Anyone planning to start a cannabis distribution company needs to know the ins and outs of getting a distribution license in California. It can be challenging to acquire a license in California because of the complex process with local and state governments. This guide will help you get started on the right path.
What is Cannabis Distribution?
Cannabis distribution is the procurement, selling, and transportation of cannabis and cannabis products between licensees. Distribution is a commercial cannabis activity, similar to cultivation, manufacturing, processing, packaging, labeling, and storage of cannabis materials and products.
In California, there are two types of distributor licenses. In addition to the activities mentioned above, Type 11 licensees are responsible for product quality assurance checks and overseeing the regulatory compliance testing process, and may offer storage services. Licensed Type 11 distributors are authorized to move cannabis and cannabis products between licensed cultivators, manufacturing, and distribution premises and may move product to licensed retailers. Type 13 distributor licenses may only move cannabis and cannabis products between cultivation, manufacturing, and distribution premises. They may not engage in other activities allowed under a Type 11 license, such as storage, quality assurance, or testing oversight.
The Department of Cannabis Control (DCC) monitors cannabis distribution in California through its track and trace system, Metrc. This program reports the movement of cannabis and cannabis products via the DCC’s established distribution chain.
3 Stages of Getting a Distribution License in California
Follow these steps to set up your cannabis distribution company.
Stage 1: Create a Business Plan
Formulate a solid business plan with your team before officially launching your company. Ensure you have a clear overview of what your company wishes to accomplish in the long run.
List your short-term goals for the early stages of your business. These immediate objectives may include building an operations manual, creating your initial schedule, trademarks, developing your standard procedures, creating partnerships with licensed testing laboratories, and making allocation plans for your financial resources.
We recommend working with a cannabis business lawyer to help navigate through the initial planning stages of your business.
Stage 2: Select Your Business Location
Search for the optimal commercial location for your cannabis distribution base. This task is not as simple as renting a local space for a more traditional, non-cannabis business. Certain jurisdictions have land use ordinances and regulations that restrict some of the operations of a cannabis company in certain zones.
Thankfully, you will not need to secure a commercially thriving location for your distribution center. Unlike medical marijuana and cannabis dispensaries, your sales and profits will not be affected by the number of walk-in customers you have. And unlike cultivation companies, you also do not need to find a space conducive to the outdoor or indoor growth of cannabis plants. You will want to focus more on the accessibility of your location to licensed retailers, cultivators, and manufacturers you plan to partner with.
Your local jurisdiction may require fulfillment of additional criteria to engage in commercial cannabis activity. In some cities and counties, you may only need a land use or conditional use permit. In others, you will need to fill out a cannabis-specific license application and provide several documents containing details about your business to the city or county for review.
A cannabis business attorney can advise you regarding the suitability of the property options you are considering based on zoning, topography, landscape features, nearby establishments, and other significant factors. In addition, they can guide you through this process to ensure you successfully navigate local licensing protocols.
Stage 3: Apply for a State Cannabis Distribution License
Once you complete the local requirements, it’s time to apply for a distribution license with the Department of Cannabis Control (DCC). This California state agency is responsible for licensing and regulating cannabis businesses.
A distribution license will legally authorize your business to transport cannabis materials and products within California, including cannabis that you have grown or cannabis products that you have manufactured. It also allows you to transport cannabis products on behalf of other businesses.
DCC provides application resources that will aid you in creating the documents required during the application process, including:
- Owner submittal
- Financial information
- Premises diagram
- Commercial cannabis licensee bond
- Transportation procedures (Form DCC-LIC-015)
- Inventory procedures (Form DCC-LIC-016)
- Non-laboratory quality control procedures (Form DCC-LIC-017)
- Security procedures (Form DCC-LIC-018)
- Delivery procedures
Next, create a new licensing system account in the DCC system. Make sure to select the licensing system for distributors for your cannabis distribution business.
Choose your desired distributor license type and fill in all the required fields in the DCC licensing system . Provide information on all the owners and financial interest holders of your cannabis distribution business and upload all the supporting documents.
You can complete your application in stages since the licensing system allows you to save your progress, allowing you the opportunity to have an attorney check your application before you finalize it. After you are done with your application package, sign it electronically and submit it to the DCC.
Take note that the DCC will not process your application unless you pay the application fee, which is currently set at $1,000. The system will instruct you on how to pay your application fee once you complete your license application. Make sure to send your payment for the application fee so that DCC can begin review of your application.
Regularly check your inbox because the DCC licensing team will email you if your application is incomplete and provide instructions to correct and complete your application. Do your best to respond as soon as possible so that the DCC can promptly process your application.
Once your application has been approved, the DCC will send you an email instructing you on how to pay your license fee. The fee amount is based on your expected gross revenue. You can send your license fee by electronic transfer, check, money order, or credit card.
You also have the option of paying cash in person by booking an appointment with the DCC office. Keep in mind that you will only be allowed to make cash payments if you have an appointment because of security reasons.
The DCC will issue your cannabis distribution license electronically after the agency receives your license fee payment.
Your cannabis distribution license from the DCC is valid for one year. You can download your license certificate from the system after the DCC issues your license. Display your certificate in a prominent area in your distribution center to maintain compliance and so that your guests will know that you are a legitimate cannabis distributor.
Follow Regulations To Maintain Your Cannabis Distribution License
Your business’ cannabis distribution license is issued with the agreement that you will abide by the (DCC and local) rules. Expect state and local officials to inspect your business regularly to check if you meet the guidelines for businesses in the cannabis industry.
The DCC developed their regulations to establish and maintain consistent standards for cannabis distributors like you, as well as other types of licensees. The regulations promote uniformity in the application requirements, terminology, plus ownership and financial interest requirements. They also set the rules for exchanging trade samples between businesses in the field. Local rules vary between jurisdictions. A cannabis attorney can assist you in making sure you are compliant with local ordinances and regulations.
Here are some of the Medicinal and Adult-Use Commercial Cannabis Regulations from the DCC that you and your team need to follow:
- Cannabis Distribution: A licensed cannabis distributor is authorized to distribute cannabis products, cannabis accessories, plus the branded merchandise or promotional materials of other licensees in the industry.
- Cannabis Storage: You must be careful to securely store all of your cannabis products and cannabis batches separately and distinctly from other cannabis products and other batches of cannabis in your distribution center.
- Cannabis Packaging: While you are not authorized to process cannabis as a licensed distributor, you and your team can package, re-package, label, and re-label cannabis into pre-rolls made from dried flowers, leaves, shakes, or kiefs for retail sale. These pre-rolls must be rolled before the regulatory compliance testing.
- Medical Cannabis Transportation and Sales: As a licensed distributor, you are only authorized to transport and sell cannabis goods classified as “For Medical Use Only” to medical cannabis or “M-designated” retailers or micro-businesses licensed to engage in retail sales.
- Trade Sample Provision: Cannabis goods that have been classified as trade samples may be provided to a licensed distributor or other licensees like cultivators and manufacturers in limited quantities each month. The only exceptions are distributor transportonly (Type 13) licensees, cannabis event organizers, and testing laboratory licensees.
- Trade Sample Transportation: The transportation of cannabis trade samples must follow the transportation requirements of the DCC. You are authorized to transport trade samples if you are a licensed distributor.
- Ordering Track-and-Trace Tags: As a licensed distributor, you need to ensure products in your controlled are properly tracked in the state’s track-and-trace system, Metrc. Your Metrc manager must place the initial order of package or plant tags for your plants and products within ten calendar days of the initial credentialing into the track-and-trace system. The account manager may reorder package or plant tags according to the needs of your business.
- Receipt of Tags: You and your team should record the confirmation that you received the package or plant tags in the track-and-trace system within three calendar days. You may inform the DCC if you did not receive the package or plant tags that you ordered.
You must abide by all cannabis distribution regulations to maintain and renew the distribution license of your cannabis business. Still, it can be difficult to keep track of all the guidelines that you need to observe regularly and during special circumstances.
Get Expert Help
You need to invest time and effort in applying for a cannabis distribution license in California. The licensing process can be challenging and complex because of the multiple local and state requirements you need to fulfill.
Schedule a consultation with one of our expert cannabis business lawyers to comprehensively cover the prerequisites in the prospective jurisdiction. They can increase the chances of attaining official approval at a local government level by thoroughly helping you prepare legal forms and documents.
Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.