Canada-U.S. Blog Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

420….in 3….2….1……….

Posted in Border Security, cannabis, Customs Law, Imports Restrictions, Intellectual Property, Legal Developments

Written by David Rugendorf and Su Ross

Breaking out the bubbly is a hallowed part of New Year’s Eve tradition, but this year, as the clock strikes 12 and we look to usher in 2018, what you see and hear bubbling may be coming from a bong, and not from a champagne flute.  This is because on January 1, 2018, California’s adult-use cannabis regulations will come into effect.  Although the voters approved Proposition 64 (and pretty handily, too) at the November 2016 election, it took the powers that be time to craft the applicable regulations.  While medicinal marijuana has existed for two decades in California (Proposition 215, 1996), the new year will bring major changes, as cannabis will be for sale in so-called “recreational” markets.

Here are some “high”lights:

  • Individuals over age 21 without a medical recommendation may possess up to one ounce of cannabis, eight grams of cannabis concentrates and six plants. With a medical recommendation, the limits may be larger.  As for the plants, they must be grown outside of public view.
  • In addition to retail stores and dispensaries, delivery services will be allowed, again subject to local, as well as, state regulations. No late night weed and munchies runs – the legal hours for retail use will be limited to between 6 a.m. (wake and bake!) and 10 p.m.
  • Smoking in public is not still not legal, nor is underage consumption or driving while consuming. Like alcohol, it will be illegal to possess “open” cannabis in a vehicle, or use it while driving.  For the time being, there will not be “420 bars” where one can enjoy one’s favorite cannabis strain in a public setting, although this is may eventually evolve, and LA will be able to claim the title “Amsterdam-by-the-Pacific”.  Of course, even then no use will be allowed wherever cigarette smoking is currently prohibited.
  • The California Bureau of Cannabis Control is the newly named regulatory authority and will issue licenses to retailers, who in addition to complying with state law, must adhere to local ordinances and regulations. While the issuing process takes place, medicinal dispensaries that are in compliance may apply for retail licenses.  Medicinal licenses will remain, and establishments may be classified in either, or both, categories.  Medicinal licenses allow an establishment to sell to patients over the age of 18, with a medical recommendation.
  • Licenses are now also obtainable if one cultivates, manufactures, distributes or tests cannabis. At the same time, jurisdiction is further divided at the state level. If you cultivate, you may end up dealing with the Department of Food and Agriculture, whereas the Department of Public Health will oversee for manufacturing, packaging and labeling.
  • Of course, there are taxes – the state is imposing a 15 percent excise tax. Los Angeles County alone is assessing a 9.5 percent sales tax, which will not be charged for medicinal purchases.
  • Local licensing policies may vary. Los Angeles will likely follow the lead of Oakland and other localities who have introduced a “social equity” component into the licensing process.  Low income and minority communities disparately impacted by marijuana prohibition will likely receive preferences for licenses, as well as access to training and support services.
  • Retail adult-use products must be sold in tamper resistant packaging. This means one will not be able to ask the budtender for a whiff of the product before purchasing.  Free samples of products, including edibles, will be prohibited.
  • The state is setting up a strict testing regimen for cultivators and manufacturers. Products will be tested for cannabinoid content (THC and CBD), as well as mold, pesticides and other substances.
  • Cannabis is still a Schedule I substance under federal law, and no change to that status appears imminent. This means that despite being permitted under state law, cannabis remains illegal under federal law.  For the time being, federal authorities have largely stayed out of cannabis enforcement in places where it is legal under state law, but given the comments coming out of the Dept. of Justice and the long-held DEA distain for cannabis, that could change at any time.  Importantly, because banking is controlled by federal law, most banks remain concerned about getting involved in the cannabis sector due primarily to existing “know your customer” standards, so it remains largely (but not entirely) a cash-based business.
  • California’s laws and regulations are very fluid and subject to change, as the laws continue to develop, at the state and local level. So, it is well recommended to keep an eye on the latest developments.

Given the obvious split between the states which have legalized cannabis and the federal government which still considers it ilegal to use or possession, those seeking to enter this business would be wise to obtain top-shelf legal services, whether they are  producers, distributors, investors or retailers in such areas of corporate law, licensing and compliance, labor and employment, tax, immigration, trademark, money processing/handling, physical security of product and facilities, real estate and other areas.