Overview of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)

AdobeStock_64677684.jpeg

Senate Bill 94, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), was passed by the legislature on June 15, 2017 and signed into law by Governor Brown on June 27, 2017. The MAUCRSA largely repeals the Medical Cannabis Regulation and Safety Act (“MCRSA”) and incorporates certain provisions of the MCRSA into the Adult Use of Marijuana Act (“AUMA” aka Prop 64), integrating California’s medical and recreational cannabis regulatory systems.  We have also made available the full text of California's cannabis statutes after passage of MAUCRCSA.

Back in April, the California Department of Food and Agriculture (“CDFA”), the Bureau of Medical Cannabis Regulation (“BMCR”), and the Department of Public Health (“CDPH”) issued draft regulations under the now repealed MCRSA. As the regulatory agencies have said, these draft regulations will be withdrawn, amended, and reissued to reflect the new regulatory structure under MAUCRSA.

Below are major highlights of the new bill.

1.    Consolidated Licensing System

The same types of licenses will now be available for both commercial medicinal and commercial adult-use activity. Cal. Bus. & Prof. Code (“BPC”) § 26050.

Under the MAUCRSA, producing dispensary licenses and transporter licenses formerly available under the MCRSA are no more, and only distributor licensees will be permitted to transport cannabis. BPC § 26070(b). However, any licensee other than a testing laboratory licensee can now also apply for and obtain a distributor license. BPC § 26053. Starting January 1, 2023, large cultivation licenses, formerly available under the AUMA in 2023 but not available under the MCRSA, will be available for both medicinal and adult-use cultivation. BPC § 26061(c) & (d).

All licenses other than testing laboratory licenses will be designated as either “M” (Medicinal) or “A” (Adult-Use). BPC § 31(b).

Here are the available licenses under the MAUCRSA (BPC § 26050):

·      Type 1 = Cultivation; Specialty outdoor; Small.

·      Type 1A = Cultivation; Specialty indoor; Small.

·      Type 1B = Cultivation; Specialty mixed-light; Small

·      Type 1C = Cultivation; Specialty cottage; Small.

·      Type 2 = Cultivation; Outdoor; Small.

·      Type 2A = Cultivation; Indoor; Small.

·      Type 2B = Cultivation; Mixed-light. Small.

·      Type 3 = Cultivation; Outdoor; Medium.

·      Type 3A = Cultivation; Indoor; Medium.

·      Type 3B = Cultivation; Mixed-light. Medium.

·      Type 4 = Cultivation; Nursery.

·      Type 5 = Cultivation; Outdoor; Large.

·      Type 5A = Cultivation; Indoor; Large.

·      Type 5B = Cultivation; Mixed-light; Large.

·      Type 6 = Manufacturer 1.

·      Type 7 = Manufacturer 2.

·      Type 8 = Testing laboratory.

·      Type 10 = Retailer.

·      Type 11 = Distributor.

·      Type 12 = Microbusiness.

2.    Vertical Integration and Anti-Competitive Business Practices

The MAUCRSA permits vertical integration by license holders that was prohibited under the MCRSA, allowing a person to hold licenses in more than two separate licensing categories, so long as licensed premises remain “separate and distinct” from one another. BPC § 26053(c). Testing laboratory licensees are still prohibited from obtaining any other license type, and those holding large cultivation licenses, which become available after January 1, 2023, will be prohibited from also holding distributor licenses or microbusiness licenses. BPC §§ 26053(b) & 26061(d).

Because vertical integration will now be permitted, the MAUCRSA contains language aimed directly at preventing any unfair business practices that would discourage competition or create monopolies. BPC §§ 26051 & 26052. The state licensing authority is also authorized to deny licenses to any retailer, microbusiness, or nonprofit, if granting a license creates “an excessive concentration.” BPC § 26051.

3.    Transition Period and Continuing Operations

A new major concern under the MAUCRSA is what businesses already in operation should do during the transition period, before the State begins issuing licenses on January 1, 2018, and while state license applications are pending.

Under the MCRSA and the recently released draft regulations, anyone operating in compliance with local law on or before January 1, 2018 could continue operating until their state applications were processed, so long as they applied by July 2, 2018, operated in compliance with all local and state requirements other than possessing a state license, and their continuing operations were the same activities for which the applicants were seeking licensure. BPC § 19321; CDFA Draft Regulations § 8104.

The MAUCRSA contains no such language. Presumably, new regulations adopted by the CDFA will still allow this grace period for continued operations while state licenses are pending.

4.    Residency Requirements

There are no longer residency requirements for licensees. However, local county and city jurisdictions may still impose their own residency requirements.

5.    Governing Bureau

The governing Bureau within the Department of Consumer Affairs, formerly the Bureau of Marijuana Control or the Bureau of Medical Cannabis Regulation is now the Bureau of Cannabis Control (“Bureau”). BPC § 26001(e). The Bureau will no longer regulate industrial hemp. Cal. Health & Safety Code (“HSC”) § 11018.5.

6.    Compliance with Local Authority

Applicants are no longer required to demonstrate local authorization as a prerequisite to obtaining a state license. Under the MAUCRSA, an applicant may voluntarily provide proof of local authorization to verify compliance with local law, but is not required to do so. BPC § 26055. If the state licensing authority is not notified that an applicant is not in compliance with local law within 60 business days after the state authority inquires with the local authority about an applicant, it will assume the applicant is in compliance. BPC § 26055(g)(2)(D).

7.    Definition of Owner

The MAUCRSA has refined the definition of an applicant’s “owner,” and no longer distinguishes between public and private companies. An owner now includes: (1) anyone with an aggregate ownership interest of 20% or more in the applicant, unless the interest is solely a security, lien, or encumbrance, (2) the chief executive officer of a nonprofit or other entity, (3) a member of the board of directors for a nonprofit, or (4) an individual participating in the direction, control, or management of the applicant. BPC § 26001(al). Each owner of the entity applying for a license is required to submit fingerprint images and background checks. BPC § 26051.5. There is speculation this change in definition indicates the State will heighten its due diligence efforts during the application process.

8.    Organic, Varietal, Appellations and other Standards

By January 1, 2018, there will be standards in place for cultivators to designate counties of origin, and by January 1, 2021, a process for cultivators to establish “appellations of standards, practices, and varietals” for cannabis grown in particular geographical regions of California. BPC § 26063. These standards should function like the appellations, and varietal designations in the wine industry. By January 1, 2021, there will also be a program for designating and certifying cannabis as organic. BPC § 26062.

9.    Definition of Volatile Solvent

A volatile solvent is now defined under the MAUCRSA as “a solvent that is or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures.” HSC § 11362.3(b)(3). The definition no longer includes the list of specific compounds, as it did in the AUMA.

10. Cannabis Tax

Effective January 1, 2018, the cannabis excise tax will be 15 percent of the average market price, instead of 15 percent of the average gross receipts specified under the AUMA. Cal. Rev. & Tax. Code (“RTC”) § 34011.

11. Advertising Requirements and Restrictions

Unlike the MCRSA, the MAUCRSA imposes extensive, specific advertising restrictions and labeling requirements on licensees. Regulations include requirements for properly labeling cannabis products by including a licensee’s identifying information, accurately representing any designations of origin, and prohibitions marketing on interstate highways, near K through 12 schools or youth centers, broadcasting advertisements where less than 71.6 percent of the audiences is reasonably likely to be 21 or older, or using any marketing that is attractive to children. BPC § 26152. MAUCRSA also requires edible cannabis products to be marked with a universal symbol. BPC § 26130(c).

12. Retail and Delivery

Retailers are now authorized to have physical premises that are closed to the public, and to conduct sales exclusively by delivery (e.g. online services). BPC § 26070.

13.  Identifying a Water Source

While both the AUMA and the MCRSA required cultivators to identify the source of their water supply, MAUCRSA outlines new, specific requirements. BPC § 26060.1. For example, cultivators using a small* retail water supplier and a water supply source that includes a diversion, and who are seeking licensure before January 1, 2019, had until July 1, 2017 to file a statement of water diversion with the State Water Resources Control Board. BPC § 26060.1(a)(2)(A)(iii).

14. Onsite Consumption and Sales

If permitted by the local jurisdiction, the State can issue temporary licenses at county fairs or district agricultural events. BPC § 26200(e).

Local jurisdictions can also allow for onsite cannabis consumption, so long as (1) the area where cannabis is consumed in an area restricted to people ages 21 and up, (2) the consumption is not visible to the public or a nonage-restricted area, and (3) alcohol or tobacco consumption is not also allowed on the premises. BPC § 26200.

* A retail water supplier is “small” if (1) the supplier has fewer than 10 customers, (2) the applicant receives more than 10 percent of the retail supplier's water, or (3) 25 percent or more of the water delivered by the retail water supplier is used for cultivation, or (4) the supplier is an affiliate of the applicant. BPC § 26060.1(a)(1)(B).

Hannah Strassburger