California Cannabis Legislation: SB 475 Would (Finally) Allow Licensees to Exchange Trade Samples

An issue our clients have encountered in a variety of transactions, including basic product purchase transactions and intellectual property licensing transactions, is that the California rules governing commercial cannabis licensees currently do not allow the exchange of free samples between licensees. We are unaware of an industry in which the wholesale purchaser of a large quantity of product, or the licensor of intellectual property for use on such product, wouldn’t want to ensure the quality of that product. But in California, the regulations don’t always make sense and the regulatory learning curve has been steep.

Senate Bill 475, which is set for hearing today, June 25^th, is one of many pieces of pending legislation that would provide clarity to licensees regarding what they can and can’t do with cannabis samples. Currently, licensees are prohibited from giving away any amount of cannabis or cannabis product as part of a business promotion or other commercial activity.

SB 475 would “allow a licensee to designate cannabis or a cannabis product as a trade sample at any time while the cannabis or cannabis product is in the possession of the licensee and would impose specific requirements on the licensee making the designation. The bill would prohibit the sale or donation of cannabis or a cannabis product that is designated a trade sample, but would allow those trade samples to be given for no consideration to an employee of the licensee that designated the trade sample or to another licensee.”

Cannabis trade samples must, upon designating cannabis or cannabis product as a trade sample, record the associated quantity, product type, and unique identifiers of the product into the track and trace program. The cannabis must be labeled, “TRADE SAMPLE. NOT FOR RESALE OR DONATION,” and may only be transported between licensees by an employee of a licensee. Trade samples may not be sold or donated by any licensee.

In addition, samples of cannabis or cannabis products designated as trade samples may be given for no consideration to an employee of a licensee that designated the trade sample or to another licensee, subject to the following requirements:

1. A trade sample shall only be given for the purposes of conducting research and development, education, or targeted advertising to licensees about new or existing cannabis or cannabis products.
2. A licensee shall maintain records of cannabis or cannabis products designated as trade samples that are given to employees.
3. An employee of the licensee shall not possess or transport trade samples in amounts exceeding the following:
   1. Twenty-eight and one-half grams of nonconcentrated cannabis.
   2. Eight grams of concentrated cannabis, including concentrated cannabis contained in cannabis products.
   3. Six immature cannabis plants.

Under SB 475, cannabis or cannabis products can be consumed by the licensee or an employee of the licensee. The bill also clarifies that cannabis or cannabis products may not be given to retail customers, and that all products designated as trade samples are subject to required quality assurance and testing regulations.

If passed, SB 475 will correct what we perceive to be a serious defect in the regulations and will make doing business in the industry just a little bit easier.