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Winter LLP Update: Temporary Permits Q&A

Greetings!

As many of you may already aware, the Bureau of Cannabis Control (BCC) released the Temporary Applications for Retailers, Distributors, Microbusinesses, and Testing Labs, and the Manufactured Cannabis Safety Branch (MCSB) released their Temporary Applications for Manufacturers today. CalCannabis has not yet released its Temporary Application for Cultivators.

Please note that there are 3 agencies (BCC, MCSB, and CalCannabis) issuing different license types, and each agency has their own website and different application requirements. Below you will find a brief outline of the required documents and submittal processes from the BCC and MCSB.

We strongly recommend that you contact our office to either (1) assist with completing required application forms; and/or (2) review the required application documents before submittal.

  1. What documents do I need to submit to the BCC as a Retailer, Distributor, Microbusiness, or Testing Lab for a Temporary License?
    1. Temporary License Application
    2. Premises Diagram Form

i. Please carefully review the attached Premises Diagram form in each respective License folder. The requirements are very specific and will likely require the assistance of an architect to draft.

    1. Local Authorization Document
    2. Evidence of Legal Right to Occupy

i. Deed or Title; OR

ii. Lease AND Statement from Property Owner authorizing commercial cannabis activities

  1. How do I submit the Temporary License Application for a Retailer, Distributor, Microbusiness, or Testing Lab?

You will need to create an online account with the BCC (https://www.bcc.ca.gov/). Please see attached “BCC Online Licensing Instructions.” Please note that all required information must be submitted via the online licensing system, including uploading any additional required documents (Premises Diagram, Local Authorization, Evidence of Legal Right to Occupy).

If there is more than 1 owner/applicant, only 1 person needs to submit the application. All other owners will be listed on the application.

There is no application or licensing fee.

  1. What Documents do I need to submit to MCSB as a Manufacturer for a Temporary License?
    1. Temporary License Application
    2. Local Authorization Document
  1. Do I need to submit the Premises Diagram Form or Evidence of Legal Right to Occupy for the Temporary Manufacturing License?

It does not appear that you need to submit the Premises Diagram Form or Evidence of Legal Right to Occupy for the Temporary Manufacturing License.

  1. How do I submit the Temporary License Application for a Manufacturer?

You will need to submit the Application Form and Local Authorization Document via Email OR Mail:

Email to: MCLS@cdph.ca.gov OR

Mail to:

CDPH – Manufactured Cannabis Safety Branch Attn: Licensing Unit

PO Box 997377, MS-7606

Sacramento, CA 95899-7377

There is no application or licensing fee.

Thank you, stay safe, and good luck out there! Todd Winter, WINTER LLP.

Please contact us directly with any questions, or if you need assistance.

Winter LLP Update: State Licensing Regulations – Summaries

Hello Again,

We understand that most of you are working hard towards achieving compliance beginning January 1. So as a follow-up to our recent update regarding the newly released state regulations, we want to provide you with summaries of some of the more important details that we have identified in the state regulations.

As many of you may know, the California cannabis industry will now be governed by three state agencies. The California Bureau of Cannabis Control (BCC) is responsible for regulating distribution, retail and testing, the California Department of Public Health (CDPH) will oversee manufacturing (which includes packaging and labeling), and the California Department of Food and Agriculture (CDFA) will govern cultivation.

BCC Regulations – Distribution, Retail, and Testing

Distribution

There are three different types of distribution licenses (all falling under License Type 11) under the BCC Regulations. All transportation of cannabis or cannabis products must be conducted by a Distributor Licensee or its employees.

  • Distributor (Standard)
    • The holder of a Distributor License does the following: arranges for testing, checks for appropriate packaging and labeling, collects taxes, transports cannabis and cannabis products, and acts as a cannabis wholesaler.
    • Cannabis and cannabis products must pass through a Standard Distributor prior to being sold to customers at a retail establishment.
    • Distributors may package and label cannabis, but not manufactured cannabis products.
  • Transport Only – Self Distributor
    • The holder of a Transport Only Self Distribution License is permitted to transport only its own cannabis and cannabis products, but cannot perform any other function of a Distributor.
    • Transportation to retail licensees is prohibited by a Transport Only License. The lone exception is for the transportation of immature plants and seeds from a nursery to a retailer.
      • Allowed: Cultivator wants to transport its raw products to manufacturer.
      • Not Allowed: Manufacturer wants to transport its products to Dispensary.
  • Transport Only – Third Party
    • A Third Party Transport Only License is identical to a Self-Distributor License, except that it allows the permit holder to transport the cannabis and cannabis products of other licensees rather than their own.
    • Transportation to a retail licensee is prohibited.
      • Allowed: Transportation company wants to deliver products among licensees.
      • Not allowed: Manufacturer wants to transport products to Dispensary.

Retail

  • Retailers cannot package or label cannabis or cannabis products on the premises. All products must be packaged and labeled prior to arriving at the retailer.
  • During the Transition Period, which lasts between January 1 and July 1, retailers may receive products that do not meet packaging and labeling standards. However, before selling to consumers, the retailer must place the products in secondary packaging subject to certain requirements.
  • Retailers may only be open to the public between 6:00 a.m. and 10:00 p.m.
  • All products must be placed in an opaque bag before leaving the retail premises.
  • All deliveries must be made by a direct employee of the licensee to a physical address within CA.
  • Delivery vehicles may contain a maximum of $3000 worth of cannabis or cannabis products at any time.

Testing

  • Provisional Licenses – Testing Labs that are awaiting accreditation from the joint technical committee of the International Organization for Standardization and the Electrotechnical Commission may obtain a 12 month provisional license if they meet all other requirements. The Provisional License may be extended an additional 12 months if the applicant is still awaiting accreditation.

CDPH Regulations – Manufacturing

  • Ethanol is now considered a nonvolatile solvent
  • There are four types of manufacturing licenses:
    • Type 7 – Extraction using volatile solvents (can also do everything a Type 6, Type N, and Type P licensee can do)
    • Type 6 – Extraction using only non-volatile solvents (can also do everything a Type N and Type P licensee can do)
    • Type N – Infusions (can also do everything a Type P licensee can do)
    • Type P – Packaging and labeling only
  • A new license, “Type S,” is expected to be issued starting in early 2018 which will allow businesses to share facility space.

CDFA Regulations – Cultivation

  • Type 5 Large Cultivation licenses will not become available until 2023
  • All individuals and entities are limited to only one Type 3-Medium Outdoor, Type-3A-Medium Indoor, or Type 3B-Medium Mixed-Light A-License or M-License. This means that an individual owner in an entity that holds a Medium Cultivation license cannot also own 20% or more of any other entity that also holds a Medium Cultivation license of any type.
    • There is no equivalent limit on Type 1 or 2 Cultivation Permits or aggregate limit on cultivation. Meaning that an applicant may own 10, 20, or more Type 2 Small Outdoor, Indoor, or Mixed Light grows, and all on the same Premises if you have a large enough parcel or building.
      • Practical Note: Based on the limits of Type 3 permits above, we see no net benefit in trying to obtain a Type 3 permit unless that is all you ever want to own, or unless you are part of a group where each of you will always own less than 20% of the permit. Instead, since many of our clients have multiple cultivation projects, and large enough Premises (parcels or warehouses), we recommend breaking up your cultivation projects into the unlimited variety with the smaller Type 2 permits.
  • A new Processor License type has been created which allows licensees to trim, dry, cure, grade, and package cannabis. Growing cannabis is not permitted under a Processor License.

The newly issued regulations are quite extensive, totaling around 300 pages, and address nearly every aspect of the cannabis industry. The information above is intended only to highlight some of the more important details we have identified in the regulations, and by no means is meant to serve as a complete summary of the regulations. Should you have questions about any of the information above, or about any of the rules and requirements contained in the regulations, please do not hesitate to reach out.

Next, please be on the lookout from our team for further information on Temporary Permits, including required documents, fees, and due dates.

With the addition of Kurt Ketchum, Esq. as an Associate Attorney in our Costa Mesa office, and the promotion of Wendy Lei, Esq. to Senior Associate, we are poised and ready to help each and every one of you navigate and obtain Temporary State Licenses. In addition to everything else we do for our clients…corporate transactions, contracts, regulatory, real estate, trademarks and intellectual property licensing.

You’ve all worked incredibly hard and faced adversity every step of the way the past several years to get to this moment. This is finally your time. Let’s go!

What is Proposition 65?

1. What is Proposition 65?

Proposition 65 (Prop 65) requires businesses to notify Californians about significant levels of chemicals in products they purchase, in their homes or workplaces, or that are released into the environment.[1] Prop 65 also prohibits California businesses from knowingly discharging significant amounts of listed chemicals into sources of drinking water. Once a chemical is listed as one of the Prop 65 chemicals, businesses have 12 months to comply with warning requirements and 20 months to comply with the discharge prohibition. The Office of Environmental Health Hazard Assessment (OEHHA) administers Prop 65, which is part of the California Environmental Protection Agency (EPA). The California EPA also evaluates all currently available scientific information on substances considered for placement on the Prop 65 list.[2]

Businesses are required to provide a “clear and reasonable” warning before knowingly and intentionally exposing anyone to a listed chemical. This warning can be given by labeling a consumer product, posting signs at the workplace, distributing notices at a rental housing complex, or publishing notices in a newspaper.

2. Which types of businesses are exempt from Prop 65 warning requirements?

  1. Businesses with less than 10 employees;
    1. In Consumer Advocacy Group, Inc. v Pilot Automotive, Inc., the court found that the defendant corporation’s staff of less than 10 employees, was a substantial factor in finding that the corporation had not violated Prop 65 when it sold steering wheel covers which contained lead. The court stated:
    2. The corporation’s staff cannot be held liable under Health & Safety Code § 25249.11 because it contains fewer than 10 employees. Health & Safety Bode § 25249.11(b) states that a “person” under the Act does not include a “person employing fewer than 10 employees in his or her business.”
  1. Government agencies; and
  2. Businesses whose exposures are so low as to create no significant risk[3] of cancer, birth defects,[4] or other reproductive harm.

3. What are the content requirements that a Noticing Party must comply with before commencing an action alleging a Prop 65 violation?

  1. General Information. Each notice shall include as an attachment a copy of “The Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65): A Summary” prepared by the lead agency. This attachment need not be included in the copies of notices sent to public enforcement agencies.
  2. Description of violation.U A notice shall provide adequate information from which to allow the recipient to assess the nature of the alleged violation, as set forth in this paragraph. The provisions of this paragraph shall not be interpreted to require more than reasonably clear information, expressed in terms of common usage and understanding, on each of the indicated topics.

4. What information must the Noticing Party identify in the Notice?

  1. The name, address, and telephone number of the noticing individual or a responsible individual within the notice entity and the name of the entity;
  2. The name of the alleged violator or violators;
  3. The approximate time period during which the violation is alleged to have occurred; and
  4. The name of each listed chemical involved in the alleged violation.

5. What information is the Notice not required to contain?

  1. The specific retail outlet or time or date at which any product allegedly violating the Act was purchased;
  2. The level of exposure to the chemical in question;
  3. The specific admissible evidence by which the person providing the notice will attempt to prove the violation;
  4. For product, the UPC number, SKU number, model or design number or stock number or other more specific identification of products;
  5. For geographic areas, the lot, block or other legal description of the property in question

6. Do the products alleged to be in violation of Prop 65 need to be included?

Yes. For notices of violation of § 25249.6 of the Act involving consumer product exposures, the name of the consumer product or service, or the specific type of consumer product or services, that cause the violation, with sufficient specificity to inform the recipients of the nature of the items allegedly sold in violation of the law and to distinguish those products or services from others sold or offered by the alleged violator for which no violation is alleged.

7. Do the means by which an individual alleges to have been exposed to the chemicals in the products need to be stated?

Yes. For all notices of violation of § 25249.6, the route by which exposure of the listed chemical is alleged to occur needs to be stated in the Notice. For example, various types of ways people are exposed to harmful chemicals include inhalation, ingestion, dermal contact, etc.

8. How must the Notice be served on the alleged violator?

Notices shall be served by first class mail or any manner that would be sufficient for service of a summons and complaint under the California Code of Civil Procedure. In lieu of service as prescribed in the California Code of Civil Procedure, a notice may be served on the Attorney General and a district attorney or city attorney by electronic mail if:

  1. The Attorney General, District Attorney or City Attorney has specifically authorized such service and the authorization appears on the Attorney General’s Web site.
  2. The Notice and related documents are sent to the electronic mail address specified, and in the format (e.g. Word, Adobe Acrobat) specified.
  3. Service by this method is not effective until the documents are actually received. Notice is actually received when it is acknowledged by the recipient.
  4. Where a document is served electronically, time shall be computed as it would for service by mail within the State of California.

9. Does the Notice require a certificate of service?

Yes, certificate of service shall be attached to each notice listing the time, place, and manner of service and each of the parties upon which the notice was served.

10. Who else shall be served with the Notice of an alleged violation?

Notices shall be served upon each alleged violator, the Attorney General, the district attorney of every county in which a violation is alleged to have occurred, and upon the city attorneys of any cities with populations according to the most recent decennial census of over 750,000 and in which the violation is alleged to have occurred.

  1. Where the alleged violator has a current registration with the California Secretary of State that identifies a Chief Executive Officer, President, or General Counsel of the corporation, the notice shall be addressed to one of those persons.

11. What other necessary documents must the Noticing Party provide to the alleged violator in its Notice?

If a private party alleges that a violation occurred based on one of the exposures described above, the private party must first provide the alleged violator a notice of special compliance procedure and a proof of compliance form. The alleged violator must complete and submit the compliance form to the Noticing Party at an address provided postmarked within 14 days of receiving the notice.

12. How does an alleged violator respond to a Notice?

A private party may not file an action against the alleged violator for these exposures, or recover in a settlement any payment in lieu of penalties or any reimbursement for costs and attorney’s fees, if the notice of violation was served on or after October 5, 2013, and the alleged violator has done all of the following within 14 days of being served notice:

  • Corrected the alleged violation;
  • Agreed to pay a civil penalty of $500 to the private party within 30 days
  • Notified the private party serving the notice in writing that the violation has been corrected

An alleged violator may satisfy these conditions only one time for a violation arising from the same exposure in the same facility or the same premises. The satisfaction of these conditions does not prevent the Attorney General, a district attorney, a city attorney of a city greater than 750,000 in population, or any full-time city prosecutor with the consent of the district attorney, from filing an enforcement action against an alleged violator. The amount of any civil penalty for a violation shall be reduced to reflect a payment made by the alleged violator for the same alleged violation to a private party.

13. What kind of action is the Plaintiff entitled to commence after the 60 days have elapsed form the date of service of Notice and what can the alleged violator do to avoid such action?

An action is deemed to have been “commenced more than 60 days after the person has given notice” where more than 60 days have elapsed from the date of service of the notice, as the date would be calculated for service of a document pursuant to the provisions of the Code of Civil Procedure § 1013.

The plaintiff is entitled to commence a private enforcement action, which refers to individually initiated litigation, either as stand-alone or follow-on action, before a court to remedy an infringement of antitrust law. If successful, the legal action leads to some sort of civil sanction imposed by a court such as damages, restitution, injunction, nullity or interim relief. Unlike public enforcement agencies, private parties do not have special (public) powers in civil law disputes.

In order to avoid private action enforcement on behalf of the Plaintiff, an alleged violator must ascertain that it has completed the following:

  • Posted warning or warnings about the alleged exposure that complies with the law, and attaching a copy of that warning and a photograph accurately showing its placement on its premises
  • Posted the warning or warnings demanded in writing by the Noticing Party, and attaching a copy of that warning and a photograph accurately showing its placement on its premises, OR
  • Eliminating the alleged exposure, and attaching a statement accurately describing how the alleged exposure has been eliminated.

14. What are the civil penalties for a business found in violation of Prop 65?

A business found to be in violation of Prop 65 is subject to civil penalties of up to $2,500 per day for each violation. In addition, the business may be ordered by a court to stop committing the violation.



[2] The list contains a wide range of naturally occurring and synthetic chemicals that are known to cause cancer or birth defects or other reproductive harm. These chemicals include additives or ingredients in pesticides, common household products, food, drugs, dyes, or solvents. Listed chemicals may also be used in manufacturing and construction, or they may be byproducts of chemical processes, such as motor vehicle exhaust.

[3] For chemicals that are listed as causing cancer, the “no significant risk level” is defined as the level of exposure that would result in not more than one excess case of cancer in 100,000 individuals exposed to the chemical over a 70 year life time. In other words, a person exposed to the chemical at the “no significant risk level” for over 70 years would not have more than a “one in 100,000” chance of developing cancer as a result of that exposure.

[4] For chemicals that are listed as causing birth defects or reproductive harm, the “no observable level” is determined by identifying the level of exposure that has been shown to not pose any harm to humans or laboratory animals. Prop 65 then requires this “no observable effect level” to be divided by 1,000 in order to provide an ample margin of safety.