California’s New Cannabis Regulatory System: What Everyone Needs to Know

Governor Jerry Brown signed Senate Bill 94 last week, merging California’s marijuana laws into a single regulatory system for medical and nonmedical commercial cannabis businesses. The budget trailer bill (“SB 94”) took effect immediately and covers everything from local control to county fair weed tastings to delivery businesses.

The extensive legislation repeals the Medical Cannabis Regulation and Safety Act (“MCRSA”), passed in 2015, and incorporates many of MCRSA’s provisions into the Adult Use of Marijuana Act (“AUMA”), passed by the voters as Prop 64 in November 2016. The new comprehensive regulatory system, intended to regulate all commercial cannabis uses, is called the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”).

Cities and counties across the state support SB 94’s preservation of local control over cannabis businesses, which includes enforcing Fire and Building Codes at cannabis businesses. The cannabis industry also scored some wins.  For example, SB 94 creates a less confusing licensing system and fewer restrictions on vertical integration of cannabis businesses. A cultivator may now act as its own distributor and conduct internal testing for quality control.

Highlights of SB 94 include:

• Single regulatory system: Gone are the two separate licensing structures for medical and nonmedical cannabis businesses.  MAUCRSA establishes 20 license types, including 14 cultivation licenses, two manufacturing licenses, one testing license, one retailer license, one distributor license, and one microbusiness license.  With the exception of the testing license, the state will designate each license with an “M” or an “A” to indicate whether it is a medical or an adult-use license.  If a local ordinance identifies types of licenses under the previous statutes established by MCRSA or AUMA, it is likely that ordinance will require an amendment to ensure consistency with the new license categories.
   
• Multiple licenses: Under MCRSA, numerous restrictions existed on how many licenses one individual or entity could hold and in which license categories.  MAUCRSA eliminated these restrictions and allows multiple licenses in nearly all categories.  However, a testing laboratory licensee may not hold any other cannabis license type, nor may that testing lab license holder employ anyone who works at a non-testing cannabis business.  Under MAUCRSA, the prohibition in AUMA on large cultivation licensees holding distributor or microbusiness licenses now applies to both medical and nonmedical cannabis licenses.  The state will not issue large cultivation licenses, meaning greater than one acre outdoors or 22,000 square feet indoors, until January 1, 2023.
   
• Multiple locations: When one business holds two or more licenses, MAUCRSA requires that the “licensed premises be separate and distinct.”  Additionally, a business with multiple locations is required to obtain a license for each location where “cannabis activity” takes place.
   
• Delivery businesses: Those with a retail cannabis license or delivery operations will now be allowed to operate from a physical location that is closed to the public.  This means that delivery operations – for medical or nonmedical cannabis – do not need to be tied to a dispensary.
   
• Outsiders welcome: SB 94 eliminated AUMA’s requirement that, through 2019, the state would only issue commercial cannabis licenses to those who could prove California residency.
   
• Local control: SB 94 clarifies that cities and counties retain full land use authority as to cannabis businesses; cities and counties may prohibit such businesses entirely, allow only some, or allow them with locally developed regulations that fit local needs.  SB 94 also establishes that local jurisdictions retain the authority to regulate cannabis businesses and to take enforcement action concerning Fire and Building Codes, conduct inspections, and implement audits.
   
• Local authorization: The state is now required to notify a local jurisdiction when it receives an application for commercial cannabis activity in that jurisdiction.  The city or county then has 60 business days to notify the state whether the applicant is in compliance with local regulations.  Although proof of authorization from a city or county is not required, an applicant may voluntarily include this information with its state application.  The state is also prohibited from issuing a cannabis license if issuance would violate any local ordinance.  Cities and counties should review the provisions of Business and Professions Code section 26055 regarding submitting copies of local ordinances and regulations on cannabis uses to the state.
   
• CEQA exemption: Through July 1, 2019, SB 94 exempts from the California Environmental Quality Act (“CEQA”) the adoption of an ordinance or regulation by a local jurisdiction if the ordinance or regulation requires discretionary review and approval of local permits or licenses for commercial cannabis activity.
   
• Cash collection: SB 94 requires that, by January 1, 2018, the Bureau of Cannabis Control work with the Department of General Services to establish offices to collect fees and taxes in the counties of Humboldt, Trinity, and Mendocino.
   
• Lighting up at county fairs: The state may issue temporary event licenses allowing people 21 and older to consume cannabis and cannabis products at a county fair or district agricultural association event.  These event licenses may only be issued if the local jurisdiction allows the events.
   
• State I.D. program: SB 94 retains the requirement that a qualified patient possess a State Medical Marijuana I.D. Card in order to be exempt from paying sales and use tax on cannabis purchases.  This means that approximately $23 million or more in tax revenue will continue to flow to local jurisdictions. 

If you have questions regarding the new comprehensive regulatory system established by SB 94, please contact Richard D. Pio Roda.