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RE: WINTER LLP Update – Newly signed Cannabis Laws; and Bureau of Cannabis Control Publishes New Distributor Fact Sheets

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Dear WINTER LLP Clients and Friends,

Please see the following summaries on new laws going into effect in 2020.  This was a very favorable legislative sessions for the cannabis and hemp industries.

Additionally, further below these new laws you can find two new fact sheets published by the BCC related to Distribution.

As always, please let us know if you have any questions, or need any assistance with anything and everything!

 

SB-34 allows cannabis licensees to donate cannabis and cannabis products to medicinal cannabis patients who have difficulty accessing such products.  The purpose of this is to enable ill, low-income individuals to have better access to medical cannabis.  Prior law prohibited licensees from donating any amount of cannabis as a business promotion or other commercial activity.  SB-34 was passed on October 12, 2019 and allows licensees to give medicinal cannabis products away to compassionate care patients.  SB-34 provides for such donations to be excluded from taxes but specifies that if a donation-intended cannabis product is not donated, then the taxes will have to be paid on it subsequently.  It will become operative when necessary changes are made to the state’s track-and-trace system or on March 1, 2020, whichever comes first.

 

SB-153 aims to bring California’s hemp regulations in line with the 2018 Farm Bill.  Prior law established the California Industrial Hemp Farming Act and the Industrial Hemp Advisory Board, but this framework existed before the passage of the 2018 Farm Bill and thus is somewhat non-compliant.  SB-153 was passed on October 12, 2019 and revises the Farming Act to better conform to the Farm Bill through the following: enhancing county agricultural commission reporting requirements, standardizing THC-level testing procedures, establishing violation consequences, placing temporary bans on individuals who have been convicted of a controlled substance-related felony and permanent bans on those who lied on their applications from participating in the industrial hemp program, and California to develop and submit a state plan for industrial hemp regulations to the federal government by May 1, 2020.  SB-153 will go into effect on January 1, 2020.

 

SB-185 closes a loophole within the current cannabis appellation marketing laws.  Prior law aimed to prevent companies from stating or eluding that their product is derived from one place when, in fact, it’s not by requiring that only produced which are 100% produced within the county can bear its name.  An example of this would be a cannabis product named “Humboldt’s Finest” when it is not from Humboldt County.  Prior law also requires the California Department of Food and Agriculture to establish appellation standards by January 1, 2021.  SB-185 was passed on October 12, 2019 and builds on these foundations through various changes aimed to ensure that only products that are grown or produced within a defined boundary can be labeled with a name that includes the territory or any wording that is likely to mislead a customer for this purpose.  SB-185 will go into effect on January 1, 2020.

 

SB-595 requires a cannabis licensing authority to develop and implement a fee deferral or waiver plan by July 1, 2020, to create a path for low-income individuals to apply for and receive cannabis licenses.  Prior law authorized licensing authorities to collect fees for cannabis license applications.   SB-595 passed on October 12, 2019 and requires them to create a fee waiver program for local equity applicants by January 1, 2021, and to allocate at least 60% of the dollar amount of waiver or deferral fees to equity those applicants. SB-595 will go into effect on January 1, 2020.

 

AB-1529 changes the requirements of labels on cannabis cartridges and vaporizers so that the labeling requirements would be easier to meet for the industry.  Prior law required that a cannabis cartridge or integrated cannabis vaporizer have a black symbol on it that is, at minimum, one-half inch by one-half inch in size that denotes it as a cannabis item.  This marking requirement has proved difficult to accomplish for technical reasons.  AB-1529 passed on October 12, 2019 and changes this requirement by allowing the symbol to be either in black or white, a minimum of a one-quarter inch by one-quarter inch in size, and affixed by way of either engravement, adhesive, or printing.  AB-1529 is classified as an urgency matter and thus goes into effect immediately.

 

AB-420 authorizes the California Cannabis Research Program (CCRP) to cultivate its own cannabis for the research project that is conducted on the grounds of UC San Diego, and expand what studies may examine, including mold, bacteria, and mycotoxins.  Prior law required the CCRP to acquire cannabis from other sources, and to limit the breadth of its studies.  AB-420 passed on October 12, 2019 and allows the program to cultivate its own cannabis, subject to federal regulations, to decrease research and supply chain issues that have previously presented themselves.  AB-420 will go into effect on January 1, 2020.

 

AB-404 authorizes a cannabis testing laboratory to amend a certificate of analysis to correct minor errors and retest samples, as specified.  Prior law requires a testing laboratory to issue a certificate of analysis for selected lots of each batch tested.  AB-404 passed on October 12, 2019 and allows the lab to amend the certificate of analysis once it is issued to correct minor errors and to retest a sample whose test results fall outside of the normal parameters if the lab notifies the bureau that the previous test was compromised and the bureau approves the re-testing.  AB-404 will go into effect on January 1, 2020.

 

AB-37 makes licensees who are engaged in commercial cannabis activities to be eligible to take business deductions for those activities.  Prior law disallowed those who engage in commercial cannabis activity from deducting any ordinary and necessary business expenses related commercial cannabis activity on their tax returns due to the federally illegal status of cannabis.  AB-37 passed on October 12, 2019 and equalizes the treatment of such taxpayers by allowing them to do so if applicable.  AB-37 will go into effect on January 1, 2020.

 

AB-858 adds to the CDFA’s type 1C cultivation a limit of 2,500 square feet for outdoor grow space.  Prior law did not place a canopy size limit on this type of license, also known as a “specialty cottage.”  AB 858 corrects this oversight by limiting the growing space to 2,500 square feet. AB-858 will go into effect on January 1, 2020.

 

AB-1291 requires an applicant for a cannabis license who has 20 or fewer employees to provide a statement that the applicant will enter into a labor peace agreement within 60 days of employing 20 or more employees, and requires applicants who currently have 20 or more employees to provide a statement that they will or already have entered into such an agreement.  Prior law required applicants with greater than 20 employees to submit similar statements but placed no timeline restrictions on the submittal, and did not require anything of the like from applicants with fewer than 20 employees.  AB-1291 passed on October 12, 2019 and includes a time-line specification and a statement requirement for applicants with less than 20 employees for the purpose of preventing and limiting the possibility of arbitrary employment law enforcement.  AB-1291 will go into effect on January 1, 2020.

 

To All Interested Parties,

The Bureau of Cannabis Control (Bureau) recently published two new fact sheets as a resource for those seeking information about the cannabis distributor and distributor transport only license types. These documents include lists of required procedures and guidelines for various distribution activities such as transportation, storage, transfer of cannabis goods, packaging, labeling, and more.

Both distributor fact sheets have been uploaded to the California Cannabis Portal and are located on the “General Resources” page under the “Resources” section. The fact sheets may also be accessed by clicking the links listed below.

Cannabis Distributor (Type 11) Fact Sheet:

https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/08/BCC_Distributor_Fact_Sheet.pdf

Cannabis Distributor Transport Only (Type 13) Fact Sheet:

https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/08/BCC_Distributor_Transport_Only_Fact_Sheet.pdf

Those looking to get in touch with the Bureau of Cannabis Control may contact us directly through email at bcc@dca.ca.gov.

AB 2679 – Summary of New Medical Cannabis Legislation

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On September 12th, Assembly Bill (AB) 2679, which seeks to amend regulations relating to medical cannabis research and production currently existing in state law, was sent to Governor Brown’s desk to be signed into law. This letter provides an overview of the changes that the implementation of AB 2679 will have on state law.

Overview

When signed into law by Governor Brown, AB 2679 will amend three sections of California state law pertaining to medical cannabis regulation, research, and production. Two of these amendments are relatively minor, and are not likely to have a significant impact on most of our clients. The third, however, may positively affect a majority of our clients, as well as the California medical cannabis industry in general.

First, AB 2679 makes a change to the annual reporting requirements of the licensing authorities established by the Medical Cannabis Regulation and Safety Act (MCRSA). Under existing law, each licensing authority is required to prepare an annual report detailing the authority’s activities. The authority is required to submit this report to the State Legislature and to post the report on its website. AB 2679 compels the licensing authorities to include the following information in each report: (1) The number of appeals from the denial of state licenses or other disciplinary actions taken by the licensing authority; (2) the average time spent on these appeals; and (3) the number of complaints submitted by citizens or representatives of cities or counties regarding licenses.

The second amendment AB 2679 makes to state law pertains to the University of California Marijuana Research Program authorized by current law. The purpose of this program is to study the general medical safety and efficacy of cannabis. If it finds the medicinal use of cannabis to be safe and effective, the program is to develop medical guidelines for the appropriate administration of tis use. AB 2679 makes a small modification to state law specifying that studies conducted by the Research Program may also include those meant to ascertain the effect cannabis has on motor skills.

The third and final change made to state law by the passing of AB 2679 is also the most likely to have an effect on many of you. As currently codified in state law, until one year after the Bureau of Medical Cannabis Regulation posts a notice on its website that licensing authorities have begun to issue state licenses, the MCRSA exempts cooperatives and collectives who cultivate medical cannabis for qualified patients from criminal prosecution for activities relating to the growing, sale, or distribution of cannabis. AB 2679 will also now exempt manufacturers of medical cannabis without a state issued license from criminal sanctions, for the same time period mentioned above, if specified conditions are met, including the possession of a valid license issued by the local city or county.

Questions and Answers

The following information is provided within the context of California state law only and does not address the applicability of any federal laws, which still hold cannabis for any purpose to be illegal.

What activities are considered “manufacturing” under AB 2679?

According to the language imposed by AB 2679, “Manufacturing” of medical cannabis products means compounding, converting, producing, deriving, processing, or preparing, either directly or indirectly by chemical extraction or independently by means of chemical synthesis, medical cannabis products.

In addition to possessing a valid local license, what other conditions must I meet to be in compliance with AB 2679?

AB 2679 amends existing state law to state that a collective or cooperative that manufactures medical cannabis products shall not, solely on that basis, be subject to criminal sanctions, if all of the following conditions are met:

  1. The collective or cooperative utilizes either (1) a solvent-less manufacturing process, or one that employs nonflammable nontoxic solvents that are generally recognized as safe by the FDA; or (2) a manufacturing process that uses solvents exclusively within a closed-loop system that meets specified requirements.
  2. The manufacturer has received and maintains approval from the local fire official regarding the facility as well as all equipment and operations utilized.
  3. All relevant fire, safety, and building code requirements must be met.
  4. The collective or cooperative possesses a valid Sellers Permit from the Board of Equalization.
  5. The collective or cooperative posses a valid local permit, license, or other form of authorization specific to the manufacturing of medical cannabis, and is in compliance with all conditions imposed by the issuing city or county.

Closing

In addition to some relatively minor changes pertaining to licensing authorities and academic studies into medical cannabis, AB 2670 may help relieve some of our clients from the threat of criminal prosecution for the manufacturing of medical cannabis products without a state license, until such licenses are made available. However, specific conditions must be met including the possession of a valid locally issued license, which is why we are working so diligently with many of you to secure local permits. Today, only a few cities and counties issue such permits, but the landscape is changing weekly.

We hope this has been helpful. And we look forward to hearing from each of you, and helping you navigate these new laws and regulations today and into the future.

This post is provided for educational purposes only. No specific legal advice is intended to be given, or attorney/client relationship established, by providing of this information. Please consult with an Attorney of your choice with respect to questions regarding any matter contained herein.

WINTER LLP® is a corporate, transactional, regulatory and intellectual property law firm focused on traditional and emerging markets, with offices in Orange County, San Francisco, and Arizona, servicing clients around the world.