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Here’s What You Need to Know About California’s Final Cannabis Regulations

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Since California voted to legalize cannabis for adult use in 2016, the state has gone through a dizzying number of iterations in its attempt to regulate weed. Finally, on January 16 the Office of Administrative Law approved the final, 358-page draft of regulations.

Even so, critics of the program argue that California didn’t legalize” weed at all, but only continues to regulate” a substance that still carries so much stigma that it can’t be treated like other consumer crops. (When was the last time you heard about this much controversy over California’s strawberry regulations? Exactly.)

That said, consumers and cannabis industry folk alike nonetheless should be aware of the law, now that it’s been finalized. So for the non-lawyers and policy wonks among us, here’s your sparknote version.

Update: There’s a new way to sell cannabis in California.

The end of the collective era 

Let’s backtrack before we go forward. Although California legalized adult use cannabis in the 2016 election, 20 years prior the state pioneered medical marijuana with Prop 215. Also known as the Compassionate Use Act, Prop 215 established protections for patients with a valid doctor’s recommendation. But not until 2003 did California enact Senate Bill 420 to establish a system for patients to cultivate and distribute medical marijuana through collectives or cooperatives. 

Fast forward to January 2019, the protections afforded to cannabis collectives and cooperatives under SB 420 have sunset with the supersession of the new program — which outlines new rules for the sale, distribution, cultivation, and manufacture of cannabis products. 

In lay terms, this means that any cannabis entity that engages in commercial activity without licensing from the state and its local jurisdiction is now noncompliant with the new regulations. In even simpler terms, this means that if you’re not an individual consumer or a caregiver serving five patients or less, you need to be licensed. Period. 

If you’re wondering what’ll happen to unlicensed operators, the options are simple: They’ll be fined several thousand dollars a day until they become compliant, the city may have the Departments of Water and Power shut off their utilities, and/​or eventually they’ll shutter. In some scenarios, they may be subject to criminal charges.

White labeling is still allowed

There have been some concerns around whether the new regulations would ban white labeling, or in other terms, co-packing (rebranding a new or existing product under a different brand). What you need to know is that a white labeling relationship can only occur between licensed entities. This means that a licensed brand, for instance, may not co-opt or white label cannabis from an unlicensed producer. So let’s reiterate this just to get it straight: Whoever chooses to operate in the regulated market needs a license. 

Cannabis delivery is available everywhere in the state

With more than 100 delivery services licensed throughout the state, anyone 21 and older should have access to cannabis — even if they live in a jurisdiction that has otherwise banned cannabis businesses. This statewide delivery option upholds the spirit of the law Californians voted for with Prop 64, even if certain localities exercise their individual autonomy not to enact regulatory schemes.

Taxes are here to stay

Remember those 40 percent taxes everyone’s been complaining about as the worst part of legal” weed? If not, no need to jog your memory; just head on over to your local, licensed dispensary and see for yourself. The taxes aren’t coming down, but as more operators come onto the market, the price of legal weed will eventually even out (we hope). Some jurisdictions, however, are entertaining reductions in local and excise tax rates. This year, state tax legislation will also be introduced in order to reduce the burden on the cannabis industry and on consumers; some believe that under Governor Gavin Newsom, it will have a better chance of success, but that remains to be seen. 

So are those ATMs you may see in most dispensaries

This is still an all-cash business. Talk to your federal representatives if you want this to change. There are a few bills on the table to reconcile the discrepancies between state and federal marijuana law, including the SAFE Banking Act to provide a safe harbor” to financial institutions that provide services to cannabis businesses. Currently, in most cases (with a few credit union exceptions), federally funded banks remain too cautious to do business with a federally illegal industry. 

Packaging and labeling chaos continues

There will likely be a good deal of packaging that’s now noncompliant under the new regulations — especially since these new rules are effective immediately. Retailers must ensure that any purchased products that leave the store premises do so in child-resistant exit packaging. The onus of this will lay on retailers until 2020, at which point manufacturers will need to pick up the slack to ensure their products are packaged appropriately. 

There are also a few changes around labeling: Manufacturers must make sure that the necessary information is found on the label of both the exterior box and the interior product container. A product’s potency must be accurately labeled, as well, as its lab testing results. While some of these rules aren’t necessarily new, the idea is that they are here as now a permanent fixture in the landscape of legal weed. 

A note on CBD and hemp

While this is outside the scope of California’s regulations, thanks to the 2018 Farm Bill, hemp cultivation is now legal in the United States. This means that any CBD product derived from hemp is legal under this law. California’s Bureau of Cannabis Control (BCC) has made clear that it won’t regulate hemp-derived CBD, while the state’s Department of Food and Agriculture is waiting on the FDA to approve any CBD products at the federal level. In the meantime, anything that is derived from marijuana (which includes CBD-only products that come from a plant that contains more than .3 percent THC) should be regulated by the state. Let’s repeat that point: Anything that’s derived from cannabis (a.k.a. marijuana in this case, and not hemp) is subject to BCC oversight.

A note on the city of LA

The city of Los Angeles is slated to enter its third phase of licensing this spring. Although Angelenos are hopeful this will occur, the Department of Cannabis Regulation (DCR) is already backed up still trying to complete processing applications for Phase 1 and Phase 2; therefore, some are skeptical about the chances that Phase 3 will open so early in 2019. 

Whenever it does open, though, social equity is the top priority for the DCR. Retail licenses are the most competitive throughout the state, and those applications that qualify for tier 1 and tier 2 social equity will be processed first and on a 2:1 ratio with non-social equity applicants. And, since under Phase 1, the city has issued about 165 retail licenses with more pending, the first 330+ applications to be processed for retail must qualify for social equity.

If you’d like clarification on Los Angeles and State regulations, join Manzuri Law this Wednesday, January 30th, at Paragon Space, where you can get it straight from the DCR’s attorney Alex Freedman. Civilized, as well, will be joining a panel of experts to provide more information on the cannabis regulatory landscape in California. Tickets available here.

Update: There’s a new way to sell cannabis in California. Find out more if you would like to sell your product in the Golden State.

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