California Issues Comprehensive Medical Marijuana Regulations

Guest post by Aaron Herzberg of CalCann Holdings

The Bureau of Medical Cannabis Regulation (BMCR) today announced that its proposed licensing regulations for medical cannabis have been posted and the 45-day public comment period is now underway.

The comprehensive regulations sets specific licensing and enforcement criteria for commercial cannabis businesses which includes: distributors, transporters, and dispensaries. These proposed regulations apply to medical marijuana only and do not apply to recreational marijuana that was passed by the voters of California in November 2016 when they passed proposition 64 with 57% in favor, the regulations regarding recreational marijuana will be issued at a later date (even though under proposition 64 recreational marijuana sales may commence after Jan 1, 2018.

The text of the Regulations may be found here:

http://bmcr.ca.gov/laws_regs/mcrsa_ptor.pdf

The draft regulations represent a starting point for the State to begin to clean up what has become a highly unruly multi-billion-dollar unlicensed industry that is not subject to any regulations at all whatsoever. Although California was the first state to Legalize cannabis in 1996 with the passage of the “Compassionate Use Act” the state never passed any regulations setting forth how cannabis could be produced, distributed and sold to the consumer. As a result, many cities in California faced a proliferation of unlicensed and illegal dispensaries. With the passage of MCRSA and these new regulations California will finally join the 28 other states that have not only legalized medical marijuana but also regulated the industry in a comprehensive manner.

These initial regulations comprehensive in their scope but they are missing a lot of detail. I expect the BMCR to significantly amend them as they go through the 45 day comment period, as many of the details that still need to be figured out will be added as the BMC holds stakeholder meetings and receives comments from the industry and other constituencies. On the whole the draft regulations go a long way towards clarifying many issues that will be helpful for investors and the marijuana industry to better plan how to take advantage of the licensing opportunity that is now unfolding.

Some specific comments that I have based on a very preliminary review:

Definition of Ownership: The regulations specifically exempt from ownership an individual that has less than 20% ownership in the marijuana business. This allows investors to who invest in the entities but own a minority interest not to have to register with the state. If the company is publically traded the threshold is 5 percent.

Labor Peace Agreement: For an applicant with 20 or more employees, the applicant shall attest that the applicant has entered into a labor peace agreement and provide a copy of the agreement. This was lobbied for by powerful unions who want an opportunity to unionize the cannabis industry.

Multiple Licenses allowed under One Roof: The definition of premises is written in a very liberal manner so as to allow multiple cannabis businesses’ licenses to be located in the same facility as long as they are separate areas. This will allow for cannabis campuses where a single landlord can lease space to various cannabis businesses.

Continued Operation While Application Pending: Cannabis businesses who have a municipal license as of Jan 2, 2018 may continue to operate while their application is pending if a completed application is received by the bureau by July 2, 2018.

Track and Trace Requirements: The state is implementing a comprehensive “Track & Trace” software platform that will track all marijuana that is cultivated and once its harvested it gets tracked through the distribution, testing and Manufacturing process until its sold. Patients who buy cannabis will have their purchases tracked through this system as the retail stores will upload all sales data live to the state system. Ostensibly you will be able to buy a limited amount of Cannabis per day and if you max out at one store and go across town and try to buy they will see that you are not eligible to purchase. This is how things operate in states such as Colorado now.

Distributors Required: For the most part all marijuana grown must go through a distributor to be tested and then distributed to the actual dispensary. A distributor may take title to and possession of medical cannabis after harvest but prior to manufacturing. A distributor may sell the medical cannabis to a manufacturer or enter into a contract with a manufacturer for manufacturing the medical cannabis into medical cannabis products. Distributor required to lab test all product prior to it being sold to the store itself. Interestingly no consignment is allowed. Distributors can not own any other type of medical license.

Packaging and Labeling: While all products must be Tamper evident and contain product weight and testing results, this part of the regulation is not yet well defined. No specific regulations as to what label must contain etc. The products must leave the dispensary in a “Exit Package” designed or constructed to be significantly difficult for children under five years of age to open.

Lab Testing: Lab testing required but no regulations as to what types of tests are to be conducted and what the thresholds are. What pesticides may or may not be used etc.

Dispensary Hours of Operation: Between 6am – 9 pm. Cities may set lesser hours than these but no longer hours. The licensed dispensary shall not display medical cannabis goods in a place where it is visible from outside the licensed premises.

Selling Products during the Transition: Once a dispensary is licensed they can only sell product from distributors that obtain the product from other licensed manufacturers or cultivators. Since there will be an initial shortage of product State licensed stores are allowed to sell non-licensed product for up 180 if the dispensary places a label on each package saying the product is not licensed or tested.

Delivery: Delivery of cannabis is allowed only in conjunction with a brick and mortar dispensary and only when the municipality that that dispensary is located in allows delivery. There are no stand-alone delivery licenses available under MCRSA.

Type 10(A) Vertically integrated “Mega License”: The regulations somewhat clarify the type-10A license that allows up to 3 physical dispensaries and up to 4 acres of canopy for cultivation. In order to obtain a 10A vertically integrated license (and ostensibly bypass the distributor requirement) you need at least one dispensary and then may apply for cultivation under this category (but under the law this type of license will be limited in number).

100 milligrams!: The regulations propose that edibles be capped at 100 milligrams. With products available that are as high as 1000 mg I don’t see 100 mg as being workable in the California Market.

About the author:

Aaron Herzberg is a partner at CalCann Holdings, LLC, a California medical marijuana real estate company with a portfolio of licensed medical marijuana businesses and properties in California. Herzberg is also a strategist, corporate lawyer, cannabis policy expert, and entrepreneur specializing in California’s nascent legal cannabis industry. Recognized for his influence, Herzberg has been interviewed by reporters from Forbes, Rolling Stone, and the New York Times for his insight into the emerging cannabis industry. Herzberg’s expertise has allowed him to successfully raise over $28 million in investment capital for his projects at CalCann since January of 2015. If you would like to contact Aaron, you can reach him at aaron@calcannholdings.com

CalCann Holdings is the leading real estate development corporation for cannabis related facilities in Southern California and is actively building a portfolio of cannabis properties in California that are entitled with a municipal license granting eligibility for a state MCRSA (Medical Cannabis Regulation and Safety Act) license. CalCann is an on going, equity buyer of industrial and commercial real estate and a landlord well-versed in the regulatory, zoning, and operational challenges unique to the cannabis industry. CalCann leases its licensed properties to recognized, seasoned operators and provides select tenants with capital for infrastructure upgrades. Founded in 2014, CalCann has successfully completed eight cannabis-based facilities and an additional seven are in development, totaling more than two hundred thousand square feet. By the end of 2017, CalCann plans to complete another twelve transactions, valued at nearly forty million dollars. CalCann believes that the steady advancement of cannabis legalization in California, the largest cannabis market in the world, will spur increasingly greater opportunities to acquire properties, attract and retain strong tenants, and build value for our investors.

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