California

Will Your Business Pass the Cannabis Banking Test?

California’s Department of Business Oversight issued guidance to the banking industry on how to safely provide services to cannabis clients. The regulator is taking this proactive step as more state-chartered banks take on cannabis accounts. The guidance is in the form of a questionnaire that will help banks comply with federal anti-money laundering requirements. It is also a road map that banks will use to determine whether to onboard a client or reporting suspicious activity.

The guidance instructs banks on how to (1) perform due diligence on new cannabis clients, (2) test accounts in order to identify possible money laundering activity, and (3) file suspicious activity reports with the federal banking regulators. Cannabis businesses should be familiar with these requirements as it will impact their present and future banking services.

Banks must file a suspicious activity report with the federal regulators for each cannabis business. There are three types of reports. A bank will file a limited report to notify the federal regulators of a cannabis client that has no suspicious activity and is complying with state regulations.

A bank must file a “marijuana priority” report to notify federal regulators that it has identified red flags or suspicious activity during the due diligence process or through account monitoring. A red flag can be any information that shows that the business or person is violating the Cole Memo or state regulations such as engaging in black market activity. Persons or businesses with this account designation are considered high risk. It is difficult, if not impossible, for businesses or persons with this account designation to find banking relationships.

A bank that is concerned that it is helping a client launder money must terminate the relationship and file a “marijuana termination” report with the federal regulator. Federal regulators pass this information on to law enforcement agencies for further investigation.

So how does a bank determine what bucket a prospective cannabis client should be placed in?

The bank collects documents, asks questions and monitors account activity. Cannabis businesses should take extreme care, from the first conversation with a bank, to project a lawful business that complies with all rules and regulations.

Under the guidance, banks may consider the following as red flags:

  • Enforcement actions brought against the cannabis business by state or federal regulators.

  • Negative information is publicly available about the business or related parties.

  • Revenues are substantial given state limitations, local competition and demographics.

  • Deposited cash is greater than revenues.

  • Inability to demonstrate that cash is derived from lawful state cannabis activity.

  • Cash deposits and withdrawals are made within a short period of time as compared to local competitors or expected business activity.

  • Withdrawal of cash shortly after it is deposited.

  • Cash deposit by unrelated third parties.

  • Financials do not foot with actual business activity.

Businesses that trigger some of the red flags are considered very high risk. These accounts are subject to a heightened level of scrutiny or even termination. Once terminated, a “Scarlet A” will attach to the business, its owners, and possible employees. This designation will prevent the business from finding another banking relationship.

Cannabis businesses should familiarize themselves with this questionnaire and ensure that their banking processes will not trigger a red flag. California’s guidance is good news for the industry. We would expect that the state regulator reviewed the guidance with the federal regulators, which will make it easier for California banks to service the industry. However, we expect that the cost of services will remain high until the banking industry obtains more experience with the industry and cannabis is legalized at the federal level.

California Counties Expand Use of Satellite Images to Identify Illegal Grow Sites

The Mendocino County Board of Supervisors may direct staff at tonight’s meeting to determine whether satellite technology can help the county identify illegal grow sites. County staff states that the technology will cut enforcement costs and increase tax revenues.

Mendocino County is closing the first phase of its cannabis cultivation licensing process on October 4, 2019. During this phase, the county is allocating permits to those persons or entities that offer proof that cannabis was cultivated on the proposed site prior to January 1, 2016.

The Mendocino Cannabis Association is against the county’s plan to use satellite technology. The MCA suggests that the county should instead extend the permitting deadline and upgrade its cannabis licensing technology. The association also believes that shutting down illegal grow sites will negatively impact the county as violators will sell or abandon their properties.

Mendocino County is among a number of California counties that are using satellite technology to enforce cannabis code compliance including El Dorado County, which recently issued an RFP for the services. Humboldt County was the first to use satellite imagery as a means of identifying the estimated 15,000 illegal grow sites that existed in the county at the time of legalization.

Humboldt currently uses the technology to monitor the county’s 4,000 square miles of rugged terrain for environmental issues and unpermitted cannabis cultivation. During the pilot year, county staff identified 600 illegal cultivation sites remotely and issued violation notices. Since then, the county has brought in $2 million dollars in fines.

California counties are embracing innovative solutions to combat large areas of coverage that are often include rugged terrain. It still remains to be seen how this technology will be deployed after hemp cultivation becomes more prevalent. Humboldt County may again offer a solution that distinguishes hemp from cannabis crops. Humbold should consider addressing this issue when it finalizes its hemp cultivation rules in the near future.

California Governor Issues Executive Order Targeting Cannabis and Tobacco Vaping Products

Governor Gavin Newsom issued an executive order that directs the California Department of Public Health to develop recommendations to address the availability and marketing of vaping devices. The executive order notes that the clinical lung syndrome emerged in August 2019 that may be related to illegally produced cannabis cartridges.

The executive order directs the CDPH to reduce the availability of vaping products by persons under 21 and to enhance the disclosure of health risks. We would expect the recommendations would include further disclosures of lung related issues on cannabis vaping products. The executive order also calls for increased enforcement against the illegal sale of cannabis vaping products.

The Governor’s executive order comes one day before it was reported that a California man died due to the vaping related lung disease. The CDC announced that it opened an Emergency Operations Center to handle the inter-agency response and coordination. The CDC is working with the Food and Drug Administration to test the chemicals in the e-cigarettes used by the patients.

Cannabis companies should be proactive and prepared to act quickly in reviewing products and preparing new packaging labels. The Oregon Liquor Control Commission distributed a letter to licensees last week asking cannabis companies to be proactive and remove products that contain Vitamin E oil, “tocopheryl acetate” or “alpha‐tocopherol from shelves. The OLCC is asking processors to contact them if their recipes contain these chemicals and to set the products aside. Retailers are also being asked to review vape cartridges and to provide consumers with the CDC’s consumer advisory bulletin.

The cannabis industry is used to a high rate of change. Given the latest news, the industry must take this issue seriously and work to keep the public safe. The greatest risk the cannabis industry faces is that the government will determine that cannabis products pose a public safety threat.

A Review Of California's 2019 Legislative Session: What Are The New Cannabis Laws? (UPDATED)

California’s 2019 legislative session closed on September 13, 2019. In addition to the three (3) new laws from this session, there are eleven (11) bills that will be presented to Governor Newsom for his signature before October 13, 2019, or they will automatically become law.

So, what is the status of the cannabis and hemp-related bills from 2019? We have analyzed over forty (40) cannabis and hemp-related bills that were introduced during the 2019 legislative session. Below we provide a high-level status for the bills, a summary of the impact and next steps for those that have successfully made it through the process.

  • New Laws: Governor Newsom has signed three (3) new laws related that, among other things, establish an organic cannabis program and establish cannabis and hemp as agricultural commodities.

  • Bills Passed by the California Legislature: There are eleven (11) bills that are waiting to be presented to the Governor to be signed into law or vetoed by October 13, 2019. One bill will allow individuals to deduct cannabis business-related expenses from personal taxes in California.

  • Bills Close to the Finish Line (Did Not Pass): Two (2) bills must pass the third reading by September 13, 2019 in order to be presented to the Governor including a bill requiring the disclosure of licensee disciplinary information.

  • Bills Rendered Inactive or in Committee: Twenty-five (25) bills will not be moving forward as they have been rendered inactive or are in a committee including AB-228 Food, beverage, and cosmetic adulterants: industrial hemp products.

New Laws

  • AB-97 Cannabis. (07/01/2019) Various changes to cannabis regulations including establishing a fine structure that a $5,000 per violation for licensees and $30,000 per violation for an unlicensed person, per day, and requires the state to establish an organic certification program for cannabis no later than July 1, 2021.

  • SB-657 Cannabis cultivation: county agricultural commissioners: reporting. (09/05/2019) Requires the county agricultural commissioner to report to the secretary of state the total acreage, production of value of cannabis produced in the commissioner’s county.

  • SB-527 Local government: Williamson Act: cultivation of cannabis and hemp. (09/06/2019) Includes cannabis and hemp in the definition of an agricultural commodity that qualifies as an appropriate use in an agricultural preserve.

Bills Passed by the California Legislature (Bills waiting to be engrossed or presented to the Governor)

  • AB-37: Personal income taxes: deductions: business expenses: commercial cannabis activity. (09/09/2019) The bill allows individuals to deduct cannabis business expenses from personal tax liabilities under the California Tax Code. Governor Brown vetoed a similar bill last year due to the fiscal impact, which is estimated to be tens of millions of dollars a year.

  • AB-397 Vehicles: driving under the influence. (09/09/2019) Requires state courts to indicate that a driver was under the influence of cannabis when convicted for driving under the influence by January 1, 2022. Governor Brown vetoed a similar bill last year due to the costs associated with retrofitting state technology.

  • AB-404 Commercial cannabis activity: testing laboratories. The bill allows independent testing facilities to amend a certificate of analysis to correct minor errors. The bill also allows the testing facility to retest samples due to equipment malfunction or employee errors after receiving approval from the Bureau of Cannabis Control.

  • AB-420 The California Cannabis Research Program. (09/09/2019) Authorizes the cultivation of cannabis pursuant to federal and state laws by the University of California San Diego Center for Medicinal Cannabis Research to study the effects of cannabis, cannabinoids and other related constituents.

  • AB-858 Cannabis: cultivation. (09/09/2019) Amend the Type 1C outdoor cultivation licenses to permit a maximum of 2,500 or fewer feet of canopy size or up to 25 mature plants.

  • AB-1291 Adult-use cannabis and medicinal cannabis: license application: labor peace agreements. (09/09/2019) The bill requires applicants for a medical or adult-use cannabis license to provide a notarized statement that it will enter into a labor peace agreement if the entity employs 20 or more persons or applicants must provide a notarized statement agreeing to abide by the terms of a labor peace agreement within 60 days of hiring the 20th employee.

  • SB-34 Cannabis: donations. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019) The bill permits cannabis retailers to provide free medical cannabis to patients and caregivers under certain circumstances.

  • SB-153 Industrial hemp. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019)The bill aligns the existing industrial hemp law to the state plan that California will submit to the USDA by May 1, 2020. The bill also requires county agricultural commissioners to perform additional responsibilities including enforcement.

  • SB-185 Cannabis: marketing. Assembly-In Floor Process-Third Reading (Scheduled 09/10/2019). The bill will only be enacted if SB-34 is enacted. The bill prohibits cultivators from misrepresenting the county where cannabis was grown.

  • SB-223 Pupil health: administration of medicinal cannabis: schoolsites. (09/06/2019) Permits a school nurse or other school administrator to provide a student with medical cannabis in accordance with written instructions provided by a doctor.

  • SB-595 Cannabis: state licensing fee waivers: needs-based applicants and licensees: local equity applicants and licensees. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019)The bill provides a waiver or deferral of licensing or renewal fees for needs-based applicants.

Bills Close to the Finish Line (Did Not Pass)

  • AB-545 Cannabis: Bureau of Cannabis Control. Senate-In Floor Process-Third Reading. The bill requires the Joint Sunset Review Committee to perform a review as if the MAUCRSA was repealed as of January 1, 2023.

  • SB-581 Cannabis: licensing: public records. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019) The bill requires regulators to make information about licensees publicly available including disciplinary information.

Bills Rendered Inactive

  • SB-51 Financial institutions: cannabis. (09/09/2019) - The bill created the Cannabis Limited Charter Banking and Credit Union Law to provide banking services to cannabis businesses.

  • SB-625 Party buses: cannabis. (09/05/2019) The bill required cannabis party buses to install a sealed off compartment for the driver that contained a ventilation system.

  • AB-1356 Cannabis: local jurisdictions: retail commercial cannabis activity. (05/30/2019) Required local municipalities to permit a specific number of retail cannabis establishments based on the voter's support of Proposition 64.

Bills in the Appropriations Committee (Bills will not be presented to the floor for a vote)

  • AB-228 Food, beverage, and cosmetic adulterants: industrial hemp products.

  • AB-286 Taxation: cannabis.

  • AB-1288 Cannabis: track and trace.

  • AB-1417 Cannabis advertisement and marketing.

  • AB-1420 Cannabis: licensing fees.

  • AB-1465 Cannabis: consumption cafe/lounge license.

  • SB-475 Cannabis: trade samples.

  • SB-658 Cannabis: licensing: cannabis retail business emblem: track and trace.

  • SB-627 Cannabis and cannabis products: medicinal use on an animal: veterinary medicine.

Bills in Other Committees (Committees ceased meeting as of September 3, 2019)

  • AB-953 Cannabis: state and local taxes: payment by digital asset.

  • AB-1458 Cannabis testing laboratories.Assembly-In Committee Process-Business and Professions

  • AB-1461 Cannabis: testing laboratories.Assembly-In Committee Process-Business and Professions

  • AB-1470 Cannabis testing.Assembly-In Committee Process-Business and Professions

  • AB-1529 Cannabis vaporizing cartridges: universal symbol.Assembly-In Committee Process-Business and Professions

  • AB-1530 Unauthorized cannabis activity reduction grants: local jurisdiction restrictions on cannabis delivery.Assembly-In Committee Process-Business and Professions

  • AB-1569 Sales and use tax: medicinal cannabis: veterans.Assembly-In Committee Process-Revenue and Taxation

  • AB-1678 Indoor-Grown Cannabis Commission.Assembly-In Committee Process-Agriculture

  • AB-1710 Cannabis.Senate-In Committee Process-Business, Professions and Economic Development

  • SB-67 Cannabis: temporary licenses.Assembly-In Committee Process-Business and Professions

  • SB-97 Cannabis.Assembly-In Committee Process-Budget

  • SB-684 Traffic safety: driving under the influence of cannabis pilot program.Senate-In Committee Process-Public Safety

  • SJR-10 Cannabis: federal schedules.Senate-In Committee Process-Public Safety

Is Your Business Ready for the California Consumer Privacy Act?

The January 1, 2020 compliance date for the California Consumer Privacy Act of 2018 is quickly approaching. The CCPA requires California businesses to maintain reasonable security procedures and to disclose how the business collects, stores or shares consumers’ personal information. The law also provides consumers with the right to opt-out (not sell their personal information to third parties), delete or receive the specific pieces of personal information. A consumer whose non-encrypted or non-redacted personal information is accessed or stolen also has the right to sue a business that fails to maintain reasonable security procedures.

The California Legislature made some last-minute changes to the CCPA prior to the close of the legislative session on September 13, 2019. The amendments provide businesses with some relief for employee information and loyalty programs. The legislature also modified the definition of personal information through AB 874 by excluding information that is publicly available or is de-identified or aggregated. The legislation will become law if they are signed by Governor Newsom before October 13, 2019.

Most importantly, the legislature passed AB-25, which exempts information from business-related persons including employees, potential employees or contractors until January 1, 2021 so long as the business provides a privacy notice indicating the personal information that is collected and how it is used. Businesses should understand the information that it collects about employees and draft a privacy statement. By January 1, 2020, the privacy statement should be disseminated and signed by employees.

Businesses that use loyalty plans should also pay close attention to the requirements of AB 846. The CCPA prohibits businesses from discriminating against a customer who does not want the business to use his or her personal information. A business may not deny services, charge a different fee or offer a different level of service. AB 846 allows businesses to provide a loyalty program that consumers may voluntarily opt into so long as the offering is not unjust or coercive.

A business may also sell the consumer’s information to a third party as a part of the loyalty program so long as the third party is providing the consumer with a financial benefit such as a discount or sale. The business must obtain the consumer’s consent to sale of personal information to a specific third party, and disclose the terms of the sale. The third-party must limit the use of personal information to the identification of the consumer as a member of a loyalty program.

Businesses should review loyalty programs, or other offerings intended to collect personal information, to determine whether the programs meet the requirements of AB 846. Companies should also review customer onboarding and data privacy procedures to ensure that the appropriate measures are taken prior to the transfer of personal information to outside third parties including customer consent.

Complying with the CCPA is a tremendous undertaking for any organization. As the compliance date inches closer, companies should make sure that employees are appropriately trained in order to mitigate the risk associated with a consumer’s private right of action under the law. The CCPA is the beginning of a whole new world of data protection and consumer rights in the US. A challenge that can only be overcome with preparation, testing, and perseverance.

A Review of California's 2019 Legislative Session: What are the New Cannabis Laws?

California’s 2019 legislative session will close on September 13, 2019. The California Legislature has three (3) days left to pass bills that are on the floor as is. The last day for amendments was August 6, 2019. The bills that are currently in the committee are effectively dead as committees stopped meeting as of September 3, 2019.

Bills that are presented to Governor Newsom must be signed or vetoed by October 13, 2019, or they will automatically become law.

So, what is the status of the cannabis and hemp-related bills from 2019? We have analyzed over forty (40) cannabis and hemp-related bills that were introduced during the 2019 legislative session. Below we provide a high-level status for the bills, a summary of the impact and next steps for those that have successfully made it through the process.

  • New Laws: Governor Newsom has signed three (3) new laws related that, among other things, establish an organic cannabis program and establish cannabis and hemp as agricultural commodities.

  • Bills Passed by the California Legislature: There are seven (7) bills that are waiting to be presented to the Governor to be signed into law or vetoed by October 13, 2019. One bill will allow individuals to deduct cannabis business-related expenses from personal taxes in California.

  • Bills Close to the Finish Line: Six (6) bills must pass the third reading by September 13, 2019 in order to be presented to the Governor including a bill that authorizes the state to submit an industrial hemp plan to the USDA.

  • Bills Rendered Inactive or in Committee: Twenty-five (25) bills will not be moving forward as they have been rendered inactive or are in a committee including AB-228 Food, beverage, and cosmetic adulterants: industrial hemp products.

New Laws

  • AB-97 Cannabis. (07/01/2019) Various changes to cannabis regulations including establishing a fine structure that a $5,000 per violation for licensees and $30,000 per violation for an unlicensed person, per day, and requires the state to establish an organic certification program for cannabis no later than July 1, 2021.

  • SB-657 Cannabis cultivation: county agricultural commissioners: reporting. (09/05/2019) Requires the county agricultural commissioner to report to the secretary of state the total acreage, production of value of cannabis produced in the commissioner’s county.

  • SB-527 Local government: Williamson Act: cultivation of cannabis and hemp. (09/06/2019) Includes cannabis and hemp in the definition of an agricultural commodity that qualifies as an appropriate use in an agricultural preserve.

Bills Passed by the California Legislature (Bills waiting to be engrossed or presented to the Governor)

  • AB-37: Personal income taxes: deductions: business expenses: commercial cannabis activity. (09/09/2019) The bill allows individuals to deduct cannabis business expenses from personal tax liabilities under the California Tax Code. Governor Brown vetoed a similar bill last year due to the fiscal impact, which is estimated to be tens of millions of dollars a year.

  • AB-858 Cannabis: cultivation. (09/09/2019) Amend the Type 1C outdoor cultivation licenses to permit a maximum of 2,500 or fewer feet of canopy size or up to 25 mature plants.

  • AB-404 Commercial cannabis activity: testing laboratories. The bill allows independent testing facilities to amend a certificate of analysis to correct minor errors. The bill also allows the testing facility to retest samples due to equipment malfunction or employee errors after receiving approval from the Bureau of Cannabis Control.

  • AB-420 The California Cannabis Research Program. (09/09/2019) Authorizes the cultivation of cannabis pursuant to federal and state laws by the University of California San Diego Center for Medicinal Cannabis Research to study the effects of cannabis, cannabinoids and other related constituents.

  • AB-397 Vehicles: driving under the influence. (09/09/2019) Requires state courts to indicate that a driver was under the influence of cannabis when convicted for driving under the influence by January 1, 2022. Governor Brown vetoed a similar bill last year due to the costs associated with retrofitting state technology.

  • AB-1291 Adult-use cannabis and medicinal cannabis: license application: labor peace agreements. (09/09/2019) The bill requires applicants for a medical or adult-use cannabis license to provide a notarized statement that it will enter into a labor peace agreement if the entity employs 20 or more persons or applicants must provide a notarized statement agreeing to abide by the terms of a labor peace agreement within 60 days of hiring the 20th employee.

  • SB-223 Pupil health: administration of medicinal cannabis: schoolsites. (09/06/2019) Permits a school nurse or other school administrator to provide a student with medical cannabis in accordance with written instructions provided by a doctor.

Bills Close to the Finish Line (Bills must be passed by September 13)

  • AB-545 Cannabis: Bureau of Cannabis Control. Senate-In Floor Process-Third Reading. The bill requires the Joint Sunset Review Committee to perform a review as if the MAUCRSA was repealed as of January 1, 2023.

  • SB-34 Cannabis: donations. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019) The bill permits cannabis retailers to provide free medical cannabis to patients and caregivers under certain circumstances.

  • SB-153 Industrial hemp. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019)The bill aligns the existing industrial hemp law to the state plan that California will submit to the USDA by May 1, 2020. The bill also requires county agricultural commissioners to perform additional responsibilities including enforcement.

  • SB-185 Cannabis: marketing. Assembly-In Floor Process-Third Reading (Scheduled 09/10/2019). The bill will only be enacted if SB-34 is enacted. The bill prohibits cultivators from misrepresenting the county where cannabis was grown.

  • SB-581 Cannabis: licensing: public records. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019) The bill requires regulators to make information about licensees publicly available including disciplinary information.

  • SB-595 Cannabis: state licensing fee waivers: needs-based applicants and licensees: local equity applicants and licensees. Assembly-In Floor Process-Third Reading. (Scheduled 09/10/2019)The bill provides a waiver or deferral of licensing or renewal fees for needs-based applicants.

Bills Rendered Inactive

  • SB-51 Financial institutions: cannabis. (09/09/2019) - The bill created the Cannabis Limited Charter Banking and Credit Union Law to provide banking services to cannabis businesses.

  • SB-625 Party buses: cannabis. (09/05/2019) The bill required cannabis party buses to install a sealed off compartment for the driver that contained a ventilation system.

  • AB-1356 Cannabis: local jurisdictions: retail commercial cannabis activity. (05/30/2019) Required local municipalities to permit a specific number of retail cannabis establishments based on the voter's support of Proposition 64.

Bills in the Appropriations Committee (Bills will not be presented to the floor for a vote)

  • AB-228 Food, beverage, and cosmetic adulterants: industrial hemp products.

  • AB-286 Taxation: cannabis.

  • AB-1288 Cannabis: track and trace.

  • AB-1417 Cannabis advertisement and marketing.

  • AB-1420 Cannabis: licensing fees.

  • AB-1465 Cannabis: consumption cafe/lounge license.

  • SB-475 Cannabis: trade samples.

  • SB-658 Cannabis: licensing: cannabis retail business emblem: track and trace.

  • SB-627 Cannabis and cannabis products: medicinal use on an animal: veterinary medicine.

Bills in Other Committees (Committees ceased meeting as of September 3, 2019)

  • AB-953 Cannabis: state and local taxes: payment by digital asset.

  • AB-1458 Cannabis testing laboratories.Assembly-In Committee Process-Business and Professions

  • AB-1461 Cannabis: testing laboratories.Assembly-In Committee Process-Business and Professions

  • AB-1470 Cannabis testing.Assembly-In Committee Process-Business and Professions

  • AB-1529 Cannabis vaporizing cartridges: universal symbol.Assembly-In Committee Process-Business and Professions

  • AB-1530 Unauthorized cannabis activity reduction grants: local jurisdiction restrictions on cannabis delivery.Assembly-In Committee Process-Business and Professions

  • AB-1569 Sales and use tax: medicinal cannabis: veterans.Assembly-In Committee Process-Revenue and Taxation

  • AB-1678 Indoor-Grown Cannabis Commission.Assembly-In Committee Process-Agriculture

  • AB-1710 Cannabis.Senate-In Committee Process-Business, Professions and Economic Development

  • SB-67 Cannabis: temporary licenses.Assembly-In Committee Process-Business and Professions

  • SB-97 Cannabis.Assembly-In Committee Process-Budget

  • SB-684 Traffic safety: driving under the influence of cannabis pilot program.Senate-In Committee Process-Public Safety

  • SJR-10 Cannabis: federal schedules.Senate-In Committee Process-Public Safety

California Legislature Fails to Legalize CBD Products in 2019

The California Senate Appropriations Committee failed to move AB-228 out of the committee during its final hearing of the 2019 legislative session on August 30, 2019. The Committee’s action means that the sale of CBD products will remain illegal in California until at least the 2020 legislative session.

Currently, cannabis licensees may only sell CBD products that are extracted from cannabis rather than industrial hemp. Although CBD products are widely available in California, the California Department of Health issued a guidance in 2018 that prohibited the sale of CBD as an approved food, food ingredient, food additive, or dietary supplement until the US FDA determined that CBD products can be used as a food or California made the determination that CBD was safe.

California’s Department of Finance opposed the bill as the cost of implementation, which is estimated to be around $6.7 million, was not included in the 2019 budget. The failure to pass AB-228 is not the only challenge that the industry faces in California. Local governments are adopting regulations to prohibit or regulate the industrial hemp and CBD industries.

Over half of the counties in California have implemented ordinances to prohibit the cultivation of industrial hemp, and others are regulating hemp like cannabis. Also, individual cities have adopted ordinances to prohibit hemp cultivation include Blue Lake, Furtuna, Hollister, Lake Forest, Pittsburg, and San Jacinto.

This week alone the cities of Sacramento, King City, and Lynwood will hold public hearings on ordinances that temporarily prohibit industrial hemp cultivation and industrial hemp CBD business activities. King City will also regulate hemp manufacturing activities.

We expect that the list will increase until more information is available on the impact that hemp cultivation has on local communities and whether effective buffering zones can mitigate the pungency of hemp odors and cross-pollination concerns raised by existing cannabis cultivators.

As the new hemp and CBD market evolves in California, municipalities may see hemp and CBD as another revenue source and a means of reducing taxes for the cannabis industry. We expect that the hemp and CBD industries in California will face challenges that are similar to the cannabis industry including limited real estate due to zoning restrictions, higher operating costs due to local regulatory requirements, and educational hurdles. CBD brands will need to absorb these costs in order to obtain access to the largest market in the US.

California Voters May Legalize CBD If the Legislature Fails to Act

California’s Attorney General published for public comment two ballot initiatives that will legalize hemp products. The Cannabis Hemp Heritage Act of 2020 and The California Cannabis Hemp Initiative 2020 will provide voters with the ability to legalize the cultivation, processing, distribution, use, and consumption of cannabis hemp products in California. The ballot initiatives are similar to the efforts to legalize cannabis in that they require cannabis hemp euphoric products to be treated like alcohol and provide a 10% excise tax on retail sales.

Last week, the Senate Appropriations Committee held a hearing on AB-228, which will legalize the sale of 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. The bill has been moving slowly through the legislative body since it was introduced in January 2019.

Currently, cannabis licensees may only use CBD derived from cannabis in products, and they may not sell industrial hemp products. The bill will allow cannabis licensees and others to manufacture, distribute and sell industrial hemp products. The industrial hemp products must be tested and labeled in a truthful manner. Hemp with THC levels greater than .3% can be provided to cannabis manufacturers.

The legislature is proposing to use the Cannabis Control Fund to pay for the bill’s implementation, which is estimated to be around $6.7 million. The Department of Public Health expects that there will be 750 to 800 new firms that will create and distribute hemp-derived CBD products.

California Legislature Holds Hearing on Legalizing CBD Sales

The California Legislature held a hearing yesterday on 5 cannabis bills that it must move forward ahead of the 2019 session’s closing date on September 13, 2019. The most important bill that was deliberated by the Appropriations Committee was AB-228, which will legalize the sale of CBD products in California.

Below are the 5 bills that the Senate Appropriations Committee discussed during its public hearing on August 12, 2019.

Monterey County, CA: We Changed Our Mind, Hemp is a Little Like Cannabis....

Monterey’s County Board of Supervisors adopted an Industrial Hemp Pilot Program that will restrict the size, location, and the number of industrial hemp cultivators allowed in unincorporated areas of the county. The county will accept registration requests until August 31, 2020, and grant 30 registrations. To date, the county has received over 50 requests to cultivate hemp.

The California Department of Food and Agriculture established an industrial hemp program for the registration of industrial hemp cultivators. Under the program, applicants must register with a local county agricultural commissioner and abide by any local restrictions.

Monterey’s County Planning Commission held a meeting on July 10th during which the group debated whether hemp is an agricultural commodity or as cannabis. The Planning Commission concluded that hemp is a commodity that should be treated without restrictions.

During a meeting on July 23, the Board of Supervisors reversed that decision and adopted an ordinance that established an industrial hemp pilot program. The Board of Supervisors debated the impact of odors on local communities such as King City; the likelihood that hemp growers could inadvertently contaminate cannabis crops; and the lack of data available that is required to make clear decisions as to the effectiveness of buffer zones.

Monterey County is not alone in its hesitancy to treat hemp as an agricultural commodity. According to our data, seventeen (17) counties currently allow hemp cultivation, twenty-six (26) counties implemented a temporary moratorium that would give them time to figure out what to do, fifteen (15) counties are silent on whether hemp is permitted, and two (2) counties are moving quickly towards implementation.

Calfornia cities are also acting to prohibit hemp cultivation with Blue Lake, Furtuna, Hollister, Lake Forest, Pittsburg, San Jacinto all recently adopted moratoriums. We expect that more cities will move to prohibit hemp until more information is available as to the impact on local communities. It appears that the hemp industry will be constrained in California until more information is available on effective buffering zones that can mitigate the pungency of hemp odors and cross-pollination concerns.