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Cannabis Regulation Update: Governor’s Trailer Bill Reconciles AUMA, MCRSA and Prop 215

Governor Jerry Brown recently released the “Cannabis Regulation Trailer Bill,” (trailer bill) which is attached to the Governor’s 2017-2018 budget.  The trailer bill makes recommendations on reconciling the Control, Regulate, and Tax Adult Use Adult Use of Marijuana Act (Proposition 64 or AUMA) with Proposition 215 and the Medical Cannabis Regulation and Safety Act (MCRSA).  The trailer bill proposes significant changes to existing law by repealing sections of MCRSA, amending sections of AUMA and adding new policy language to create one regulatory structure for medical and nonmedical cannabis use and commercial cannabis activities.

The trailer bill, if passed by the Legislature, would have a serious impact on local agencies that regulate and/or tax cannabis and cannabis businesses.  The trailer bill should be reviewed carefully to determine what changes, if any, to local regulations or business policies and practices would be necessary if it is passed into law.  Furthermore, at the same time that the Legislature is considering reconciliation of the two laws, the Governor is also proposing broad regulatory programs concerning the implementation of both the AUMA and MCRSA.

Below is a brief summary of key provisions of the proposed trailer bill and its potential changes to the current regulatory scheme.

Proposed Changes

  • Medical Identification Cards Optional for Counties (pages 11-17) 
    The trailer bill removes mandatory language requiring a county health department, or its designee, to implement protocols for the issuance of medical identification cards to qualified patients.  Those protocols would be discretionary under the proposed language of the bill.
  • Sales Tax Exemption Requires Physician’s Recommendation (page 65) 
    The requirement that a qualified patient or primary caregiver show a medical identification card to avoid paying sales tax would be deleted from Tax and Revenue section 34011(g).  Under the proposed language, sales tax would not be imposed on retail sales of medical cannabis when a qualified patient or primary caregiver provides his or her physician’s recommendation and a valid government-issued identification card.  This major change would expand the universe of individuals seeking the sales tax exemption for medical marijuana and greatly reduce the portion of sales tax revenues allocated to cities as a result.
  • Local Agencies Required to Provide State With Ordinances (pages 32, 36) 
    Proposed language in the trailer bill would authorize an applicant to voluntarily submit, but not be required to submit, a copy of a local permit, license or local authorization to the state licensing entities.  Local agencies would be required to submit a copy of any ordinance or regulation relating to commercial cannabis activity and the name and contact information for the person who will serve as the contact for state licensing authorities to the Bureau of Cannabis Control by January 1, 2018.
  • Licensing Scheme Favors Vertical Integration (pages 20-43) 
    The trailer bill favors AUMA’s vertically integrated licensing structure and would allow multiple licenses in various categories, except for testing laboratory licenses, for both medical and nonmedical commercial cannabis.  The licenses for medical would be designated as “M” while the licenses for nonmedical would be designated as “A.”  The trailer bill, however, would generally prohibit medical and nonmedical commercial activities from occurring on the same premises.  There would be a change in the definition of the term “delivery,” which would exclude from that definition independently licensed businesses that facilitate or arrange for the commercial transfer of marijuana, such as “Weedmaps.”  There would also be a change in the definition of the term “owner” to include only persons (which includes business entities) with an aggregate ownership interest of 20%, or more, in the business applying for the license.  The trailer bill would also clarify licensing requirements for microbusinesses and distributors, create a licensing category for specialty cottage cultivation businesses and allow licensing authorities to issue temporary licenses.
  • Environmental Regulations Changed (pages 39-41, 48-54, 36) 
    Based on the proposed language, the State Water Resource Board and Department of Fish and Wildlife would have more constrained roles in the placement of conditions upon each cultivation license.  The current language of the AUMA requires that the Department of Food and Agriculture include conditions requested by the State Water Resources Control Board and the Department of Fish and Wildlife to ensure that cultivation does not affect the instream water flows and to protect wildlife and water quality.  The proposed language would specify that the Department of Food and Agriculture may include conditions for cultivation that are consistent with “principles, guidelines, and requirements” under Section 13149 of the Water Code.  Other significant changes relating to environmental regulations include changes relating to pesticide use and labeling.

Recommended Action

Due to the significant changes proposed, we recommend that interested parties monitor Governor Brown’s 2017-2018 budget and this trailer bill carefully and contact their local representative to voice any concerns or register any opposition.  Many agencies and individuals are sending letters to identify their specific concerns.  In addition, the proposed regulations should also be analyzed, and concerns or views can be communicated during the respective public comment periods.

The trailer bill was considered and discussed by the Senate Budget and Fiscal Review Committee at a Joint Hearing by the Senate Subcommittee No. 2 (Resources, Environmental Protection, Energy and Transportation), Senate Subcommittee No. 3 (Health and Human Services) and Senate Subcommittee No. 4 (State Administration and General Government) on May 4, 2017.  Various committees and subcommittees will continue to review the trailer bill.  The Legislature may amend certain provisions of AUMA (Sections 5 and 6 and penalty provisions), to further the purpose and intent of the Act, by a majority vote.  However, the remaining sections of AUMA must be amended by a two-thirds vote of the Legislature and must also further the purpose and intent of the Act.

Meyers Nave will continue to monitor this ongoing process and provide updates as they become available.  Public agencies and private businesses are welcome to contact the authors of this Client Alert for assistance in assessing the impact of the trailer bill.

About Our Cannabis Practice Group

Meyers Nave has an interdisciplinary team of lawyers who are guiding public entity and private business clients through the complex laws, regulations and practical challenges that are emerging in the rapidly developing cannabis industry.  Our practice covers the primary areas of law that are converging on the cannabis industry, including public agency law, environmental compliance, labor and employment, land use and zoning, taxation, real estate, licensing, and litigation.  For more information about our Cannabis Practice Group, please contact co-chairs Joshua Bloom (jbloom@meyersnave.com).