California marijuana business owners in legal fog as they await statewide rules

By Bart Schaneman

The absence of statewide medical marijuana regulations following passage of California’s recreational cannabis ballot measure has put existing MJ business owners in legal limbo, making it tougher for them to operate their companies and plan for the future.

Some of these businesses, for example, are finding it difficult to determine what’s legal and what’s not.

Entrepreneurs also are unsure how to properly structure their businesses to comply with Proposition 64 (the measure that legalized recreational cannabis) and how to label and package their products correctly. At the same time, they’re waiting for California officials to finalize medical marijuana rules, adding to the uncertainty.

Before the legal fog can clear, California must draft statewide rules governing both the new adult-use industry and the existing MMJ sector as well.

The new regulatory scheme for both recreational and medical cannabis isn’t expected to be implemented until January 2018, at the earliest. Last week, two top state cannabis regulators promised to have a formal state permitting system up and running by that time.

“It’s not a lot of fun right now,” said Greta Carter, a cannabis business owner who is launching cultivation operations in California.

Before the November election, she noted, many marijuana business owners in California worked in a so-called “gray market” that she defined as operating in a “defendable position” amid limited laws and regulatory support.

“I don’t do anything illegal and I’ve never done anything in the black market. I have operated quite a bit of my time in the gray market,” Carter said. “But, as the gray market is now gone, you’re either in the black market or in the legitimate market. So it’s pretty scary right now for the industry.”

Carter said that without a viable gray market she’s had trouble sourcing plants for her grow operation in the southern California town of Desert Hot Springs, which hopes to become a major cultivation hub. 

“What I’ve found in California is that the gray market has almost been completely eliminated,” she said. “So where does that put the transition?”

Carter worries that this period is exposing marijuana business owners to legal liability. While many had felt comfortable with the gray market, they’re now unsure whether they’re operating according to the law.

“I’m trying to figure it out,” she admitted. 

Uncertainty abounds

Amanda Conley, an Oakland-based cannabis attorney, said some of her business clients also are struggling. In the absence of statewide regulations for the next year or more, they’re unclear how to structure their companies from a legal standpoint.

According to Conley, these MJ industry officials are wondering: “Am I complying with basic operational structure?” 

Packaging and labeling is another area where the regulatory uncertainty has created problems.

Conley is a co-founder of the National Cannabis Bar Association, and members of that group have been putting their heads together to decide what advice to give their clients in the absence of legal clarity.

While businesses don’t yet have licenses under the 2015 Medical Cannabis Regulation and Safety Act (MCRSA), which will govern California’s medical cannabis industry, it’s her group’s understanding that parts of the law covering packaging and labeling are already being enforced and companies must comply.

“But we don’t have the detailed regulations that will provide really helpful guidance about what the packaging needs to say,” Conley said.

Her group does its best to help clients comply with MCRSA labeling requirements regarding dosage, warnings, serving sizes, etc.

“The problem is, we don’t have the regulations yet,” Conley said. “And the MCRSA isn’t very clear, and in some cases it’s almost internally contradictory. When you start to apply it, you realize: ‘Gosh, we really need some more guidance on this.'”

For now, she and her legal colleagues are advocating a “best practices” approach in the hope their clients are in compliance.

“Cannabis companies have to accept a certain amount of risk, and that’s always been true,” Conley said, adding that companies have to be risk-tolerant and nimble.

She also noted that businesses could be operating in compliance with local rules this year. But, come 2018, “you should assume that you’ll have to adjust things.”

Consequently, Conley is telling clients to create packaging that can be easily changed.

“Order packaging that has a lot of space and use stickers so that you don’t have to scrap all that packaging,” she advises. “But expect that you’ll have to make changes.”

Laws won’t stop the industry

According to Santa Ana-based cannabis attorney Aaron Herzberg, 99.95% of California’s marketplace is either quasi-legal or illegal. In fact, numerous California MMJ dispensaries are jumping the gun on adult-use sales by at least a year and selling recreational cannabis to non-medical customers.

“A vast majority of folks are operating without a true defensibility,” he said. “But it’s very difficult for the state or the county or the city to put them out of business.”

He estimates there are up to 200 legally licensed businesses in California.

“And that’s just dwarfed by the tens of thousands of unlicensed businesses out there that operate not just in the gray area but are absolutely in violation of the local ordinance that bans marijuana,” Herzberg said.

He cited rumors that as many as 2,000 dispensaries operate illegally in Los Angeles, “to give you an example of what a mess it is.”

But Conley doesn’t see this as a major roadblock for the growth of the market in the state.

“Obviously we have a robust industry that’s going to keep existing,” Conley said. “It’s not going to pause for two years.”

Bart Schaneman can be reached at [email protected]

4 comments on “California marijuana business owners in legal fog as they await statewide rules
  1. Morgan Glenn on

    Wow. Oregon could never get away with that. Our licenses depend on following the rules and regs. We are more regulated than any state and unfortunately the labs screwed the whole thing up by demanding such a high level of accreditation from other labs to squeezecthem out financially. No we have shortage of tested products…especially edibles and extracts which are overcharged by the labs. Even the governor and legislature is pissed as the slight of hand tricks happened during their recess. They are even encouraging attorneys to find a way to sue the labs that advised the regulatory agencies improperly. Mind blowing. Hopefully the find a better fix when they reconvene feb 1 instead of a bunch of drama having to occur.

    Reply
  2. Kelley Mottola on

    I am not in California, but some of this article has to be quoted incorrectly or I am totally misinterpreting it. How can there only be 200 legally licensed businesses in California, but 2000 dispensaries in LA operating illegally? Are they part of the gray market you are referring too? And if so, are there really 2000 dispensaries in LA? Seems to me, maybe this is where the regulations need to be…. Why would LA need 2000 dispensaries???? Most states are not even allowing 50 dispensaries state wide.

    Reply
  3. tim on

    I don’t understand this passage:
    “Carter said … she’s had trouble sourcing plants for her grow operation…. The problem: Carter finds plants from a legal source, and she won’t buy them from an illegal business.”
    It seems there’s no problem as she finds plants from a legal source. Am I an idiot?

    Reply
  4. JB on

    Are Unlicensed Dispensaries placing California Medical Marijuana Patients at Risk?

    Many of these dispensaries are located in cities and “incorporated areas of the country” that do not allow medical marijuana dispensaries/co-ops.

    Many of these dispensaries/co-ops do not even have a basic business license or resale permit.

    Where are these illegal businesses getting their cannabis? Am I smoking untested cannabis that came from a cartel in Mexico?

    How are these illegal busineses getting name-brand edibles and infused products? Obviously there is a grey-market.

    Weedmaps does not validate or check licensing for any of their advertisers, in effect sending medical marijuana patients to illegal businesses.

    Local law enforcement is either confused or unable to enforce their own laws. (Believe it or not, it is still not legal to sell cannabis or cannabis products in the great state of California without being licensed to do so.)

    The State of California will not be enforcing any cannabis laws until sometime in 2018. They “hope” to be able to begin issuing state licenses on January 1, 2018.

    I am very concerned about the number of illegal dispensaries not playing by the rules, and potentially creating consumer safety issues that place medical marijuana patients at risk. Where is this “medicine” coming from? Were pesticides used during the grow process? Is there mold on that bud? Is that edible legit and properly labeled?

    This does not reflect well on the cannabis industry as a whole and puts it at risk, too. We all want to keep the ATF and Jeff Sessions out of it, but allowing all of these illegal dispensaries to advertise and operate is inviting trouble.

    There is no difference between an unlicensed dispensary selling medical marijuana and an unlicensed business selling beer from an unmarked storefront.

    (Now back to my CBD Cheeba Chew…)

    Reply

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