California was the first state to legalize medical marijuana in 1996 with the passage of the Proposition 215, the Compassion Use Act (the “CUA”). The CUA allowed for patients and caregivers to collectively grow, share, and possess as much medical marijuana as was necessary to address the patient’s debilitating medical condition. There was no discussion of distribution, or state or local business licensing, in the CUA.

 

In 2003, the California State Assembly passed Senate Bill 420, which established an identification card system for medical marijuana patients. SB 420 also allowed for the formation of patient non-profit collectives to provide marijuana to patients. In 2008, the California Attorney General issued long-awaited guidelines on medical marijuana enforcement. The guidelines recognize two alternative ways for medical marijuana to be distributed: through legally defined non-profit “cooperatives” or “collectives.” The guidelines also specify that coops and collectives pay sales tax on MMJ transactions; distribute only to members, and that they acquire, possess and distribute only lawfully cultivated marijuana. At this time, California’s medical marijuana program continues to be governed by the CUA, SB 420, the Attorney General’s guidelines, and local regulations that vary enormously throughout the state.

In 2015, the California State Assembly passed the Medical Cannabis Regulatory Safety Act (“MCRSA”). MCRSA for the first time created a statewide seed to sale set of medical marijuana regulations. Among the 17 classes of licenses authorized by this law are cultivation licenses, dispensary licenses, infused products licenses, testing labs, transportation licenses, and distribution licenses. The state will not begin issuing state licenses until 2018 and the regulatory agencies charged with implementing MCRSA are developing regulations. McAllister Garfield, P.C. has been actively participating in the rule making process for the past year. The initial draft rules should be released at some point in early 2017. Some things are clear at this point, including: local licensing is required, there is no residency restriction for ownership of a marijuana license, and licenses will be capped so that no one party can have more than 3 dispensary licenses and more than 4 acres of cultivation canopy at one time.

In November 2016, California voters approved Prop. 64, the Adult Use Marijuana Act (“AUMA”). AUMA creates a model that is similar to, but not identical to, MCRSA. Again, the law anticipates seed to sale licensing, local licensing, limits on licenses to avoid monopolization, and other similar rules as are found in MCRSA. In addition, AUMA contains a temporary residency restriction preventing ownership by out of state individuals who were not residents of California as of January 1, 2015, though this provision expires at the end of 2019. State licenses will not be issued under AUMA until 2018 at the earliest, but the law contains no hard deadline for issuing licenses. Based on discussions with California rule makers, McAllister Garfield, P.C. understands the recreational/adult use rule making process will be at least 6 months behind MCRSA. Therefore, it appears unlikely anyone will have an adult use marijuana business license from the state before the end of 2018.

 

In the meantime, numerous local municipalities and counties voted on ballot measures in November 2016 effecting the legality of marijuana at the local level. Click here to see the summary. Most of these initiatives deal with taxation of marijuana sales, but some of the measures legalized the operations of businesses for the first time in places like Long Beach and La Mesa, among other locations. The important work to be done now in California is identifying favorable local laws that will allow your business to operate under the new MCRSA and AUMA laws.

 

McAllister Garfield, P.C. is well positioned to play an active role in the emergence of a fully regulated marijuana market in California. With its extensive experience in managing the transition from an unregulated to a regulated market in Colorado, McAllister Garfield, P.C. is ready to help California entrepreneurs manage the transition. The Firm has lawyers and offices in San Diego, Los Angeles, and Santa Cruz at this time and expects to continue to expand in the coming years. Sean McAllister is personally licensed to practice law in California and has been actively participating in the rule making process over the past year.