New cannabis rules in California released Tuesday highlight again how fractious the state’s industry remains.
The regulations also put the spotlight on the political influence wielded by a technology company that isn’t governed by the rules it has been lobbying to change.
Several cannabis industry insiders say the updated regulations – issued by the state Bureau of Cannabis Control – favor a business model championed by Eaze, which runs a website and smartphone app through which consumers can place delivery orders for cannabis.
But unlike cannabis delivery companies and retailers, Eaze isn’t required to possess state permits because orders placed with the firm are filled by licensed retailers. That situation has turned the business into a divisive flashpoint for many licensed companies that have had to deal with the red tape and costs of obtaining state permits.
The new rules are also an about-face from May 18 regulations, some industry insiders say, indicating that Eaze has significant political pull with state officials who are overseeing the rulemaking process.
At the center of the storm is the Bureau of Cannabis Control’s rules in Section 5418, which was intended to clarify last year’s emergency regulations prohibiting the so-called “ice cream truck” model of delivery, industry insiders said.
But the updated regulations announced Tuesday appear to allow that model, a move that would permit delivery companies to operate roving trucks that are stocked like a retail store and fill orders as they are placed online.
It’s important to note the regulations are far from finished. A first draft of the final rules is expected in coming months, and the state is required to finalize the rulemaking process by the end of the year.
That likely means more political maneuvering by stakeholders.
The critics
The new regulations – published on the Office of Administrative Law’s website – are “a 180-degree turn from where it was previously,” said Steven Domingo, the CEO and founder of WeDrop, a cannabis delivery company.
Domingo, along with several other industry groups and individuals, sent a letter to the Bureau last month expressing support for the May 18 regulations.
Other signatories included:
- California Cannabis Delivery Alliance
- Bay Area Delivery Alliance
- Los Angeles Delivery Alliance
- California Cannabis Couriers Association
- San Diego Cannabis Delivery Alliance
“In previous discussions (with regulators),” Domingo said, “it was said the intention of the regulation was to be prepackaged orders from the point of origin to the point of sale, but now, (Section) 5418 has completely removed all of those requirements.
“It actually explicitly says you’re only required to have one designated order, and you can carry up to $10,000 worth of product. So if that’s a $60 order, you can have $9,940 worth of loose product in your car, which is pretty crazy.”
Domingo and others backed the May 18 rules, he said, because they gave more mainstream credibility to MJ delivery and supported what he called “the Amazon model” instead of the “ice cream truck” system. He predicted a multitude of problems if the new rules remain.
Bureau spokesman Alex Traverso declined to comment on the rule change, but Domingo and other industry insiders said the technology company Eaze was the driving force.
They also said Eaze is the biggest beneficiary of Tuesday’s updated delivery rules.
“When it comes down to it, this is all about Eaze. It’s not really helping the industry in general,” said Zachary Pitts, president of the California Cannabis Delivery Alliance.
Now, Domingo said, Eaze can “go to their quote-unquote partner dispensary, take ‘X’ amount of product and continue about their day without having to do the beehive model, where their guys are running in and out.”
The company wouldn’t have been able to function that way if the earlier regulations had remained in place.
“It’s obviously going to be more effective in that manner, if you can do deliveries on the go, and they’re assigning deliveries to that individual’s parameters,” Domingo said. “They’re going to be able to get there in a very short amount of time.”
The supporters
David Mack, Eaze’s vice president of public affairs, wrote in an email to Marijuana Business Daily that the updated rules have widespread industry backing, contrary to the picture painted by Domingo and Pitts.
“Over 450 licensed drivers, dispensaries, brands and industry advocates weighed in to support dynamic delivery, which is already used successfully every day to deliver legal cannabis products across California,” Mack wrote.
The new version of the rules, he said, would “provide a lot more specificity around how delivery works, which helps everyone plan and grow.”
In a May 30 letter to California regulators, Eaze dubbed its practice “dynamic delivery” and urged the Bureau to allow for a system under which “delivery orders are received by a licensed retailer at the licensed premises, and are then transmitted electronically to a badged delivery employee to complete the order using in-car inventory.”
Eaze’s letter to regulators also noted that “eliminating dynamic delivery will decrease regulated and taxed transactions, eliminate thousands of jobs, drive consumers to seek out alternative, illicit delivery operations, and frustrate California’s stated goal of fostering a safe and sustainable cannabis industry.”
In addition, the letter suggested rules changes that parallel the ones released Tuesday.
Mack shared with MJBizDaily letters from two licensed California cannabis businesses, as well as the Marijuana Policy Project and Teamsters Public Affairs Council, urging regulators to support dynamic delivery.
MPP’s director of state policies, Karen O’Keefe, wrote that eliminating the practice of dynamic delivery “would result in worse outcomes for consumers, patients, traffic and the environment, while driving more consumers to the illicit market.”
Regulatory chess match
The situation also raises questions, industry officials said, about how a tech company that doesn’t hold a state cannabis business permit could pull the political strings necessary to alter regulations when it’s technically not part of the space those rules are supposed to govern.
Eaze has spent more than $174,000 so far on lobbying efforts in Sacramento during the 2017-2018 legislative session, according to state records. Industry sources said Eaze had been working since late May to get the regulations changed to favor its business model and even lobbied Gov. Jerry Brown’s office directly.
“They were meeting with the governor’s office. They were meeting with the (Bureau of Cannabis Control),” said the California Cannabis Delivery Alliance’s Pitts.
To several in the California cannabis business, Tuesday’s development was just as much about how the regulations were changed as it was about the actual alterations.
“Eaze won,” a source wrote in an email to Marijuana Business Daily.
“This took high-level, direct intervention,” another source said.
However, another source that sided with Eaze said, “These delivery alliance groups should stop trying to use the regulatory process to make competition illegal.”
John Schroyer can be reached at johns@mjbizdaily.com
