Wendel Rosen Business & Legal Updates

Draft Permanent Cannabis Regulations Include Important Changes

Highway sign as reference to California's laws regarding the use of marijuana.

State regulators recently issued long-awaited draft permanent regulations for California’s cannabis industry, including some changes that could have an immediate impact on license-seekers and others that will shape the industry for many years to come.

Once the draft permanent regulations become law, they will replace the “emergency” rules that have governed the state’s cannabis industry since November 2017. A 45-day comment period kicked off Friday, during which the three state agencies overseeing legalized cannabis will consider public input and possible modifications before endorsing final rules.

While some recently-revealed changes to the draft permanent regulations are merely refinements of earlier provisions, others are new. For instance, the state will end the practice of  issuing 90-day temporary cannabis licenses on December 31, 2018, placing a hard deadline on many operators who still are far from obtaining their standard licenses. This means that all temporary licenses will expire by the end of March 2019 and businesses without a standard licensed will have to shut down.

A short list of other highlights is as follows:

  • License transfer through ownership change: As part of a 100% business ownership change, the Bureau of Cannabis Control (regulating distributors, testing labs, and microbusinesses), will prohibit a purchaser from operating the company it buys until a new license application has been approved by the Bureau. This rule could cause business interruption as the new owner awaits the Bureau’s application review. The Dept. of Food and Agriculture (cultivation) and the Dept. of Public Health (manufacturing) each have separate and somewhat less onerous rules on this issue.
  • Expanded delivery services: Previous drafts stated that cities could not stop delivery services from using public roads. The permanent regulations clarify that “a delivery employee may deliver to any jurisdiction within the State of California.” This modification addresses the interpretation by some city attorneys that cities could ban deliveries within their limits, and at the same time, not impede the use of public roads.
  • CEQA: All of the relevant state regulatory agencies clarified that they will require applicants to provide evidence that their operations comply with the California Environmental Quality Act or that they are exempt from the Act. If neither can be shown, the applicant must provide information to enable an agency to determine the appropriate level of environmental review. This could trigger expensive and time consuming studies about an operator’s environmental impacts and mitigations.
  • Still no one-acre cap per grower: A much-touted restriction to protect small cultivators was removed in the drafting of emergency regulations back in 2017, generating a hue and cry from small farmers and a lawsuit by the California Growers Association. But, to no avail thus far. The draft permanent regulations do not reinstate the one-acre cap.

Other important changes can be found in the draft regulations, including the Bureau’s 136 pages of rules, the Department of Health’s 111-page draft and the Department of Food and Agriculture’s 68-page document. They, no doubt, will make for interesting discussions at public hearings over the next six weeks at ten locations across the state.

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