California publishes first draft of permanent marijuana industry rules

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California marijuana industry, California publishes first draft of permanent marijuana industry rules

(This story has been updated from an earlier version.)

Much of California’s cannabis industry was consumed Friday with reading and rereading the 315 pages of draft regulations issued by the three state agencies that oversee the state’s multibillion-dollar marijuana market.

The proposed rules, issued Friday, shed light on the direction regulators are headed in assembling a final regulatory framework for the largest marijuana market in the world.

Initial analysis by two industry experts suggests that the biggest highlights to an earlier set of emergency rules involve delivery, packaging, edibles and concentrates.

Among the key changes, the draft rules:
  • Allow marijuana products to be delivered into any jurisdiction in California, a move that will expand the market for delivery companies and allow MJ businesses to serve more consumers.
  • Permit an increase in potency for some manufactured edible products.
  • Update the requirements covering child-resistant packaging for products.

“There’s some pretty monumental stuff in there,” said Khurshid Khoja, a veteran industry attorney who had an opportunity to scan through the Bureau of Cannabis Control’s (BCC) rules.

Legislative advocate Max Mikalonis, of Sacramento-based K Street Consulting, echoed Khoja’s sentiment and said the draft regulations – which are the highly anticipated first peek at permanent regulations – are a step forward because they help clarify many questions posed by companies.

“Each set of regulations has tried to be more clear than the previous set,” Mikalonis said.

The entire California industry has been operating under emergency regulations since they were first issued last November, but state law mandates that the rules must be finalized by the end of 2018.

In addition to the BCC, the other two agencies involved in rulemaking are the Department of Public Health and the Department of Food and Agriculture.

Neither Khoja nor Mikalonis had time to closely review the Department of Food and Agriculture’s new regulations.

However, the agency left in place a controversial loophole allowing for no limits on “small” cultivation licenses for any given business, in essence allowing for huge commercial-scale grow facilities.

There were also a host of clarification changes in the regulations, “tinkering around the edges,” as Mikalonis put it, to help smooth out operations for companies.

Delivery win

The biggest change, according to Mikalonis and Khoja, was an explicit clarification from the Bureau that allows cannabis delivery into any jurisdiction in California.

“That’s a big win,” Mikalonis said.

More than 400 municipalities or counties had banned medical or recreational cannabis companies or both, according to the industry website CannaRegs, essentially forcing consumers from those areas to drive to a region in California that allows for marijuana commerce.

The step will dramatically expand the marketplace and access to consumers for delivery companies, Khoja said.

“It’s also going to do wonders for … businesses that need more of an entry point into the industry,” Khoja said. “They don’t need to have the kind of bankroll you need to have for several cultivation licenses.

“You can get your foot in the door through these delivery-only retail licenses.”

Potency increase for some products

Mikalonis also pointed to a slight rollback on potency caps for manufactured products from the Department of Public Health, which will now allow some medical cannabis products (but not recreational) to have up to 500 milligrams per package, an increase from the previous limit of 100 milligrams per package.

However, it’s not a complete win for edibles companies. The 500-milligram potency applies only to “orally dissolving products” such as sublingual strips. And the doses still must be in 10-milligram increments.

That means 1,000-milligram brownies won’t be making a comeback anytime soon.

Packaging change

Another big course correction was on child-resistant packaging.

The BCC’s new rules state that exit packaging – the bags of products that consumers leave the store with – must be child-resistant, resealable and opaque, a switch from a previous requirement that all products be in their own child-resistant packages, Mikalonis said.

It’s another pivot that will be required of the industry, because many companies have already invested tens of thousands of dollars in child-resistant packaging for edibles, concentrates and other types of products.

“This would go and undo that,” Mikalonis said. “So for some folks who work on packaging or for some companies that spent heavily on their packaging, they may experience a bit of whiplash from how fast the proposed regs changed again.”

Clarification for distributors

Another indicator that regulators are listening to the industry, Khoja said, is language that clarifies that distributors are, for instance, allowed to manufacture pre-rolled joints.

“Those are the kinds of things distributors have been asking, ‘Can we do this, can we do this?’” Khoja said. “They’re accommodating some business practices that are just rational and make sense.”

Another such clarification was that distributors are also allowed to transport lab-tested product to other distributors and not only to retailers, Khoja noted.

Advertising questions

Khoja believes one of the areas that will have to be clarified further is what is allowed in advertising and on packaging, due to a vague prohibition on ads that may be appealing to minors.

One operator he knows was told by a regulator that a product package featuring an illustration of a piece of pizza was forbidden because it could be attractive to kids.

“That is a little bit broad, perhaps too broad,” Khoja said, “and there’s some subjectivity in what is likely to be appealing to minors.”

Clock still ticking

Mikalonis and Khoja agreed that the regulations are almost certain to evolve further as regulators receive feedback and are lobbied by industry insiders.

The only question is, to what extent will the rules change?

“It could be another big business cost if the packaging rules keep on changing,” Mikalonis warned.

The biggest takeaway, from Khoja’s point of view, is that licensed operators need to get involved before the regulations are set in stone.

“If all goes well, we should see these permanent regs adopted before year’s end. But between now and then, there are going to be comment periods,” he said.

Below are links to the draft rules from the three regulatory agencies:

From the Bureau of Cannabis Control:

From the Department of Food and Agriculture:

From the Department of Public Health:

John Schroyer can be reached at