California Consolidates Medical and Recreational Cannabis Laws

Wendel Rosen LLP
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Cannabis California flag

In the last week of June, California Governor Jerry Brown signed a bill that consolidates state medical and recreational cannabis regulations into one governing law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (SB 94), which lifts constraints on vertical integration, eliminates a state residency requirement for cannabis company owners, and in most cases, allows cannabis companies to distribute their own products, rather than requiring third-party distribution.

Other than the residency requirement change, most modifications were made to the State’s former medical cannabis regulations, which were never formally implemented. In many instances, those rules handcuffed companies wanting to own and operate businesses in multiple sectors of medical cannabis production. For example, distributors were prohibited from cultivating or manufacturing cannabis, and dispensary owners could only run three retail operations statewide if they wanted to hold cultivation licenses.

It’s important to note that the new, consolidated law preserves a dual, local-state licensing structure and does not strip cities and counties of their authority to control local zoning or to limit the categories and number of permits they will issue. In other words, obtaining a state license still requires complying with local law.

The 102-page SB 94 is a hefty document, chalk full of interesting information, so I’d recommend that anyone involved in the cannabis industry read it closely. In the interest of time and space, here is my top 7 list:

  • Distribution: The former medical law required third-party distribution. The consolidated law only prohibits “large” cultivation licensees from obtaining a distributor license. The large cultivation licenses will not be available until 2023. They allow outdoor farms in excess of one acre and indoor grows larger than 22,000 square feet per premises.
  • Residency Requirement Repealed: The Adult Use of Marijuana Act (recreational law), prohibited non-California residents from obtaining licenses until December 31, 2019. This provision likely would have been successfully challenged because it violated both the Commerce Clause and the Privileges and Immunities Clause of the U.S. Constitution.
  • “Premises” Defined: The new law requires that each permit be associated with a separate premises and defines premises as follows: “The designated structure or structures and land specified in the application that is owned, leased, or otherwise held under the control of the applicant or licensee where the commercial cannabis activity will be or is conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.” This rule allows for more than one license to be associated with a given address or parcel because parcels may include multiple premises.
  • Excise Tax: The 15 percent excise tax imposed on cannabis purchases will be measured by the average market price of retail sales as opposed to the gross of receipts of retail sales.
  • Water Use Reporting: Cultivators diverting surface water for cannabis cultivation must file an initial statement of diversion and use with the State Division of Water Rights prior to July 1, 2017. Based on water source and use, additional regulations will apply.
  • Organics Certification: No later than January 1, 2021, the State Department of Food and Agriculture will establish a program for cannabis comparable to the federal National Organic Program and the California Organic Food and Farming Act.
  • Establishing Appellations: By January 2021, the State will create a process whereby licensed cultivators may establish appellations of standards, practices and varietals applicable to cannabis grown in a specific geographical regions. Just as Napa vineyards can identify their wine is from Napa, there will be standards for Humboldt growers to similarly identify their cannabis.

I’m interested to hear which provisions others find most interesting and invite you to submit your thoughts in the comments section below.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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