In November, 2016, I wrote a blog summarizing some of the important aspects of California’s Adult Use of Marijuana Act (“Act”). This blog serves to update you on California’s efforts to implement the Act and what prospective licensees can do prior to the license application process.
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Under the Act, the Bureau of Marijuana Control (“Bureau”) (formerly the Bureau of Medical Cannabis Regulation) has been established as a regulatory agency within California’s Department of Consumer Affairs. The Bureau is responsible for licensing marijuana dispensaries and distributors under the Act. The California Department of Public Health (“CDPH”) is tasked with regulating the manufacturers of marijuana-infused edibles and marijuana testing facilities under the Act. Likewise, the California Department of Food and Agriculture (“CDFA”) is responsible for licensing marijuana cultivators under the Act. The Bureau, CDPH, and CDFA are collectively referred to herein as the “Licensing Agencies”. California’s State Board of Equalization will collect the special marijuana taxes authorized under the Act while California’s Controller will allocate the revenue needed to administer the Act and provide funds to maintain critical investments. Needless to say, it will take time for these various state agencies to implement procedures that ensure an overall statewide regulatory scheme conforming to the Act.
The Act calls for Licensing Agencies to begin accepting applications and issuing licenses in January, 2018. However, before a license application can be accepted by the applicable state agency or even completed by a prospective licensee, the Licensing Agencies must closely analyze the Act to determine how best to regulate adult use marijuana in an efficient and expeditious manner. The Act requires its implementation to be handled through California’s regulatory process. Licensing Agencies intend to involve the general public and stakeholders (those other than the general public with an interest in and/or a concern with marijuana licensing) in this process. To achieve their regulatory goals of timeliness and efficiency, Licensing Agencies must promulgate reasonable and necessary rules and regulations consistent with the Act.
On February 10, 2017, the Bureau issued a press release announcing that it is accepting applications for its Cannabis Advisory Committee (“CAC”). The CAC will advise the Licensing Agencies on matters affecting adult use marijuana, including the development of standards and regulations. The CAC will be comprised of representatives of the marijuana industry and labor organizations, appropriate state and local agencies, public health experts, and other subject matter experts. Applications for CAC membership will be accepted through March 30, 2017. The development of rules and regulations necessary to implement the intent of the Act will not begin until CAC members have been selected. California officials estimate it could take until November, 2017 for the CAC to satisfy its mandate. While the Act states that “Licensing [Agencies] shall begin issuing licenses by January 1, 2018”, licensing could be postponed until further into 2018, depending on when the CAC’s work is completed.
Local jurisdictions may opt out of the Act and prohibit otherwise legal marijuana operations within their boundaries. Cities and counties electing to allow some or all licensed activities authorized by the Act, can adopt their own regulations - subjecting marijuana business to zoning and permitting requirements. The timeline for passage and implementation of local regulations is independent of the passage of rules and regulations at the statewide level and will depend on each city/county’s regulatory processes. A marijuana business will not be able to operate until it has met all state and local licensing and permitting requirements. This means that a business eligible for licensing by one or more state Licensing Agencies on January 1, 2018, will be prohibited from conducting its marijuana operations until such time as the local jurisdiction approves the licensed marijuana activity. Some jurisdictions, such as the City of Los Angeles, have cleared a path for adult use sales under the Act, with the passage of Measure M earlier this month. Measure M authorizes the permitting and regulation of marijuana retailers and producers, increases the number of allowable locations, and legalizes marijuana delivery services. In January, San Diego legalized adult use marijuana dispensaries - limited for now to fifteen dispensaries currently selling medical marijuana. San Diego’s City Council will consider later this year regulations for cultivating, testing, manufacturing (edibles), and distributing adult use marijuana within city limits.
While a prospective business may not yet apply for an adult use marijuana license at the state and local level until later this year, there are a number of things that can be done in the meantime to prepare for the licensing process. These include monitoring the websites of the Licensing Agencies and local jurisdictions where the business will operate for updates on rulemaking and permitting efforts, establishing a business plan and budget, forming the entity that will be associated with the marijuana licensed activity and drafting the necessary corporate documents, arranging for financing preferably from investors with whom the business owner has a pre-existing relationship, and arranging for the leasing or purchasing of the property where the business will be located.