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.

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.

Humboldt County Collects $2 Million in Fines from Illegal Growers

Humboldt County continues to step up enforcement against illegal growers. Over the past year, the Humboldt County Code Enforcement Unit in California has actively identified illegal grow operations using satellite imagery. The county pays over $200,000 a year to access Planet’s software, which allows the staff to quickly identify possible violators.

The Eureka Times Standard reports that cannabis enforcement efforts are up 700% in 2018, and brought in over $2 million in fines for the county. Humboldt County holds around 20% of the overall commercial cultivation licenses in California.

The fines sought by the regulators continue to increase. In October, the Enforcement Unit was seeking a $10,000 per day penalty against 87 growers for commercial cannabis land use and building code violations. The illegal grow sites were given 10 days to dispose of the cannabis plants and illegal structures, after which, the $10,000 per day fine took effect.

Today, the Enforcement Unit is seeking fines per day fines of between $20,000 and $30,000 for code violations. Now that cannabis is legal, regulators are raising administrative fines as a means of forcing cannabis operators into the legal market. Humboldt County continues to transform its legendary cannabis market into the legal framework, although at a greater cost and regulatory burden for its local residents.

California State vs Municipal Battle Heats Up As the 42% of Cities That Said No to Cannabis May Be Forced to Open Stores

The United States is witnessing the rise in state power. The states are uniting to fight the federal government, lead social causes such as global warming, and they are driving innovation. We are also witnessing the rise in municipal power as cities fight to retain control over regulating the place, time and manner of businesses within their jurisdiction. Recently, twenty-five (25) cities banded together to sue the state over its implementation of cannabis regulations that allowed marijuana delivery in every city, regardless of whether the city prohibited this activity. The cities believe that cannabis delivery is a public nuisance that will increase crime.

The California Legislature ratcheted up this debate by scheduling a public hearing on a bill tomorrow that preempts a local municipalities control to prohibit cannabis establishments. The bill would require a city to permit adult-use cannabis storefronts if 50% of the voters in the municipality voted for Proposition 64. The bill requires the city to permit one (1) retail cannabis licenses for every four (4) liquor licenses.

The cities are fighting back. Cities such as Carpinteria are submitting letters to the California Legislature objecting to the preemption of local control over these businesses and the arbitrary 1 for 4 license requirements. This is significant given that our database for California indicates that over 42% of cities prohibit cannabis altogether. Although we are seeing a slight trend of cities revisiting this decision as a part of budget considerations.

As states fill the federal void, we are seeing an increased battle between the state and local municipalities in other states such as Oregon and Florida. California’s cannabis delivery lawsuit will provide us some insight on the future of a state’s ability to drive the growth of an industry at the local level.