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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!

Winter LLP Update: State Licensing Regulations; and Packaging and Labeling Compliance

Hello all,

As many of you are already aware, California’s three state cannabis licensing authorities (Department of Consumer Affairs’ Bureau of Cannabis Control; Department of Public Health’s Manufactured Cannabis Safety Branch; and Department of Food and Agriculture’s CalCannabis Cultivation Licensing Division) released proposed emergency licensing regulations on Thursday, November 16, 2017. We will be providing comprehensive summaries for each license type in the coming days.

We understand that many of you are anxious to order compliant labels and packages per the updated regulations. Therefore, attached please find the revised Packaging and Labeling Compliance Check Worksheet per the Department of Public Health’s Manufactured Cannabis Safety Branch’s newly released regulations. Please review carefully and ensure that your packages and labels will meet these standards. Although we will try to keep you informed with the most up-to-date regulations, they are subject to further change.

Additionally, please note the following important updates:

THC Limits

  • Edibles
    • 10 mg serving
    • 100 mg per package
  • Tinctures, Capsules, Topicals
    • 10000 mg/package for adult-use
    • 2,000 mg/package for medicinal-use

Universal Symbol

california triangle symbol 1

Prohibited Products

  • Products cannot be infused with nicotine or alcohol or have added caffeine.
  • Edible products cannot be shaped like a human, animal, insect, or fruit.
  • The label may not refer to the product as a candy.
  • Meat and seafood, and other products requiring refrigeration, are prohibited for sale as cannabis products. Juice and dried meat made in accordance with requirements are allowed.

What is “child resistant” packaging?

A package is deemed child-resistant if it satisfies the standard for “special packaging” under the Poison Prevention Packaging Act of 1970 (16 C.F.R. §1700.1(b)(4)).

  • 16 C.F.R. §1700.1(b)(4): Special packaging means packaging that is designed or constructed to be significantly difficult for children under 5 years of age to open or obtain a toxic or harmful amount of the substance contained therein within a reasonable time and not difficult for normal adults to use properly, but does not mean packaging which all such children cannot open or obtain a toxic or harmful amount within a reasonable time.

Transition Period

During the Transition Period between January 1, 2018 – July 1, 2018, licensees may do the following:

  • Conduct business with other licensees irrespective of the M or A designation on their licenses.
  • Transport cannabis goods that do not meet the labeling requirements (prescribed by MAUCRSA or the California Department of Public Health) if a sticker with the appropriate warning statement is affixed.
  • Sell cannabis goods held in inventory that are not in child-resistant packaging if they are placed into child-resistant packaging by the retailer at the time of sale.
  • Sell cannabis products that do not meet the medicinal THC limits per package established by the state Department of Public Health.
  • Sell and transport cannabis goods that have not undergone laboratory testing if a label stating that they have not been tested is affixed to each package containing the goods prior to transport by a distributor or prior to sale if held by a retailer. “These cannabis goods have not been tested as required under BPC Section 26070(1).”
  • Individually package and sell dried flower held in inventory by a retailer at the time of licensure.
  • Cannabis products held in inventory by a retailer that do not meet the requirements set by the state Department of Public Health for ingredients or appearance may be sold by a retailer.

Products in possession of a manufacturer prior to January 1, 2018 may enter the commercial cannabis market provided that all of the following conditions are met:

  • The cannabis product is packaged in child-resistant packaging.
  • The cannabis product contains the government warning required (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.)
  • The cannabis product contains the amount of THC and, if applicable, CBD per serving and per package.

Therefore all inventory prior to January 1, 2018, should be date-stamped to ensure that they are able to transported and sold during the Transition Period.

Should you have any questions about any of the above, or would like us to review your specific packages/labels to ensure compliance, please do not hesitate to reach out to our team.

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

Winter LLP Update: Self-Distribution of Cannabis Products

There has been a lot of confusion recently about Self-Distribution under state and local laws. It hasn’t helped matters that some local (city/county) ordinances, in jurisdictions such as Monterey County, for example, allow cultivation and manufacturing permit holders to “self-distribute” their material or products without the use of a third-party distributor.

As such, this update is being provided to help you understand what, exactly, “self-distribution” means at the state level.

Under current California law, there are only two types of businesses that can legally transfer or transport cannabis: (1) Licensed dispensaries that are authorized to provide delivery services can “transfer” cannabis or cannabis products directly to a customer, and (2) licensed distributors can “transport” cannabis and cannabis products between licensees. It is important to emphasize that Section 26070 of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) expressly states that “the transportation of cannabis and cannabis products shall only be conducted by persons holding a distributor license.

Section 26110 of MAUCRSA does allow a cultivation or manufacturing licensee to self-distribute its cannabis or cannabis products to other licensees. However, this is only allowed if the business also holds a valid Type 11 state distribution license. Accordingly, while a local city or county ordinance may allow a permitted manufacturer or cultivator to distribute its own cannabis or cannabis products without a separate locally issued distribution permit, a Type 11 state distribution license is still required.

Whether self-distributing or not, all must comply with the regulations and requirements placed upon regularly licensed distributors, which include the following:

  • Prior to transportation, distributors shall:
    • Complete an electronic shipping manifest.
    • Transmit the manifest to the bureau and the licensee receiving product.
  • During transportation, distributors shall:
    • Maintain a physical copy of the manifest and make it available upon request to the Department of Consumer Affairs and law enforcement officers.
  • Upon receipt, licensee receiving shipment shall:
    • Submit to the licensing authority a record verifying receipt of the shipment and the details of the shipment.

We hope this clears up some of the confusion surrounding the requirements placed on cannabis businesses that hope to Self-Distribute their material or products to other licensees.

As always, should you have any questions or want any additional information regarding Self-Distribution, or any other local permitting or state licensing requirements, please let us know.

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

Prop 64 Quick Reference – Key Points

Personal Use

  • Goes into effect immediately
  • Anyone over the age of 21
    • Can purchase, possess, or give away up to 28.5 grams of cannabis (not in the form of concentrated cannabis) or up to 8 grams of concentrated cannabis
    • Can possess up to 6 plants, as well as the cannabis produced from the plants in accordance with any reasonable local regulation or ordinance
    • Can purchase, possess, manufacture, or give away cannabis accessories to anyone over 21
    • Can smoke or ingest cannabis or cannabis products
  • Cannabis and cannabis products cannot be smoke or ingested
    • In public place
    • Anywhere where smoking tobacco is prohibited
    • Within 100 feet of a school, daycare center, or youth center (unless in a private residence)
  • Cannot ingest or possess an open container of cannabis or cannabis product while either driving or riding as a passenger in a motor vehicle

Medical Cannabis Patients

  • Beginning on January 1, 2018, a qualified patient must possess a new identification card supported by a physician’s recommendation
  • Personal information of patients and their primary caregivers are considered “medical information” and enjoys the same protection as all other forms of confidential medical information
  • The status as a qualified patient cannot be used to restrict parental rights in any proceeding before a family or juvenile court

Cannabis businesses and Licensing

  • State licensing authorities are required to begin issuing licenses to recreational cannabis business no later than January 1, 2018
  • Commercial recreational cannabis activity is lawful if the business (1) is in possession of both a state issued license and locally issued license, and (2) operate in accordance with all applicable regulations
  • There are nineteen different license classifications to be issued by the state, they are:
    • Type I = Cultivation; specialty outdoor; Small.
    • Type IA = Cultivation; Specialty indoor; small.
    • Type IB = Cultivation; Specialty mixed-light; Small.
    • Type 2 = Cultivation; Outdoor; Small
    • Type 2A = Cultivation; Indoor; Small
    • Type 2B = Cultivation; Mixed-light; Small.
    • Type 3 = Cultivation; Outdoor; Medium.
    • Type 3A = Cultivation; Indoor; Medium.
    • Type 3B = Cultivation; Mixed-light; Medium
    • Type 4 = Cultivation; Nursery.
    • Type 5 = Cultivation; Outdoor; Large.
    • Type 5A = Cultivation; Indoor; Large.
    • Type 5B = Cultivation; Mixed-light; Large.
    • Type 6 = Manufacturer 1.
    • Type 7 = Manufacturer 2.
    • Type 8 = Testing.
    • Type 10 = Retailer.
    • Type 11 = Distributor.
    • Type 12 = Microbusiness.
  • All licenses are valid for 12 months, and must be renewed annually
  • A separate license is required for each location where the applicant operates
  • A single recreational cannabis business can obtain multiple licenses of different types,
  • The exception is that an entity holding a license for testing is prohibited from holding any other license
  • The same business can hold both recreational and medicinal licenses
  • A recreational cannabis business cannot also be a licensed retailer of alcohol
  • No cannabis business can be located within 600 feet of a school or daycare center (although this can be increased or decreased by local ordinances)
  • Until December 19, 2018, an applicant must demonstrate five years of continuous California residency to be eligible for a license
  • Licensing Authorities will give priority to applicants that can demonstrate they operated in compliance with the Compassionate Use Act prior to September 1, 2016, or is currently in compliance with the Medical Cannabis Regulation and Safety Act (MSCRA)
  • Regulations governing commercial cultivation will be issued and enforced by the State Department of Food and Agriculture
  • Regulations governing commercial manufacturing will be issued and enforced by The Department of Public Health

Product and Labeling Requirements

  • Recreational cannabis and cannabis products cannot be sold to anyone under the age of 21
  • Medical cannabis can be sold to persons 18 and older who possess a valid identification card
  • All cannabis and cannabis products must be sold in child resistant packaging and display a specific government warning in bold letters
  • Cannabis products cannot contain more than 10 milligrams of THC per serving
  • Edible cannabis products must be divided into standardized serving sizes, and producers must ensure uniform distribution of THC and other cannabinoids throughout the product
  • All cannabis and cannabis products for sale must contain a label stating the manufacture and/or cultivation date, source, and net weight of the cannabis contained in the package
  • The labeling of all cannabis and cannabis products must list the pharmacologically active ingredients and the amount of such ingredients per serving and per package
  • The labeling of all cannabis and cannabis products must list any solvents, nonorganic pesticides, herbicides, and fertilizers that were used during cultivation and manufacturing
  • Labeling for cannabis products must comply with all other state and federal nutritional labeling requirements

Local Regulations

  • Local governments can enact their own zoning, land use, licensing, and other reasonable requirements
  • Local governments can ban any and all forms of commercial cannabis activities
  • Local governments can allow cannabis to be smoked and ingested on the premises of a retailer if access is restricted to those 21 years of age or older, cannabis is not visible from a public place, and no alcohol or tobacco are served

Taxes

  • Retail sales of cannabis and cannabis products are subject to a state excise tax of 15% of gross receipts
  • Cannabis cultivation is subject to a state tax of $9.25 per dry-ounce weight of cannabis flowers, and $2.75 per dry-ounce weight for leaves (these amounts are subject to adjustment and categories can be added or changed by the state)
  • Cities and counties can enact and collect their own taxes on commercial cannabis activity in addition to the taxes established by the state

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