NOVEMBER 2018 - Capitol Corner
On October 19th, proposed rules – from the state’s Bureau of Cannabis Control, Department of Food and Agriculture and Department of Public Health – were released. These are draft permanent regulations that will replace the emergency regulations that were extended in June. The new rules touch on areas including marijuana delivery, packaging and events.
Regulators are slated to finalize the rules by early December, following input from the public, which ended November 5th.
Among the biggest proposed changes:
Cannabis delivery would be prohibited by third-party companies that do not have state cannabis commercial licenses, but the rules do allow for tech platforms to help facilitate deliveries as long as there’s no direct profit-sharing based on sales. The move could undercut business models of companies such as Eaze and Weedmaps when it comes to delivery.
The draft rules would reduce the amount of inventory allowed to be carried by a single delivery vehicle, from $10,000 to $5,000. And at least $2,000 of that inventory would have to have existing orders in place from customers before drivers leave a delivery hub.
Licensed cannabis businesses would be required to disclose far more information about individuals and companies that hold ownership stakes – a move that amounts to a “ban on silent partners.” Essentially, the BCC “wants to know who’s standing to profit and who has a standing in each of these companies.”
Packaging and labeling provisions would change dramatically, including one that would allow manufacturers to hold off on identifying THC and CBD content before having their products tested through distributors and laboratories. That would let distributors get edibles and concentrates tested for potency and then add that information to labels before products are sent to retailers.
Child-resistant packaging requirements would shift and not be required for manufacturers until January 2020. This would mean more onus would be placed on retailers to use child-resistant exit bags at storefronts through 2019.
Licensed cannabis events would no longer be confined to county fairgrounds, which means there would likely be a proliferation of cannabis events of various types.
Licensing and branding agreements with legacy operators that were growing or manufacturing without a state permit would be expressly prohibited. This move would likely cut off one more avenue for longtime cannabis companies that have had a hard time obtaining the necessary permits to operate in the regulated market.
Testing requirements would be modified to ease the previously strict mandates that have led to a number of product failures and recalls.
As presumed, Gavin Newsom won the state’s gubernatorial race by double-digits. His ascension to the Governorship is a big win for the cannabis industry. He was one of the early proponents of legalization and supporters of Prop. 64. This is going to be a marked difference to outgoing Governor Brown, who was not supportive of Prop. 64 and has taken a very “hand-off” approach to the regulation of the industry, essentially letting the regulating agencies set the agenda. We anticipate Newsom being a very active participant in shaping the industry, where Prop. 64 will allow.
Both the Senate and Assembly Democrats were successful in achieving a supermajority in their respective Houses. This should have no direct bearing on the industry, outside the fact that they can adjust taxes without a Republican vote, which could be of interest if Bonta/Lackey re-introduces AB 3157, which reduced the excise tax on cannabis from 15% to 11% and suspended the cultivation tax until 2021.