April 6, 2017

The Administration on Wednesday released a proposed trailer bill aimed at reconciling the differences between medical and recreational cannabis laws. This is an important step in the ongoing state and local implementation of cannabis policy in California.

The legislature passed and the governor signed the Medical Cannabis and Regulatory Safety Act (MCRSA) in 2015, and just over a year later, voters passed Proposition 64, the Adult Use of Marijuana Act (AUMA). Both contained local authority for local governments to decide how best to regulate and tax the sale and cultivation of cannabis in their respective communities while integrating local regulatory programs within a larger state licensing and regulatory system.

The laws are similar, but contained some key differences or inconsistencies that could have proved confusing or problematic for implementers. This proposal is the first step to reconcile the differences, and comes as state and local agencies are working to draft and adopt regulations and ordinances, set up technology systems, and prepare for go-live on January 1, 2018.

Here’s a quick summary of the proposed changes:

Dual state and local licensing: both MCRSA and AUMA have some protections for the local role in licensing. MCRSA sets a local license as a prerequisite for obtaining a state license, while AUMA requires businesses to be in compliance with local ordinances and regulations, though applicants cannot be required to show proof. The proposed solutions:

• Require the Bureau of Cannabis Control (Bureau) to work with local authorities to collect all ordinances that govern cannabis in the state, including bans.
• Require local jurisdictions to provide contact information to the state.
• Authorize applicants to voluntarily submit a copy of their local paperwork to the state licensing entity.
• Require applicants to submit Environmental Impact Statements (EIR) for certification to the state in cases where local jurisdictions allow cannabis activity but don’t issue permits.
• Some CEQA streamlining is proposed for local jurisdictions.

Vertical integration: MCRSA and AUMA had different restrictions on the number and type of licenses cannabis businesses could acquire. The proposed solution utilizes AUMA’s vertically integrated licensing structure for both medical and adult use cannabis businesses. It does maintain that testing licensees be independent of all licensees in other categories.

Distribution: Under MCRSA, all products are required to go through a third-party distributor, who is responsible for arranging testing prior to sending the product to market. The distributor is allowed to hold a transportation license, but no other type of license. Under AUMA, the responsibility for testing falls on the licensee taking the product to market and allows a distributor to hold any other license except for testing. The proposed solution maintains AUMA’s open distribution model, with a requirement for distributors to arrange for an independently licensed testing laboratory to conduct testing.

Ownership: MCRSA defines an applicant as any person having decision-making authority or an ownership or financial interest; all applicants and those having a five percent interest or more in a publicly traded company are required to pass a background check. AUMA only requires background checks for licensees having at least 20 percent ownership and direct management authority. The proposed solution includes separate definitions of applicant and owner, with only one designee required as the applicant. Additionally, the proposal adopts the AUMA definition of owner requiring 20 percent or any person with the power to impact management decisions, and would require owners to pass a background check. Finally, with the exception of publicly traded companies, licensees would have to disclose the identity of all investors to licensing authorities.

Cultivation limits: MCRA limits the scale of cultivation and the number of medium size licensees that can be issued. AUMA added a new cultivation license type, which allows a large size of cultivation of over 1 acre or greater than 22,000 square feet of indoor cultivation. AUMA also does not limit the number of medium size licenses that can be issued. The proposed solution limits the number of Type 3 medium size licenses consistent with MCRSA.

Microbusinesses: AUMA creates a new type of licenses called microbusinesses, which are authorized to engage in four market segments: cultivation, manufacturing using non-volatile solvents, distribution, and retail. The microbusiness license type would only require a license from the Bureau. The proposed solution requires review of microbusinesses by the California Department of Food and Agriculture (CDFA) as well as the Department of Public Health (DPH). Licensing authorities will establish a process to ensure that microbusiness applicants and licensees can demonstrate compliance with all the requirements under the law for the activities they conduct.

Environmental protections: Senate Bill 837 (SB 837), Committee on Budget, Chapter 32, Statutes of 2016 clarified the roles of all state environmental entities that must coordinate with the CDFA before a cultivation license is issued. The proposed solution amends AUMA to include the same environmental protection requirements as MCRSA.

Appeals panel: AUMA includes a Marijuana Control Appeals Panel that may review appeals related to license issuances, penalties, denials, or other actions by licensing authorities. MCRSA did not include such a panel. The proposed solution extends the review of the panel to all licensing decisions related to cannabis and would allow a party to appeal a panel decision directly to the Court of Appeals.

Appellation: MCRSA authorized CDFA to establish appellations of origin for cannabis, whereas AUMA requires the Bureau to establish standards. The proposed solution sets the responsibility to establish appellations of origin to CDFA and extends the deadline to January 1, 2020.

Other issues: the proposed language deletes the requirement for state-issued medicinal marijuana ID cards.