September 21, 2021

California Legislative Update

With any luck, by the end of this month California cannabis entrepreneurs will be working under one set of state regulations. On September 15, the public comment period opened for the Department of Cannabis Control (DCC)’s proposed emergency regulations; the public had through Monday, September 20 to submit their feedback on the proposal. The rules combine the three sets of regulations from the former regulatory authorities – the Bureau of Cannabis Control, CalCannabis, and Manufactured Cannabis Safety Branch – and are intended to streamline the licensing and enforcement processes for applicants and licensees. The proposed regulations also include the exciting addition of trade sample rules so that businesses can promote their products with other licensees in a manner more consistent with non-cannabis industries. Here are some of the highlights of the proposal.

General Proposed Rules

In addition to cleaning up some outdated rules, the DCC states it updated others based on stakeholder feedback. The pathway to licensure certainly seems clearer with the changes. Under DCC’s draft, applications would be largely the same for all license types. There would be a single definition of “owner” for all licensees which would explicitly include individuals with the authority to execute contracts on behalf of a business or who provide strategic oversight. The DCC also proposes expanding the pool of individuals who are not considered financial interest holders to include persons who own less than 10% of the business’ total shares (up from 5%) and those from privately held companies, in addition to publicly traded ones. Track-and-trace requirements are updated, and some packaging and labeling requirements are clarified. DCC is also looking to accelerate the licensing timeline by applying pressure to applicants, proposing that all requested information for applications be submitted for review within 180 days (down from one year) of being notified that an application is incomplete.

Some of the noteworthy proposals for license-specific operations include the allowance of retailers to sell other licensees’ merchandise and for delivery employees to carry cannabis accessories, branded merchandise, and promotional materials. Cultivators should be aware of additional proposed paperwork requirements related to the California Environmental Quality Act (CEQA) per AB 141, however, the proposed regulations would allow them to continue to operate without installing certain security features on-site such as a video surveillance system, locks, and alarm systems (these are required for all other licensees). DCC also proposes that testing labs would be able to correct minor errors to certificates of analysis after a simple email approval process with the department. The proposal also clarifies that recalls could be done on a voluntary or mandatory basis.

Trade Samples

For AB 141 implementation, the state proposes only certain licensees designate and provide trade samples: cultivators, manufacturers, Type 11 distributors, and microbusinesses that are authorized to engage in the previously mentioned activities. Retailers, distributor-transport only licensees, testing labs, and event organizers would not be allowed to designate or provide samples. In addition, the language requires samples to only be provided to other licensees and the employees of those licensees. It prohibits samples from being given to consumers, and employees may not give them to any other person once they are provided a sample for examination and consumption. The proposal also requires trade samples to be tested by a licensed lab, transported by a distributor, follow certain packaging and labeling requirements, and be recorded in Metrc, like all other cannabis.

Similar to Oregon, DCC proposes sample limits per month. Licensees could be given no more than five grams per strain of dried flower and no more than six strains to another licensee. For manufactured and nonmanufactured cannabis products, no more than five individual units of a cannabis product line and no more than six individual product lines could be given to any licensee. In addition, no more than two pounds of flower or 900 individual units of manufactured and nonmanufactured cannabis products can be designated or provided by an eligible licensee in a calendar month.

Overall, this is a good start and shows a lot of promise for the new department. Within its first two months in existence, DCC came out with proposed regulations that even considered newly enacted legislation. And this all happened despite a tumultuous political environment at the Capitol and in the midst of the worst wildfire season California has ever experienced. These efforts clearly demonstrate the DCC’s dedication to making the legal industry easier to participate in and be compliant with.

If you plan to make public comment on the regulations, it is important to submit them correctly. First, note that all comments must be sent no later than Monday, September 20. They also must be given to both the Department of Cannabis Control and Office of Administrative Law (OAL), the state agency that will be reviewing them for clarity, need, and legality. Here is the contact information to use:

OAL Reference Attorney
300 Capitol Mall, Suite 1250
Sacramento CA 95814

DCC Legal Affairs Division
2920 Kilgore Road
Rancho Cordova CA 95670

The OAL has a ten-day period to review the regulations. If approved, they will become effective at the end of this month. This short window will not be the only opportunity for the public to weigh in on the state commercial cannabis regulations; the DCC will continue pushing through new and improved proposals on a rolling basis. That said, the leadership at the new department appear committed to listening to stakeholder feedback, so we should provide them with comments at every possible opportunity.

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Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.