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Cannabis Licensing, Permitting and Regulatory Compliance

Our expert attorneys and support staff assist clients with all aspects of obtaining local permits from building the strongest application possible to maintaining ongoing permit compliance. Team Canna Legal has been actively participating in advocacy efforts during the local and state rule making process – attending many meetings and providing real time updates for clients. When state licenses become available in 2018, Team Canna Legal will continue to provide the highest caliber of service for all clients submitting applications.

 

California Cannabis Law

In 1996, California voters passed Proposition 215, the Compassionate Use Act, allowing the use of medical cannabis. Seven years later, Governor Davis signed Senate Bill 420, the Medical Marijuana Program Act, permitting patients and caregivers to grow and distribute medical cannabis collectively as nonprofits. Essentially these laws operate as a defense to prosecution rather than a legal structure for business operations.

In 2015, Governor Brown signed into law three separate bills (AB 266, AB 243 and SB 643), which outline a comprehensive state system with seventeen different license types for medical cannabis operations, including cultivation, manufacturing, retail sale, transport, distribution, delivery, and laboratory testing. In 2016, a subsequent cleanup bill (SB 837) changed the name to the Medical Cannabis Regulation and Safety Act (MCRSA).

On January 1, 2016, MCRSA officially went into effect; however, state regulatory agencies have until January 2018 to release rules and procedures for obtaining state licenses. State medical licenses under MCRSA will be available for cultivation, manufacturing, distribution, testing, transportation, and dispensaries. There are complicated restrictions to prevent vertical integration under MCRSA. In general, licensees can only hold licenses in two separate categories.

In November 2016, voters passed Proposition 64 to tax and regulate adult use of marijuana. While personal use of recreational cannabis is now allowed, state licenses will not be available until after 2018. The state legislature will likely alter the Proposition 64 in the coming session.

Under both MCRSA and Proposition 64, local jurisdictions may enact separate rules for medical and recreational operators as well as personal use. MCRSA establishes a dual licensing system in which applicants must first obtain a local permit and then apply for a state license. Currently, many localities have passed bans or are undergoing cannabis policy development.

 

Federal Cannabis Law

The Controlled Substances Act (CSA) designates marijuana and cannabis as a Schedule 1 drug, which makes it illegal under federal law to manufacture, distribute or dispense any product containing marijuana. Companies that engage in any form of commerce in the cannabis industry and individuals investing in a cannabis business may be subject to federal criminal prosecution along with civil fines and penalties. Federal enforcement could lead to dissolution, asset forfeiture and total loss of investment.

Since 2013, federal enforcement of state regulated cannabis operations has been deprioritized and defunded. The U.S. Department of Justice issued a memorandum (Cole Memo) indicating that resources would not be directed for federal enforcement activity, including civil enforcement and criminal investigations and prosecutions related to marijuana activities. Essentially, the Cole Memo states that cannabis operations that are compliant with robust state regulatory systems are not priorities for federal enforcement. In 2014, Congress defunded enforcement in states that authorize the use, distribution, possession, or cultivation of medical marijuana, and in 2016, the Ninth Circuit held that federal judges should stop prosecutions for conduct that is authorized by state medical marijuana laws.

This position could change at any time. President-elect Trump has appointed Jeff Sessions as Attorney General, an appointment that does not signal support for the cannabis industry. There is no way to predict how Mr. Trump will enforce federal law or how he will deal with states that have legalized medical or recreational marijuana. Even for businesses compliant with state laws, cannabis-related operations and investments remain a risk under federal law.