Final California marijuana regulations: ‘Wins, losses and more ambiguity’

California regulators have wrapped up their third and final version of new regulations governing the state’s multibillion-dollar cannabis market, drawing mixed reviews from industry experts who’ve been closely watching the rulemaking process since it began over the summer.

“There were wins, there were losses and there’s more ambiguity,” said Pamela Epstein, founder and CEO of Los Angeles-based Green Wise Companies. “But what we have is a final game board for regulation.”

Regulators made only minor changes to the proposed rules they issued in October. They released their first draft of the rules in July and then rewrote them in the months that followed.

Now, the state’s Office of Administrative Law (OAL) must give its stamp of approval before this final batch of regulations can be made permanent.

Here are four key takeaways from the final regulations:

1. Delivery is the big winner.

Epstein, along with longtime marijuana attorney Khurshid Khoja of Sacramento-based Greenbridge Corporate Counsel and Jackie McGowan of K Street Consulting, also in Sacramento, said delivery operators are the obvious winners in the final regulations.

That’s because the Bureau of Cannabis Control (BCC) decided to stick with its policy of allowing MJ deliveries anywhere in the state, regardless of local municipalities’ bans.

“Definitely delivery is the biggest winner. However, we’re reluctant to celebrate that win,” McGowan said, noting the OAL must give its final approval.

“The OAL could take into consideration all the threats of lawsuits and remove that section. That’s still extremely concerning,” McGowan said, referring to the possibility that some municipalities may file suit against the state over its delivery policy.

Khoja said it’s possible opponents of statewide delivery – including the League of California Cities, which helped launch a website dedicated to combating delivery policies – may seek to undercut the policy.

“To the extent there is an ability for them to petition the OAL to argue this regulation is inconsistent with state law, they will, and it’s not unlikely they’ll carry through with the threat of litigation,” Khoja said.

2. White labeling is permitted.

Another significant win for the marijuana industry is that contract manufacturing, also known as white labeling, may be allowed.

Contract manufacturing allows a licensed maker of edibles or concentrates to produce and package products on behalf of an unlicensed business, such as a celebrity brand or out-of-state company. However, the process can be tricky to navigate.

“It really depends on the nature of the contract and whether the unlicensed brand is participating in day-to-day operations,” said Khoja, who was looking for possible changes to that portion of the rules.

The BCC removed previous examples from the regulations on what was prohibited to avoid confusion, he said. But he noted it appears that such licensing agreements will be allowed, provided that the unlicensed brands aren’t calling the shots for license-holding California manufacturers.

“The BCC still has grounds to scrutinize licensing agreements with unlicensed parties. The devil’s in the details,” Khoja said.

“They’re going after big brands from other states that are coming into California and saying, ‘We don’t want to get a license, but … because you’re our exclusive licensee, we need to have control'” over the production process, he said, adding that any non-licensee “directing commercial cannabis activity is a problem.”

What would be allowed, Khoja said, is for unlicensed brands to contract out their intellectual property to licensed firms, as long as they’re not directly involved in production or other day-to-day logistics.

McGowan and Epstein also said contract manufacturing will likely be fine with regulators, as long as the required disclosures are made by the relevant parties.

“If you’re white labeling, all you need to do is disclose that, and there’s a simple way to do that with each agency,” McGowan said, referring to the BCC, the state Department of Food and Agriculture and the state Department of Public Health.

“If you are touching the plant, then you do need to be licensed, and every agency is consistent with that rule,” she said.

Epstein added this area still has a lot of ambiguity and will likely have to be clarified or evaluated on a “case-by-case basis.”

3. Packaging regulations changed – again.

Epstein said there’s going to be more “regulatory whiplash” as well with packaging, because the regulations again switched who is responsible for child-resistant packaging.

“We’re going back to pre-July 1, where there is exit packaging at the retail level,” Epstein said, referring to disposable resealable bags in which retail shops place consumer purchases before they “exit” shops. The bags double as childproof containers.

“Once these regulations take effect, manufacturers and cultivators will have the ability to have the retailer issue the (child-resistant package) through exit packaging until Jan. 1 of 2020,” Epstein said.

Once 2020 hits, manufacturers and growers must have each product ready in child-resistant packaging before shipping their goods to retailers. But for 2019, that mandate will be an “either/or situation,” Epstein said.

“If I were advising a retailer… it would be to invest in resealable exit bags. It will provide the most protection to retailers as the various products throughout the year may or may not have child-resistant packaging at the product level,” she said, adding retailers can also brand exit bags and encourage customers to reuse such bags.

That will likely be a huge money-saver for manufacturers and growers, who have been spending enormous sums on child-resistant packaging and now won’t necessarily have to do so, at least until the end of next year.

4. Track-and-trace, ownership disclosures and MJ sample collection challenges exist. 

Epstein, Khoja and McGowan also highlighted the following issues:

  • Ambiguity remains over what will happen if the state’s track-and-trace system, Metrc, goes down or is unavailable. McGowan said the way the regs are written, a loss of access to Metrc could mean delivery operators would be unable to conduct business until service is restored.
  • Khoja said that new ownership-disclosure rules are still “problematic” because, if a separate company has an ownership stake in a licensed cannabis company, it’s possible each owner of that separate company would be deemed an owner of the California licensee and be forced to go through the application process.
  • McGowan added the “biggest loser” in the regulations, in her opinion, is testing labs because they’ll have to own every vehicle used to collect MJ samples for testing. That may not be a new portion of the rules, she said, but it’s going to be expensive for labs.

John Schroyer can be reached at [email protected]

14 comments on “Final California marijuana regulations: ‘Wins, losses and more ambiguity’
  1. Rod Gass on

    No, deliveries are not the winner. Not even a small amount. Nothing has been changed. Lawyers will happily lap-up the easy takings and the BCC does not override counties’ statutes. The PAC from Sacramento, has a political influence to sway public opinion, but, it is wrong in its’ content. Local deliveries are controlled by local governments, state has no influence.

    Reply
    • American Made on

      You can say that. . . . But in reality, delivery companies are also going to follow the letter of state law to its fullest advantage. . .. Do you think Uber drivers cared about local law? . . Of course not, they picked up and dropped off in unmarked cars just like delivery companies use.

      Delivery services just became as important as dispensaries. IN fact, I would imagine dispensaries would start buying delivery services in order to have access to customers that live in areas where local law prohibits brick and mortar dispensaries.

      Do not underestimate the drive to get into those markets at any cost.

      Reply
      • grant on

        if a delivery company in Sac county drives to El do County to make a delivery El do county will be unable to stop it. they just miss out on the revenue, then they’ll lose more tax dollars by suing the state. this is the death rattle of prohibition.

        Reply
    • JMac on

      How does this affect a white label entity in sales and marketing? Or distribution? Can they direct sell? Transport finished goods? I thought anyone in the value chain would be licensed?

      Reply
  2. Patricia Brooks on

    Indeed the locals will have problems with the State having control of the locals. this is a two-step process, and that is important to remember.

    Reply
  3. STEPHEN SHUB on

    Why should labs have to own vehicles. Why should labs even be considered in the same set of regulations as the other licensees. Labs do not grow, process, package or otherwise produce cannabis. They test it. Just like labs test milk, meat and other chemicals.

    The BCC has come down hard on labs, particularly in the eyes of local municipalities who force them into high-rent areas due to being a cannabis business. Any lab should have the right to test whatever they want, be it cannabis or not. The only regulations should be total independence from other licensees and what needs to be tested. And the tax fees-absurd! That’s why there are so few labs.

    Reply
  4. Shareholder at Acerage on

    Is Weedmaps allowed to advertise on the behalf of deliveries and stores that are not licensed? Everyone seems to be avoiding the question.

    Reply
  5. Andre Tate on

    Quite Simply. The Legislation has completely Cluster F***ed-up the Entire industry.
    Every entity from the Department of Weights and Measures to local legislation get a piece of the pie.
    No more Prohibition has allowed the Big Money supported groups like Archview aka Medmen and others to set up shop without so much as to get their hands dirty as if they would ever touch Weed other than to smoke it. And Rape the market…Your got Politicians like Ex Attorney General’s Locklyer. Speaker of the House John Boehner…even Top Cop Jeff Boulderguard Sessions sold out in the end to Canadian Growers over Floridians for Hemp based CBD imports over local Licensees..
    Now one month later Hemp CBD is waiting for House and Senate approval… Everything was planned people so that the controlling interest could get in place!

    Reply
  6. Dave on

    The licensing scheme is for big capital. If you don’t have millions to throw at this you won’t get a license. I’ve been in the industry since 2000 and I’ve lost thousands trying to get my business Licensed. Very few own all the licenses. California politicians are using this opportunity to fatten their pockets with same guys they already do business with (alcohol ) . Lori Ajax (head of bcc ) comes directly from ABC where she worked as Chief Deputy Director at the Department of Alcoholic Beverage Control where she spent 22 years. Make no mistake. This is legal plunder.

    Reply
    • Pat on

      Well said, d’Artagnan! What I’m reading ( and believing ) is that the black marketeer’s are increasingly becoming the new justice league in this sector of California’s ag industry. Who doesn’t like the Three Musketeer’s?? Except, of course ( as the story goes ): The Throne = a corrupt gov. system in ca. They and their special interests, don’t like the “spreading of the wealth” and “loss of market share” and “control of the supply/price” of the commodity via the acts of the Black Marketeers ( Musketeers ). The throne’s henchmen = law enforcement in ca./feds who’s leaders largely hate the legalization of the commodity, because they can’t make nearly as much money off of it as they used to for made of “safety” concerns; hence they have to become increasingly more creative to meet their budget goals without killing the goose. Rather than doing their jobs in the best interest of society by going after the unethical ( and often criminal ) politicians and their criminal cronies that cause society so many problems; they go after the musketeers instead. Why? They’re in on it too. In 2018, the ca. govt.’s priorities are as twisted as they ever have been.

      I say to the black marketeer’s: “All for one, and one for all!!”

      Reply
  7. James Tryon on

    Any info on non-storefront retailers having to report every delivery before it’s delivered? Kinda like a delivery manifest. It’s also not open to the API, meaning it can only be done in Metrc.

    Does anyone have any other new on that?

    Reply

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