Five Items To Include In Franchise Agreements For Cannabis Waste Management

You can’t just dump cannabis waste in the trash.  The cannabis waste management industry is facing environmental challenges because of improper waste disposal, failure to recycle, air pollution and emissions of gas or chemicals caused by hazardous materials. To promote public health and safety, cannabis waste haulers must follow specific cannabis waste regulations required by the Bureau of Cannabis Control, CalCannabis Cultivation Licensing, and Manufactured Cannabis Safety Branch (“licensing agencies”).

Licensing agencies allow either the licensee (cannabis cultivator, manufacturer, etc.)  or a locally approved hauler to transport cannabis waste to a disposal site (landfill) or a transformation facility (recycling or processing center). Locally approved haulers are sometimes contracted or franchised by a city through a franchise program.

A franchise program consists of a city’s establishment of a zone (usually city’s limits for smaller cities, but can be multiple zones for larger cities) and contracting with a waste hauler (or multiple haulers for larger cities), usually on an exclusive basis, to haul waste within that zone.  Selection of the hauler or waste management company is generally done through a competitive bidding process.  Contracting with a city and limiting the number of haulers can help promote public health and safety, organization of waste management, and environmentally friendly standards. A franchise program also provides waste management resources and solutions for licensees by giving them access to an authorized waste hauler.

The contract governing the relationship between the city and waste hauler is called a franchise agreement. A draft franchise agreement is occasionally submitted by the hauler as part of the bidding process, and if the hauler is selected, the finer terms of the franchise agreement are negotiated with the city before signing.

In short, cannabis franchise agreements usually provide that the hauler is granted the exclusive right to haul cannabis waste within the city limits so long as the hauler maintains the proper qualifications, safely carries out its services, and pays the city a periodic negotiated franchise fee. Here are 5 items to include in a franchise agreement for cannabis waste management:

1.) Encouragement of Diversion

Endless legislation has been enacted in California requiring and encouraging diversion of waste, including cannabis waste.  Diversion occurs when waste is reduced or eliminated—rather than hauling waste to a landfill it is instead recycled, composted or otherwise treated. A well-drafted cannabis waste franchise agreement will encourage diversion.

Franchise agreements in more established industries can require a minimum diversion rate; however, given how new the cannabis industry is, requiring a diversion rate is a big ask. A softer approach at the early stages is feasible, which could include submitting a diversion plan and requiring periodic diversion reports be submitted to the city.

2.) Promotion of Public Safety:

No cannabis-related agreement is complete without public safety woven throughout—especially agreements with the city. Cannabis can be a dangerous material when in the wrong hands. MAUCRSA provides the minimum requirements by which cannabis waste must be disposed to, in part, promote safety; however, like most new legislation, there are many situations the legislation has not accounted for.  A well-drafted franchise agreement and standard operating procedures (usually submitted to the city during the bidding process) can cover many gaps related to services, equipment, and personnel. Additionally, the agreement can provide both carrots and sticks to help compliance with safety requirements and guidelines.

3.) Scope of Services: A clear delineation of roles between hauler’s services and licensee’s responsibilities is important. Haulers should not be performing tasks only cannabis licensees may perform. One method to help with this distinction is to ensure that there are clear definitions of “cannabis” and “cannabis waste”. Licensees are to handle cannabis, and haulers are to handle cannabis waste.

It is also important to ensure that the cannabis waste hauler does not perform tasks outside cannabis waste management, such as general waste hauling, which may violate other franchise agreements between the city and its general waste haulers.

4.) Franchise Fee Arrangement and Revenue Definition: The franchise fee paid to the city is usually based on revenue generated from the hauling services or the quantity of services provided. If the franchise fee is based on revenue generated, there should be a specific definition of “revenue”.  Revenue can be defined as everything under the sun generated by the hauler within the city limits, but more often “revenue” has exceptions.  Exceptions can include revenue made through diversion efforts, such as recycling, to encourage the hauler to divert.

5.) Hauler Default and Remedies: There can be an endless number of hauler defaults that occur under a franchise agreement. Categorizing these defaults as curable, non-curable, minor, or major can help set the parties’ expectations. Whether something is major or minor usually relates to the default’s impact on public safety. Minor curable defaults that are not cured or minor non-curable defaults can result in a relatively small remedy, such as an additional fee paid to the city. Major defaults can result in termination of the franchise agreement.

Properly drafted franchise agreements can create solid foundation upon which cannabis franchise programs can be built.  For all parties, franchise programs provide infrastructure to drive safe, compliant, and sustainable environmentally friendly economic growth. For cities, franchise fees provide a source of revenue to invest in social or youth services, education, parks, and other community resources.

About the Author(s)

Tatev is an attorney and regulatory compliance specialist as founder and CEO of The Oganyan Agency. She joined a family of cannabis CPG startup companies (manufacturing, distribution) in 2016. With an entrepreneurial mindset. Tatev created the human resources, regulatory compliance, and legal departments from the ground up, building a foundation for exponential business growth that was instrumental in navigating the companies through the legalization of recreational cannabis. Tatev founded The Oganyan Agency to provide scalability through compliance and corporate social responsibility to businesses, partnering with government affairs, legal and technical experts across the country to bring higher standards of quality, sophistication, and responsibility to all industries. Tatev can be reached at [email protected] or 949-264-3247.