On July 12, 2021, the California Department of Cannabis Control (“DCC”) was born.

Before the DCC, cannabis business owners and licensees had to check and comply with regulations from the Bureau of Cannabis Control, CalCannabis Cultivation Licensing Division, and the Manufactured Cannabis Safety Branch. Through Assembly Bill 141,  however, Governor Gavin Newson consolidated the three different California state cannabis regulatory agencies into one.

On September 15, 2021, the DCC filed proposed emergency regulations to consolidate three different sets of regulations into one, which went live on September 27, 2021. Here are a few notable changes:

  • An “Owner” includes a person with an aggregate ownership interest of 20 percent or more in the commercial cannabis business. The term aggregate is now defined to mean the total ownership interest held by a single person through any combination of individually held ownership interests in a commercial cannabis business and ownership interests in an entity that has an ownership interest in the same commercial cannabis business. In other words, if a person owns 15% of the stock in a commercial cannabis business and 50% of the stock in an entity that owns 10% of the stock in the same commercial cannabis business, that person has 20% of aggregate ownership interest, and thus would be categorized as an “Owner” of the commercial cannabis business. As one could imagine, this calculation could get complicated for larger or publicly traded companies.

 

  • If a person has less than 20 percent of ownership interest, the applicant or licensee might still need to disclose that person as a financial interest holder. Previously, a person holding less than 5% is not considered a financial interest holder. Now, the DCC bumped the threshold up. A person who holds less than 10% of total shares in a publicly or privately held company are not considered financial interest holders.

 

  • For a commercial cannabis business with 20 or more employees, the applicant shall provide either a notarized statement that it will enter into or demonstrate it has already entered into and abide by the terms of a labor peace agreement. Now, even for commercial cannabis businesses with less than 20 employees, the applicant must provide a notarized statement indicating that the applicant will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee.

When making disclosures to the DCC, make sure that you are using the most updated forms, which can be found here and here.

The emergency regulations that are on the DCC’s website now only include sections that were changed during the emergency rulemaking. Sections that are not included in the document were not changed and remain in effect. The DCC plans to release the full, complete set of regulations this week, so stay tuned. Even though this is still a relatively new regime, it is anticipated that this will significantly reduce the cost and time of compliance for cannabis business owners.

Hand holding pipette with CBD oil on wooden table

On September 13, 2021, the Minnesota Court of Appeals issued a decision upholding a drug conviction that has the potential to significantly harm Minnesota’s growing hemp industry. In State v. Loveless, the Court of Appeals considered whether the defendant could be convicted of drug possession despite his seized vaporizer cartridges containing amounts of THC under the legal threshold of .3 percent THC concentration. Ultimately, the Court found that it did and concluded “as a matter of law that the 0.3 percent threshold does not apply to a liquid mixture containing [THC].” In short, the Court found that although the Minnesota legislature had changed the definition for marijuana in the State’s Schedule 1 definition, the definition included hemp only in the form of leafy plant material, not in the form of a liquid mixture.

At first glance, the Court of Appeals’ decision demonstrates a rather common occurrence: the judiciary interpreting a statute’s language and applying it to the facts of the case. Ultimately, though, this case could have far reaching implications for Minnesota’s hemp industry. Most notably, this ruling could put at risk the sale and possession of hemp flower extracts, including CBD oil, CBN sleep oil, and other common CBD edibles. Various retailers across Minnesota now sell CBD and related products, and this ruling could put both retailers and consumers of CBD and hemp-based products at risk and could make such consumers and retailers hesitant to participate in the industry. At this point, not much is certain of the effects this recent ruling will have on the State of Minnesota. Likely the decision will be appealed to the Minnesota Supreme Court. With industry and interest groups keeping a close eye on this decision and its developments, the Minnesota legislature may very well address the apparent gaps in the statutory structure sooner rather than later. Stay tuned for further developments.

On Wednesday afternoon North Carolina Senate Bill 711, the Compassionate Care Act, was approved by the Senate Finance Committee completing another step in the Bill’s journey to legalize medical marijuana in North Carolina.  The version of SB 711 the Finance Committee approved is virtually the same bill the Judiciary Committee passed a couple weeks ago.

Of note, the Finance Committee hearing included clarification regarding the 10 suppler licenses set to be given out by the Medical Cannabis Production Commission under the Bill. The North Carolina Department of Health and Human Resources will select 20 supplier applications and from those the Commission will pick 10 to issue licenses to.  The 10 license limit, which received some criticism from commentators at the hearing for constricting supply and demand, was reportedly chosen to control roll out.  Under the framework each licensee is permitted to have 4 medical cannabis centers (i.e. dispensaries) for a potential total of 40 state-wide.

Each licensee must still have two medical cannabis centers in Tier 1 counties, which are the 40 most economically distressed counties as annually designated by the North Carolina Department of Commerce.  In addition, each licensee will still be required to operate as a vertical organization, with cultivation, manufacturing/production, and dispensary/retail under the same license, which must be owned by majority NC residents.

During the hearing a significant point of discussion was the revenue side of approval, and the importance of the potential patient population in mind for an accurate revenue assessment. There are currently not specific revenue projections for the proposed medical marijuana program because state-by-state legalization varies widely and there is no uniform best practice—leaving North Carolina Senators with no fiscal comparator for revenue extrapolation.

In the end Senators voted unanimously to pass the bill.  The bill now moves to the Committee on Health and Safety which will be a major step in whether it is ultimately passed.

On July 12, 2021, California Gov. Gavin Newsom signed into law Assembly Bill 141 (AB-141), which creates the Department of Cannabis Control (DCC). The DCC will consolidate the three state cannabis programs – the Bureau of Cannabis Control (BCC), the California Department of Food and Agriculture’s (CDFA) CalCannabis Cultivation Licensing Division, and the California Department of Public Health’s (CDPH) Manufactured Cannabis Safety Branch – under a single department in an effort to centralize and simplify regulatory and licensing oversight in California. Governor Newsom has appointed Nicole Elliott as the initial Director of the DCC.

The complexities associated with dealing with California’s three-headed cannabis regulatory monster – for example, determining which regulatory body to answer to, understanding how the various regulatory bodies play into vertical integration, and keeping track of each program’s frequent updates – sometimes impeded the success of entrepreneurs and businesses in the cannabis industry.

The creation of the DCC aims to eliminate these issues. AB-141 transfers the “powers, duties, purposes, functions, responsibilities, and jurisdiction” of the BCC, CDFA, and CDPH to the DCC.

“The state’s consolidation effort delivers on the commitment made by the Newsom Administration to listen to and work with California’s legal cannabis industry to streamline participation in the legal market by offering a central point of contact for licensed operators,” Lourdes Castro Ramirez, secretary of the Business, Consumer Services and Housing (BCSH) Agency, said in a statement.

In addition to consolidating California’s cannabis regulatory bodies, the DCC will also increase licensing transparency within the cannabis industry. AB-141 will require the DCC to provide information on its internet website related to the status of every license issued by the DCC, including the county of a licensee’s address of record. Beginning January 1, 2022, AB-141 will require this information to include information on suspensions and revocations of licenses and final decisions adopted by the DCC. However, AB-141 will prohibit the sharing of personal identifying information, including home addresses, home telephone numbers, dates of birth, or social security numbers.

AB-141 contains some additional noteworthy changes:

  • The deadline for the DCC to issue and renew provisional licenses is extended from January 1, 2022 to June 30, 2022. The DCC may issue a provisional license if the applicant has submitted a completed license application, which includes meeting the following requirements:
    • The applicant can prove compliance with the California Environmental Quality Act (CEQA) or can provide evidence that compliance is underway.
    • The applicant can prove compliance with local ordinances or provide evidence that compliance is underway.
    • For a license application that includes cultivation, the applicant provides any of the following documents
      • a final streambed alteration agreement;
      • a draft streambed alteration agreement provided by the Department of Fish and Wildlife (DFW) and signed and returned to the DFW;
      • written verification by the DFW that a streambed alteration agreement is not needed;
      • written verification by the DFW that the applicant has submitted a 1602 notice, submitted payment of applicable fees, and is “responsive” to the DFW.
    • If an application for a cultivation license is submitted on or after January 1, 2022, the DCC will not be permitted to issue a provisional license if the issuance of such license would cause the licensee to hold multiple cultivation licenses on contiguous premises to exceed one acre of total canopy for outdoor cultivation, or 22,000 square feet for mixed-light or indoor cultivation.
    • The definition of “commercial cannabis” is revised to include acting as a cannabis event organizer for temporary cannabis events. The bill would revise the definition of “manufacture” to include package or label a cannabis product. The bill would remove the definition of “manufacturer.”

The steady growth of the cannabis industry in California calls for a centralized regulatory body, and the passage of AB-141 provides the solution. The creation of the DCC is a positive step towards creating a navigable system where participants have adequate access to resources and a better understanding of the processes associated with owning and operating a cannabis business in California.

Last Wednesday the North Carolina Senate held a hearing on Senate bill 711, The North Carolina Compassionate Care Act. The proposed Act is the newest attempt in an initiative which began in 2009 to permit medical marijuana use in North Carolina. The Act would legalize medical marijuana and protect patients and doctors from criminal and civil penalty for use of marijuana for medical purposes.

If this bill passes, an individual with a qualifying medical condition (or that person’s designated caregiver) and a prescription from a licensed physician can register with the North Carolina Department of Health and Human Services for use of medical marijuana. An individual holding a valid medical use card is exempt from criminal prosecution.

Passage of the bill would open an opportunity for 10 medical marijuana suppliers licensed by the Medical Cannabis Production Commission to control seed to sale production in the state.  The bill also calls for up to eight medical cannabis centers that would sell to the public.  10% of the licensed suppliers’ gross monthly revenues will be paid to the Department of Health and Human Services.

For updates on the bill as it moves forward be sure to check back here.

The Pennsylvania Department of Health recently released proposed permanent regulations to replace the temporary regulations that have been in place since April of 2017.  The proposed permanent regulations would not substantially alter the medicinal cannabis market in Pennsylvania but there are several notable proposed changes in the new regulations.  For example, the proposed regulations add certain conditions under the definition of a “severe medical condition” and prohibit practitioners from charging their patients excessive fees.

The proposed regulations are not in full effect yet but it is always wise to stay ahead of potential regulatory changes.  For more details on the proposed permanent regulations check out the article linked below written by Fox attorneys Edward J. Cyran and Madison S. Clemens.

PA Department of Health Proposes Permanent Medical Marijuana Regulations

The 2020 U.S. Elections provided a change in presidential administrations to one that is reportedly pro-cannabis legalization, along with sweeping approval by voters in those states where legalization of cannabis was on the 2020 ballot.  As such, it is predicted that federal legalization is closer than it has ever been.  With legalization moving closer it is important to understand what federal legalization means for the industry and what traditional legal and financial options will become available to cannabis businesses once legalization does occur.

Fox Rothschild’s Partner Keith Owens addresses the uncertainty of cannabis bankruptcies and how they may change with legalization in the article linked below.  Check it out!

The Uncertain Future of Cannabis Bankruptcies and the 2020 Elections

In November 2020, New Jersey residents voted to approve a constitutional amendment to legalize the possession and use of cannabis for persons age 21 and older and legalize the cultivation, processing, and sale of retail cannabis.  By passing this amendment, New Jersey was poised to take the lead in the adult-use cannabis market amongst its neighboring states.  However, as we have seen in the past, the legislative roll out has been slow and has hit a few major roadblocks.

Fox Rothschild’s Partner, and cannabis practice co-chair, Joshua Horn goes into detail about the delayed roll out and the risks associated with further delays in the article linked below.  Check it out!

https://www.law360.com/cannabis/articles/1356622/nj-s-pot-stalemate-puts-legalization-on-the-edge-of-collapse?nl_pk=05d58edb-1c44-458f-88fc-2b4e75ff7f55&utm_source=newsletter&utm_medium=email&utm_campaign=cannabis

The cannabis industry took a step back on its merger and acquisition activity in 2020 due to some pandemic-related instability but the industry picked up where it left off by the end of the year, and we expect that trend to significantly increase in 2021.  In the article linked below, Melissa Sander and I discuss why an influx of cash in 2021 will lead to greater competition among larger companies looking to expand, and outline steps smaller businesses should take now to ensure they are attractive targets for acquisition.  It is important to be ready for this type of trend because sitting on the sidelines can cost you in the end.

Cannabis Sector Poised for Increased M&A Activity in 2021.

On November 9th, join Fox’s Jonathan Lagarenne, Bob Nagle, Mark Yacura, and Joshua Horn in Rutgers’ CDR Workshop on CBD.  Jonathan Lagarenne, Bob Nagle, and Mark Yacura will present on a panel that will provide corporate banking, employment, and investment considerations when entering the CBD market.  Joshua Horn will then provide an update on the latest CBD regulations for importation, transportation, and intrastate sales, and discuss the ever-evolving matrix of state compliance regulations.  Click here to register.