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WINTER LLP: COMMITTEE BLOG: NCIA’S INFUSED PRODUCTS COMMITTEE STIRS THE TESTING BATCH (INTERVIEW)

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JULY 23, 2018

COMMITTEE BLOG: NCIA’S INFUSED PRODUCTS COMMITTEE STIRS THE TESTING BATCH (INTERVIEW)

A year ago, NCIA’s Infused Products Committee (IPC) made the decision to tackle the issue of cannabis testing. It is an issue we feel is at the heart of cannabis legalization and is negatively impacting cannabis businesses across the nation. Although it has been a struggle to get comparable lab results across different labs, IPC believes there is a future where cannabis testing will reach consistency.

We began our process by asking several questions and with the assistance of the NCIA, we crafted a survey that was sent to experts in the field. During our preliminary research, we discovered that most cannabis testing labs view their protocols and procedures as proprietary information.

To gain better insight about the testing sector, we asked Alena Rodriguez, a member of NCIA’s Scientific Advisory Committee (SAC) to participate in an interview. Alena represents Rm3 Labs, a cannabis testing laboratory in Colorado.

IPC: Are you concerned about the inconsistent and varying test results and the impact it has on consumer safety?

Alena: Yes, I’m concerned. I do not take my job lightly; I know that contaminated cannabis can be harmful and sometimes life threatening. That is why I am involved with state regulators and groups like NCIA’s SAC and Testing Policy Working Group. We aim to educate regulators and stakeholders on the importance of practices such as independent audits, proficiency testing and ISO/IEC 17025 accreditation for cannabis testing labs.

IPC: Do you think we are close to having consistent cannabis test results from different laboratories?

Alena: We are well on our way. In Colorado, licensed labs must undergo Proficiency Testing (PT) twice per year. PT is done through an inter-laboratory comparison where participating labs receive the same sample and analyze it using their methodology. Even though our procedures are not standardized to one method, most of the labs arrive at the same result. Unfortunately, not all states require PT yet, but I feel more and more states will adopt these programs.

Along with PT, consistent testing across labs requires the use of high-quality reference materials that are used to validate analytical methods and calibrate instruments. Cannabis testing labs in the United States have limited access to reference standards. Like cannabis, most industries started with limited resources, but over time the science will progress as federal barriers are lifted to make more research and better standards possible. It took decades to develop standardized, consistent methods in other industries, such as in pharmaceuticals and food testing. I don’t see the cannabis industry being any different.

IPC: Should there by penalties if a testing lab consistently provides drastically different results from prior tests of the same product?

Alena: It depends on the situation. If the lab is knowingly breaking the rules or trying to cheat the system, then absolutely. But, most of the time inconsistent results have causes other than fraud or negligence. This industry produces new products every day and some manufacturers and laboratories don’t “get it right” on the first try. There is a lot of research and development that is involved. Three of the biggest hurdles for consistent testing of cannabis products are 1) the variety of sample types 2) the lack of certified reference materials for uncommon cannabinoids and terpenoids and difficulties in obtaining concentrated standards and 3) inhomogeneity in some infused products or concentrates. Product uniformity is critical and should be confirmed by analytical testing for consumer safety. Variable results across multiple labs may suggest a product lacks uniformity.

IPC: Do you believe testing procedures and protocols are proprietary?

Alena: Yes, third-party cannabis laboratory protocols are just as proprietary as the protocols developed by cultivators, concentrate extractors and infused product makers. Testing labs having proprietary methods is not novel to this industry. If a lab in any other industry (e.g. food, medical, agriculture, environment) develops an alternative method to the standard method, they can use it if they can validate against the reference method.

IPC: Should labs be required to prove their analytical methods are accurate by submitting their practices confidentially to a regulatory body?

Alena: Absolutely! Colorado labs are currently required to send all new Standard Operating Procedures (SOPs) and method validations to the CDPHE prior to implementation. I hope more states adopt this practice, if they aren’t doing so already. As of January 1, 2019, all cannabis testing labs in Colorado will be required to be ISO/IEC 17025 accredited. ISO/IEC 17025 accreditation is the international gold standard for assessing the competence and quality management systems of testing labs across all industries to ensure consistent, accurate test results. More than a dozen cannabis labs have achieved this accreditation across the country.

IPC: Are you aware that the ASTM Committee D37 reportedly drafted testing procedures? If published, will cannabis testing labs follow published procedures that are not their own?

Alena: Yes, I’m excited! This is a great step for our industry. I imagine the committee will develop similar protocols to those being used by third-party labs. But as I mentioned before, labs will have the choice to use the published standard methods or their own alternative method, granted it is validated against the reference method. I expect some labs will attempt to validate their methods against the standard methods and some will adopt ASTM’s methods.

IPC: Are you aware of testing labs that allow for “tipping” on their order forms? Does this concern you, and why?

Alena: It concerns me that there are bad actors in the testing sector of the cannabis industry but I’m afraid there are bad actors in every segment of every industry. At Rm3 Labs, we do not participate in or condone unethical behavior such as paying for the results you want. We would never risk falsifying test results because we are aware immunocompromised individuals and children are possibly taking the products we are testing. I would not risk my entire scientific career to give you 5% higher THC potency results or lie about your contaminant testing results. I advise all cannabis testing labs to always act ethically because you are in the business of public safety and your lab is subject to investigation by regulatory agencies at any time.

IPC conducted the above enlightened interview with SAC. While we were inspired by some of the answers, much like our survey attempt this past year, many of our questions remain unanswered. For example, we don’t agree that cannabis cultivators or manufacturers are to blame for receiving inaccurate “clean/approved” test results from labs due to products being inhomogeneous.

That said, it is clear by a couple of the responses that some states, like Colorado, are making substantial progress in oversite and legal requirements for testing laboratories, while other states, like California, are still leaving significant and dangerous gaps.

In our opinion, the industry’s need for consistent and accurate testing results remains at the forefront of the issues facing commercial cannabis today. The ability to send the same sample, from the same batch, under the same conditions, and have it tested by multiple labs, achieving the same results, is paramount to our industry’s future and success. State laws should require it. The industry should demand it. And the consumers most certainly deserve it.

As such, the IPC will continue its mission to drive this conversation forward with both testing labs and operators alike. Only together, can we really solve this crucial issue facing our amazing industry.

WINTER LLP UPDATE: National Cannabis Industry Association Calls On Congress To Regulate Cannabis In Response To Reports Of Vaping-Related Illnesses

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Advocates cite prohibition as main driver of illicit market products linked to most cases, urge federal action, caution from producers of state-legal cannabis vape products
** Statement below from National Cannabis Industry Association Executive Director Aaron Smith **
WASHINGTON, D.C. – In recent weeks, a growing number of respiratory illness cases associated with nicotine or cannabis vaporizer (vape) cartridges have been reported, leading to increasing concern among cannabis vape cartridge consumers, regulators, and medical experts. As of early this week, more than 450 cases have been reported nationwide, including six fatal cases.
The vast majority of these reports have been linked to vape cartridges that were produced and obtained in the illicit and unregulated market, or that were adulterated by consumers. The minute number of cases that have so far been associated with legal cannabis products have not shown definitive links to those specific products. Cases have been reported in states with and without regulated cannabis markets.
Preliminary research has suggested some additive thickening agents, particularly Vitamin E acetate, as a likely cause for many of these cases. This is so far inconclusive, however, and other possible causes including pre-existing medical conditions, faulty delivery devices, or problematic consumption behavior are being explored.
In light of the indeterminate cause(s) of these illnesses and variance in state regulations regarding vape cartridges, the National Cannabis Industry Association (NCIA) makes the following recommendations:
Congress is urged to immediately remove cannabis from the Controlled Substances Act and begin to sensibly regulate this substance in a manner similar to alcohol and other consumables, and to make funds immediately available to state medical authorities to investigate these cases.
Licensed vape cartridge producers are encouraged to halt the use, if any, of additive thickening agents until more data is available.
Given the preliminary reported association of some illness cases with Vitamin E acetate, any licensed producer that has included this additive in recent vape product batches is strongly encouraged to issue a voluntary recall of those products.
Licensed cannabis retailers are encouraged to take steps to ensure none of their available vape cartridge inventories have been sourced from a producer that uses Vitamin E acetate.
Cannabis vape cartridge consumers are urged to immediately cease the use of any product obtained from the illicit market and to limit any future purchases of vape cartridges and other cannabis products to state-licensed, regulated businesses.
Statement from Aaron Smith, executive director of the National Cannabis Industry Association:
“These unfortunate illnesses and deaths are yet another terrible, and largely avoidable, consequence of failed prohibition policies. Current federal laws interfere with research, prevent federal regulatory agencies from establishing safety guidelines, discourage states from regulating cannabis, and make it more difficult for state-legal cannabis businesses to displace the illicit market. These policies are directly bolstering the markets for untested and potentially dangerous illicit products.
The fact that so few of these cases have so far reported any link whatsoever to the legal cannabis market is a testament to the effectiveness of state regulators and licensed businesses at ensuring product reliability. As an industry, however, we view it as our duty to make sure whatever is causing these illnesses is not replicated in legal products and to work toward enacting regulations that can prevent similar public health issues from occurring in the future. The legal cannabis industry is paying very close attention to any new information provided by medical authorities regarding these cases.
It is now the responsibility of Congress to end prohibition and regulate cannabis without delay. By removing cannabis from the schedule of controlled substances and instituting a clear regulatory framework through existing agencies, the federal government can provide helpful guidance to states that have or wish to establish regulated cannabis control systems while helping put irresponsible illicit market producers out of business for good.
We are deeply saddened by this situation and sincerely hope the specific causes are determined as soon as possible to help avoid further suffering. We stand ready to work with Congress and federal regulators on the long-term solution to this problem, which is replacing prohibition with sound regulations.”
Cannabis is legal for adults in 11 states, Guam, and the District of Columbia, and 33 states as well as several territories have comprehensive medical cannabis laws. The substance is legal in some form in 47 states.

Link: https://thecannabisindustry.org/press-releases/national-cannabis-industry-association-calls-on-congress-to-regulate-cannabis-in-response-to-reports-of-vaping-related-illnesses/?utm_campaign=NCIA%20Content&utm_medium=email&_hsenc=p2ANqtz-_QSGQOOUPW2CVU63lHKv4RXl7YRUvTsGpKRHsO9swsh_5rrOkTfeHKGehMwDrtuuNl83i7iXHoyIsEIsoORc2qErwSiiiBfwYPnz1hykydjFQ13F8&_hsmi=76719797&utm_content=76719797&utm_source=hs_email&hsCtaTracking=f4f9fce2-1e48-448c-aa85-3ab7c5e30145%7C1f416949-6f18-4b31-8b46-2e20b9209df7

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: Self-Distribution of Cannabis Products

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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.

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.

Prop 64 Quick Reference – Key Points

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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.

AB 2679 – Summary of New Medical Cannabis Legislation

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

Overview

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

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

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

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

Questions and Answers

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

What activities are considered “manufacturing” under AB 2679?

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

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

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

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

Closing

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

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

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

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