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G.9 - Cannabis RegulationsCANNABIS -FEDERAL, STATE AND LOCAL REGULATION CITY OF GRAND TERRACE –CANNABIS WORKSHOP May 10, 2022 Benjamin R. Jones, Esq.; Aleshire & Wynder, LLP FEDERAL REGULATION (CANNABIS) •1970 –Federal Controlled Substances Act •2005 –Gonzalez v.Raich (U.S.Supreme Ct.,2005)545 U.S.1 •2013 –U.S.DOJ deprioritizes CSA enforcement against cannabis in stateswhichregulate •2014 –Congress defunds federal enforcement of CSA against medicalcannabisinstateswhichregulate •2015 –USA v.Marin All.For Med.Marijuana (N.D.Cal.2015)139 F.Supp.3d1039 •2016 –USA v.McIntosh (9th Cir.2016)833 F.3d 1163 •2018 –U.S.Attorney General Sessions creates uncertainty •2018 –Federal Gov’t resumes hands off approach to state -legal cannabisactivities;federal law heavily restricts access to banking services •2019-CSA remains valid law;39 states and DC have legal medicalcannabis;18 states and DC have legal adult-use cannabis CALIFORNIA’S PATH TO CANNABIS LEGALIZATION –MEDICINAL USE •1996 –Compassionate Use Act (Prop 215) •2003 –Medical Marijuana Program Act (SB 420) •2015 –Medical Marijuana Regulation and Safety Act (MMRSA) (AB 243, AB 266, SB 643) (name change to MCRSA in 2016 –SB 837) CALIFORNIA LAW TODAY •The Control, Regulate and Tax Adult Use of Marijuana Act (Prop 64) •Passed by California Voters on November 8, 2016 •Legalized cannabis for personal adult use (21+) and cultivation (up to six plants) •The Medicinal and Adult-Use Cannabis Regulation and Safety Act (SB 94) •B&P Code Division 10 (Sections 26000 et seq.) •Legislature’s Response to Prop 64 •Repealed MCRSA ; Merged in Prop 64 to create consolidated regulatory framework governing medicinal and adult-use cannabis •Focuses on regulation of cannabis businesses •Dual licensing scheme –Preserves local control HEMP DISTINGUISHED •Defined -An agricultural product,whether growing or not,that is limited totypesoftheplantCannabissativaL.and any part of that plant,includingtheseedsoftheplantandallderivatives,extracts,the resin extracted fromanypartoftheplant,cannabinoids,isomers,acids,salts,and salts ofisomers,with a [THC]concentration of no more than 0.3 percent on a dryweightbasis.CHSC §11018.5(a). •Federal Agriculture Improvement Act of 2018 (Farm Bill) •Confirms legalization of hemp production/cultivation;hemp no longeracontrolledsubstance;establishes shared federal -state regulatoryframework •CA Law -Expressly exempts hemp from definition of “cannabis”(B&P Code§26001(f));not regulated under Prop 64/MAUCRSA •Industrial hemp is regulated under California Industrial Hemp Farming Actandassociatedregulations •Requires registration for production/cultivation of industrial hemp •Establishes regulations for production/cultivation,but notmanufacturing,processing,sale or consumption. CANNABIDIOL (CBD) •Found in the cannabis plant like THC,but non-psychoactive. •Does not contain THC. •Can be extracted from “hemp”or “cannabis”into an oil/concentrate ;if purely hemp-derived,not considered “cannabis”products;otherwise,it is. •Frequently used in consumer products including food, beverages and dietary supplements. •2018 Farm Bill reserved authority to FDA;FDA issued guidance prohibiting the sale of CBD-infused food,beverages and dietary supplements in interstate commerce. •CA Assembly Bill 47 -Allows hemp-derived CBD to be included in any food, beverages,and dietary supplements sold in CA. STATE CANNABIS REGULATION UNDER MAUCRSA •State Regulations: Cal. Code of Regulations, Title 4, Div. 19 •Department of Cannabis Control •State Licensing of: •Retailers (including delivery) •Distributors •Manufacturers •Cultivators •Testing Laboratories •Microbusinesses •Cannabis Events •Track and Trace System; Cannabis Product Standards and Limits •Enforcement of MAUCRSA and State Regulations STATE LICENSE TYPES –RETAILER •Retailer •Storefront “Dispensary” •Sales by Delivery also allowed •May only sell cannabis goods, cannabis accessories, immature cannabis plants and seed, and branded merchandise of any licensee; may donate to medicinal patients. •Non-Storefront Retailer •Sales by delivery only •Must maintain licensed premises from which deliveries are conducted; premises shall be closed to the public •Note: Recent litigation confirmed local agencies have authority to prohibit deliveries into their jurisdictions. Enforcement is problematic, however. STATE LICENSE TYPES –DISTRIBUTOR •Distributor •Wholesale distribution (transportation)of cannabis, cannabis products,cannabis accessories,and licensees’ branded merchandise between licensees •May provide storage services •May package,re-package,label and re-label cannabis for retail sale •Distributor Transport Only License •May only transport immature cannabis plants and seeds to licensed retailers MANUFACTURER •Type 6 –Extractions using mechanical methods or nonvolatile solvents •Type 7 –Extractions using volatile solvents •“Volatile solvent”=any solvent that is or produces a flammable gas or vapor that,when present in the air in sufficient quantities,will create explosive or ignitable mixtures.Examples:butane,hexane,propane. •Type N –No extractions •May also:(1)Package and label;and (2)Register and Operate as a Shared-Use Facility •Type P -Only packages or repackages cannabis products or label or relabel cannabis product containers or wrappers •Type S -Conducts commercial cannabis manufacturing activities at a registered shared-use manufacturing facility •May do infusions,packaging/labeling,extractions with butter/food grade oils for use only in the Type S licensee’s own cannabis products CULTIVATOR •(a) Specialty Cottage (outdoor/indoor/mixed-light tier 1 and 2) •(b) Specialty (outdoor/indoor/mixed-light tier 1 and 2) •(c) Small (outdoor/indoor/mixed-light tier 1 and 2) •(d) Medium (outdoor/indoor/mixed-light tier 1 and 2) •(e) Nursery •conducts only cultivation of clones,immature plants,seeds,and other agricultural products used specifically for the propagation of cultivation of cannabis •(f) Processor •conducts only trimming,drying,curing,grading,packaging,and labeling of cannabis and nonmanufactured cannabis products TESTING LABORATORY •A laboratory,facility,or entity in the state that offers or performs tests of cannabis or cannabis products that is licensed by the State and accredited by an independent accrediting body •Must maintain accreditation for the testing of:(1)Cannabinoids;(2) Heavy metals;(3)Microbial impurities;(4)Mycotoxins;(5)Residual pesticides;(6)Residual solvents and processing chemicals;and (7)If tested,terpenoids. •Why?Cannabis shall not be sold pursuant to state license unless a representative sample has been tested by a licensed testing lab to ensure they are free of contaminants and labeled with accurate amounts of cannabinoids (including THC and CBD)and terpenes. STATE LICENSE TYPES –MICROBUSINESS •Must engage in at least 3 of 4:cultivation, manufacturing (no volatile solvents),distribution, retail sale •All cannabis activities must be done on same licensed premises;retail areas shall be separated •Must comply with regulations for applicable license types included within the approved microbusiness license application;additional activities can be authorized via subsequent license CANNABIS EVENTS •Event Organizer License ->Event License •Event License authorizes Event Organizer to hold a temporary cannabis event where the onsite sale (by licensed retailers)and consumption (by persons 21+)of cannabis goods is authorized at a specified date and location. •Event may be for a single day or up to 4 consecutive days . •May only be held at a county fair event,district agricultural association event,or at another venue expressly approved by a local jurisdiction for the purpose of holding a temporary cannabis event. •No sale of tobacco or alcohol at event. LOCAL REGULATIONS –ESTABLISHMENT •Public outreach; public hearings •Ordinance –Establish local laws: •Permissible zones/areas •Types of local permit(s) required •Permitted and prohibited commercial cannabis activities •Refer to state license types •Operational/safety regulations for permittees •Required application contents for completeness •Review and Decisionmaking Process; Approval authority •Appeals; Penalties; Enforcement LOCAL REGULATIONS –IMPLEMENTATION •Ordinance should authorize application fee •Reasonable estimate of costs; Deposit system? •Set amount by Fee Resolution •Fee Study/Analysis •Hearing Process •Develop Application Forms •Background checks/livescan process for cannabis business employees? CANNABIS TAXATION -STATE •Excise Tax –15% of “Average Market Price” •Imposed on retail purchasers of cannabis/cannabis products; Distributors are required to calculate and collect it from retailers. •“Average Market Price” computed as actual wholesale price x “mark up” •“Mark up” is not actual mark up, but rather a rate set by CDTFA , currently 60% •Thus, not based on gross receipts •Cultivation Tax •Imposed on cultivators •$10.08 per ounce of dry-weight flowers. •$3.00 per ounce of dry-weight leaves. •$1.41 per ounce of “fresh plant.” •Excludes immature plants and seeds. •Standard sales & use tax (retail sales only; medicinal exemption available) CANNABIS TAXATION -LOCAL •State law does not preempt local taxation •Local “cannabis tax”can be enacted with voter approval •Simple majority for general tax;2/3 majority for special tax •Gross Receipts,per-square-foot methodologies available •Establish maximum rate by ordinance;Council can then set/adjust actual rate thereafter without voter approval,subject to maximum •Standard sales and use tax revenue always available (retail sales only;subject to available medicinal exemption) •If seeking to attract legal cannabis businesses,must be careful to avoid deterring them with prohibitive costs/expenses Questions? bjones@awattorneys.com (949-250-5430)