marijuana business

So, you want to open a marijuana business?

by William Restis

published January 5, 2018

Updated February 20th, 2018

A few days ago, California joined a handful of other states to legalize marijuana for recreational use. But you already knew that. That’s why you’re here, to find out what’s involved.

Legal Marijuana in California

If you’re in California, there are nearly 180 provisions that make up the Medicinal and Adult-Use Cannabis Regulation and Safety Act (the “Cannabis Law.”) I suppose that’s how we do it here in the Golden State, we over regulate everything. But by regulating every aspect of recreational marijuana, California is setting itself up to be a powerhouse in this new and inevitably expanding industry. This includes regulation for growing, manufacturing, packaging, testing, transporting, and marketing cannabis.

All this regulation is helpful for another reason as well. Marijuana is currently a Schedule 1 illicit drug under the Controlled Substances Act. So a detailed list of regulations allow those in the marijuana business to defend their conduct as in compliance with California law. Think of it this way, if California didn’t explicitly state that every aspect of recreational marijuana is permitted as regulated, it would fall within the general prohibitions of the CSA. So be thankful that the law explains exactly what to do, and do it. Don’t be creative, just follow the rules.

So here we go, a 30,000 foot view of the Cannabis Law.

How California’s Marijuana Law Works

The Cannabis Law still includes provisions for medicinal marijuana that hold over from the Compassionate Use Act. But since the Cannabis Law allows sales to people 21 years or older, there isn’t much benefit to seeking a medical marijuana license if you don’t already have one. A medical marijuana license includes people over 18 with a qualified medical condition. But that market has suddenly been rendered very small.

California Cannabis License

First, any person (companies included) that participate in the production or distribution of cannabis must get a license. Licenses and regulatory oversight are handled by the Bureau of Cannabis Control (CBB).

And of course, every cannabis licensee must comply with local ordinances and permitting requirements in their local city. And of course, labor laws apply to employees, as well as other generally applicable laws such as environmental regulations.

If you want to cultivate the plants themselves, there are licenses based on whether you are indoor, outdoor, and other factors such as the size of your operation. There’s licenses for manufacturing refined cannabis products such as cartridges or edibles.

Since the Cannabis Law has quality control standards, there is a license to become a testing laboratory. Then there are retailer and distributor licenses. Finally, there’s a license category called “microbusiness.” A microbusiness can cultivate, distribute, refine and sell cannabis cultivated in an area less than 10,000 square feet. This is presumably for small operations that want to manufacture small batches of marijuana product from start to finish, or any combination in between.

Commercial cannabis activity can only be conducted between various licensees. That means a retailer can only buy from licensed growers, manufacturers and distributors.

The Cannabis Law required the BCC to have a full licensing procedure ready to go by January 1, 2018. However, the BCC couldn’t get it all done in time. So the Cannabis Law allows for temporary licenses that can be renewed until January 1, 2019.

Commercial Premises and Marijuana Grow Sites

There’s a slew of requirements for the physical location of a cannabis business. For example, no licensee can sell alcohol or tobacco products on premises, or set up shop within 600 feet of a place where minors congregate.

To receive a license to conduct cannabis activity at a particular location, the applicant has to submit proof that the premises is permitted by a city or county. And once a premises has been approved, it cannot be altered by the licensee without written approval from the BCC.

For growers, there are requirements for your cultivation site that relate to water use and discharge, pesticide use and organic claims and environmental impact issues.

Manufacturing Marijuana Products

Manufacturing of cannabis products cannot be appealing to children. This means be careful with candies and novelty products that look like treats or toys. Manufactured products must have standardized servings that don’t exceed 10 milligrams of THC per serving. And they must be packaged in standard serving sizes. The product must be labelled with enough information for users to know how to consume the product, and its potential effects. And at some point, products must contain the BCC’s official symbol for cannabis.

Cannabis products can’t be adulterated. This means they can’t be manufactured in unsanitary or contaminated conditions. The product can’t be made with dirty or decomposing plant material. It can’t be contaminated with chemicals or have purity that differs from the labeling. Manufacturing or selling adulterated cannabis products comes with hefty penalties.

Cannabis Testing

Cannabis products are subject to testing by a licensed laboratory. A “representative sample” of batches is required. And testing reports must list the content of various cannabinoids, contaminants, processing chemicals and impurities. The marijuana product may not be distributed until it has passed BCC testing standards. Any product must be destroyed if it fails to meet requirements. Labs must provide certificates of analysis, and keep those records. And individual growers or manufacturers can do the necessary testing in-house if they get a license.

The BCC will someday have “quality assurance compliance monitors” that inspect licensee records to assure proper quality control. In the future, the BCC will also be implementing a track and trace system to prevent diversion of cannabis products.

Cannabis Labelling

Retail cannabis products must be sold in a specialized child-proof opaque bag, with specific government warnings. For dried cannabis flowers, the package must list the net weight, the source and date of cultivation, the type of cannabis product, and the date of manufacture. If there is a specific appellation (such as Humboldt County), that must be listed as well.

All active cannabinoid compounds, and their THC content in milligrams must appear on the label. Serving amounts and other information must also be listed. False labeling can expose the manufacturer or seller to liability, so be careful.

Transporting and Security of Marijuana

The shipment, transfer and storage of cannabis products is also heavily regulated. It requires security, tracking of all product, and secure storage among other things. But transportation cannot go outside state lines, as that violates the CSA and California law.

Delivery services must carry their BCC license, and properly document each transaction.

Cannabis Record Keeping

All BCC licensees are require to keep accurate records of cannabis related activities on their premises for a minimum of seven years. Every cannabis transaction must produce a sales invoice or receipt containing detailed information about it.  Identifying information of retail customers, and any health information about them must be maintained to high standards under the Confidentiality of Medical Information Act. And data breaches must be reported to appropriate law enforcement  or provided to to law enforcement or legal proceeding upon request.

Advertising Marijuana

Advertising of cannabis products has to meet certain standards. Advertisement does not include product labels or gratuitous press coverage.

Advertisements must include the licensee’s BCC license number. Any type of broadcast or written advertisement can only be made when market data suggests that 71.2% of the audience is expected to be over 21 years of age. I know… Direct advertisements can only be made to people 21 and up.

False advertising, or advertising inconsistent with a product’s label, is illegal. And advertising can’t appear on a highway that crosses California’s borders or encourages underage use. Businesses can’t give away free marijuana products as part of a promotion, or make untrue health claims about cannabis.

However, health claims have their own set of regulations under the Food and Drug Administration regulations. That’s a whole other can of worms, so tread carefully.

I just skimmed the Cannabis Law, and there’s a lot more content that I didn’t touch. Most of the other statutes apply to how California regulators do their job. And as of now, all we have is the framework statute. The BCC is tasked with filling in the gaps with implementing regulations. And since this is California, you can expect they will over-regulate as usual. And that means dear reader, lots of work for people like me.


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