulations for another 180 days. Based on feedback from the public and stakeholders in the industry, the CDFA has proposed some changes to these regulations.
California’s three cannabis licensing authorities, the Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture, have proposed readopting their emergency regulations currently in effect for another 180 days. Since the original regulations were released in November 2017, representatives from the three agencies have been soliciting feedback from stakeholders and the public. As a result of that process, some changes are being made to the emergency regulations. Continue reading California Cannabis Licensing Authorities To Readopt Emergency Regulations with Proposed Changes→
On Thursday, March 8, 2018, Duane Morris hosted the Bay Area Women Grow Signature Networking Event in our San Francisco office. Our panel speakers included Duane Morris partner Jennifer Briggs Fisher, who specializes in providing regulatory and compliance advice to cannabis companies, and Nicole Elliott, the Director of the San Francisco Office of Cannabis. The panel was moderated by Women Grow Co-Founder Jazmin Hupp.
Our panel speakers addressed the cannabis business permitting process in San Francisco, the equity applicant program, requirements for licenses from the State of California, and legal and compliance considerations for cannabis businesses. It was a fantastic way to celebrate International Women’s Day!
On January 1, 2018, hundreds of California residents lined up outside just licensed cannabis retail dispensaries to purchase newly legal recreational marijuana. The founder of Buddy’s dispensary in San Jose, which holds one of California’s first recreational marijuana licenses, described it as the busiest day in the dispensary’s history. The California cannabis industry is projected to reach profits of $3.7 billion dollars in 2018 alone. Projections indicate there could be up to 4 million consumers of recreational marijuana in California. This huge opportunity has many new entrepreneurs, including celebrities like Mike Tyson, pursuing the cannabis business.
Under the new law, Californians over the age of 21 can now possess up to an ounce of marijuana, eight grams of marijuana concentrate, and grow up to six plants at home for their personal use. While public consumption is still banned, the new framework gives recreational users new flexibility. Those on the business side of recreational cannabis, however, still have a lot to consider before diving into this new market.
This is especially true given the news today that Attorney General Jeff Sessions is rescinding an Obama-era directive discouraging enforcement of federal marijuana laws in states where cannabis is legal. We will know more about how this decision will impact the California market after the announcement is officially made by AG Sessions later today. For now, we will provide an update on the first week of recreational cannabis sales in California.
On December 15, 2017, the California Bureau of Cannabis Control granted the first license for the sale of adult use marijuana in California to a San Diego dispensary. Torrey Holistics, located in Sorrento Valley, has sold medicinal marijuana since 2015. The dispensary also received a new license to continue the sale of medicinal marijuana.
The adult use retailer license received by Torrey Holistics is one of ten licenses, including one to another San Diego dispensary, Urbn Leaf in Linda Vista, for the sale of adult use marijuana granted by the California Bureau of Cannabis Control since the agency launched its online licensing system earlier in December. The licenses received by Torrey Holistics and the other medicinal and adult use retailers are temporary though. After 120 days, a permanent license must be obtained by the businesses. The licenses also do not go into effect until January 1, 2018.
For more information or questions on licensing of retailers of medicinal and adult use in California, please contact Joe Machi in our San Diego office or another member of the Duane Morris Cannabis Group.