California Drops Proposed Permanent Cannabis Regulations

Last Friday, July 12, 2018, all three agencies overseeing California’s implementation of MAUCRSA dropped proposed permanent regulations that will eventually replace the readopted emergency regulations that are active now. For the text of those proposed regulations go here, here, and here. Importantly, these regulations are just proposed; they are not in effect and they won’t be in effect until after the 45-day public comment period so long as the agencies move to adopt them without changes.

The proposed rules don’t make massive changes to the existing regime. In fact, many of these rule additions and clarifications should have already been in the mix as fundamental, common sense standards for operation in line with former federal enforcement priorities. More than anything else, these proposed rules represent technical fixes to pretty large gaps in the existing emergency rules.

All three California agencies tasked with regulating cannabis are now finally on the same page about the disclosure and vetting of “owners” versus “financial interest holders” and, importantly, if an “owner” is an entity only “the chief executive officer and members of the board of directors of the entity shall be considered owners.” In addition, the agencies clarified that none of them will issue temporary licenses after December 31, 2018. This was already in MAUCRSA, but the agencies clarified that temporary licenses with an expiration date after January 1, 2019 will be valid only through that date with no additional 90 day extensions. This is significant since a temporary license is the only way licensees can operate post-local approval but before receiving their annual license. Further, all three agencies are addressing issues regarding CEQA compliance prior to licensure and responses to disaster relief, and M and A licensees can still do business with each other to get product to market. Each agency has also upped the required details on annual licensing submissions relative to standard operating procedures (SOPs) and plans.

The highlights of the more specific significant changes/additions/clarifications from the three agencies are:

1. Department of Food and Agriculture, CalCannabis Cultivation Licensing (oversees cultivators and processors):
   1. Individuals and entities will still only be allowed to have one Type 3 medium license, and there’s still no limit on the number of Type 1 or 2 cultivation licenses anyone can have (other than those limitations set forth by cities and counties, if any).
   2. Outdoor licensees won’t be able to use use any light deprivation techniques.
   3. Licensees are prohibited from accepting returns of cannabis plants or nonmanufactured cannabis products after transferring possession of cannabis plants or nonmanufactured cannabis to another licensee after testing is performed.
   4. Nurseries can now develop and maintain dedicated R&D areas in their facilities.
2. Department of Public Health, Manufactured Cannabis Safety Branch (oversees manufacturers): 
   1. CDPH-MCSB implemented some notable changes to their definitions of certain cannabis terms. For example, the term “concentrate” would now include inhaled products (such as shatter, dab, or wax) and “edible cannabis product” and would include “a cannabis product that resembles traditional foods or beverages and cannabis products that dissolve or disintegrate in the mouth.” They’ve also proposed the terms “infused pre-roll,” which would mean “a pre-roll into which cannabis concentrate or other ingredients have been incorporated” and “orally-consumed concentrate” to mean “cannabis concentrates that are consumed by mouth and are not otherwise considered edibles.”
   2. You can’t manufacture, prepare, package or label any products other than cannabis products at a licensed premises.  “Cannabis products” also includes packaged cannabis, pre-rolls, and products that do not contain cannabis, but are otherwise identical to the cannabis-containing product, and are intended for use as samples.
   3. You can’t manufacture, prepare, package, or label cannabis products in a location operating as a retail food establishment or as a processed food registrant, and you can’t do the same in any location licensed by the Department of Alcoholic Beverage Control.
   4. Edible potency limitations are staying the same (no more than 10 mg of THC per serving and no more than 100 mg per package), but “orally-dissolving” edibles can have up to 500 milligrams THC per package, if: (1) The cannabis product consists of discrete servings of no more than 10 milligrams THC per piece; (2) The cannabis product is labeled “FOR MEDICAL USE ONLY;” and (3) The cannabis product is only available for sale to a medicinal-use customer.
   5. There are now increased packaging and labeling requirements for pre rolls and dried flower, and the labeling requirements generally for all products have increased.
   6. Use of the word organic (or any variation of that word) on any product label is now going to be false or misleading unless the National Organic Program (the federal regulatory program governing organic food) “authorizes organic designation and certification for cannabis and the cannabis or cannabis product meets the requirements for such designation and certification.”
   7. Child-resistant packaging would be eliminated, but tamper-evident packaging would still be required for cannabis products.
3. Bureau of Cannabis Control (oversees retailers, delivery only retail, microbusinesses, distributors, and labs):
   1. Making up your own SOPs would no longer be a requirement for the annual license. Instead, the state would have you input all of your SOP information into pre-established forms.
   2. You won’t be able to pump in the smell of cannabis to your licensed premises via a vaporizer device or diffuser.
   3. The state is cracking down on cannabis giveaways and generally getting stricter on licensee advertising attractive to children.
   4. “Limited access area” security now applies to all licensees, not to just retailers.
   5. On rejections and returns, licensees now have to reject whole shipments and they can’t just pick and choose inventory they want to keep from those shipments.
   6. Distributors are receiving more clarity in their rules such that they can now package prerolls but can’t store live plants, they can transport tested product to more than one retailer, distributor, or microbusiness, and they can perform just quality assurance reviews of product if another distributor has already had that product tested.
   7. Retail exit packaging has to be resealable, child-resistant, and opaque.
   8. Statewide delivery would be permitted regardless of jurisdiction. The specific rule states that “A delivery employee may deliver to any jurisdiction within the State of California.” Given the hostility of some cities and counties to any form of commercial cannabis activity, or those cities that require you to have local approval to deliver (like Los Angeles), this is bound to cause conflict between the state and the locals.

The 45-day comment period has begun, so get your comments in now or forever hold your peace in California as the regulatory landscape continues to shift slowly but surely.