California to Hold Hearing Today on Bill that Legalizes Consumable CBD Sales

The US FDA held hearing on May 31, 2019 on whether CBD is safe and effective for public use. Today, the California Senate Health Committee is holding a public hearing on a bill that will permit the sale of consumable CBD products within the state. Under the bill, manufacturers producing consumable CBD products must register with the state, and obtain a certificate of analysis from an independent testing facility.

Currently, only licensed dispensaries are allowed to sell CBD products in California. The California Department of Health issued a frequently asked question in 2018 that prohibited the sale of consumable CBD outside of the licensed dispensary system until the US FDA determined that CBD products can be used as a food or California made the determination that CBD was safe.

Since the release of the FAQ, the DPH issued 13 violation notices, 7 voluntary condemnation and destruction regulatory letters, and 9 embargoes in response to fifty complaints. Under the bill, California will deem CBD products as safe, and permit the legal sale of products created by registered manufacturers that comply with the bill’s requirements.

The bill has received tremendous support from the industry and California municipalities such as Oakland and Emeryville. Only a couple of parties opposed the regulation due to lax testing standards and the breadth of availability upon the effectiveness of the new law.

Maine's Adult Use Regulations Limit Industry's Access to Capital

Maine’s Office of Marijuana Policy released its provisionally adopted rules last Friday. The rules are relatively modest as they include only 78 pages of regulatory requirements. However, the benefits of a friendly regulatory environment may not overcome the onerous in-state licensing and ownership limitations.

Maine’s adult-use regulations are structured to award licenses to local residents. Applicants must be either a natural person who is a local resident; or a business entity whose officers, directors, general partners and majority of shareholders are natural persons and Maine residents.

These restrictions limit the ability of Maine residents to access the capital needed to grow the industry in a manner that benefits the state and local license holders. Applicants may find it difficult to raise sufficient capital to fund the long road required in starting a cannabis business. A lack of capital may also reduce initial revenues and tax dollars generated in the state.

The regulations also require cannabis businesses to disclose any “party of control”, which refers to a person or group of persons who exert more than a minimum influence over the businesses operations. Cannabis businesses must transfer its license when the party of control changes. By defining a party of control, Maine can stop entities from using a side door contract to entering the market without transferring the license.

Maine requires cannabis businesses to disclose contracts for IP, branding or loans that may include provisions that exert control over a business in exchange for money. The lack of objective standards around determining when a person becomes a “party of control” increases the risk that Maine’s regulator may determine that these contracts constitute a transfer to a party of control or may prohibit contractual provisions that dictate the quality of products and services. Entities entering into such agreements should seek guidance from the regulator so it avoids triggering such an event.

Maine’s regulations may guarantee the continued slow roll out of the adult-use cannabis industry as applicants’ will need to raise funds from local friends and neighbors. Hopefully Maine will reconsider this approach and allow the cannabis industry to grow in a responsible manner. The industry is facing multiple challenges, and additional capital roadblocks should be removed.

Colorado's 7 New Cannabis Laws Will Propel Industry Forward

The Governor of Colorado, Jared Polis, signed seven (7) new cannabis laws into effect. The laws will propel Colorado’s cannabis industry forward by opening doors to public capital, allowing on-site consumption and delivery licenses, and making strides in the development of a robust hemp industry.

Below are brief summaries of the 7 new cannabis laws.

Publicly Licensed Marijuana Companies - The new law repeals the ban on investors in marijuana businesses that are publicly traded companies, and repeals the 15 person limit on the number of out-of-state investors. Under the law, controlling beneficial owners must make certain disclosures, and these controlling beneficial owners may be prohibited from becoming a licensee if unsuitable. A controlling beneficial owner is a person that owns 10% of the stock in the marijuana business.

Marijuana Hospitality Establishments - The new law allows retail establishments and mobile hospitality establishments to permit on-site consumption of marijuana products. Retail storefronts may obtain a license from the local jurisdiction where it is located. Colorado’s regulators are charged with adopting new regulations to oversee this new license type.

Regulated Marijuana Delivery - The new law allows medical and adult use retail stores and transporters to apply for a delivery license. The law requires the state to begin permitting medical marijuana delivery licenses by January 2, 2020 and permitting retail marijuana licenses by January 2, 2021. Businesses holding multiple licenses must apply for a separate delivery license for each license held. A $1 dollar charge would be added to each delivery to cover the cost of increased law enforcement needs. The law prohibits the delivery of medical or adult use marijuana in any municipality or jurisdiction that prohibit certain marijuana establishments including retail stores.

Electronic Filing Of Certain Taxes - Requires the electronic filing of state taxes when an electronic filing system is created or for taxes due on or after January 1, 2020, whichever is later. The new electronic filing law will reduce the inefficiencies of manual processing.

Hemp Regulation Alignment With 2018 Federal Farm Bill - The new law aligns Colorado’s Industrial Hemp Regulatory Program with the requirements of the 2018 Farm Bill. Under the law, the Commissioner of Agriculture must establish a hemp management plan and adopt regulations to implement. The new hemp regulations can be structured to address concerns raised by the US FDA at its May 31 hearing on CBD products.

Industrial Hemp Products Regulation - Requires manufacturers of hemp products to register with the state and pay a $300 fee. The new law also authorizes the Commission of Agriculture to establish a working group that will study the regulation of hemp products. Finally, local jurisdictions are authorized to adopt regulations that establish licensing requirements and fees for businesses engaged in extraction, storage, processing or manufacturing of hemp products.

Institute Of Cannabis Research Role And Mission - The law creates the Institute of Cannabis Research that is to be located at the Colorado State University. The role of the institute is to perform research on the effects of marijuana and the efficacy of medical marijuana.

Colorado Thieves Break Into 34 Marijuana Dispensaries in 2019

The Denver police department issued a warning to the cannabis industry about an uptick in burglaries at marijuana dispensaries. Police indicate that the suspects broke into thirty-four (34) marijuana dispensaries during 2019 near major roadways using stolen Jeep Cherokees or Liberties.

The group of four men and two women use crow bars to enter the front door or through a glass window. Police are requesting that businesses ensure that motion sensors and outdoor lighting are working, and that video cameras are covering entryways. The police also recommends storing products in a safe when closed.

7 Things You Can Do Now to Prepare for Illinois' Recreational Marijuana Application Process

The Illinois Legislature passed a bill on Friday that legalizes adult-use marijuana businesses. Entrepreneurs who want to start a cannabis business should start preparing now in order to ensure a place in the front of the line.

The legislation requires the Department of Agriculture and the Financial and Professional Regulation to begin accepting applications for early approval adult use businesses within 60 days of new law’s effective date. These businesses may begin selling adult use products on January 1, 2020. This market is limited as there are currently only 55 licensed medical dispensaries and 22 licensed cultivators in Illinois.

A total of 75 dispensary licenses will be granted by May 1, 2020. The dispensary license application will be made available no later than October 1, 2019.

Below are 7 steps that you should take to ensure that you receive a license. Application packages should be organized, professional and easy for the regulator to find what they need.

  • Apply as an Early Approval Adult Use Businesses. Current Medical Marijuana license holders may apply within 60 days as an early approval adult use business that can sell adult use products on January 1, 2020. The accelerated access to the market comes with a price. Medical Marijuana licensees choosing this route will pay a $30,000 nonrefundable fee, a 3% cannabis business development fee, and a social equity fee.

  • Capital. Start looking for smart capital. Your corporate structure should be simple and representative of your capital raises. Resist the urge to give away shares in return for human labor. Vet your investors to ensure that the money is coming from a legal source and that the investor does not have a criminal background. Applicants must show that they have access to $100,000 in liquid assets.

  • Understand Illinois’ scoring methodology. The Department of Agriculture and the of Financial and Professional Regulation must utilize a fair scoring methodology for comparing competing applications. Below are some high-level activities that can help prepare you.

    • Ensure that all owners, officers, managers have the character, veracity, background, qualification, and experience to fund the business. Regulators will perform background checks and reject applications in which individuals lied. Regulators also want to know that the managers have the knowledge and expertise to run the business successfully.

    • Create a business plan. The regulators will review the business plan to ensure that adequate supplies of marijuana will be provided and that adequate safety and security plans are in place to prevent diversion. The business plan should show that there are adequate funds to cover the first year operating expenses. Business plans should also show how the business will comply with regulations including seed-to-sale tracking, training, recordkeeping, and day-to-day operations.

    • Staffing plan. Develop a staffing plan that shows how you will ensure that qualified individuals will be running the shop, and describe the business’ consent to enter into a peace labor agreement with employees.

    • Create a security plan. The regulators will want a site plan that shows intended security including video cameras, areas of coverage, automatic and immediate alarms, limited access areas, lighting coverage on the exterior and interior - focus on areas where marijuana is transported, processed and stored.

    • Create bios or resumes for owners and managers showing relevant experience and experience in the legal marijuana market

    • Create a community outreach and social equity plan. Create a plan to show how you will inform the community about your business, and give back to the community through involvement, employment opportunities or other positive impact activities.

  • Identify Suitable Real Estate. Identify real estate in a municipality that is likely to allow the adult use marijuana businesses. This is generally take more time than expected in that you will need to consider minimum requirements related to the premises site including:

    • Look for properties at least 1,500 feet from another cannabis business and 1,000 feet away from schools. There may be other minimum distance restrictions for other organizations such as churches or drug rehab facilities,

    • Avoid residential areas- residences are not generally allowed.

    • Ensure that the local municipality plans to allow adult use establishments.

    • Understand the local zoning requirements and fire safety requirements.

    • Obtain approval from the landlord to operate a marijuana establishment.

  • Develop a Scaled Site Plan: Create a site plan for your premises including all entrances, exits, windows, and outline all areas including patient waiting areas, sales area, and storage. Identify areas that contain video cameras and other alarms.

  • Organize Your Financial Information: Organize your tax, banking, and securities information for the past 3 years. Make the package easy for the regulators to review. The regulators will want to ensure that your money was made legally and all taxes have been paid.

  • Try to Establish a Banking Relationship. Banks are hesitant to provide services to marijuana businesses as they may be charged with money laundering; however, this is changing. Develop a relationship with a bank to understand what they will need to provide you with basic services. Understand that the bank will be required to file a suspicious activity report (SAR) to the federal government when you inform them that the account will be used for a legal marijuana business. You should not try to falsify information as this will make matters worse, and possibly prevent you from obtaining a banking relationship anywhere.


Bill Requiring California Cities to Permit Cannabis Stores Pulled From Consideration

California Assembly Member Ting pulled a controversial cannabis bill from consideration last week. The bill would have increased the number of cannabis dispensaries in the state by requiring each municipality where the majority of local electorate voted for Proposition 64 to permit one cannabis license for every four liquor licenses.

The legislation was intended to eradicate the black market by ensuring that California residents had access to a robust legal cannabis market. This is significant goal given that the THC REGS database for California shows that over 42% of cities prohibit cannabis altogether.

The League of California Cities opposed the bill indicating that it eroded a city’s ability to govern the type of cannabis business activity that occurred within its borders, which is contrary to the intent of Proposition 64. California cities banded together by submitting letters in opposition to the preemption of local control over these businesses and the arbitrary 1 for 4 license requirements.


Nevada Legislature Sends Cannabis Electronic Payment Processing Bill To Governor for Signature

The Nevada Legislature has sent a bill authorizing the creation of a closed loop payment processing system for the cannabis industry to Governor Sisolak for his signature.

AB466 authorizes the creation of an electronic payment system for the cannabis industry by July 1, 2020. The closed loop payment processing system will be operated as a pilot program by the State Treasurer.

The voluntary system allows customers, medical marijuana patients, and marijuana establishments to establish accounts using a mobile app or a card. The accounts can be used to engage in financial transactions related to marijuana. The system would provide the state with real time recordkeeping, and will provide the cannabis industry with an electronic business-to-business payment platform.

Nevada will charge fees that are sufficient to cover the cost of administering the pilot program, which will also be used by the industry to electronically pay state taxes.


Colorado Passes Legislation Allowing Municipalities to Create Local Licensing Regime for Hemp Products

The Colorado Legislature passed a bill that allows local municipalities to adopt ordinances to license and regulate businesses that engage in the storage, extraction, processing, or manufacturing of industrial hemp or industrial hemp products. The bill will become law if it is signed by Governor Jared Polis.

The new law allows counties and local municipalities to adopt a local license fee for hemp businesses and establish licensing requirements. The local municipalities may not adopt additional food safety requirements if they conflict with state laws.

The new law also requires wholesale food manufacturers that create hemp products to register with the Department of Agriculture and pay an annual fee. The Department of Agriculture must establish a stakeholder working group to study the regulation of industrial hemp products that will meet on or after December 1, 2019. The working group must provide the Colorado Legislature with written recommendations.

Oklahoma Passes Legislation to Guarantee a Medical Cannabis Dispensary in Every Town

The Oklahoma Legislature passed a bill that will prevent local municipalities from prohibiting medical cannabis dispensaries. The bill has been sent to Governor Kevin Stitt for his signature. The state’s medical marijuana industry is booming as the Oklahoma Medical Marijuana Authority has received over 5,400 business applications. The state has over 1,400 dispensaries, which produced sales that topped $18 million in April.

The new law is in line with the business friendly environment in Oklahoma for medical marijuana businesses where there are fewer restrictions, low fees and tax rates as compared to the coastal markets. Under the new law, local municipalities may not prohibit retail medical marijuana businesses. A municipality may determine the appropriate zoning area for the businesses, but a retail businesses must be allowed. As we have seen in other states, local municipalities utilize buffer zones and zoning areas to cap the total number of marijuana businesses within the local jurisdiction.

Oklahoma’s approach limits the municipal risk that exists in other states that allow local jurisdictions to opt out. Cities that opt into commercial cannabis can opt out based on the change of the city’s administration, which results in litigation and lost investments.

Last week, Mountain View, California banned retail shops after the election of a new mayor. The prior administration approved an ordinance that allowed three dispensaries within the city. Applicants that worked with the city during the 18 month period to establish marijuana storefronts will be able to reapply for delivery licenses.

Wisconsin Bill Clarifies Gun Rights for Medical Marijuana Users

The Wisconsin Senate introduced a bill that clarifies the gun rights for persons who are medical marijuana patients. Firearm dealers must receive clearance from the US Department of Justice (DOJ) prior to selling a gun in order to prevent a sale to persons who are prohibited from owning a gun under federal or state law.

The bill prohibits the DOJ from considering a persons participation in the Wisconsin medical marijuana program when conducting a search to determine if a person is prohibited from possessing a firearm. The legislation would also prohibit the Department of Health Services from disclosing the persons who participate in the medical marijuana program to any federal agency.