A Look at California’s 2016 Cannabis Regulations and Deadlines

Katie Podein

Katie Podein from California Cannabis Law Group joins us to share how California plans to make sweeping changes to the state’s cannabis laws and regulations in 2016 and the deadlines you need to know right now. Very important if you need to understand packaging, labeling and testing requirements.

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Matthew: Hi, I’m Matthew Kind. Every Monday look for a fresh new episode where I’ll take you behind the scenes and interview the insiders that are shaping the rapidly evolving cannabis industry. Learn more at www(dot)cannainsider(dot)com. That’s www(dot)cannainsider(dot)com. Are you an accredited investor looking to get access to the best cannabis investing opportunities? Join me at the next ArcView Group event. The ArcView Group is the premier angel investor network focused exclusively on the cannabis industry. There is simply no other place where you can find this quality and diversity of cannabis industry investment opportunities months or even years before the general public. If that’s not enough, you will also be networking with the top investors, entrepreneurs and thought leaders in the cannabis space. I have personally made many of my best connections and lifelong friendships at ArcView events. If you are an accredited investor and would like to join me as an ArcView member, please email me at feedback(at)cannainsider(dot)com to get started. Now here’s your program.

California by itself is the eight largest economy in the world when measured by its $2.3 trillion of GDP that come from the state. With 39 million residents, abundant capital, technical resources and a strong tradition of agriculture there is arguably no place better positioned to help the cannabis industry grow. However, recent laws and regulation changes made in the state capital of Sacramento are introducing new challenges and opportunities that business owners should be aware of. To help us sort through the new regulatory changes in California I have asked attorney Katie Podein from California Cannabis Law Group on the show today. Welcome to CannaInsider Katie.

Katie: Hey Matthew. Thanks for having me. You know I’m a big fan of the show and I just want to thank you for what you’re doing to illuminate the stars of the cannabis industry.

Matthew: Oh thank you. Katie, to give us a sense of geography can you tell us where you are in the world today?

Katie: Yes I am currently sitting in my law office in well not so sunny Los Angeles, California right now. You know it’s raining a little bit out and in Southern California when it rains everyone runs around both fascinated and terrified by this weather.

Matthew: Yeah you all definitely need rain out there for sure.

Katie: Mm-hmm.

Matthew: So tell us a little bit about your background. How did you get into the cannabis industry?

Katie: Well eventually my job was actually you could say to help suppress the industry. I was originally working for (2.42 unclear) a law firm, and for about 10 years our firm had been working with cities and counties to help create local regulations for the medical marijuana business. That meant providing legal advice on regulation of medical marijuana, drafting ordinances and zoning codes to even ban them out of the cities. But one day my partner’s wife was diagnosed with Stage IV ovarian cancer and he confided in me that she used edibles to ease her nausea and pain during chemotherapy. Around the same time our firm was getting approached by dispensary owners asking us as city attorneys for our guidance on how to be compliant on a local level. So at some point I just took a step back and realized all the signs were pointing in a different direction, and I wanted to create a specialized legal practice that would bridge the gap between the cannabis business and local and state agencies.

Matthew: Okay and what is the California Cannabis Law Group?

Katie: Well on a basic level I would say the California Cannabis Law Group helps the cannabis business owners come out of the closet. I find many players in the industry are afraid to come into the light in California because of the lack of state regulation and that it’s still illegal on a federal level. So our firm helps to provide guidance to clients to become and stay compliant with local and the state laws. So in short we provide clients with legal services for everything they need from seed to sale really.

Matthew: Let’s set the stage here. There’s some big legal changes in how cannabis is treated for a lot of different parties, but how is cannabis regulated and treated by officials prior to this year’s legislative change and how is it different now?

Katie: Well before this current legislation California has been nicknamed “The Wild West” and that’s only for a reason. The laws governing medical marijuana, that’s Prop 215 and that’s State 420 has giving the industry a little to no guidance on a state level. And then on top of that some cities and counties have nothing in their municipal codes either way about regulation of medical marijuana, either allowing it or prohibiting it. So it’s been a very laissez-faire approach and as a result of the somewhat lawless environment the cannabis industry has really taken an opportunity to come up with some pretty creative business models.

You know, I know you interviewed the founders of Weed Maps on a previous show and that was founded in California in 2008. These delivery services, excuse me, Speed Weed. I believe you interviewed Speed Weed.

Matthew: Right Speed Weed. We both got that wrong. Right okay. Speed Weed.

Katie: Okay so Speed Weed is a delivery service and they got started in California in 2008. You know usually these delivery services have no storefront dispensary. Sometimes they’re even operating out of the personal residence and have become very popular throughout all of Los Angeles and the most of Southern California, even with celebrities and soccer moms alike. Another business model that has been created as a result of this is the Gorilla Grows up north with the cultivators. You know this isn’t always a good thing. This is the legal cultivation sites that usually divert water from other crops or agricultural sites, use heavy pesticides and even I’ve heard using rat poison to put on the crops.

Additionally this lawlessness of the land has left extractions and manufacturing really up to the business itself and that can lead to some detrimental consequences. For example, if people aren’t well-versed in using volatile solvents, there can be a lot of injuries if you can imagine; blown off hands, fingers, etc.

Matthew: So truly the Wild, Wild West. Not much guidance and a huge market. So that makes for; it’s nice not to have regulatory strings in some capacity, but not everybody’s playing with; it’s not a level playing field necessarily either. So from that, from the Wild, Wild West what have we transitioned to? What is the new legislation that went through Sacramento this year and how has it changed the landscape?

Katie: Well the new legislation is the State’s attempt to tame the Wild West. That’s the Medical Marijuana Regulation and Safety Act, also known as MMRSA, and that was signed into the law by Governor Jerry Brown on October 9, 2015 and it becomes effective in January, so coming up soon.

Matthew: What an unfortunate acronym that is. Isn’t MMRSA like some sort of medical problem you get when you’re wrestling in the gym or something?

Katie: Oh yeah yeah, and on top of that the bureau that was established under MMRSA is the Bureau of Medical Marijuana Regulation. The nickname as you can imagine the BMMR is also known as Bummer.

Matthew: Oh boy.

Katie: So it has been interesting in the acronyms that they have chosen to regulate the medical marijuana industry, but nonetheless the MMRSA is comprised of three bills that provide regulations for all different areas in medical marijuana industry and provides a comprehensive system of control. And the BMMR has been tasked with the responsibility of developing and implementing the rules necessary to enforce these laws including oversight state licensing and regulation of the industry.

Matthew: So if I’m a business owner listening to the show right now or I’m someone considering getting into the cannabis industry, what’s the most important in your mind changes here that really should be kept top of mind if you’re in the cannabis business?

Katie: By far the most important thing is the local license and the state license you will need to operate. You know, you need local approval, and then once you receive local approval whether it by a license, it depends on each locality how they approve you for a business. Then you have to bring that to the state and say you know my city or county approved of my business, can I have my state license please. Now there’s 17 different types of licenses under this new law.

Matthew: Wow.

Katie: Yeah it’s a lot of different licenses and there may be even more coming. The focus is on cultivation, really trying to prohibit or regulate certain large scale cultivation sites, and you can see that there’s more flexibility for smaller scale cultivation sites.

Matthew: Sorry to interrupt, but did you mean it’s going to be maybe less burdensome to be a smaller grower and as you go up the scale there’s more hurdles you have to jump through?

Katie: It appears so because one thing that MMRSA also allows is a bit of vertical integration for small cultivators. So if you have certain; if you grow under certain sizes, the state will also grant you a license for manufacturing and/or owning a dispensary as well. So it seems that they are favoring the smaller business models which will help the small growers and those mom and pop shops stay open under this new licensing scheme.

Matthew: Interesting. Go ahead. I’m sorry to interrupt.

Katie: Some other, I just wanted to point out some other important changes. There’s three other things that are really important for people to keep in mind. That’s the testing of all medical marijuana. That means all cultivators will have to have their medical marijuana tested before it goes to a dispensary. Now in addition to this testing of the medical marijuana, there’s the role of distributors. And the state has created a role of distributors and they are the ones to take the medical marijuana from the cultivators to the lab, to the lab to either the manufacturer or to the dispensary owner. And on top of all that they’re implementing a track and trace program similar to the one you see in Colorado now.

Matthew: God it would be great if they could just turn into Silicon Valley right there to make that instead of coming up with some sort of crazy bureaucratic system that’s not user friendly when you’ve got such great technical there. I hope they outsource that in some capacity.

Katie: Yeah I hope so too because you know I think this year is going to be a bit of growing pains for the entire industry under these new laws.

Matthew: Are any of the regulations seem like; is there certain things that seem the most financially onerous? I mean going to your local municipality or town and saying hey please recognize me as having a cannabis license might sound like it takes a little but not necessarily expensive. Is there anything that really strikes you as adding cost to the whole supply chain?

Katie: I really think it’s going to start with the cultivators. They are the ones responsible for implementing the track and trace program. Additionally, they have state agencies that will be imposing regulations and standards on their grow sites. Just to name a few it’s going to be the Department of Food and Agriculture, the Department of Pesticide Regulation, the Department of Fish and Wildlife, the State Water Resources Control Board and the Department of Public Health, all with their standards that they must meet to grow medical marijuana. And I think that’s just going to drive the cost of medical marijuana up.

Matthew: Oh my god, this sounds like a lot of regulatory burden. This really does.

Katie: And not to mention that the cultivators also pay for the testing of their medical marijuana. You know it’s a great time to be a distributor or a lab tester in this upcoming year.

Matthew: Okay. Wow, so a lot of us in the cannabis industry have gotten comfortable, set in our ways a little bit, maybe in California used to being on one side of the spectrum of really having no regulation now. They’ve got all these three letter agencies that are going to be swarming them. So what do you think is going to be the most painful? Is it just having to create whole new process, maybe adding staff just to manage the compliance burden?

Katie: Yeah you know I think it is going to be a lot of standards of that that the industry is going to have to be educated on if they want to continue to play. You know it’s great these laws are allowing the cannabis industry to become for profit entities now. You know they no longer need to stay nonprofit. So that allows a little more flexibility and control over your personal cannabis business, but you have to play by the rules now and that is going to be quite a burden on the industry.

Matthew: Okay. Are there any bright spots, anything we should feel good about here? I mean the fact that regulation is coming in that it’s going to make it a more robust industry that maybe the public sees or recognizes as more trustworthy.

Katie: Yeah you know I don’t want to sound too pessimistic about these new laws. I think that like I mentioned you’re allowed to transition from a nonprofit to a for profit business. So that allows greater flexibility, increase revenue and yield for your company. Also people can start investing in the cannabis industry. So we will see a lot, you know, this market is projected in California to be; I mean it’s a wide range that they project, but anywhere between the $2 and $4 billion industry. Also organic standards are going to be coming out for medical marijuana and testing standards that will be imposed will also mean that we know what’s going in to our product. And as a consumer you know I would imagine most consumers want to know the breakdown of their product and whether; have the choice of whether it’s organic or not.

Matthew: Okay.

Katie: And all the new regulations on cultivators it does mean for a more environmentally friendly cultivation practices. You know I know it can appear to be burdensome, but it’s also to preserve the environment and that wildlife in California that we all cherish here.

Matthew: Katie, what about personal cultivation? What’s allowed there or what’s changed?

Katie: Patients are exempt from the state permitting process. So they don’t need a license if you are cultivating for yourself so long as it’s under 100 square feet for personal medical use. Primary care givers that five or fewer patients are allowed up to 500 square feet. There is some troubling legislation that AB243 says that it does not prevent a local government from further restricting or banning the cultivation of medical cannabis by individual patients or caregivers in its jurisdiction. Personally I hope that cities aren’t starting to ban or restrict cultivation for individual patients or caregivers, but we’ve yet to really see how that will play out.

Matthew: Switching gears to labeling requirements, what can we expect in terms of changes in labeling requirements?

Katie: So in the laws stated right now it says that the Department of Public Health is to develop standards for producing and labeling all edible medical cannabis products. Also the Department of Public Health will be in charge of regulating edible potencies as well, but no specific labeling standards have come up yet. I imagine that you know once this all this becomes effective and the departments start to develop standards it will look something like Colorado’s too. You know specific warning labels, a list of nonorganic pesticides, fungicides, herbicides, maybe a list of solvents and chemicals used to extract the marijuana etc.

Matthew: Okay. So we have some deadlines rapidly approaching here. Can you summarize those?

Katie: Well so far we already have had one deadline pass. That’s July 1, 2015 and that was the date by those cannabis business to claim vertical integration and to be able to operate as a vertically integrated business under these new laws. Now again vertically integrated means that your business does the cultivating, the manufacturing or extracting and the dispensing of medical marijuana. If a city allows vertical integration and you’re vertically integrated before this July 1, 2015 date, then you’re allowed to continue for some time under the new laws. The next one coming up is January 1, 2016. That’s the date in which MMRSA will become effective. That’s also when priority licensing will begin to roll out and those eligible can apply for that priority licensing.

Now there’s one deadline that’s caused a bit of controversy in California in the past week or so. That’s the March 1, 2016 deadline. That deadline is a deadline for local cities or counties to impose regulations or ordinances prohibiting the cultivation in their locality. This has caused controversy because in the past probably two/three weeks we’ve seen city councils quickly banning, doing everything they can to ban cultivation in their city, their city council meetings. Now Assembly Member Wood helped with, developed the laws for MMRSA said that this was a mistake, this deadline. He said that it was a mistake and that there will be no deadline for local jurisdictions to enact their own regulations governing medical marijuana cultivation.

Me personally I don’t know how much of that was a mistake. It is you know on paper, in the laws and the damage is done. Cities have already been banning cultivation. So you know Assembly Member Wood said that once the legislature reconvenes in January he plans to pass the urgency legislation striking this deadline, but I’m not too sure it’s going to have any effect since cities have already acted.

Matthew: This is a crazy thing here.

Katie: Yeah this has been the problem we’ve seen in California is that cities appear to be scrambling to really ban cultivators and dispensary owners in their cities and counties. And I know that I’ve been at some meetings where small grows and even local dispensary owners are wondering where are they going to go with their business.

Matthew: Yeah.

Katie: Like I said, there is going to be some growing pains in this upcoming year for sure.

Matthew: What about do these local municipalities now have the ability then to tax so I would think that some of these revenue starved municipalities in California would jump at the chance to possibly get some more taxes.

Katie: You’d think they would and you’re right, but there are a lot of cities that could use the revenue with medical marijuana, but it seems when you’re sitting at city council meetings that the fear, you know, it’s that cliché fear of robberies or violence or even just increased traffic going through cities is what is keeping them from creating some type of comprehensive regulations in their cities rather than just stop banning them.

Matthew: Right. God it’s amazing the education that still needs to be done. I literally have some relatives in the East Coast that know (22.39 unclear) think that everybody in Colorado sits around and gets high all day, everybody, 100% of the state. So I mean it’s a persistent stigma and I hope; I think a lot of people would be surprised at what cannabis is being grown in their municipality already. If they knew that, maybe they wouldn’t freak out so much.

Katie: Yeah, yeah, exactly.

Matthew: Okay so we talked a little bit about the deadlines; January and March. Anything else on the horizon maybe that’s not set in stone but looks like the way the regulatory boat is turning that we should be aware of?

Katie: Well you know a lot of people are scared by this January 1st deadline that are in the industry, but I assure them that licensing really won’t affect them until 2018. You know government moves slow and I don’t think it’s going to be any exception here. The exciting thing we get to look forward to in 2016 is legalization of marijuana; adult use or recreational use, however you want to call it. That is on the November 2016 ballot. We have a couple of initiatives that are all competing for that vote.

Matthew: Wow that is exciting. That would be big. Now the Napster guy, I can’t remember his name, Shawn?

Katie: Shawn Parker.

Matthew: Yeah okay. So Shawn Parker what’s he have going there because I know he has an initiative that he’s pushing really hard. What is he doing?

Katie: Okay Shawn Parker is a Napster cofounder and former Facebook president. He has gotten behind and backed the Adult Use of Marijuana Act, AUMA. This is the big act that, the big ballot initiative that everyone is focusing on. There’s been you know a little bit of controversy about this act. When you speak to small small growers and dispensary owners they feel that this promotes big business. And for a little while there was another ballot initiative competing with the AUMA, but Shawn Parker has actually come out and said that he will match dollar for dollar all the donations given to support this initiative. Now I don’t know if that’s necessarily true or not. It would be interesting to take him up on his word.

Matthew: Right.

Katie: But recently in the past week or so there’s been some amendments to the AUMA to help rally more people around this act. I think one worry with people in the industry is that there’s so many initiatives out there that the votes are going to all be spread and then again just like in 2010 we’re not going to have legalization. So this time I believe that the AUMA is acting more as a working document right now that can be amended so that we can really; it can be all inclusive for everyone in the industry.

Matthew: One thing that I forgot to ask is that currently if you’re not from California and you’re visiting you can get a medical marijuana card. Is anything changing there with this new; the new regulations and legislation at all?

Katie: Well right now it is very easy to get a medical marijuana recommendation. The environment is very friendly. Now the rule states that you need a California, a valid California ID or a driver’s license and you can get that at the DMV showing that you have a local residency and your medical marijuana recommendation takes all of about 15 minutes to obtain from a doctor. I’ve even heard stories that doctors who are licensed in California can recommend medical marijuana over Skype and you can get it that way.

Matthew: Yeah I’ve heard that too. I’ve also heard from people from out of state coming in and getting recommendations somehow. I don’t know if that’s true.

Katie: You know I would not doubt that especially if they’re going down to Venice to get it.

Matthew: Yeah on Venice Beach it’s like every other shop there is like $50 for a recommendation.

Katie: Oh yes you’ll see them and you can identify them because they’re in doctor scrubs I think with marijuana leaves printed all over it. Very legitimate looking you know. But under the MMRSA that’s all set to change so they say. I don’t know how it will actually be in practice but the state will now be examining and investigating doctors that overly prescribe medical marijuana or recommend it.

Matthew: What does overly mean? Does that mean that they have like if they have 100% recommendation right now they have to lower it to something so they’re rejecting some people?

Katie: Well of course they haven’t given that specific standards but I think what that means is they’re going to be looking at doctors who have patients that come in maybe once a year, one time only you know it’s that revolving door of patients unlike a primary caregiver or a primary physician who you see regularly once a year or you know for specific ailments. You can point them out here in Los Angeles. There are certain centers where you know the doctor all he does all day is recommend medical marijuana. So they will be the subject of investigation by the state. And they’re going to start cracking down. So that may mean that doctors are less likely to hand out recommendations which thus in turn means less people getting their recommendation especially since you have to renew your recommendation each year.

Matthew: Okay. Anything else we should be aware of for 2016, I mean the implications of rec are huge. Does it sound like adult use is going to pass in 2016?

Katie: You know what I mean I personally think that adult use will pass. I think California we were the first one in the nation to allow medical marijuana and now we’ve taken a back seat while states like Colorado, Washington, Oregon have really run with recreational use and I think we’re ready to get in the game and start playing with those states. And I think that the Adult Use of Marijuana Act, the AUMA will likely be the one that will legalize marijuana for us.

Matthew: Katie in closing how can listeners learn more about California Cannabis Law Group and connect with you?

Katie: The best way would be to just email us. Any questions you have about our firm and what it can do for you, you can email us at info@califcannlaw.com .

Matthew: Great. Well Katie thanks so much for coming on CannaInsider today. We really appreciate it.

Katie: Thank you so much Matthew and hope you have a very happy holidays and a great new year.

Matthew: : If you enjoyed the show today, please consider leaving us a review on iTunes, Stitcher or whatever app you might be using to listen to the show. Every five star review helps us to bring the best guests to you. Learn more at www(dot)cannainsider(dot)com/itunes. What are the five disruptive trends that will impact the cannabis industry in the next five years? Find out with your free report at www(dot)cannainsider(dot)com/trends. Have a suggestion for an awesome guest on www(dot)cannainsider(dot)com, simply send us an email at feedback(at)cannainsider(dot)com. We would love to hear from you.

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Key Takeaways:
[2:31] – Katie’s background and how she got into the cannabis industry
[3:51] – Katie talks about the California Cannabis Law Group
[4:42] – Katie discusses how cannabis is regulated and treated by officials
[7:40] – New legislation that has passed in 2015
[9:20] – Most important legislative changes for people in the cannabis space
[12:39] – Added costs to the supply chain
[14:10] – Katie talks about the compliance burden
[15:03] – The upside to the new regulations
[16:36] – Katie discusses personal cultivation in California
[17:37] – Changes in labeling requirements
[18:29] – Katie talks about deadlines
[23:12] – New bills on the horizon
[26:06] – Can travelers still get a medical marijuana card in California
[28:59] – Katie gives her prediction for adult use
[29:46] – Contact details for California Cannabis Law Group

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