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RE: WINTER LLP Update (COMMENTS SUBMITTED RE DRAFT REGULATIONS)

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Hello all,

We wanted to share with you the formal comments we submitted to the BCC re the recent draft regulations. These comments were submitted prior to the deadline Monday.

In our opinion and experience in this industry, the draconian approach the state has taken on each of these two issues (addressed below) will be catastrophic if approved. Not only to many of our clients, but the entire industry. We are hopeful the state receives many similar comments and backlash from other cannabis professionals, and responds favorably to our comments below.

We will keep you posted as we learn more. And regardless of the outcome, we will figure out a path forward for each of you. We’ve had to retool our legal/business approaches many times over the last 11 years, so that’s nothing new. We will always get you to the finish line in the end.

Here are our comments on these two particular draft regulations:

Letter to BCC re IP Licenses / While Labelling:

Dear BCC,

Please see comments regarding Section 5032(b), Commercial Cannabis Activity.

We do not believe that licensees should be prohibited from (1) manufacturing cannabis goods according to the specifications of a non-licensee (IP licensing); (2) packaging and labeling cannabis goods under a non-licensee’s brand (white-labeling), or (3) distributing cannabis goods for a non-licensee.

The authority upon which Section 5032 is based, BPC Section 26013(c) states: “Regulations issued under this division shall be necessary to achieve the purposes of this division, based on best available evidence, and shall mandate only commercially feasible procedures, technology, or other requirements, and shall not unreasonably restrain or inhibit the development of alternative procedures or technology to achieve the same substantive requirements, nor shall such regulations make compliance so onerous that the operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent businessperson.” (emphasis added.)

Section 5032(b) unreasonably restrains or inhibits the development of alternative procedures to achieve the same substantive requirements. There are already hundreds of pages of regulations in place to ensure that cannabis products are grown, manufactured, tested, transported, and sold in a manner that will promote public peace, health, safety, and general welfare. Section 5032, which restricts a licensee’s ability to accept IP licensing contracts or white-labeling contracts does not increase the health, safety or welfare of the public. All products that are manufactured or packaged for a non-licensee must still comply with all testing, packaging and labeling regulations. Labels are already required to contain the name and contact information of the manufacturer. Products are not more dangerous to society merely because there is different IP/branding.

Moreover, IP licensing and white-labeling are well-established business practices in almost every goods and services industry in the U.S. and abroad, and have been successfully utilized by the cannabis industry for years. If a manufacturer has sufficient equipment, materials, and employees in place to produce goods for others and achieve economies of scale, the BCC should not limit that manufacturer’s ability to produce goods with different IP. Requiring each brand/company to manufacture goods under their own license dramatically drives up costs (license fees, equipment, employees), slows time to market, while wasting natural and environmental resources to build out these additional facilities. It also creates a monopoly for the limited manufacturers that have obtained licensing to date. This draft regulation will significantly damage the California cannabis industry and put long-standing companies out of business through an immediate devaluation.

If the issue is disclosure of participants in the legal market, the BCC should implement something similar to the Beer Brand Registration model, in which the ABC requires beer brands to register and disclose whether beer is “contract brewed.” Licensees that contract with IP companies or white label companies may be required to fill out a simple disclosure form each year. This would resolve the disclosure issue, while allowing manufacturing licensees, IP companies, and brands opportunities to continue to manufacture safe cannabis products in an efficient and cost-effective manner. Whatever the solution, it cannot be this draft regulation, which if passed will have immediate and catastrophic consequences, including loss of thousands of jobs, bankrupt businesses, and loss of industry leaders, to name a few.

Letter to BCC re Designation of Owner:

Dear BCC,

Please see comments regarding Section 5003(b)(6)(D), Designation of Owner, which states:

Owner means any of the following:

An individual who will be participating in the direction, control, or management of the person applying for a license. Such an individual includes any of the following:

Any individual who assumes responsibility for the license. Such an individual includes but is not limited to, the following:

(i) An individual who is managing or directing the commercial cannabis business in exchange for a portion of the profits.

(ii) An individual who assumes responsibility for the debts of the commercial cannabis business.

(iii) An individual who is determining how a portion of the cannabis business is run, including non-plant-touching portions of the commercial cannabis business such as branding or marketing.

(iv) An individual who is determining what cannabis goods the commercial cannabis business will cultivate, manufacture, distribute, purchase, or sale.

As we disagree with the addition of Section 5032(b), we cannot agree that individuals who determine how non-plant touching portions of the commercial cannabis business is run, such as branding or marketing, should be considered owners.

The authority upon which Section 5032 is based, BPC Section 26013(c) states: “Regulations issued under this division shall be necessary to achieve the purposes of this division, based on best available evidence, and shall mandate only commercially feasible procedures, technology, or other requirements, and shall not unreasonably restrain or inhibit the development of alternative procedures or technology to achieve the same substantive requirements, nor shall such regulations make compliance so onerous that the operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent businessperson.” (emphasis added.)

Requiring independent consultants and advisors to register as “owners” is onerous and impractical for a reasonable businessperson. The BCC is overreaching by defining an owner as individuals who determine how “non-plant touching portions of the commercial business” are run, because this could potentially include almost all advisors (attorneys, CPAs) and ancillary business consultants (equipment manufacturers, marketing companies, IP companies, etc.) who provide guidance to permitted licensees. Seeking the professional guidance of independent consultants and advisors is a well-established business practice that does not rise to the level of involvement as an “owner” in any other industry. It does not make sense that they are required to register as “owners” when these ancillary individuals are not required by State law to be on any corporate formation documents, such as Statements of Information, Bylaws, or Operating Agreements. Requiring the registration of these ancillary individuals not only complicates corporate documents and structures, it could potentially lead to unnecessary and frivolous litigation between and against all of the “owners” of a license, especially those with “deep pockets.”

Instead of defining these individuals as “owners,” it should be sufficient that IP companies and brands are disclosed as having financial interests in the business. This would still allow the BCC to track the involvement of these companies, while not further complicating business structures and “ownership” obligations.

WINTER LLP UPDATE: U.S. Senate Votes To Legalize Hemp After Decades-Long Ban Under Marijuana Prohibition

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The non-psychoactive cannabis cousin of marijuana would finally become legal to grow in the United States under a bill overwhelmingly approved by the Senate.

Photo by Chris Wallis // Side Pocket Images

The wide-ranging agriculture and food policy legislation known as the Farm Bill, passed by a vote of 86 – 11 on Thursday, contains provisions to legalize the cultivation, processing and sale of industrial hemp.

The move, championed by Senate Majority Leader Mitch McConnell (R-KY), would also make hemp plants eligible for crop insurance.

“Consumers across America buy hundreds of millions in retail products every year that contain hemp,” McConnell said in a floor speech on Thursday. “But due to outdated federal regulations that do not sufficiently distinguish this industrial crop from its illicit cousin, American farmers have been mostly unable to meet that demand themselves. It’s left consumers with little choice but to buy imported hemp products from foreign-produced hemp.”

McConnell also took to the Senate floor on Tuesday and Wednesday to tout the bill’s hemp legalization provisions in separate speeches.

In April, the GOP leader introduced standalone legislation to legalize hemp, the Hemp Farming Act, the provisions of which were included in the larger Farm Bill when it was unveiled earlier this month.

The Senate Committee on Agriculture, Nutrition and Forestry approved the bill by a vote of 20-1 two weeks ago.

During that committee markup, Sen. Charles Grassley (R-IA), one of Congress’s most ardent opponents of marijuana law reform, threatened to pursue serious changes to the bill’s hemp provisions on the floor. Namely, he wanted to remove the legalization of derivatives of the cannabis plant, such as cannabidiol (CBD), which is used by many people for medical purposes. But Grassley never ended up filing a floor amendment, allowing hemp supporters to avoid a contentious debate and potentially devastating changes to the bill.

Hemp legalization enjoys broad bipartisan support.

“Legalizing hemp nationwide ends decades of bad policymaking and opens up untold economic opportunity for farmers in Oregon and across the country,” Sen. Ron Wyden (D-OR) said upon passage of the Farm Bill on Thursday. “Our bipartisan legislation will spur economic growth in rural communities by creating much-needed red, white and blue jobs that pay well. I’m proud to have worked with my colleagues to get the bipartisan Hemp Farming Act through the Senate. Today marks a long-overdue, huge step forward for American-grown hemp.”

BIG news for industrial hemp farming! Today, the Senate passed my bipartisan #HempFarmingAct, legislation that would lift a decades-old ban on growing industrial hemp on American soil. #RonReport

— Ron Wyden (@RonWyden) 3:09 PM – Jun 28, 2018

Earlier this month, the Senate approved a nonbinding resolution recognizing hemp’s “growing economic potential.”

“For the first time in 80 years, this bill legalizes hemp. We forget, but hemp was widely grown in the United States throughout the mid-1800s,” Sen. Michael Bennet (D-CO) said in a floor speech on Wednesday. “Americans used hemp in fabrics, wine, and paper. Our government treated industrial hemp like any other farm commodity until the early 20th century, when a 1937 law defined it as a narcotic drug, dramatically limiting its growth. This became even worse in 1970 when hemp became a schedule I controlled substance. In Colorado, as is true across the country–I have talked to a lot of colleagues about this–we see hemp as a great opportunity to diversify our farms and manufacture high-margin products for the American people.”

McConnell’s standalone hemp bill currently has 29 cosponsors signed on—17 Democrats, nine Republicans and two independents.

A Congressional Research Service report released last week says that the “global market for hemp consists of more than 25,000 products.”

House Republican leaders blocked a vote to make hemp legalization part of that chamber’s version of the Farm Bill. But now that the language is included in the version approved by the Senate, it will be part of discussions by the bicameral conference committee that will merge both chambers’ bills into a single piece of legislation to be send to President Trump’s desk. All indications are that McConnell, as the most powerful senator, will fight hard for the survival of his hemp proposal.

A White House statement of administration policy released this week outlining concerns with the Farm Bill does not mention its hemp legalization provisions.

In 2014, McConnell included provisions to allow limited state-authorized hemp research programs in that year’s version of the Farm Bill.

Kentucky’s agriculture commissioner cheered the passage of the new hemp provisions on Thursday..

For farmers across KY, there is no piece of legislation more important than the #FarmBill. I am excited that @SenateMajLdr’s #HempFarmingAct made it into this measure, which will allow states to unleash the full economic potential of our industrial hemp pilot programs. #KyAg365

— Commissioner Quarles (@KYAgCommish) 3:17 PM – Jun 28, 2018

Tom Angell publishes Marijuana Moment news and founded the nonprofit Marijuana Majority. Follow Tom on Twitter for breaking news and subscribe to his daily newsletter.

WINTER LLP UPDATE: FDA approves first drug derived from marijuana

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The Food and Drug Administration (FDA) on Monday gave a green light to the country’s first drug derived from marijuana.

Epidiolex, manufactured by GW Pharmaceuticals, is intended to treat seizures associated with two rare and severe forms of epilepsy that begin in childhood. The drug is made of cannabidiol (CBD), a component of marijuana that doesn’t give users a high.

The approval could spur more research into marijuana products, though marijuana itself remains illegal.

“This approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies,” FDA Commissioner Scott Gottlieb said in a statement.

In a separate statement, Gottlieb stressed the importance of using proper research on the medical uses of marijuana and noted the approval doesn’t mean the agency will be lowering its approval standards for marijuana.

“This is an important medical advance. But it’s also important to note that this is not an approval of marijuana or all of its components,” he said. “This is the approval of one specific CBD medication for a specific use.”

Medical marijuana is available in about half of states. But federal regulations classify CBD as a Schedule 1 drug, which means it has no medical value and a high potential for abuse, because it is a chemical component of the cannabis plant.

This means the Drug Enforcement Administration (DEA) will have to reclassify it before GW can begin marketing Epidiolex.

The FDA said it is providing medical and scientific information and recommendations to the DEA about CBD.

WINTER LLP Update: Final Cannabis Regulations Approved

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Dear All,

On January 16, 2019, California’s three state cannabis licensing authorities announced that the Office of Administrative Law (OAL) officially approved state regulations for cannabis businesses across the supply chain. Please note, these new cannabis regulations take effect immediately, meaning the previous emergency regulations are no longer in effect.

First, we would like to address the sections that we previously commented on during the 15-day comment period back in October.

Section 5032(b), Commercial Cannabis Activity.

(b) Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act.

Such prohibited commercial cannabis activities include, but are not limited to, the following:

(1) Procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer.

(2) Manufacturing cannabis goods according to the specifications of a non-licensee.

(3) Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee.

(4) Distributing cannabis goods for a non-licensee.

The Bureau has removed the specific examples of “prohibited commercial cannabis activity,” such as “packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee. However, this does not mean that the State is authorizing white labeling/branding for unlicensed brand owners; in fact the opposite holds true. Practically, this means that (1) the operating company (licensed/permitted entity) needs to hold the IP (trademarks, copyrights, brands) instead of the management company; and (2) companies that do not hold a permit/license cannot get their products made by permitted manufacturers (white-labeling) unless they are included as an owner of the license.

The Bureau provided a few examples of an authorized brand owner/licensee relationship:

  • “if a licensee includes as one of their owners a brand owner, the licensee can produce the branded products because in this case the licensee is not engaged in commercial cannabis activity on behalf of an unlicensed person. Because the owner of the brand is an owner of the licensee, there is no unlicensed person involved.”
  • “Generally, where a brand-owner may be dictating the standards and specifications of a product (i.e. providing direction or control), they would likely be considered an owner that would need to be disclosed under section 5003. Where ownership is properly disclosed, such persons would not be considered non-licensees, and would be able to conduct business under their license.”

We understand there is a lot of confusion/debate surrounding this issue. We are reviewing angles and alternatives to work through these vague/troubling rules. Additionally, we are seeking further clarification from the State regarding how IP licensors/licensees may be classified (as owners, financial interest holders, etc.). Please stay tuned.

Section 5003(b)(6)(D), Designation of Owner.

(b)Owner means any of the following:

(6) An individual who will be participating in the direction, control, or management of the person applying for a license. Such an individual includes any of the following:

(1) A person with an aggregate ownership interest of 20 percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance.

(2) The chief executive officer of a nonprofit or other entity.

(3) A member of the board of directors of a nonprofit.

(4) The trustee(s) and all persons who have control of the trust and/or the commercial cannabis business that is held in trust.

(5) An individual entitled to a share of at least 20 percent of the profits of the commercial cannabis business.

(6) An individual who will be participating in the direction, control, or management of the person applying for a license. Such an individual includes any of the following:

(A) A general partner of a commercial cannabis business that is organized as a partnership.

(B) A non-member manager or managing member of a commercial cannabis business that is organized as a limited liability company.

(C) An officer or director of a commercial cannabis business that is organized as a corporation.

(D)Any individual who assumes responsibility for the license. Such an individual includes but is not limited to, the following:

(i) An individual who is managing or directing the commercial cannabis business in exchange for a portion of the profits.

(ii) An individual who assumes responsibility for the debts of the commercial cannabis business.

(iii) An individual who is determining how a portion of the cannabis business is run, including non-plant-touching portions of the commercial cannabis business such as branding or marketing.

(iv) An individual who is determining what cannabis goods the commercial cannabis business will cultivate, manufacture, distribute, purchase, or sale.

The Bureau has removed section D, “any individual who assumes responsibility for the license” completely. The Bureau addressed comments as follows: “A salesperson earning a fractional share in profits would not be considered an owner under this section but would be a financial interest holder. Commenter’s comment demonstrates that rather than providing clarification, subsection (b)(6)(D) created more confusion. Therefore, the Bureau has determined that it is necessary to withdraw the subsection.”

Therefore, consultants, Marketing Managers, etc. will not have to be disclosed as “owners” unless they fulfill one of the other definitions of an owner (20% or more profits, 20% or more ownership interest, board of directors, etc.)

Second, please find a brief summation of some important regulatory changes for each license type. Please note that this is not a comprehensive summary and we advise you to contact us with any questions regarding your specific operation.

BCC Regulations (Retail, Delivery, Microbusiness, Distribution, Testing)

  1. Annual License Application Forms. All BCC applicants will be required to use the applicable forms supplied by the Bureau to submit Transportation Procedures, Inventory Procedures, Non-Laboratory Quality Control Procedures, Security Procedures, and Delivery Procedures.
  2. Cal-OSHA training. Businesses with more than 1 employee must complete a Cal-OSHA 30-hour general industry outreach course within one year of receiving a license.
  3. Business/Owner Modifications. If one or more of the owners of a license change, the new owners shall submit their required information within 14 calendar days of the effective date of the ownership change, but may not need to submit a new license application if at least one existing owner is not transferring his ownership interest.

Distributors

  1. Pre-rolls. Distributors may package and label pre-rolls that consist exclusively of any combination of flower, shake, leaf, or kief for retail sale.
  2. Exit Packaging. Until January 1, 2020, the child-resistant packaging requirement may be met through the use of a child-resistant exit package at retail.
  3. Distributor to distributor transfer. After a batch passes testing, the goods packaged as they will be sold at retail, may be transported to one or more licensed retailers, distributors, or microbusinesses (previously was only retailers). However, cannabis goods that have not been transported to retail within 12 months of the date on the Certificate of Analysis must be destroyed or re-tested.
  4. Ownership of Vehicles. All vehicles used to transport cannabis goods must be owned or leased by the licensee.

Delivery

  1. Delivery to prohibited cities. A delivery employee may deliver to any jurisdiction within the State of California.
  2. Value of Goods. A delivery vehicle may not carry cannabis goods in excess of $5,000 at any time.

Testing

  1. Sampling. Once a representative sample has been obtained for compliance testing, the testing laboratory that obtained the sample must complete the regulatory compliance testing.
  2. Final Form. All testing of the samples shall be performed on the final form in which the cannabis or cannabis products will be consumed or used.

Temporary Cannabis Event

  1. Other venues allowed. Temporary cannabis event may be held at county fair event, district agricultural association event, or at another venue expressly approved by a local jurisdiction for the purpose of holding a temporary cannabis event.

MCSB Regulations (Manufacturing)

  1. Cal-OSHA training. Businesses with more than 1 employee must complete a Cal-OSHA 30-hour general industry outreach course within one year of receiving a license.
  2. Cannot use CBD from hemp. Manufacturers may only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator (and not from hemp cultivators).
  3. Retail Food/ABC Premises. A manufacturer shall not manufacture, prepare, package, or label cannabis products in a location that is operating as a retail food establishment, or that is licensed by the Department of Alcoholic and Beverage Control.
  4. Requirements of Operating Procedures and Policies have changed (new written protocols required).
  5. Final Form. Cannabinoid content may be included on the product label or added to the product at the distribution premises after issuance of the regulatory compliance testing Certificate of Analysis.
  6. Child-Resistant Packaging. Until January 1, 2020, the child-resistant packaging requirement may be met through the use of a child-resistant exit package at retail.
  7. Edible cannabis product label may not contain a picture of the edible product.
  8. New Labeling and Packaging Requirements. We strongly encourage you to contact us with any questions regarding the new comprehensive packaging and labeling checklist and/or to have us review your packaging and labeling for compliance with the new regulations.

CalCannabis Regulations (Cultivation)

  1. Cal-OSHA training. Businesses with more than 1 employee must complete a Cal-OSHA 30-hour general industry outreach course within one year of receiving a license.
  2. Separate processing areas for each license type. Processing areas, packaging areas, and storage of cannabis subject to administrative hold areas may not be shared among multiple licenses held by one licensee (need to identify separate areas for each license)
  3. Common areas. Pesticide and chemical storage areas, composting areas, and secured waste areas may be shared between licenses held by one licensee.
  4. Light deprivation. Outdoor licensees may not use light deprivation.
  5. Processing. Cultivators may process cannabis, which includes all activities associated with the drying, curing, grading, trimming, rolling, storing, packaging, and labeling of flower, shake, leaf, pre-rolls, and kief that is obtained from accumulation in containers or sifted from loose flower with a mesh screen.
  6. New Labeling and Packaging Requirements. We strongly encourage you to contact us with any questions regarding the new comprehensive packaging and labeling checklist and/or to have us review your packaging and labeling for compliance with the new regulations.

As always, we hope that you find the above useful in navigating this rapidly-evolving landscape. This is by no means a comprehensive summary of all of the changes that were implemented; it is simply a quick overview of relevant rules that may be applicable to our Clients.

Please do not hesitate to contact us if you have further questions or need clarification regarding any of the new regulations.

WINTER LLP Update: In Truckee, Cannabis Businesses Are Still Coming Out Of The Shadows

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TRUCKEE, Calif. — Though the town of Truckee has allowed commercial cannabis delivery for a year now with no cap on the number of permits issued, there’s only one operating delivery service fully permitted by the town and the state.
While the town has seemingly strict regulations, working with town staff to obtain a use permit was a relatively smooth process, said Todd Winter, owner of Winter Greens Delivery.
“This is a brand new industry,” said Winter. “It’s always going to seem harsh at the very beginning.”
Winter has also worked as an attorney representing clients in the cannabis industry for the past 10 years.
“In dealing with municipalities all over the state, the Town of Truckee was amazingly receptive in the process,” he said. “The business license process was shorter than anywhere else we’ve dealt with for a client.”
In order to operate legally, businesses must obtain a use permit from both their local municipality and the state. As a veteran of the industry, Winter said licensing his delivery business may have been a smoother process because he was familiar with the regulations.
“I do permits and licenses and everything related to cannabis businesses all over the state of California with my team,” said Winter. “It’s much easier for me than other delivery businesses in town that were faced with challenges that I didn’t have because I have this expertise.”
Truckee’s regulations allow businesses to only deliver to a private physical addresses. However each delivery service must have a fixed location to run operations, at which direct sales cannot take place.
The businesses cannot exceed 3,000 square feet or have a retail storefront. They must maintain at least 600 feet of distance from schools, daycares and youth centers and will be limited to areas zoned for manufacturing, downtown manufacturing, service commercial and general commercial.
Businesses in the general commercial zone may not be located on the ground floor.
Starting a legal cannabis business takes more money and resources than most other businesses, Winter said.
“It’s expensive. You have to find property. You have to talk to landlords that will see eye-to-eye with you and be OK with cannabis in their space.”
In December the Truckee Planning Commission granted Tahoe Herbal Care a use permit, a delivery service attempting to operate out of a second-story suite in Donner Lake Village. The planning commission’s decision was appealed, however, and the owners later withdrew their application due to regulations within the home owners association, according to Jenna Gatto, Truckee planning manager.
“A lot of landowners don’t want cannabis in their space,” said Winter.
As cannabis is still federally illegal, businesses face another hurdle with federal regulations banning them from using bank services.
“It makes it very difficult for cannabis companies to handle simple things like payroll or paying bills,” said Winter. “Fortunately a lot of the industry still works on a cash basis.”
Ultimately Winter said there are no drawbacks to being a legalized cannabis business “because we’re finally coming out of the shadows now.”
Hannah Jones is a reporter for the Sierra Sun. She can be reached at hjones@sierrasun.com or 503-550-2652.

WINTER LLP UPDATE: CCIA SUBMITS TESTIMONY AT HISTORIC HOUSE HEARING ON CANNABIS BANKING

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CCIA PREPARES TESTIMONY FOR HISTORIC HOUSE HEARING ON CANNABIS BANKING

Sacramento,CA – The California Cannabis Industry Association (“CCIA”), which is the leading cannabis trade association in the state of California, has strengthened its advocacy in Washington by submitting testimony to the House Financial Services Committee hearing “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses,” scheduled for February 13. As home to the country’s oldest medical cannabis market, established in 1996 by the Compassionate Care Act, and home to the country’s largest legal adult use market, the expert testimony of CCIA Executive Director, Lindsay Robinson, addresses the safety, social, and economic risks and realities experienced with an all cash industry. CCIA’s federal advocacy is in support of the Secure and Fair Enforcement (SAFE) Banking Act, providing the cannabis industry access to banking and to capital markets that they desperately need.
The country’s legal cannabis market has grown to 33 states plus the District of Columbia with legalized medical cannabis and over ten states with legalized adult use cannabis, reaching over $10.4 billion in sales in 2018. Most of this revenue being cash as cannabis businesses do not have access to banks due to Federal illegality.
CCIA Executive Director, Lindsay Robinson, says that “legalization of cannabis is not a partisan issue. We have seen the legalization of cannabis across the political spectrum, and public support is at an all-time high.”
But what does that mean? Robinson says that “Due to the federal government’s continued classification of cannabis as a Schedule I drug under the Controlled Substances Act, the multi-billion dollar U.S. cannabis industry is denied access to banking and capital markets, which are basic necessities for any legitimate industry.”
Robinson’s testimony goes on to explain that “The ability to use U.S. financial institutions for banking is essential to ensure the safety of the cannabis industry and cannabis consumers. Without access to banking, companies are forced to maintain large amounts of cash on hand, pay employees and vendors in cash, and use cash to pay taxes. All of this creates an untenable situation where the safety of consumers, employees, and companies is at risk.”
The lack of access to capital markets by the cannabis industry adds a barrier to social equity applicants attempting to access funding to enter the legal market. Robinson explains that “The lack of access to capital markets, however, means that federal cannabis prohibition continues to place women and minorities at a disadvantage. Although some states have sought to address the issue of diversity in the cannabis space, the costs associated with starting a cannabis company are prohibitively high for those without easy access to capital. Banks’ inability to lend to cannabis entrepreneurs perpetuates the exclusion of women and minorities from the cannabis industry and concentrates opportunities in the hands of a predominantly white, male segment of society who traditionally has more access to capital.”
The many challenges and unintended consequences that are experienced by the legal cannabis industry’s lack of access to banking and capital have been challenging in California, which is why CCIA’s Executive Director is taking her advocacy to the Federal government to find solutions. “For these reasons, CCIA supports the Secure and Fair Enforcement (SAFE) Banking Act. This bill will provide our membership with the access to banking and capital markets that they desperately need. It will increase the safety of the industry by eliminating the need to operate on a cash basis and will help to ensure that women and minorities have access to the capital needed to enter the cannabis industry.

WINTER LLP Update: Guidance On Commercial Cannabis Activity

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You will note some very important clarifications on interactions between LICENSEES and NON-LICENSEES. One of the most noteworthy clarifications in our opinion, is the ability to license intellectual property to a LICENSEE from a NON-LICENSEE. As many of you who use our corporate structures know, this is a huge break and departure from the written regs, and one we thought would be the case all along. Now, it appears to be settled in our favor.There are many other important clarifications, so please review carefully. And, as always, please let us know if you have questions or need assistance with anything.

Take good care out there, WINTER LLP

GUIDANCE ON COMMERCIAL CANNABIS ACTIVITY

• Under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), all commercial cannabis activity shall be conducted between licensees. The employees of a licensee may engage in commercial cannabis activity on behalf of the licensee.
• Commercial cannabis activity includes activities that are plant touching such as cultivating, manufacturing, and transporting cannabis, as well as activities that are not plant touching such as procuring and selling cannabis.
• Below are examples of activities that are provided for informational purposes only to assist licensees by providing some general, generic examples. However, whether or not an activity is compliant with statute and regulation requires a case-by-case analysis and is determined by the specific facts and circumstances of the unique situation. Therefore, the examples below are not automatically allowable but rather provide a sampling of potentially allowable activities based on information derived from inquiries submitted to the Bureau.
Examples of Potentially Allowable Activities:
• Licensees may enter into intellectual property licensing agreements with unlicensed entities. However, the intellectual property holder cannot exert control over the licensee’s commercial cannabis operations. If the intellectual property holder is exerting control over the licensee’s commercial cannabis operation, then the intellectual property holder must be disclosed as an owner on the license.
GUIDANCE ON COMMERCIAL CANNABIS ACTIVITY
• Licensees may use the services of unlicensed entities such as consultants and brokers to conduct non-commercial cannabis activity such as renting property, purchasing packaging, or leasing equipment for use by the commercial cannabis business. Consultants or brokers that are engaged in commercial cannabis activity for a licensee, such as procuring or purchasing cannabis for a licensee, must be included as either an owner or financial interest holder on the license.
• Licensees may package and label cannabis with another licensee’s brand. For example, a licensed distributor may package and label cannabis with a licensed retailer’s brand on behalf of the licensed retailer.
• Licensees may use a referral service or agency to find a licensed distributor to distribute cannabis goods. The referral service or agency is not permitted to share in any profits or revenue from the agreement or have any direction or control over a license, unless the referral service or agency is disclosed as an owner or financial interest holder of the license.
• Licensees may procure or purchase cannabis on behalf of or at the request of another licensee, such as a licensed distributor procuring cannabis for a licensed manufacturer. Licensees may not procure or purchase cannabis on behalf of any person that is not licensed under MAUCRSA.
• Licensees may enter into rental agreement where the landlord takes a percentage of a licensee’s profits if the landlord is disclosed as an owner or financial interest holder of the license.
• Licensed retailers and licensed microbusinesses may contract with a service that provides a technology platform to facilitate delivery of cannabis goods to customers if the service does not share in the licensee’s profits.
• Licensees may hire an advertising agency or marketing firm to build and/or promote the licensee’s brand. The advertising agency is not permitted to share in any royalties or a percentage of profits or revenue of the licensee unless disclosed as an owner or financial interest holder of the license.
• Licensees may purchase the right to use a patent for cannabis extraction. The patentholder is not permitted to share in any royalties or a percentage of profits of the licensee unless the patent-holder is disclosed as an owner or financial interest holder on the license.
• Licensees may purchase non-cannabis materials such as empty cartridges, batteries, packaging, extraction equipment, grow lights, and transportation and delivery vehicles, from unlicensed businesses.
• Licensed cannabis event organizers may only coordinate cannabis events. Licensed cannabis event organizers are not authorized or licensed to engage in commercial cannabis activity governed by manufacturing licenses, cultivation licenses, distribution licenses, or retail licenses.
This informational document is not meant to implement, interpret, or make specific any existing laws or regulations.
REVISED: 03/19
Bureau of Cannabis Control
2920 Kilgore Road
Rancho Cordova, CA 95670
E bcc@dca.ca.gov | P (833) 768-5880
For the latest updates, follow the Bureau on social media
WWW. B C C . C A . G OV

WINTER LLP UPDATE: California Cannabis Ballot Measure Results Are Now Available!

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The following local jurisdiction ballot measures authorizing cannabis taxes were approved by the voters on the November 6, 2018 election:

City/County

Passed Cannabis Tax Measure

Comments

City of Atascadero

(San Luis Obispo County)

 Measure E-18 passed with 73% of the vote. Only testing and delivery has been previously allowed. The new tax measure taxes cannabis businesses, but no ordinances have been drafted. The passage of the ballot measure authorizing taxes for cultivation, retail, testing, distribution and all other cannabis businesses may indicate forthcoming commercial cannabis ordinances and a newly permitted area.

City of Atwater

(County of Merced)

 Ballot measure A passed with 64.75% of the vote. Cannabis regulated since May 2018 under a Cannabis Business Pilot Program. Requires a CUP. This is a newer market for cannabis businesses.

City of Banning

(County of Riverside)

 Measure N passed with 60.64% of the vote: imposes maximum tax rates on cannabis cultivation, manufacturing, and testing.

Measure O passed with 61.22% of the vote: imposes a 10% tax on gross receipts on cannabis dispensaries.

 All commercial cannabis activities are currently banned and declared a nuisance. However, cannabis ordinances have been adopted by the city council but have not been codified and will take effect January 1, 2019. All commercial cannabis activities require a CUP. No certificate of occupancy will be issued prior to receiving a state license. Ordinance No. 1523 allows, regulates, and zones for cannabis cultivation (indoor cultivation Type 3A only (10,001-22,000 s.f.) in a fully enclosed and secure structure, only in industrial zones), manufacturing (nonvolatile only), and testing. Ordinance No. 1524 establishes application procedures and requirements for Cannabis Regulatory Permits. The ordinances will only take effect if the voters approve Measure N on November 6, 2018.

City of Capitola

(Santa Cruz County)

 Measure I – Cannabis Business Tax (Passed with 75.45% of the vote). Cannabis currently banned except for testing. New tax measures passed the ballot, but no ordinances have been drafted. The passage of a ballot measure authorizing taxes on cannabis businesses is indicative of ordinances that may be forthcoming.

City of Ceres

(County of Stanislaus)

 Measure W — The measure PASSED with 66.03% of the vote. Currently, commercial cannabis activities limited to a case-by-case basis. Ordinances are not drafted. Established a Cannabis Business Pilot Program since May, 2018. Current ordinances are silent as to commercial cannabis activities; however, the passage of a ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of Chula Vista

(County of San Diego)

 Measure Q – PASSED WITH 63.46% OF THE VOTE Cannabis currently banned. The city anticipates that it will be accepting applications for cannabis business licenses sometime on or after January 1, 2019.

A Commercial Cannabis Regulations Application Forum will be held December 13, 2018, from 4 to 6 p.m., to provide information on cannabis regulations and the implementation of recreational sales, manufacturing, cultivation and delivery services in Chula Vista. The forum will be held at Chula Vista City Hall, Council Chambers, 276 Fourth Ave., Chula Vista, 91910.

Cannabis Business License Types

Storefront and Non-Storefront Retailers: Up to three (3) Retailer licenses per Council District. Of the three (3) Retailer licenses per District, no more than two (2) may be Storefront Retailer Licenses. Storefront Retailers are open to the public; they are prohibited from providing delivery services. Non-Storefront Retailers are closed to the public; they are prohibited from making on-site sales and can only conduct deliveries.

Cultivation: Up to ten (10) Indoor Cultivation licenses city-wide. Indoor cultivation sites are limited to twenty thousand (20,000) square feet.

Distribution, Manufacturing, and Testing Laboratories: There are no limits on the number of licenses.

City of Colfax

(Placer County)

 Measure C PASSED with 65.78% of the vote. Cannabis regulated since February, 2018. Indoor and outdoor cultivation are codified. Manufacturing and dispensaries are prohibited. Current regulations authorize only 4 retail commercial cannabis businesses (2 M-type and 2 A-type). The passage of a ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

County of Contra Costa

 Measure R PASSED with 71.7% of the vote. Cannabis currently banned. Cannabis taxes for cultivation, manufacturing, distribution, testing, retail and microbusinesses codified on November 6, 2018. Permit application requirements are codified. The passage of a ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of Daly City

(San Mateo County)

 Measure UU PASSED with 76.8% of the vote. All cannabis activities currently banned. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on all cannabis businesses is indicative of ordinances that may be forthcoming.

County of Del Norte

 Measure B PASSED with 62.75% of the vote. All medical cannabis activities currently banned. All commercial cannabis activities currently silent. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on adult use indoor and outdoor cultivation, manufacturing and retail is indicative of ordinances that may be forthcoming.

City of Dunsmuir

(Siskyou County)

 Ballot measure “T” passed with 71.34% of the vote. Past ordinances silent as to cannabis, except for medical co-ops. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes for cultivation, processing and other cannabis businesses is indicative of ordinances that may be forthcoming.

County of El Dorado

 Measure P – Outdoor and Mixed Light Cultivation (Medical) PASSED

Measure Q – Outdoor and Mixed Light Cultivation (Recreational) PASSED

Measure R – Indoor Medical Cannabis Activities Measure PASSED

Measure S – Indoor Recreational Commercial Cannabis Measure PASSED

 Cannabis currently banned under a temporary moratorium for two years to December 12, 2019, except for medical distribution. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes for cultivation and other cannabis activities is indicative of ordinances that may be forthcoming.

City of Goleta

(Santa Barbara County)

 Measure Z – PASSED WITH 81.92% OF THE VOTE Cannabis regulated since approximately June, 2018, including nursery, cultivation, manufacturing, testing, distribution and delivery. The passage of a ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of Half Moon Bay

(San Mateo County)

 The Measure GG PASSED with 51.2% of the vote. Currently, all cannabis activity prohibited.

Measure passed allowing greenhouse nursery cultivation of immature cannabis plants on existing greenhouse sites in the City’s A-1 (Agricultural/Exclusive Floriculture) Zoning District for cannabis nurseries that receive a license from the City Council and comply with specified standards.

Measure authorizing tax on all cannabis activities passed. The passage of a ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of Hesperia

(San Bernardino County)

 Measure T – PASSED WITH 60.83% OF THE VOTE All non-medical cannabis activities currently banned. However, cannabis tax measure passed. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes for cultivation and other cannabis businesses is indicative of cultivation ordinances that may be forthcoming.

City of Imperial

(Imperial County)

 The measure PASSED with 74.7% of the vote. Adult use cannabis currently banned. January 17, 2018 – With a 3-2 vote the City Council approved Ordinance No. 795, allowing for some medical cannabis businesses, and banning all other commercial cannabis businesses, including all adult use businesses. Ordinances have not been drafted regarding licensure, and zoning ordinances are unavailable. The passage of a ballot measure authorizing taxes for cultivation, retail and other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Jurupa Valley

(Riverside County)

 Measure L – PASSED WITH 51.94% OF THE VOTE Cannabis currently banned except for delivery. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on adult use indoor cultivation, nursery, manufacturing, testing, distribution, microbusinesses and retail is indicative of ordinances that may be forthcoming.

City of La Mesa

(San Diego County)

 Measure V – PASSED WITH 72.52% OF THE VOTE Adult use cannabis currently banned. Only medical cultivation and manufacturing currently allowed. Ordinances for adult use have not been drafted. The passage of a ballot measure authorizing taxes on cultivation and other cannabis businesses is indicative of ordinances that may be forthcoming.

County of Lake

 Measure K PASSED with 69.4% of the vote. Cannabis cultivation regulated since March, 2018, but all other activities are silent in ordinance code. On March 20, 2018, the Board passed an ordinance regulating commercial and personal use cultivation. However, current ordinances only address cannabis cultivation taxation and no ordinances are codified. The passage of a ballot measure authorizing taxes for activities other than cultivation is indicative of ordinances that may be forthcoming.

County of Lassen

 MEASURE M – CANNABIS TAX BALLOT MEASURE (PASSED) All cannabis currently banned and declared a public nuisance. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on cultivation and other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Lindsay

(Tulare County)

 Measure G – PASSED WITH 66.80% OF THE VOTE All cannabis currently banned. Municipal code not available. The passage of a ballot measure authorizing taxes on cannabis businesses is indicative of ordinances that may be forthcoming.

City of Malibu

(County of Los Angeles)

 This measure PASSED with 68.54% of the vote. Cannabis currently banned except for medical dispensaries. Ordinances for adult use cannabis have not been drafted. The passage of a ballot measure authorizing taxes on adult use cannabis businesses is indicative of ordinances that may be forthcoming.

City of Marina

(Monterey County)

 Measure V passed with 64.10% of the vote. Cannabis currently banned. The Mayor of Marina (Bruce Delgado) led the petition drive and citizen ballot initiative that passed. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on medical and adult use cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Morgan Hill

(Santa Clara County)

 Measure I passed with 78.58% of the vote. All cannabis activities currently banned and declared a public nuisance. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on cultivation, manufacturing, testing, distribution, and retail is indicative of ordinances that may be forthcoming.

City of Moreno Valley

(Riverside County)

 Measure M – PASSED WITH 72.56% OF THE VOTE Cannabis regulated since April, 2018. Current code prohibits all adult use cannabis. City council has authorized the total number of cannabis businesses is limited to 27. The maximum number of dispensaries is 8, the maximum number of testing facilities is 2, the maximum number of cultivation facilities is 8, the maximum number of manufacturing facilities is 5, the maximum number of microbusinesses is 2, and the maximum number of distribution centers is 2.

City of Morro Bay

(San Luis Obispo County)

 Measure D-18 – PASSED WITH 73.27% OF THE VOTE. All adult use cannabis activities currently banned. Only medical distribution and retail are currently allowed. Current application process allows medical distribution and 2 retail licenses. Ordinances have not been drafted. The passage of a ballot measure authorizing taxes on cultivation is indicative of ordinances that may be forthcoming.

City of Mountain View

(Santa Clara County)

 Measure Q passed with 80.70% of the vote. Cannabis currently banned except for retail and deliveries. Currently, Mountain View does not allow commercial cannabis activity except medical and adult-use deliveries into the city. City Council has stated that if the measure is successful then the City will begin allowing commercial cannabis businesses in 2019.

County of Nevada

 Measure G PASSED with 75.9% of the vote Cannabis currently banned. Cultivation declared a public nuisance. Ordinances have not been drafted. The passage of ballot measure authorizing taxes on nursery, cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Oakdale

(County of Stanislaus)

 The Measure PASSED with 70% of the vote. Cannabis regulated since February 2018. Cultivation, manufacturing, testing, and distribution permitted with a development agreement and CUP. This is a new market for cannabis activities.

City of Oroville

(Butte County)

 RESULTS: Measure T PASSED with 60% of the vote. Cannabis regulated since August, 2018. On August 7, 2018, the City Council adopted an ordinance allowing for commercial cannabis activities. Tax measure includes nursery, cultivation, manufacturing, testing, distribution and retail. This is a new commercial cannabis area.

City of Oxnard

(Ventura County)

 Results – The Measure PASSED with 78.63% of the vote. Cannabis currently banned except for medical delivery. Ordinances have not been drafted. The passage of ballot measure authorizing taxes for cultivation, manufacturing, distribution, testing, retail sales and all other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Paso Robles

(San Luis Obispo County)

 Measure I -18 PASSED WITH 67.5% OF THE VOTE. All cannabis currently banned except for medical delivery. Tax measure passed is for cultivation, manufacturing, testing, distribution and retail. Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Perris

(County of Riverside)

 Measure G – PASSED WITH 71.05% OF THE VOTE. Indoor and mixed-light cultivation regulated since November, 2017. January 30, 2018 – The City Council ADOPTED an ordinance that would allow medical and adult-use cannabis limited to manufacturing and distribution. This is a new area for cannabis.

City of Placerville

(El Dorado County)

 Results – The Measure PASSED with 67.17% of the vote. Cannabis currently banned by code, but accepting applications and city council will decide after the elections. Ordinances have not been drafted. The passage of ballot measure authorizing taxes for cultivation, retail and all other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Pomona

(Los Angeles County)

 RESULTS: This measure PASSED with 70.44% of the vote. Cannabis currently banned. The City Council is currently discussing terms and provisions for incorporation into a draft ordinance regulating commercial cannabis activities and businesses. There is a consensus to allow both medicinal and adult-use. Ordinances have not been drafted. The passage of ballot measure authorizing taxes for cultivation and all other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Redding

(Shasta County)

 RESULTS: Measure C PASSED with 73.94% of the vote. Cannabis regulated since March, 2018. On March 20, 2018, the City of Redding adopted an ordinance allowing for and regulating medical and adult use commercial cannabis activities. New taxes for cultivation, manufacturing, testing, distribution and retail now authorized. This is a new commercial cannabis area.

City of Redwood City

(San Mateo County)

 Results – The Measure PASSED with 77.6% of the vote. Cannabis regulated since May, 2018. Only indoor medical cultivation and delivery currently allowed. Commercial cannabis activity is prohibited in all zoning districts.

The passage of ballot measure authorizing taxes for cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of San Juan Bautista

(San Benito County)

 A marijuana tax was on the ballot for San Juan Bautista voters in San Benito County, California, on November 6, 2018. It was approved. Cannabis regulated since June, 2018. June 19, 2018 – The City Council adopted Ordinance No. 2018-05, establishing regulations pertaining to recreational and medical cannabis dispensaries, cultivation, testing, distribution, and manufacturing facilities. This is a new cannabis area.

City of San Luis Obispo

(San Luis Obispo County)

 Measure F – PASSED WITH 79.57% OF THE VOTE. The City currently is NOT accepting Cannabis Commercial Business Operator Permit applications at this time. Ordinances have been adopted in May, 2018 but not codified.

On October 16, 2018 the City Council reviewed the Cannabis Operator Permit Draft Evaluation Criteria and provided comments to staff. As a result of these comments, as well as public feedback, the Evaluation Criteria is being revised and will be reviewed on November 27, 2018 by Council.

City of Santa Ana

(Orange County)

 The measure PASSED with 69% of the vote. Cannabis regulated since May, 2018.

May 1, 2018 – The City Council adopted Ordinance NS-2944, which allows commercial cannabis cultivation, manufacturing, and distribution. New taxes passed for cultivation, manufacturing, testing, distribution, and retail. This is a new cannabis area.

City of Santa Clara

(Santa Clara County)

 Results – Measure M PASSED with 75.36% of the vote. All cannabis activities currently banned.

Ordinances have not been drafted. The passage of ballot measure authorizing taxes on nursery, cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Santa Paula

(Ventura County)

 Results – Measure N PASSED with 70.98% of the vote. All commercial cannabis activities currently banned.

Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation and other cannabis businesses is indicative of ordinances that may be forthcoming.

City of Simi Valley

(Ventura County)

 Results – Measure Q PASSED with 65.5% of the vote. All cannabis activities currently banned.

Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Solvang

(Santa Barbara County)

 Measure F – PASSED WITH 80.32% OF THE VOTE. Currently, only medical cannabis activities allowed. City Council adopted an ordinance that allows medical cannabis dispensaries, delivery, cultivation (indoor and mixed-light only), manufacturing (volatile and non-volatile), testing, distribution, and transportation facilities that are owned and operated by bona fide nonprofit organizations in the C-3 zoning district. City Council may limit the number of each type of medical cannabis facility by resolution. Adult-use commercial cannabis activities remain prohibited in the City.

City of Sonora

(County of Tuolumne)

 Measure N PASSED with 68.30% of the vote. There are currently no cannabis businesses allowed to operate in the three-square-mile city limits, but the council approved an ordinance earlier this year that could provide an opening for some medical-only cannabis dispensaries, manufacturing facilities and testing laboratories. The passage of ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of South San Francisco

(San Mateo County)

 Measure LL PASSED with 74.4% of the vote. In 2018, the Council ADOPTED an ordinance that allows for indoor commercial cultivation and an ordinance that bans dispensaries and microbusinesses and allows for manufacturing, testing, distribution, and delivery only businesses. Outdoor cultivation and retail remain prohibited.

This is a new cannabis area.

City of Suisun City

(Solano County)

 Measure C passed with 74.78% of the vote. Cannabis regulated since May, 2018.

The City Council adopted Ordinance No. 750 permitting indoor cultivation, mixed-light cultivation, retailers, non-storefront retailers (i.e., sale by delivery of medicinal cannabis and/or medicinal cannabis products to a qualified patient), manufacturers, testing laboratories and distribution. Outdoor cultivation and microbusinesses prohibited.

This is a new cannabis area.

City of Thousand Oaks

(Ventura County)

 The Measure PASSED with 75.88% of the vote. Cannabis currently banned except for testing. Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation and all other cannabis businesses is indicative of cultivation and other cannabis activity ordinances that may be forthcoming.

Tuolumne County

 The measure PASSED with 62.61% of the vote. All cannabis activities currently banned and cultivation declared a public nuisance. Ordinances have not been drafted. The passage of ballot measure authorizing taxes is indicative of ordinances that may be forthcoming.

City of Vista

(County of San Diego)

 MEASURE AA – PASSED WITH 51.52% OF THE VOTE Cannabis currently banned.

2018 – The City Council adopted Resolutions that place a medicinal cannabis business ordinance and a commercial cannabis tax on the November 6, 2018 ballot, which passed.

Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation, manufacturing, testing, distribution and retail is indicative of ordinances that may be forthcoming.

City of Willits

(Mendocino County)

 RESULTS: Measure I PASSED with 74.9% of the vote. Recreational cannabis currently banned. Ordinances have not been drafted. The passage of ballot measure authorizing taxes on cultivation, retail and all other cannabis businesses is indicative of ordinances that may be forthcoming.

Winter LLP Update: Transition Period Q&A

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Greetings everyone!

Please read the following Q&A prepared exclusively for WINTER LLP clients and friends:

  1. Starting on January 1, 2018, can Retailers sell edible cannabis products with THC levels in excess of 100mg and non-edible cannabis products (flower, tinctures, extracts) with THC levels in excess of 2000mg? Section 5029, BCC Regulations.

Yes, between Jan 1, 2018, and July 1, 2018, M-Licensee Retailers can sell

  • Edible cannabis products with THC levels in excess of 100mg (no maximum limit), so long as they are labeled 10mg THC/serving; and
  • Non-edible cannabis products (flower, tinctures, extracts) with THC levels in excess of 2000mg (no maximum limit), no serving size label required.
  1. Starting on January 1, 2018, Can Retailers sell cannabis goods that do not meet the State Labeling Requirements?

Yes, between Jan 1, 2018, and July 1, 2018, Retailers can sell goods that do not meet State Labeling Requirements as long as the following warnings are affixed prior to sale:

  • For cannabis flower: “GOVERNMENT WARNING: THIS PACKAGE CONTAINS CANNABIS, A SCHEDULE I CONTROLLED SUBSTANCE. KEEP OUT OF REACH OF CHILDREN AND ANIMALS. CANNABIS MAY ONLY BE POSSESSED OR CONSUMED BY PERSONS 21 YEARS OF AGE OR OLDER UNLESS THE PERSON IS A QUALIFIED PATIENT. CANNABIS USE WHILE PREGNANT OR BREASTFEEDING MAY BE HARMFUL. CONSUMPTION OF CANNABIS IMPAIRS YOUR ABILITY TO DRIVE AND OPERATE MACHINERY. PLEASE USE EXTREME CAUTION.”
  • For cannabis products: “GOVERNMENT WARNING: THIS PRODUCT CONTAINS CANNABIS, A SCHEDULE I CONTROLLED SUBSTANCE. KEEP OUT OF REACH OF CHILDREN AND ANIMALS. CANNABIS PRODUCTS MAY ONLY BE POSSESSED OR CONSUMED BY PERSONS 21 YEARS OF AGE OR OLDER UNLESS THE PERSON IS A QUALIFIED PATIENT. THE INTOXICATING EFFECTS OF CANNABIS PRODUCTS MAY BE DELAYED UP TO TWO HOURS. CANNABIS USE WHILE PREGNANT OR BREASTFEEDING MAY BE HARMFUL. CONSUMPTION OF CANNABIS PRODUCTS IMPAIRS YOUR ABILITY TO DRIVE AND OPERATE MACHINERY. PLEASE USE EXTREME CAUTION.”
  • For Untested cannabis products: “This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act.”
  1. Starting on January 1, 2018, can Manufacturers sell cannabis products to Distributors/Retailers that do not meet the State Packaging and Labeling Requirements?

Yes, Manufacturers may sell cannabis products that do not meet State Packaging and Labeling Requirements provided:

  • The cannabis product was manufactured prior to January 1, 2018.
  • The cannabis product is packaged in child-resistant packaging. A secondary package shall be sufficient.
  • The cannabis product contains the applicable government warning (above).
  • The cannabis product meets the applicable THC limits (100mg for edibles, 1000-2000mg for concentrates.)
    • Please note, this is inconsistent with the BCC regulations which explicitly allow the transport and sale of medical cannabis products prior to July 1, 2018, regardless of the amount of THC. We have submitted comments to the MCSB discussing this inconsistency.
  • The cannabis products contains a sticker with the amount of THC/CBD content per serving and per package.
  1. Starting on January 1, 2018, can Manufacturers manufacture cannabis products that do not meet State Labeling and Packaging Requirements?

No, all cannabis products manufactured from January 1, 2018 onwards must meet State Labeling and Packaging Requirements.

  1. Starting on January 1, 2018, will all cannabis products need to undergo the full panel of testing prior to sale?

Not exactly. There is a “Phase-In” of Required Testing, so that the full panel of testing will not be required until December 31, 2018. Until then, required testing is as follows.

    1. For untested cannabis products manufactured prior to Jan 1, 2018, the following warning needs to be affixed:

i. “This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act.”

    1. All cannabis harvested on or after Jan 1, 2018, and all cannabis products manufactured on or after Jan 1, 2018 shall be tested for the following:

i. Cannabinoids

ii. Moisture content

iii. Category II Residual solvents

iv. Category I Residual pesticides

v. Microbial impurities

vi. Homogeneity

    1. All cannabis harvested on or after July 1, 2018 and products manufactured on or after July 1, 2018 shall be tested for all of the above, plus:

i. Category I Residual Solvents and Processing Chemicals

ii. Category II Residual Pesticides

iii. Foreign Material

    1. All cannabis harvested on or after December 31, 2018 and products manufactured on or after December 1, 2018 shall be tested for all of the above, plus:

i. Terpenoids

ii. Mycotoxins

iii. Heavy metals

iv. Water Activity

  1. Which licensee is responsible for arranging for Testing?

Distributors (full distribution licensees) are responsible for contacting a testing laboratory and arranging for a testing lab employee to come to the distributor’s licensed premises and select a representative sample for laboratory testing. Therefore if you are a manufacturer or cultivator and would like to arrange for lab testing, you must obtain a full Distribution license (cannot be Distributor-Transport Only in order to do so.

  1. Will Temporary Licensees be required to record commercial cannabis activity in the Track and Trace system?

No, temporary licensees will not be required to record commercial cannabis activity in the Track and Trace system. Temporary licensees shall track and record activity on paper receipts, invoices, or manifests.

To avoid confusion, please consider only contacting our office for answers to your questions. Otherwise, strongly consider your source (and their source, and that person’s source) before acting.

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

What is Proposition 65?

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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.

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