Licensing for Cannabis Businesses Under California's Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)

With the passage of Senate Bill 94, California now has a unified licensing and regulatory program for medicinal and adult-use cannabis businesses. This regume is called the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). (The full text of the combined MAUCRSA is available here.)

Under MAUCRSA, licensing is necessary for all commerical cannabis activity in California. Business & Professions Code 26038. The state's agencies are required begin issuing licenses by January 1, 2018. Business & Professions Code 26012.

Cannabis Business License Types

Under MAUCRSA, the state will offer 6 categories of licenses:

Cultivation covers flowering for sale of harvested plant material, as well as nurserys for sale of immature plants to other cultivators. Cultivation licenses come in Speciality-size (Type 1/1A/1B), Small (Type 2/2A/2B), and Medium (Type 3/3A/3B) flowering operations, and a seperate nursery license (Type 4). Large (Type 5/5A/5B) flowering licenses will be available starting in 2023. Types 1, 2, 3 and 5 refer to outdoor licenses, Types 1B, 2B, 3B, and 5B refer to mixed-light licenses, and Types 1A, 2A, 3A, and 5A refer to mixed-light (e.g. greenhouses with supplemental light). The details are set out in Business and Professions Code 26061.

Manufacturing licenses cover extraction of cannabis compounds from plant matter, infusion, and compounding. Type 6 - Manufacturer 1 licenses allow for extracituon using non-volatile solvents, as well as solvent-less operations. Type 7 - Manufacturer 2 licenses allow for volatile solvent extractions. The details are set out in Business & Professions Code 26130.

Retailer licenses allow for retail sales of cannabis and cannabis products to consumers, either at a brick-and-mortar dispensary or via delivery, under license Type 10. The details for retail generally are set out in Business & Professions Code 26070, and for delivery in Business & Professions Code 26090.

Distrubutor licenses provide for wholesale transactions, sucgh as purchases from cultivators and manufacturers and sales to retailers, under license Type 11. Distributors also provided required quality assurance services and arrange for (but do not perform) lab testing. The details are set out in Business & Professions Code 26070.

Microbusiness licenses allow vertically integrated operations under a single Type 12 license, including cultivation, manufacturing, and retail. Cultivation is limited to 10,000 square feet of canopy, which is equivalent to a Type 2/2A/2B cultivation license. The details are set out in Business & Professions Code 26070

Testing Laboratory licenses allow for required testing for cannabinoid levels (such as THC and CBD), pesticides, fungus, heavy metals, and other contaminants, under license Type 8. The details are set out in Business & Professions Code 26100.

Medicinal Versus Adult-Use Licenses

With the exception of Type 8 Testing Laboratories, all licenses under MAUCRSA will be either for medicinal (M) or adult-use (A), and not both.Business & Professions Code 26050(b). However, the law allows for same person to hold both types of licenses, "provided the licensed premises are separate and distinct." Business & Professions Code 26053.

Cross-Ownership

With two exceptions, a single person or business may, under MAUCRSA, hold more than one of the same licenses as well as licenses of more than one type. Business & Professions Code 26053(c).

As a result, while quality assurance and other steps by a licensed distributor are required, a cultivator, maufacturer, or retailer can obtain a distribution license and perform those activities themselves. This addresses concerns that mandatory distribution would increase prices.

The first exception to permitted cross-ownership is a licensed testing lab may not hold a license in any other category, so that testing labs are independent. Business & Professions Code 26053(b)

The second exception to permitted cross-ownership is that person with a Type 5 cultivation licenses -- for more than 22,000 square feet, availale starting in 2023 -- may not also hold a testing laboratory, distribution, or microbusiness license. [Business & Professions Code 26061(d)] (https://www.ringgenberglaw.com/california-cannabis-statutes#BP26053).

While MAUCRSA does not expressly provide for limits on the number of licenses a single person may hold, it is possible that the regulating agencies may impose such a limit. The draft medical regulations under now-repealed MCRSA imposed a limit of four acres of cultivation canopy, and the coming regulations under MAUCRSA may contain this or a similar limit.

The Need for Local Licensing

A key component of MAUCRSA is that a state license may only be issued if the licensee's activity is permitted by its local government. Business & Professions Code 26055. For a location within a city's limits, the relevant authority is the city government. For areas outside of city limits, the relevant authority is the county government. Nearly all local governments only allow commerical cananbis activity with a local license. As a result, a local license or other authorization from the local city or county is an effective requirement for a state license.

Most local jurisdictions have not yet decided whether or how they will allow for licenses for commerical cannabis activity. News updates on local-level action is collected on our licensing news pages. Those cities and counties that have moved forward with a cannabis licensing program have varied rules and requirements. Typically, however, cities and counties require cannabis busineses to be located in specifically zoned areas, the so-called "green zone," which often limits different license types to different areas. In addition, local governments also typically require applicants to go through a vetting process, and sometimes limit the number of licenses, imposing a competitive scoring process. Many jurisdictions also require conditional use permits or similar procedures.

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