Wine and Weed Symposium in Santa Rosa, CA: Join Us Thursday!

Our own Hilary Bricken will have the great pleasure of speaking at the 2nd annual North Coast Wine & Weed Symposium (presented by the Wine Industry Network) on Thursday, August 2, in Santa Rosa. While the Symposium will focus on a variety of topics covering the cross section of the wine and cannabis industries, Hilary’s panel will specifically cover “Rules, Regulations, and Policy Updates” in regards to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) and its corresponding readopted emergency rules and the current proposed permanent rules.

The breakdown of Hilary’s panel is as follows:

The rules & regulations around cannabis continue to evolve at a rapid pace and can be drastically different from one county, or town, to the next. This session, with Hezekiah Allen, Executive Director of Cal Growers Association, Hilary Bricken, Partner, Harris Bricken, and Erin Carlstrom, Senior Counsel of Dickenson, Peatman and Fogarty, will provide an update and overview of the latest changes in regulations at the state level and local level, along with any expected changes to take place in the upcoming year.

We expect a lively and interesting discussion at this symposium: Although the wine and cannabis industries don’t always get along, these two industries have a lot more in common than you might think, and knowing the current status of California’s cannabis rules and laws as well as ongoing policy debates surrounding MAUCRSA, will no doubt have an impact on both industries.

For all your questions about wine and cannabis, as well as specifics regarding the regulatory challenges under MAUCRSA, we sincerely hope you can make it to the Wine & Weed Symposium!

source https://www.cannalawblog.com/wine-and-weed-symposium-in-santa-rosa-ca-join-us-thursday/

Canadian Branding and Marketing Regulations Will Impact Both U.S. and Canadian Cannabis Businesses

With implementation of Canada’s Cannabis Act (the “Act”) set for October of this year, many of our clients owning brands that will be sold in both the United States and Canada are beginning to wonder what the implications of new branding and marketing regulations will be. So far, more than 1,500 trademark applications for cannabis and cannabis-related products have been filed with the Canadian Trademark Office, and that number is certain to grow as legalization rolls out.

The Act, through its regulation of packaging, addresses many of the same concerns as certain state statutes in the U.S.: preventing false and misleading advertising and prohibiting advertising that is appealing to children. Some of the key prohibitions contained in the Act are on testimonials and endorsements, the use of real or fictional people, characters or animals, and branding or packaging that connotes “glamour, recreation, excitement, vitality, risk or daring.” Interestingly, there was discussion in the government’s Proposed Approach to the Regulation of Cannabis of implementing a plain packaging regime, something we’ve long suspected could be applied to cannabis.

The new regulations will require that all cannabis products be packaged in a manner that is tamper-evident, child-resistant, prevents contamination, and keeps cannabis dry. Packaging must be opaque. Pursuant to the Proposed Approach to the Regulation of Cannabis, licensed processors must label the package in which the cannabis product is contained in both French and English, and the following information would be generally required:

• Name and contact information of the processor who packaged the product;
• Product description;
• Product lot number;
• Product weight or volume, depending on the product class;
• Packaging date (and expiry date, if one has been set);
• Recommended storage conditions;
• THC / CBD content (expressed as the percentage of THC / CBD the product could yield, and by unit or dose, if applicable); and
• Inclusion of the statement: “KEEP OUT OF THE REACH OF CHILDREN”.

Under the Act, it is prohibited to promote cannabis in a manner that is false, misleading or deceptive, or that is likely to create an erroneous impression about its characteristics, value, quantity, composition, strength, concentration, potency, purity, quality, merit, safety, health effects or health risks. This aligns well with what we’ve seen in U.S. jurisdictions with regulated cannabis.

However, interestingly, the Act also prohibits promotion of cannabis brands using foreign media:

“It is prohibited to promote … cannabis, a cannabis accessory, a service related to cannabis or a brand element of any of those things in a publication that is published outside Canada, a broadcast that originates outside Canada or any other communication that originates outside Canada.”

This regulation could have serious implications for brands that are looking to position themselves not only in Canada, but also in other jurisdictions, including the U.S. The Canadian government has made it a priority to ensure that companies cannot evade the Act’s advertising and promotion restrictions by merely promoting the products abroad.

Sponsorship by Canadian cannabis companies will also be prohibited (perhaps even if a particular brand is only sponsoring events or individuals abroad):

“It is prohibited to display, refer to or otherwise use any of the following, directly or indirectly in a promotion that is used in the sponsorship of a person, entity, event, activity or facility:

• A brand element of cannabis, of a cannabis accessory or of a service related to cannabis; and
• The name of a person that
  • Produces, sells or distributes cannabis,
  • Sells or distributes a cannabis accessory, or
  • Provides a service related to cannabis.”

Clearly, the implications of Canada’s cannabis advertising regulations will be far-reaching once they are implemented in October. For brands that intend to have a presence in both the U.S. and Canada, it will be particularly important to ensure that no advertisements or promotions produced in the U.S. run afoul of the Act, as they could ultimately jeopardize the license(s) in Canada and open the responsible individuals up to liability. Having an understanding of how Canada’s rules will impact your brand, if you intend to expand beyond the U.S., will be critical in the coming months.

source https://www.cannalawblog.com/canadian-branding-and-marketing-regulations-will-have-far-reaching-implications-for-cannabis-businesses/

Oregon Industrial Hemp: Back to the Basics

In the past year, we have seen a remarkable uptick in individuals and businesses pursuing Oregon industrial hemp production, processing and sale. This accelerated interest has coincided with the CBD craze, and fortunately, Oregon has been working steadily to build out its hemp program over the past year or two. Today’s blog post answers some questions commonly fielded by our Oregon cannabis lawyers, and summarizes the state of the state with regard to hemp.

What is the latest, as far as program rules?

The rules have undergone steady revision for a few years now. The most recent changes are shown in the Oregon Department of Agriculture’s (“ODA”) proposed rule changes, which should take effect very soon. These updates will stem from bills passed by the legislature earlier this year, which we wrote about back in March. A few of the biggest pending changes include the requirement that industrial hemp and seed can only be transferred to another ODA registrant or qualifying Oregon Liquor Control Commission (OLCC) licensee (in accordance with certain OLCC rules), and that any hemp sold to a consumer has to be tested by an OLCC licensed lab.

How easy is it to get a hemp handler’s permit?

It’s not quite as easy as it used to be, but it’s not bad, and it’s still faster and cheaper than getting an OLCC license. In our office, we have paralegals process these applications, and both grower and handler registrations often issue in a month or less when the client is organized.

Who can ODA permittees sell to, in the OLCC system?

ODA handlers can only sell to OLCC processors with a current OLCC endorsement to receive ODA hemp. Those processors can then move the industrial hemp products along the supply chain, to OLCC wholesalers and retailers.

I’m an ODA hemp handler. How do I get an OLCC hemp certificate?

You can’t right now. OLCC stopped accepting applications for the certificates back in April. Once the ODA proposed rule changes are final (hopefully very soon), OLCC should start issuing these applications once again. As to OLCC processors, those entities can still apply for hemp endorsements to add to their licenses.

Once I get an OLCC hemp certificate, how do those sales work?

You will have recordkeeping requirements for all hemp and related products transferred into the OLCC system. This means you will have to log information in the METRC Cannabis Tracking System, like OLCC licensees. Note that hemp products in METRC are not subject to tax, unless they are later mixed with marijuana. Note also that once you transfer hemp to an OLCC processor, it has to stay in the OLCC system. This means you cannot take it back and sell it outside of METRC.

Can I legally ship Oregon industrial hemp to other states?

Oregon does not restrict such sales, but the state does not create a safe harbor from federal law, either. In fact, the new rules will provide that no one participating in the Oregon hemp program is immune from federal law enforcement, even if they are not shipping hemp interstate. So what does federal law say about shipping industrial hemp and CBD interstate? It’s complicated.

Can I apply for an ODA permit on the same tax lot as my OLCC marijuana production? 

Yes, you can. But OLCC is going to require an approved “control plan” describing how the two production facilities will be separated, and ensuring that no industrial hemp winds up on the OLCC premises.

Can I get a bank account?

Yes. Maps Credit Union has announced it will begin servicing both plant-touching and ancillary hemp businesses on August 1. There may be other options in the pipeline as well.

Where can I find more information on all of this?

Aside from checking this blog, the best place to go are the relevant portions of the ODA and OLCC websites. Unlike OLCC, the ODA hasn’t done a great job of aggregating information in FAQ format or issuing bulletins, so you may have to actually read through the administrative rules (fun!), or call ODA itself with questions.

source https://www.cannalawblog.com/oregon-hemp-back-to-the-basics/

Crafting Local Cannabis Policy in California: A Look into the City of Novato

CBD Webinar: Join Us August 16th!

More Info Emerges on Amnesty Program for Washington Marijuana Licensees

Cybercrime and Cannabis Businesses: The 101

The 4-1-1 on California Cannabis Events.

We’re a couple of weeks into summer and in California that means county fair time! In populous counties, county fairs can include extravagant firework shows and platinum selling musicians coming into town. In smaller counties, a tractor-trailer show may be the biggest event. Regardless of their size, all county fairs have at least two things in common: 1) They are open to the public (entry fees do vary); and 2) Vendors sell their products to, and connect with, the consumer. In California, cannabis events are hoping to tap into the Golden State’s love of county fairs and our California cannabis attorneys are seeing an increase in the number of businesses looking to expand their reach into cannabis events.

California’s Bureau of Cannabis Control (“BCC”) regulates and licenses temporary cannabis events. Under the BCC’s readopted emergency regulations (permanent regulations were recently proposed, which we covered here), obtaining a cannabis event is a two-part process in California. Before you can host a cannabis event, you first have to secure a cannabis event organizer license. Obtaining an organizer’s license is no easy feat, as applicants face the same daunting application requirements that cannabis retailers, delivery-only retailers, distributors, and testing laboratories face. These requirements require they provide the following:

• A list of funds belonging to the applicant’s cannabis event organizing business held in savings, checking, or other accounts maintained by a financial institution;
• A list of loans made to the applicant for its use in cannabis event organizing activities;
• A list of investments made into the applicant’s cannabis event organizing activities;
• A list of all gifts of any kind given to the applicant for its use in cannabis event organizing activities;
• A complete list of every individual with a financial interest in the cannabis event organizing business; and
• A complete list of every owner.

Once you’ve submitted all of the required BCC’s cannabis organizer application information you cannot pass go, nor do you get to collect two hundred dollars. Au contraire, you must submit a non-refundable annual license fee. This fee is five thousand dollars ($5,000) for an organizer planning one to ten events and fifteen thousand dollars ($15,000) for organizing more than ten events in a year.

Assuming you’ve cleared the BCC’s regulatory hurdles and secured your organizer’s license, you can now move forward with your application for a temporary cannabis event. We previously covered the regulations for temporary cannabis events here, but they are worth revisiting since the BCC has released their new proposed regulations.

• A temporary cannabis event license shall only be issued for a single day or up to 4 consecutive days.
• Onsite consumption is allowed if authorized by the local jurisdiction.
• Any compensation paid from a retailer to a cannabis event organizer for participation in a temporary cannabis event shall not be determined, based on, or be contingent on, the sale of cannabis goods.
• Cannabis goods being stored by a licensee at a temporary cannabis event shall not be accessible to the public and shall not be left unattended. Licensees may share the secure, locked container; however, each licensee using the container shall be held responsible for any violations of this section and subject to disciplinary action.
• A temporary cannabis event may only be held on the grounds of a county fair or district agricultural association. This is holdover from the previous regulations but we are seeing progress at the state level with Assembly Bill 2020 (which we covered here) to amend the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) so that all local jurisdictions can host temporary events in authorized locations.
• Each sale at a temporary cannabis event shall be performed only by a retailer or microbusiness authorized to sell cannabis to retail customers. This is another holdover from the previous set of regulations, but just like with AB 2020, we are seeing state legislators push for change. Assembly Bill 2641 (covered here) would authorize licensed cultivators and manufacturers to sell their cannabis and cannabis products directly to the public at temporary cannabis events.

As of this writing, the BCC has issued approximately forty-three (43) cannabis event organizer licenses so we can expect to see new and exciting cannabis events this summer and throughout the year. Assembly Bills 2020 and 2641 are next up for hearings in front of the Senate Appropriations Committee on August 6^th and we expect the Committee will vote to expand the number of cannabis businesses and locations that can participate in cannabis events. Until then, enjoy your summer and your county fair!

source https://www.cannalawblog.com/the-4-1-1-on-california-cannabis-events/

Washington State Cannabis Enforcement Officers: Be Careful, Be Very Careful

Cannabis Investing: Has it Gone Mainstream?

Has Investing in Cannabis gone mainstream? In “As Marijuana Goes Mainstream, Investors Rush In,” The New York Times answered this question affirmatively, but that article focused primarily on publicly traded companies. What about industry-wide?

As our attorneys regularly put together investment rounds for cannabis companies we see these macro trends at the deal level. And in recent months we are increasingly seeing a wider variety in types of investors — often private investors more familiar with commercial real estate, tech investing, or other private company financing — crossing over into cannabis. These investors bring a wealth of knowledge on terms, structures, and business strategy. For many tech-focused startup companies providing services to the cannabis industry, the deals may look nearly identical to those in other industries; in fact, we’ve done equity financings where the documents are identical to a typical tech startup.

However, particularly for investors working with “direct operator” cannabis companies for the first time, there will be certain aspects of the cannabis industry that do not translate and other aspects that are shocking or incomprehensible to investors coming over from other industries. Now that cannabis has gone “mainstream,” investors may believe all the kinks have been worked out, but as those in the cannabis industry know, that’s not true. Not by a long shot.

• Banking remains imperfect, and there still are gaps by geography or company size and type. Many cannabis companies still operate on an all-cash basis.
• Company Execs (and others involved in “direct operators”) can still go to jail for this. That’s what federal illegality means. This comes as a shock to many.
• Many investors and funds are still going to be unable to invest, depending on their source of funds. For example, state or public pension funds are a non-starter.
• Many cannabis businesses are limited by state borders.
• Regulators are still catching up at the state level and their timing may not meet with your spreadsheet projections.
• Regulators at the local level are highly unpredictable. On cannabis financing, our corporate finance lawyers often must contend with municipalities that had permit processes up and running and then completely changed their minds.

The above contribute to the “green tax” in the cannabis industry — factors that complicate and add expense to doing business in the industry — and these often surprise investors coming from other industries. Investors that are open-minded and have a “growth mindset” can make the shift pretty quickly. But other investors may grow frustrated and impatient with having to face the hurdles faced by all cannabis companies. Companies are wise to evaluate potential investors and test their mettle, as the industry will soon enough.

source https://www.cannalawblog.com/cannabis-investing-has-it-gone-mainstream/

Is Your Cannabis Copyright Enforceable?

I previously discussed how cannabis works of authorship, including the design of sufficiently original logos (only the graphic elements of the logo, not the words), are copyrightable. I also alluded to the possibility that such copyrights may be unenforceable due to the federal illegality of cannabis. Indeed, whether a cannabis copyright is enforceable remains speculative as none of the U.S. federal district courts (which hold exclusive jurisdiction over copyright infringement cases) have issued an order in a cannabis copyright lawsuit. Today, I revisit this issue by looking at whether federal district courts have enforced other copyrighted illegal works and how those legal decisions may help us determine the likelihood of courts enforcing cannabis copyrights.

Under current copyright law, illegal works are often treated similarly to other works. Illegal works are entitled to copyright protection and are eligible for registration so long as the works are:

1. Original, meaning that the works are independently created by their authors and possess a “modicum of creativity;” and
2. Fixed in a tangible medium of expression, which allows for their reproduction.

A certificate of registration from the U.S. Copyright Office is a prerequisite to initiate a lawsuit for copyright infringement—including lawsuits alleging infringement of illegal works. To establish copyright infringement, a plaintiff must prove two elements: First, ownership of a valid copyright, for which the certificate of registration will provide prima facie evidence; and second, that the defendant copied substantial elements of the copyrighted work.

Copyright law does not require the plaintiff demonstrate the legality of the work’s content. The currently prevailing view is that “even illegality is not a bar to copyrightability.”

Because illegal works are copyrightable, illegality is not generally a defense in an infringement suit. For example, the Ninth Circuit Court of Appeals has held that fraudulent content is not a defense to infringement. The Fifth Circuit Court of Appeals reached a similar decision when it dismissed the defense of obscenity to a claim of copyright infringement. The alleged wrongdoing of a plaintiff only bars relief in rare circumstances where the plaintiff’s transgression is serious and related directly to the subject matter of the infringement action. For instance, the defense of illegality, also known as the “unclean hands” defense, has been recognized when plaintiffs falsified a court order or evidence, or misrepresented the scope of their copyright to the court and the other party.

Favoring the enforcement of copyrighted illegal works is also consistent with their authors’ constitutional right to freedom of speech. If Congress were to impose copyright restrictions on illegal works, it would essentially censor these works, which would likely be deemed unconstitutional.

So, given the that the prevailing view under U.S. Copyright law is that illegality is not a bar to either copyrightability or enforceability, it is very likely most U.S. federal district courts would enforce cannabis copyrights. Therefore, the strong likelihood of a court enforcing cannabis copyrights, combined with the ease and minimal cost of copyright registration, should incentivize you, cannabis businesses, to copyright your work.

source https://www.cannalawblog.com/is-your-cannabis-copyright-enforceable/

Cannabis Taxation and Yet Another (BAD) 280E Case

In Alpenglow Botanicals LLC v the United States of America the United States Court of Appeals for the Tenth Circuit just ruled that the IRS has the authority to determine that a cannabis business is trafficking in a controlled substance for purposes of applying IRC §280E. This decision is going to shift how cannabis businesses pay their taxes and how cannabis tax lawyers view cannabis tax obligations. And not in a good way.

Alpenglow Botanicals LLC is a medical marijuana business. The IRS audited Alpenglow’s tax returns and determined Alpenglow was trafficking in a controlled substance and so it denied the company’s business deductions under IRC §280E. Alpenglow paid the tax assessment and filed for a refund, which was subsequently denied by the IRS. Alpenglow then went to federal court to recover its refund claim. In court, Alpenglow made the following three arguments:

• The IRS does not have authority to disallow deductions under IRC §280E unless the taxpayer has a criminal conviction for trafficking;
• IRC§280E violates the 16^th Amendment of the U.S. Constitution.
• IRC §280E violates the 8^th Amendment of the U.S. Constitution.

The Court rejected all of these arguments.

The Court determined that a criminal conviction is not a prerequisite for the IRS to apply IRC 280E and that the IRS has the authority to determine on audit that a taxpayer is trafficking in a controlled substance. The Court relied on its earlier decision  in Green Solutions Retail Inc. where it stated that “the IRS’s obligation to determine whether and when to deny deductions under IRC §280E, falls squarely within its authority under the tax code”. The Court in Alpenglow went further than Green Solutions in ruling that there’s no evidence Congress intended to limit the IRS’s investigatory power here.

Alpenglow cited a line of U.S. Supreme Court cases for the proposition that courts have invalidated regulations involving the taxation of illegal conduct — these cases strike down the imposition of a tax as a violating a taxpayer’s 5^th Amendment right against self-incrimination. The Tenth Circuit Court distinguished those cases, noting that Alpenglow is challenging the IRS’s very authority to tax and investigate illegal activity at all  and held that this prior line of cases don’t apply to the denial of a tax deduction as opposed to the imposition of a tax.

The Court also determined that IRC §280E does not violate the 16^th Amendment which grants Congress the power to tax “income” or the 8^th Amendment which prohibits the federal government from imposing “excessive fines.” The Court ruled that IRC §280E is not an unlawful penalty and disallowing a deduction is not a “punishment.”

Most importantly, this court’s decision on IRC §280E is going to have real life implications for many cannabis businesses. Every cannabis business that has filed a tax return challenging the application of IRC §280E should immediately review its tax returns and reevaluate their options.

source https://www.cannalawblog.com/cannabis-taxation-and-yet-another-bad-280e-case/

Testing the Limits of Federalism: Federal Appeals Court Says Using Medical Marijuana on Supervised Release is a Bridge Too Far [READY FOR EDIT]

Cannabis has remained federally illegal at the same time states continue to legalize cannabis in one form or another. As a result of legalization, private parties enter and perform contracts, loan and borrow money, and convey leasehold property rights in ways that involve cannabis. These contracts affect and depend upon millions of dollars in assets, including real estate, thereby interweaving the cannabis industry into the economic systems that allow our free market economy to function. Courts, and especially federal district courts and courts of appeal, often must wrestle with whether and how to enforce such contracts where one body of law says they are void as illegal and says they are perfectly valid.

Courts have generally been willing to enforce these contracts and have come up with some pretty creative arguments for doing so, perhaps because of the economic disruption that would occur if parties were suddenly permitted to walk away from contractual obligations and the consequences to city and county governments that have issued property entitlements and licenses to cannabis businesses. However, a recent appellate court decision illustrates how there are still limits on the ability to indulge, even when done in compliance with state law.

In U.S. v. Schostag, a defendant had pleaded guilty to felony possession of a firearm and attempted possession of methamphetamine and was sentenced to 120 months in prison and 5 years of supervised release. One of the conditions of his release set by a federal district court in Minnesota was that he not possess or use any controlled substance “except as prescribed by a physician.” Minnesota law allows physicians to prescribe certain forms of medical marijuana and the defendant notified his probation officer that his doctor had prescribed medical marijuana for chronic pain. The probation officer advised the defendant that, cannabis prescription or, defendant’s consuming cannabis would violate the terms of his release because it was prohibited by federal law.

The defendant tested positive for marijuana and his probation officer reported the violation. Defendant argued he was simply following the terms of his release conditions, which allowed for him to use prescribed controlled substances. The district court, apparently acknowledging the awkwardness of the language, modified his release conditions to explicitly forbid defendant from using marijuana even possession with a medical marijuana prescription and gave defendant two weeks to find a legal form of pain management. Defendant appealed this decision, arguing that the court should have exercised its discretion in setting his release conditions and should have allowed him to use medical marijuana under Minnesota law.

The Eighth Circuit Court of Appeals rejected defendant’s argument, noting that under federal sentencing law, federal courts can modify release conditions but cannot do so in a way that violates federal law, including the CSA, which outlaws marijuana in all forms. The court also declined to engage in any nuanced discussion of the interplay between federal and state laws on cannabis, instead simply declaring, “the state’s law conflicts with federal law.” Though this decision seems harsh, consider the alternative: if the court had allowed the defendant to use marijuana while on federally supervised release — the conditions of which a federal court is itself responsible for setting — this would have amounted to a federal entity (the court) directly allowing for a violation of federal law. This wasn’t a contract between private parties; it was the federal government deciding whether to allow a releasee under its supervision to use a substance that is unquestionably prohibited by federal law.

Though the court in Schostag found Minnesota’s medical marijuana law to conflict with federal law, there is a colorable argument that this case is an outlier from the general trend of federal courts being unwilling to get in the way of state-legal cannabis. The federal government and its court system cannot be expected to ignore federal controlled substances law when applying federal sentencing law to those under federal custody or supervision simply because the court happens to be located in a state with contrary laws on cannabis.

An example of a similar approach occurred in Forest City Residential Management, Inc. v. Beasley where a federal district court in Michigan held that tenants in a federally subsidized housing project were not entitled to a reasonable accommodation under the federal Fair Housing Act to use medical marijuana at their rental units. Though closer to a private contract than federal sentencing guidelines, allowing marijuana use in federally subsidized housing as a legal accommodation is akin to the federal government sanctioning a clear violation of federal law within the confines of its own program.

Though the general trend is that federal courts are reluctant to interfere with state legal cannabis activity, that tolerance typically  stops at the doorstep of federal programs operating under federal law. This is something Congress can and should change, not the judiciary. Unless and until cannabis becomes federally legal, we will continue to see courtroom manifestations of the cannabis federalism fight.

source https://www.cannalawblog.com/testing-the-limits-of-federalism-federal-appeals-court-says-using-medical-marijuana-on-supervised-release-is-a-bridge-too-far-ready-for-edit/

Phase II Licensing and Social Equity in the City of Los Angeles

Cannabis licensing in the City of Los Angeles has been a slow go. Though the City’s Department of Cannabis Regulation has licensed 155 Existing Medical Marijuana Dispensaries (“EMMDs”) there is still an entire line of existing cultivators and manufacturers, social equity applicants, and general public applicants waiting their turn for cannabis entitlements. The City announced earlier this month that Phase II licensing would open on August 1 and run for 30 days. This week, the public can for the first time see the documents required to secure Phase II licensing. Phase II applicants will need to prove a number of things, including that they were already operating in Los Angeles and supplying a valid EMMD prior to January 1, 2017. In addition, the City (and the world) is going to get its first look at initial social equity program entitlements in L.A.

Social equity in L.A. has been much debated and anticipated, namely because everyone knows that under local laws social equity applicants get a bevy of benefits and pretty much get to skip the line with priority license processing. Phase II is the first time we will get to see how social equity will work in practice since social equity eligibility is mandatory for Phase II licensees. Specifically, to qualify for Phase II temporary approval/licensing (which triggers priority licensing for existing “non-retailers” like growers and manufacturers — you will need to meet all of the following criteria:

1. The Applicant was engaged prior to January 1, 2016, in the same Non-Retailer Commercial Cannabis Activity for which it now seeks a License;
2. The Applicant provides evidence and attests under penalty of perjury that it was a supplier to an EMMD prior to January 1, 2017;
3. The Business Premises meet all the land use and sensitive use requirements of Article 5 of Chapter X of this Code;
4. The Applicant passes a pre­-license inspection;
5. There are no fire or life safety violations on the Business Premises:
6. The Applicant has paid all outstanding City business tax obligations;
7. The Applicant indemnifies the City from any potential liability on a form approved by DCR;
8. The Applicant provides a written agreement with a testing laboratory for testing all Cannabis and Cannabis products and attests to testing all its Cannabis and Cannabis products in accordance with state standards;
9. The Applicant is not engaged in Retailer Commercial Cannabis Activity at the Business Premises;
10. The Applicant attests that it will cease all operations if denied a State license or City License;
11. The Applicant qualifies under the Social Equity Program; and
12. The Applicant attests that it will comply with all operating requirements imposed by DCR and that DCR may immediately suspend or revoke the Temporary Approval if the Applicant fails to abide by any City operating requirement.

There’s a fundamental misunderstanding that social equity in Los Angeles means you’ve faced some kind of cannabis conviction, but it’s way more than that. There are three levels of social equity identified by tiers as follows:

1. Tier 1: Low Income (which means “80 percent or below of Area Median Income for the City based on the 2016 American Community Survey and updated with each decennial census”) and a prior California Cannabis Conviction (which means “a cannabis-related crime that occurred prior to November 8, 2016, and could have been prosecuted as a misdemeanor or citation under current California law,” though this definition is going to change to “an arrest or conviction for any crime under the laws of the State of California relating to the sale, possession, use, manufacture, or cultivation of Cannabis that occurred prior to November 8, 2016”); or Low Income and a minimum of five years cumulative residency in a Disproportionately Impacted Area (which means residency in “eligible zip codes” as established by the City). Tier 1’s can’t own less than a 51 percent equity share of the licensed business.
2. Tier 2: Low Income and a minimum of five years cumulative residency in a Disproportionately Impacted Area; or a minimum of 10 years cumulative residency in a Disproportionately Impacted Area. Tier 2’s can’t own less than a 33 1/3 percent equity share of the licensed business.
3. Tier 3: Tier 3’s have to enter into a Social Equity Agreement with the City to provide very specific capital, leased space, business, licensing and compliance assistance to a Tier 1 or Tier 2. Most people shooting for Phase II licensure will likely try to go for Tier 3 status, but they still have to find those coveted Tier 1s or 2s to play ball.

There are also a slew of regulations that apply to social equity applicants including having to disclose to the DCR any proposal to take on debt, any proposal to sell any equity in the business after licensure, and forking over bylaws and other corporate control documents.

At a roundtable I spoke on last week at the Vision Theater, L.A.’s social equity program was the topic of discussion. Cat Packer, executive director of the DCR, made clear that if people want to see changes to the social equity program, they need to show up to meetings with city council to voice their positions and desires. Ms. Packer also stated that Tier 1 and 2 social equity applicants are going to get retail licenses on a 2:1 basis relative to the general public and EMMDs (and on a 1:1 basis for non-retail). This means social equity applicants will get at around 310 retail licenses (there are 155 EMMDs) even before a single general public license ever issues. Combine those ratios with mandatory undue concentration limitations, and there’s a solid chance city license caps may be triggered with social equity, giving those applicants major leverage in what could be the world’s largest cannabis market.

The social equity program in LA is going to evolve and hopefully lead the way for other cities and counties looking at various social equity models. As Phase II approaches, social equity applicants need to be wary of hawkish and predatory practices that seek to take advantage of their status and discard them after the fact (see here for California’s recent cannabis schemes and scams).

source https://www.cannalawblog.com/phase-ii-licensing-and-social-equity-in-the-city-of-los-angeles/

Hemp-Derived CBD Not Allowed in Food (or Pretty Much Anything Else) in California

Last week, the California Department of Public Health’s Food and Drug Branch (CDPH-FDB) issued a revised FAQ on cannabidiol (CBD) in food products that will likely block the sale of hemp-derived CBD products in California — which if you’ve been in the state lately, are pretty much already everywhere.

CDPH-FDB has determined that CBD sourced from industrial hemp cannot be added to food (including drinks) for either humans or pets:

[A]lthough California currently allows the manufacturing and sales of cannabis products (including edibles), the use of industrial hemp as the source of CBD to be added to food products is prohibited. Until the FDA rules that industrial hemp-derived CBD oil and CBD products can be used as a food or California makes a determination that they are safe to use for human and animal consumption, CBD products are not an approved food, food ingredient, food additive, or dietary supplement.

California’s Health and Safety Code defines “food” as “a raw, cooked, or processed edible substance, ice, beverage, an ingredient used or intended for use or for sale in whole or in part for human consumption, and chewing gum.” Further, CDPH-FDB’s FAQ elaborates on what will not be allowed in food in California as follows:

• Any CBD products derived from cannabis
• Any CBD products, including CBD oil derived from industrial hemp
• Hemp oil not derived from industrial hemp seeds
• Industrial hemp seed oil enhanced with CBD or other cannabinoids

Seeds derived from industrial hemp and oil made from industrial hemp seeds are allowed in food if the distributor of those items makes no medical claims about the seeds and/or oil.

CDPH-FDB also made the following distinction between “hemp seed oil” and CBD oil:

Industrial hemp seed oil and hemp-derived CBD oil are two different products. Industrial hemp seed oil is derived from the seeds limited to types of the Cannabis sativa L. plant and may contain trace amounts of CBD (naturally occurring) and other cannabinoids. Food grade Industrial hemp seed oil is available from a variety of approved sources.

However, CBD or CBID oil derived from industrial hemp is NOT approved for human and animal consumption by the FDA as food and therefore cannot be used as a food ingredient, food additive, or dietary supplement.

CDPH-FDB confirmed in is FAQ that “there is no regulatory agency that provides oversight for the production of CBD oil from industrial hemp,” but CDPH does have authority over food and dietary use products generally and, therefore, food products containing CBD oil are within its authority to regulate. The FAQ also adds that “CBD is an unapproved food additive and NOT allowed for use in human and animal foods in California regardless of where the CBD products originate.” So, no out-of-state hemp-CBD loophole.

CDPH-FDB distinguished cannabis edibles sold under MAUCRSA and regulated by CDPH’s Manufactured Cannabis Safety Branch from non-cannabis food products sold outside of that regulatory framework. Yet in another blow to hemp-CBD, the Bureau of Cannabis Control will not allow MAUCRSA-licensed retailers to sell stand alone hemp-CBD products even though BCC rules explicitly allow for selling non-cannabis products at licensed retail storefronts.

The FAQ also addresses the Food and Drug Administration (FDA), which has a complicated relationship with CBD. The FDA states in its own THC/CBD FAQs that it is prohibited to “introduce or deliver for introduction into interstate commerce any food (including any animal food or feed) to which THC or CBD has been added.” The FDA has also sent out cease and desist letters (see here, here, and here) to CBD producers and sellers across the country that were making medical claims about their CBD products in violation of the Federal Food, Drug & Cosmetic Act . The FDA takes the position that CBD is neither a conventional food nor a supplement exempt from drug testing. Recently though the FDA approved Epidiolex, the cannabis-based drug used to treat severe forms of epilepsy. This approval does not mean the FDA now allows for all CBD products or that it will now allow businesses to make medical claims about CBD for products that have not been approved as drugs under the Federal Food Drug & Cosmetic Act –in other words, anything containing CBD that is not Epidiolex.

Essentially, California is letting the FDA dictate what it will do with hemp CBD. Though many other states allow hemp CBD for human consumption pursuant to Federal Farm Bill programs, California is following nearly lock-step with big brother on this one. How exactly CDPH-FDB plans to enforce its FAQ is not clear given that hemp CBD products are already rampant in California.

Our CBD lawyers will continue monitoring this evolving situation as hemp CBD makers and sellers struggle to navigate and comply.

source https://www.cannalawblog.com/hemp-derived-cbd-not-allowed-in-food-or-pretty-much-anything-else-in-california/

City of Novato Cannabis Program: Speak Up on July 20

The City of Novato in northern Marin County, California, will be conducting a cannabis stakeholder meeting this Friday, July 20 at City Hall from 12:00 pm to 2:00 pm.

The meeting is designed to engage cannabis industry participants in determining what kinds of cannabis businesses might be viable in town and how many licenses should be issued for each type of cannabis activity.

The City’s consultants are seeking to identify key issues and concerns cannabis industry participants may have in implementing a cannabis program. If you’ve been looking for opportunities in the North Bay, this is your chance to engage with the City and its consultants in the early stages.

The City is also holding a separate community workshop on Saturday, July 20, to gather input from members of the Novato community.

Questions about the program and the stakeholder meeting should be directed to Bryan Lopez, Management Analyst (blopez@novato.org or 415-899-8923) or David McPherson (dmcpherson@hdlcompanies.com or 909-861-4335).

source https://www.cannalawblog.com/city-of-novato-cannabis-program-speak-up-on-july-20/

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.

source https://www.cannalawblog.com/california-drops-proposed-permanent-cannabis-regulations/