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!