The game has changed, at least on paper… After years of uncertainty, California has passed much anticipated medical cannabis oversight. California’s government will finally attempt to regulate its cannabis industry. The new laws impact many people in many ways…

For government officials, the newly passed Medical Marijuana Regulation Safety Act (MMRSA) reduces harms, woo’s voters, and makes headlines. For consumers, risks are minimized, options are made available, yet, not much is new. For advocates, abusive punitive justice is reduced, environmental impacts can be mitigated, and safe access has been bolstered. For businessmen and businesswomen, a new market has emerged; money is to be made and business-as-usual. For police, boundaries are defined, new challenges have emerged, and a page has been turned.

But what do these new laws mean to the people who have provided cannabis over the last 5, 10, 15, 20 years? It’s a hot topic within the cannabis community. Everyone is trying to make sense of it all. Is this real? Is it time? Should I get a license? What are the risks? What are the incentives? What do I need to do to comply? Where do I start?

Essentially, for those who make up Northern Cali’s cannabis industry (namely farmers from the Emerald Triangle), this boils down to one question: what does MMRSA mean to me? The following will attempt to inform those asking this question. First, we’ll overview the laws, then look at the different types of licenses, determine what it takes to become compliant, and look at deadlines and incentives.

Overview of MMRSA…

Lets start with the particulars… The Medical Marijuana Regulation Safety Act (MMRSA) is made up of three different bills: AB266 (by Bonta/Cooley/Jones-Sawyer/Lackey), AB243 (Wood), and SB643 (McGuire).

AB266 creates the new Bureau of Medical Marijuana Regulation (under the Department of Consumer Affairs), which will be responsible for licensing, tracking, and creating the specifics (i.e. rules). AB266 also establishes for-profit enterprise, creates 17 different licenses, allows local governments to regulate or ban cannabis cultivation and sale, and gives local jurisdiction the power to tax.

AB243 focuses on cultivation licenses. It gives the Department of Food and Agriculture the power to create the rules growers must meet to obtain a license. AB243 also grants appellation controls, which will allow cannabis farmers from certain regions to create cultivation guidelines and grant exclusive regional name rights (much Champagne in the wine industry).

SB 643 sets standards for recommending cannabis. It tightens the scope for physicians recommending cannabis and establishes a background check for those seeking to obtain medical licenses to distribute, transport, or cultivate (a felony for cannabis related offenses doesn’t necessarily exclude providers from obtaining a license).

AB266, AB243, and SB643 are set to go into affect January 1, 2016! This is also the date by which cannabis businesses must be compliant in order to qualify for priority licensing.

Full overview here.

License Types…

HU has created a chart to adequately display the seventeen different license types (below).

Type Category Description 1 Cultivation Specialty outdoor; 5,000 sq/ft max canopy, 50 plants 1A Cultivation Specialty indoor; 5000 sq/ft max 1B Cultivation Specialty mixed-light; 5000 sq/ft max 2 Cultivation Outdoor; 10,000 sq/ft max 2A Cultivation Indoor; 10,000 sq/ft max 2B Cultivation Mixed light; 10,000 sq/ft max 3 Cultivation Outdoor; 1 acre max 3A Cultivation Indoor; 22,000 sq/ft max 3B Cultivation Mixed light; 22,00 sq/ft 4 Cultivation Nursery 6 Manufacturer 1 Products not using volatile substances 7 Manufacturer 2 Products using volatile substances 8 Testing Lab testing 10 Dispensary General 10A Dispensary No more than three retail sites 11 Distribution General 12 Transportation General

Vertical integration is mitigated by a complicated set of rules, which basically bar large type 3 and 4 cultivators from obtaining other types of licenses (more to come on this subject as research continues). Basically these new laws attempt to protect against monopolization/oligopoly. Yet, those who have operated a state legal, vertically integrated cannabis enterprise – i.e. Humboldt Patient Resource Center and Wonderland Nursery – prior to July 1, 2015 may continue to operate until 2026.

Of note, all product must go through a type 11 distributor for quality assurance and lab testing (type 8). Distributors can obtain no other license. It’s unclear whether cultivators can transport product. Smaller cultivators can obtain two license types. But whether this means small-scale cannabis farmers must choose between transporting their product (moving the product to market) or dispensing their product (point of sale), is unclear.

Local Compliance…

A hot topic, especially on the North Coast, local government will play a large role in regulating the industry. MMRSA provides that all potential applicants must be compliant with city and county oversight in order to obtain a license. Cities and counties wishing to regulate the cannabis industry must set standards prior to March 1, 2016. If a city or county has not regulated its cannabis industry prior to this date, then the state created cannabis division shall have the sole authority to grant licenses in that city or county. In Humboldt, the Planning Commission and Board of Supervisors are hammering out the details for a new ordinance to regulate cannabis cultivation.

Humboldt County’s draft Cannabis Cultivation Ordinance splits cannabis garden sizes into 3 tiers. Tier 1 requires growers cultivating in less 500 sq/ft to obtain a “zoning clearance certificate.” Growers cultivating in an area between 500 and 2000 sq/ft – tier 2 – must obtain a “special certificate.” And tier 3 – over 2000 sq/ft – must obtain a conditional use permit. Grows considered commercial – over 10,000 sq/ft – must exist on land that exceeds 5 acres with class I or II soils, low slope, and documented water rights. We assume a varying degree of difficulty in obtaining permits, increasing as the grow area increase in sq/ft.

The county will require permits for all farms, as growing cannabis for others is not seen as a right. Farms located on timber production land (TPZ), forest recreation (FR), or coastal commercial timberland (TC) must have existed prior to September 1, 2015. Farms in these areas that cannot prove their existence prior to this date will not be granted local permits. HU is unclear about how one can prove their existence prior to Sept. 1, 2015, especially after the county has sat on their hands for 20 years. But our best guess is that an applicant would need to present a documented right to the land and an output agreement from a state incorporated cooperative or collective (dated prior to Sept 1, 2015). Altogether the Planning Commission and Board of Supervisors are still hashing out this ordinance, as these facts were gleaned from a preliminary draft, so stay tuned.

In addition, applicants must submit a cultivation and operation plan that meets or exceeds water usage and environmental requirements – i.e. not diverting water during summer months and mitigating run-off and erosion, etc.

Added guidelines also exist for commercial grows over 10,000 sq/ft. See the entire draft ordinance here for details.

The State Application Process…

Getting back to the state level… once an applicant passes all the county and city regulation, they will be reviewed for a state license. The application process requires candidates to provide proof of local approval (permit) and legal right to occupy the proposed grow site. Applicants must also submit fingerprints for background checks with the DOJ (felons can be denied but can still obtain licenses depending on their conviction). Once licensed, licensees must declare themselves agricultural workers and fill out all the necessary paperwork.

Obtaining a state issued cultivation license is largely unknown at the moment as the Department of Food and Agriculture has yet to create a cannabis cultivation program. The Bureau of Medical Marijuana Regulation has also not been created.

However, a grandfather clause has been provided… This clause states that a compliant and legal cannabis business, operating as of January 1, 2018, may continue to do so until its license has been reviewed.

The Best Incentive…

The non-profit collective and cooperative model established by Prop 215 and SB 420 will dissolve one year from the time the Bureau of Medical Marijuana Regulation (BMMR) releases a statement on its website. Nonetheless, BMMR is yet to be created and who knows how long this process will take. Therefore, it seems the state is pushing for local government to regulate the cannabis industry in the mean time.

As noted, local government has until March 1, 2016 to pass medical cannabis oversight. Priority will be given to those who become locally compliant prior to January 1, 2016 (and this can mean a lot of revenue while others wait for their license). Also, the grandfather clause allows those operating in local compliance prior to January 1, 2018 to continue to do so until their application is reviewed or the collective/cooperative model is dissolved.

In fact, this is an extremely layered conundrum for current cannabis providers. On one hand, those who push, become compliant, and get on the vanguard will inevitably gain more publicity for their farm/buds/brand. They will enter a new market with a ton of demand (as we saw in Oregon – $11 million in the first week). Yet on the other hand, there’s risk associated with being the first, as much of MMRSA and BMMR are still being created. Also, for California’s cannabis industry, trust is an issue. Cannabis is still federally illegal and with California cannabis legalization looming… it may be a little too risky for some to jump on board. For one, California cannabis legalization 2016 could trump MMRSA and BMMR, making wasted effort for those who jumped at the chance to sign up for medical cannabis licenses.

Here at HU, we think shooting for the January 1, 2018 grandfather clause deadline is the best bet. This means that providers should incorporate and form a collective/cooperative if they have not already done so. This also means hiring a lawyer for safety and guidance.

Once your collective is established it would be a good idea to obtain a business license and business account. A Catch 22 exists when obtaining a business account, banks can’t grant accounts to those operating cannabis related business’s. Strategic ambiguity and talking to an accountant or lawyer is your bet here. It’s pretty easy to get a business account for gardening;)

It also may be a good idea to register with the Board of Equalization as leverage can be gained if one pays taxes. The water issue is another hot topic, signing up for the water board program and figuring out your water needs can be a great first step while the details of MMRSA are hammered out.

Lastly, here at HU, we feel its time for farmers to begin working on branding and a marketing/business plan. This is a normal business practice and as cannabis is normalizing so must those currently operating. In order to compete in future above board markets this is an important early step (make sure your branding and packaging is not attractive to children, as MMRSA also restricts this).

All in all, going legit and becoming compliant is a scary feat because police are still arresting and prosecutors are still prosecuting. Here in California we all feel like we’ve been here before, on a precipice looking over an edge with no ground in sight. Maybe we’ve grown comfortable with the unknown that lies ahead; maybe just keep keeping on is the best path? But we all know, at some point, we have to take that leap of faith. When… is up to you…

Ed