With the passing of California’s Medical Cannabis Regulation and Safety Act (MCRSA) not to mention the recent approval of Proposition 64, an initiative creating a fully legal cannabis trade, there has been a lot of confusion among the business community as to what can and cannot be done with respect to operating inside the realm of legitimate commerce.
According to Above the Law, the legislation responsible for creating MCRSA along with Proposition 64, which was established to put a leash on what has been called the “Wild West of Weed,” is just a framework to the newfound marketplace. The report, which was penned by attorney Hilary Bricken, goes on to say that state officials will soon begin to “fill in the “blanks” with respect to the cannabis industry as a whole – making it difficult, at this point, to predict exactly how the new laws are going to play out.
For those planning to get involved with the California cannabis industry in the near future, Bricken says there are eight crucial, yet undetermined, factors that are destined to play a significant role in eligibility: residency, for-profits, financing, priority licensing, licensing limitations, distribution, licensing fees, and license applications.
Although the new medical marijuana rules do not yet have a definitive residency requirement, Proposition 64 does. Yet there are some missing variables in the equation that are expected to shape the personality of the marketplace once they are hashed out.
“If licenses begin to issue in 2018, California legal marijuana has a three-year residency requirement,” Bricken wrote. “However, regarding a licensee entity, it’s the “controlling persons” that must be residents. Notably, “controlling” isn’t defined in the initiative, so the state will need to address this in its rule-making. How the state defines “controlling” will likely determine whether out-of-staters (including residents of foreign countries) can participate in California’s adult use marijuana industry as owners of a licensed business.”
When it comes to whether the new medical marijuana law will allow the participation of “for-profit” businesses, Bricken anticipates that “it will,” but she remains uncertain about whether it will permit “existing non-profit medical marijuana collectives to just convert to for-profit companies, or whether it will instead force collectives to wind down before and start brand new for-profit companies.”
There is nothing written in the language of MCRSA or Proposition 64 that properly addresses the issue of financing – making it the state’s responsibility to work out at some point in 2017. This decision could have a heavy influence on the way the entire industry takes shape.
“If California borrows from Washington, Colorado, or Alaska, financing for California cannabis businesses will likely be hamstrung by residency,” Bricken wrote. “If California takes its financing page from Nevada, Illinois, or Oregon (all of which have no residency requirements), cannabis investments in California will likely explode.”
Both the state’s medical and recreational marijuana laws come equipped with priority licensing thresholds – giving individuals and facilities in good standings with local jurisdictions first priority with respect to licenses. However, as Bricken points out in her analysis, neither law tells “us much about what priority status will actually mean or the detailed standards for proving it.” This aspect of the law is not expected to become anymore clear until rule-making is complete.
There will also be licensing limitations issued under the new medical marijuana plan, yet exactly what those restrictions will look like remains to be seen. Proposition 64 includes language that prohibits large-scale cultivators from getting involved within the first five years of operation, which is the only licensing limitation for that sector thus far. But Bricken says “that could change once the state begins to rule make.”
Some of the distribution rules changed earlier this year with respect to medical marijuana, forcing the industry to obtain product through a “licensed distributor.” There are still some additional rules with respect to this portion of the MCRSA that will need to be addressed by the state. Nothing even remotely close to this will be a concern for those operating under Proposition 64, as the businesses affected by these rules will not be allowed to exist for at least another five years. Yet, Bricken expects the true definition of “distributor” to be ironed out in the coming months during the rule making process.
No one has any idea what the licensing fees will amount to with respect to both laws. Although these types of fees are typically much higher in medical marijuana states, California’s recreational law is designed to include the businesses already operating in the medical sector.
“It’s unlikely California will make its licensing competitive and cost prohibitive,” Bricken writes.
Finally, not much is known about what the state will require in its licensing applications. Yet, industry hopefuls should, at bare minimum, be expected to divulge information regarding finances and personal background, annual budget, proof of insurance, transportation plans, etc.
One thing is certain — the elusiveness behind California’s new “legal” cannabis industry will give way to some clarity in the next few months, as the state’s Bureau of Marijuana Control and various other state agencies begin to work out all of the details within the crevasses of law.
It’s going to get interesting.
