Cannabis Business Law

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California Cannabis Business Law

Manzuri Law is a dedicated team of attorneys and policy consultants with over 30 years' combined experience in California cannabis law. Our aggressive legal experts provide counsel to hundreds of established cannabis businesses in all stages of their formation and structure, including transactional law, local permitting and state licensing, ongoing operations, regulatory compliance, and expansion. As established experts, we consistently work with cannabis businesses in corporate strategy and risk assessment. We also work closely with local governments and the state agencies to ensure our clients' success.

A Brief History of California's Cannabis Laws

In 1996, the Compassionate Use Act (“CUA”) made medical cannabis legal. Thereafter, Medical Marijuana Program Act (“MMP”) and the 2008 Attorney General Guidelines for Security and Non-Diversion of Medical Marijuana (“AGG”) set forth an unofficial framework for businesses to operate within- the collective and cooperative models.

In the 20 years' since a gray legal market evolved and the collective and cooperative model thrived. In the collective model, medical cannabis patients were allowed to grow for and sell to other medical marijuana patients and receive compensation but were highly limited due to the uncertainty of the law along with a non-profit requirement under the AGG.

The Attorney General Guidelines, along with the CUA and MMP, until recently, exclusively governed medical cannabis and medical cannabis businesses (“CB”) in a gray area.

MCRSA & Prop 64

In 2015, Gov. Jerry Brown passed the Medical Cannabis Regulation and Safety Act (“MCRSA”) creating a comprehensive medical cannabis licensing system for the state of California. As the MCRSA's first order of business, the Bureau of Medical Cannabis Regulation in Sacramento was established, currently known as the Bureau of Cannabis Control (“BCC”), an agency under which California would roll out cannabis licensing.

Less than one year later, in November 2016, California voters approved Proposition 64, the Adult Use of Marijuana Act “AUMA”, legalizing and governing the recreational or “adult-use” market and establishing a system for adult-use cannabis business licensing.

Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”)

In the summer of 2017, Gov. Jerry Brown authored and finalized the trailer bill language (TBL) which effectively repealed the MCRSA and married its provisions with those of Prop 64 to create Senate Bill 94, codified as MAUCRSA. MAUCRSA clarifies that commercial cannabis activity is lawful in California so long as it is done under a valid state license, local approval, and complies with state regulations. This is perhaps one of the most important additions given the current federal climate regarding cannabis.

California Cannabis Licensing

Various government agencies - the Bureau of Cannabis Control (“BCC”), the Department of Food and Ag (“DFA”), and the California Department of Public Health (“DPH)”- released their emergency regulations in late November 2017 which were approved and became effective on December 8, 2017.

Each of these agencies creates the regulations, procedures and oversee the application process and licensing for each of their respective license types. Specifically, the BCC oversees licenses for retailers, distributors, testing labs and microbusinesses, the DFA oversees cultivation, and the DPH oversees manufacturing. All three (3) of these agencies are now accepting temporary license applications for cannabis businesses that are already in possession of a city permit/authorization. NOTE - only with a local permit and a state temporary license, businesses may operate in both the adult-use and medicinal markets.

Once approved, temp licenses are effective January 1, 2018, and are valid for 120 days with the ability to be extended for periods of 90 days if so required. For a full-blown annual license, the state requires a more in-depth application from business operators complete with standard operating procedures, security plans, and financials.

Contact one of our legal experts to find out if your business is eligible for licensing.

Local Approval Required For State Licensing

One of the most important state requirements is that of a local permit. All California cannabis businesses MUST HAVE a local authorization prior to applying for a state cannabis license. This means that the city in which your cannabis business operates must allow for cannabis businesses in their city and provide affirmative local permits to do so. A lot of cities and counties throughout California have passed local ordinances allowing cannabis businesses within their city limits. However, there are a lot of cities and counties that still have bans in effect and no process for acquiring permits. Each city/county's rules and regulations/ permit processes vary. Check your city ordinance or consulting with one of our legal experts to determine your eligibility to operate a California cannabis business.

Los Angeles - Commercial Cannabis Businesses

On January 3, 2018, in accordance with Ordinance No. 185343, Sec 104.07, which provides for Prop M priority processing, the DCR began accepting applications from Prop D D compliant Pre ICO dispensaries in possession of 2017 BTRCs (business tax registration certificates)

Temporary Priority Approval. In order to be considered for a temporary license or priority approval in Los Angeles, you must first belong to one of two distinct groups: 1) Pre-ICO Retailer, or 2) a non-retailer who has proven operations in the city of LA since before Jan 1, 2016, and is eligible for the social equity program. All other applicants will be able to apply in the general population window, opening date TBD.

Social Equity Program. The LA social equity program was developed to help cure some of the harm the war on drugs created in the last 50 years. Namely, to help people who were victims of the disproportionate arrests for cannabis crimes in low socioeconomic areas. Specifically, in order to qualify, you must have either been convicted of a California cannabis crime, have low income, and/or live in a disproportionately impacted area.

Although the city of Los Angeles finalized (much) of its ordinance in early December 2017, more changes in Los Angeles by the City Counsel and the Department of Cannabis Regulation (“DCR”) are expected.

Although enforcement may not occur immediately, as of January 1, 2018, only Pre-ICO cannabis businesses in Los Angeles may remain open while all others must cease operations indefinitely under penalty of $20,000.00 a day fines and jail time.

USA v. Cannabis

It should be noted, however, that cannabis and cannabis businesses are still considered federally illegal and a Schedule I narcotic under the Controlled Substances Act. From the Obama to the Trump administration, the pendulum has swung back and forth considerably. Most recently, in January 2018, US Attorney General, Jefferson Sessions, issued the "Sessions Memo" that withdrew Obama administration's federal enforcement guidance memoranda on cannabis.  The withdrawn memos include, among others, the 2009 Ogden Memo (instructs federal prosecutors not to pursue cases against medical patients/distributors who comply with state laws); the 2013 Cole Memo (indicates that federal prosecutors should only focus on "low hanging fruit" cannabis operations – those caught crossing state lines or selling to minors, etc.); the 2014 FinCen Guidance (extends low enforcement priority status to cannabis banking activities); and the 2014 Wilkinson Memo (a sort of Cole Memo for tribal lands).

Although these memos provided for a relaxed nationwide federal policy when it came to state-legal cannabis operations, now that these memos are rescinded, U.S. attorneys may have more discretion to determine to what extent they can/should enforce federal law.

Fortunately though, if a California's U.S. Attorneys decides to take an anti-cannabis stance (which some have), the medical cannabis industry is protected by the Rohrabacher-Blumenauer amendment (formerly known as the Rohrabacher-Farr amendment) - a congressional spending rider that prohibits the DOJ from using taxpayer funds to investigate or prosecute state-compliant medical cannabis operations. This amendment has been renewed in every single budget cycle since it first passed in 2014. It is up for renewal again on soon -- and it is widely expected to pass. This amendment provides only protection for medical cannabis.

Moreover, the McClintock-Polis amendment attempts to extend the protections of the Rohrabacher-Blumenauer amendment to recreational cannabis.

Since the state of California is highly vested in making its cannabis licensing program work, those starting a marijuana business can avoid most serious problems by obtaining a state license and local permit.

Cannabis Law and compliance is complicated and the risks are great. To ensure you are structured and operating properly, contact one of our legal professionals without delay.