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.

California Regulators to Develop of Organic Certification Program for Cannabis

The California Department of Food and Agriculture (CDFA) will be hosting a public meeting on July 24, 2019 to start the discussion around the creation of organic cannabis program that will be similar to the US National Organic Program. The meeting will help the regulatory agencies to implement California’s new law that establishes the implementation of an organic certification program by July 1, 2021.

During the meeting, state regulators will discuss the guidance and standards from the National Organic Program should be incorporated into California’s program. State regulators will also discuss the registration requirements for certifiers that are accredited with the USDA, the types of certification and the exemptions from certification.

The comparable-to-organic cannabis program is intended to help differentiate the California cannabis market and brands from national competitors. The program is similar to efforts in Humboldt County to establish an organic standard.

California & Industrial Hemp Challenge: Agricultural Commodity or Cannabis

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

Businesses interested in starting a hemp company may have trouble finding a county to register in ahead of the 2020 growing season. 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. California counties are struggling with whether to treat hemp as an agricultural commodity or to regulate the industry with restrictions like cannabis.

The California Legislature introduced a bill that has been ordered to its final reading will include hemp and cannabis as agricultural use under the Williams Act. This would remove some disagreement around the treatment of cultivation under local ordinances and provide firm guidance that hemp is an agricultural commodity.

California counties agree that the current high price for hemp that will be used for CBD is great for local farmers. However, counties are struggling to educate local citizens on the differences between cannabis and hemp, address concerns regarding public health and safety, and ward off litigation from surrounding cities and counties. Local police officers are concerned that diversion will occur as they are not trained to identify hemp from cannabis.

Monterey County is currently addressing these issues as it moves forward with implementing a hemp ordinance. Monterey County Planning Commission held a meeting on July 10th during which the group debated whether hemp is an agricultural commodity or as cannabis.

The ordinance that was before the planning commission treated hemp as a similar use as cannabis, and required that the cultivation and processing of industrial hemp occur within a hemp overlay district. The ordinance also required hemp cultivators to comply with cannabis requirements until the adoption of hemp specific regulations. The proposed ordinance provided only 30 registrations for hemp cultivation and limited the cultivation site to 100 acres. The deadline for registering for the 2020 growing season was August 31, 2019.

The Monterey Board of Supervisors will continue this discussion during its meeting on July 26, 2019. The Board of Supervisors will consider an amended ordinance package that includes an alternative approach of treating hemp as an agricultural commodity, which wills allow hemp cultivation in agriculturally zoned areas without additional land-use restrictions. Hemp cultivators will be subject to state law and must register with the county’s agricultural commissioner.

California is at the beginning of its journey in establishing an industrial hemp program. The unknown is preventing over forty-four percent of California’s counties from participating immediately, and the lack of testing facilities and local educational programs are also stumbling blocks to faster growth. Other counties such as Monterey are moving forward with hemp in an effort to bolster the local agricultural industry. Monterey will lead the pack in building out this industry and meeting the challenges head-on.

Municipal Risk Alert: Santa Barbara County, California to Address Cannabis Cultivation Concerns

Santa Barbara County will hold a meeting today to review changes to the county’s cannabis ordinance that are intended to address concerns about odors and safety caused by the numerous cultivation facilities in the unincorporated areas. The Board of Supervisors is expected to provide staff with direction on amendments to cannabis regulations that will impact the industry’s future in the area.

Santa Barbara County’s cannabis industry has become the largest in California with hoop houses being constructed throughout the county. Local businesses and citizens are also voicing concerns about the impact on the health and safety of residents as well as the impact on tourism. Proponents of regulation state that the hoop houses emit noxious odors through vents without appropriate mitigating technology.

The proponents of regulatory changes include the Cities of Carpinteria and Goleta, which submitted letters to the county outlining their concerns about cultivation activity including an increase in crime and economic concerns. In the letters, the cities request that the county immediately enact an ordinance that requires cultivators to shut down if they do not have the required odor mitigating technology as required under the Coastal Zoning Ordinance or if they illegally expand through non-conforming uses.

The Goleta Chamber of Commerce indicated in a letter submitted to Santa Barbara County that outdoor growing produces noxious odors that are flowing into the city that creates skin, nose and eye irritation. The city is concerned that additional industrial cannabis cultivation will negatively impact tourism and the local economy.

The debate in Santa Barbara County may have a widespread impact on outdoor grow facilities. It may also prompt local authorities to adopt regulations limiting the cultivation of hemp. Our data shows that over 30 counties in California have already adopted a moratorium or have not directly addressed the issue of hemp cultivation. This may be the beginning of a long road for the industry.

California Municipalities Rush to Adopt Hemp Regulations

Over the last couple of weeks, counties and cities in California have adopted hemp cultivation bans in order to address perceived public nuisance issues from the activity including odor problems and public safety concerns. Counties and cities are also struggling with how to prevent cross-pollination between hemp and cannabis crops.

Trinity, Humboldt, and San Louis Bopispo counties all voted to ban the cultivation of hemp until they are able to address these public nuisance concerns. Other counties such as King, Imperial and Lassen voted to permit hemp cultivation but under limited circumstances. Monterey County will meet to discuss a limited program to allow hemp cultivation and processing on June 10, 2019.

California cities are also adopting measures to prohibit hemp cultivation as Redding, Pittsburg, and San Jacinto are meeting to adopt ordinances in the upcoming weeks. We expect the number of cities that will be addressing this issue to increase as the state registration process continues.

Local regulation of hemp cultivation is not limited to California. New Mexico, Arizona, and Colorado counties are also implementing regulations to govern the cultivation and processing of hemp. The hemp regulatory structure is complicated and starting to resemble that of cannabis. The rollout of the state hemp cultivation plans should provide a good indicator of how complicated the state hemp regulatory environment will eventually become. This complex development is another hurdle for the hemp and CBD market to overcome.

California Passes Cannabis Bill that Includes Organic Cannabis Certification

The California Legislature passed cannabis legislation that includes an organic certification program that will be implemented by July 1, 2021. The organic certification program will be comparable to the National Organic Program and the California Organic Food and Farming Act. The organic certification program will help differentiate the California cannabis market and brands from national competitors.

The bill that was sent to Governor Newsom for his signature also contains the following changes to cannabis regulations:

  • The legislation allows a California licensing regulator to fine a licensee or unlicensed cannabis business for violations of the state regulatory requirements up to $5,000 per day per violation for licensees and $30,000 per day per violation for unlicensed cannabis businesses.

  • The Bureau of Cannabis Control Bureau may provide funding to local jurisdictions seeking help implementing social equity programs. The new law increases the amount of funding that is available to local jurisdictions, and permits the Bureau to utilize the Governor’s Office of Business and Economic Development to help administer the program.

  • The new law extends the repeal date for provisional licenses to January 1, 2022, and allows state regulators to revoke or suspend provisional licenses if the holder is not actively and diligently pursuing an annual license.

California Announces Educational Campaign Targeted at Illegal Cannabis Industry

The California Bureau of Cannabis Control announced an educational campaign that is focused on moving consumers away from the growing illegal cannabis market. The campaign called #Get weedwise educates consumers and unlicensed cannabis businesses on the dangers associated with the illegal market.

The consumer campaign educates health conscious consumers about the importance of buying tested products from a licensed retailer in order to avoid products contaminated with foreign objects, fecal matter or heavy metals. The campaign is also asking consumers to provide regulators with information about illegal cannabis activity.

The campaign also reminds illegal cannabis businesses about the risks associated with engaging in unlicensed sales activities including the confiscation of products and cash.

California Bill Will Allow Individuals to Deduct Cannabis Expenses

The California Senate will vote to pass a bill that allows individuals to deduct business expenses associated with legal commercial cannabis activity. The proposed amendments to the Personal Income Tax Law ensures that the cannabis industry is treated like all other businesses, and provides a stepping stone for industry growth.

Currently, California’s Corporation Tax law permits the deduction of cannabis business expenses even though these deductions are prohibited under federal law by Section 280E of the Internal Revenue Code. Under federal law, expenses associated with the illegal sale of drugs are not allowed to be deducted. California’s personal tax law currently refers to this portion of the Internal Revenue Code. The bill removes the reference to the federal regulations, which will allow persons to deduct cannabis business expenses in California.

Governor Jerry Brown vetoed the a similar bill during the 2018 legislative session due to the loss of state revenues. The Franchise Tax Board estimates the loss in tax revenues to be in the tens of millions of dollars.