State Agencies Release Draft Regulations for Medical Cannabis Businesses

As California forges ahead with legalization of recreational marijuana cultivation, manufacturing, distribution and sales under Proposition 64 (the Adult Use of Marijuana Act (“AUMA”), passed this past November, the state continues to develop regulations implementing the 2015 Medical Cannabis Regulation and Safety Act (“MCRSA”).  Proposed regulations issued by three California state agencies [the Department of Public Health’s Office of Manufactured Cannabis Safety (“CDPH”), the Bureau of Cannabis Control (“Bureau”), and the Department of Food & Agriculture (“CDFA”)] would establish specific application requirements and licensing fees for state licenses, institute a track and trace system for medical cannabis, and establish operational requirements for medical cannabis businesses under the MCRSA.

The comment period for CDFA’s regulations ends on June 12, 2017, while the comment periods for CDPH’s and the Bureau’s regulations end June 13, 2017.  However, it is possible that the agencies will revise their proposed regulations in response to the Governor’s efforts to reconcile MCRSA and Prop 64.

As is outlined below, each proposed regulation addresses different sectors of the medical cannabis industry.

Department of Public Health Manufacturing License Regulations

CDPH’s proposed regulations require that any manufacturer of medicinal cannabis products obtain a valid license from the Department.  Four types of licenses are available under the proposed regulations:

• Type 6 allows for non-volatile solvent and/or mechanical extractions, infusions, and packaging and labeling of the manufacturer’s own products.
• Type 7 allows for volatile solvent extractions, infusions, and packaging and labeling of the manufacturer’s own products.
• The new Type N allows for infusions and packaging and labeling of the manufacturer’s own products.
• The new Type P only allows for packaging and labeling for products of other licensed cannabis manufacturers.

In addition to requirements regarding each type of available manufacturing license, the regulations set out manufacturing processes, production and process control requirements, record keeping, and packaging and labeling regulations.

Bureau of Cannabis Control Licensing and Enforcement Regulations

The Bureau’s regulations focus on distributors, transporters, and dispensaries.  In addition to defining key regulatory terms, the regulations are intended to clarify application requirements for all license types, addition to recordkeeping, tracking, and security standards.

• Distributors:  Proposed provisions would address storage, handling, packaging, including re-packaging and re-labeling, recordkeeping and testing requirements for distributors. Furthermore, the regulations would allow more than one business model for distributors, providing for flexibility depending on needs and demands in different regions of the state.  In addition, quality assurance and testing standards are incorporated in the proposed regulations.
• Transporters:  The Bureau proposes transporter-specific requirements, including security during transport, limits on the visibility or identification of cannabis products during transport, storage, and age restrictions of drivers.
• Dispensaries:  The proposed regulations identify dispensary obligations with regard to ensuring that consumers are qualified to purchase medicinal marijuana, standards for marijuana that may be sold, and storage and security requirements.

Department of Food & Agriculture Cultivation Licensing Regulations

CDFA’s regulations address cultivators ranging from “specialty cottage”, with up to 500 square feet of total canopy, to “medium” cultivators, with up to 22,000 square feet of total canopy.  Those proposed regulations set forth requirements concerning the following general areas:

• Applications.  Among other application requirements, the proposed regulations include provisions addressing application fees for cultivators, property owner consent, water source information, and premises modifications.
• Cultivation License Fees and Requirements:  These regulations would set fees and license requirements for six licenses including a new “producing dispensary” license.  The regulations would also prohibit cultivators from accepting returns after transferring actual possession to another licensee.
• Cultivation Site Requirements:  CDFA’s proposed regulations would govern site design, waste management, cleanliness standards, packaging and labeling requirements, and environmental regulations including the acceptable use of pesticides and energy use requirements.
• Records and Recordkeeping:  These proposed regulations would set requirements for both the new track-and-trace system as well as for maintaining general business records such as permits and financial, personnel, training, and security records.
• Inspections and Enforcement:  This set of regulations concerns CDFA’s enforcement of licensing requirements including setting fines for violations and establishing procedures for informal and formal administrative hearings to deny, suspend, or revoke licenses.

California’s regulation of marijuana is highly complicated, and manufacturers, distributors, cultivators, transporters, and dispensaries must tread carefully to avoid at the least interruption of business services, and at worst civil or criminal enforcement.  Furthermore, the interplay between actions that are legal under state law but illegal under federal law continues to warrant heightened sensitivity to the need to strictly comply with these regulations once they become effective.  Meyers Nave will continue to monitor this ongoing rulemaking process and provide updates as they become available.  

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.