Alaska, California, Colorado, Oregon, Nevada and Washington engaged in a tremendous amount of rulemaking in 2018 implementing new legislation and making technical rule changes. Both California and Colorado are completing permanent cannabis regulations, which will phase out emergency rules and temporary licenses.
The volume of rulemaking is compounded by additional rules adopted by local counties, cities, and municipalities to address zoning requirements and time, place and manner requirements for the day-to-day business operations.
What does all of this mean for the Cannabis Industry?
We expect the rate of rulemaking to continue into 2019 as the industry matures, and the regulators identify and address specific areas of risk for public health and safety. Regulators are fine-tuning rules to correct technical problems, implement the new state legislation, right social injustices and to close holes that impede the investigation or enforcement of rule violations.
The active rulemaking calendar is also attributed to the lack of certainty around the federal legalization of cannabis. State regulators are protecting state businesses and consumers from the prosecution by the federal government for the possession or sale of cannabis.
This means that the states must ensure to adopt regulations that address the enforcement priorities raised by the DOJ in the 2014 Cole Memo including:
the sale of cannabis to minors;
the profiting of criminal enterprises; the diversion of cannabis to other states;
the sale of illegal drugs under the guise of a legal license; the prevention of violence or the use of violence or firearms in the cultivation or distribution of cannabis;
the prevention of drugged driving or other public health issues;
the prevention of the growing of marijuana on public lands; and
the prevention of the possession or use of cannabis on federal property
A review of 2018 rulemaking reveals that state regulators are primarily focusing on the following DOJ's enforcement priorities.
Diversion of Marijuana Products: Regulators are focusing on reducing the sale of cannabis in the black market by enhancing insight into the lifecycle of marijuana products, from the production of inventory through to its sale, by further refining inventory tracking systems and surveillance video retention requirements.
Regarding inventory tracking systems, regulators are expanding the products that must use an identification number and tracked in the inventory systems. They are also focused on instituting appropriate penalties that will help ensure that marijuana establishments accurately enter inventory. We expect inventory tracking to remain a high compliance risk area for marijuana establishments in order to motivate them to implement proper controls designed to protect the health and safety of the public and consumers.
Regulators are also amending the surveillance recording retention requirements to ensure that videotapes exist for all time periods being investigated. We expect this area to evolve as enforcement actions continue to reveal failures by marijuana establishments to ensure the proper functioning of surveillance cameras and retention of videotapes
Marijuana Products that are Attractive to Children: Regulators continue to struggle with providing guidance to cannabis establishments on the types of products that are considered attractive to children. These issues should be fleshed out over the next six months as Oregon and Washington implement their packaging and labeling rules. Washington has started an industry dialogue as it announced that all products will be re-reviewed as a part of the phased-in process for the new packaging regulations. Industry participants should consider establishing a national standard that state regulators can adopt so that such products and packaging can be leveraged across states when interstate commerce is permitted.
Product Rationalization (Cannabis / CBD / Hemp): States continue to rationalize definitions and rules related to various cannabis products including CBD and hemp. The complex regulatory schema across the fifty states and the federal regulations makes it difficult to determine a national approach to the sale of products by adult use / medical cannabis establishments or other retailers. This issue will continue to become more convoluted as states open their borders to manufacturers of CBD products that can be added to cannabis products.
Independent Testing: We expect an evolution in the independent testing requirements as the industry matures, and new testing methodologies are developed. To date, the regulatory schema across the legal states is complex, as states rely on different industry standards and guidelines for best practices. Testing laboratories face a challenge of developing an efficient and effective compliance program that meets the complex regulatory requirements.