California Releases Emergency Rules for Shared-Use Manufacturing Facilities

On March 23, The California Department of Public Health (CDPH) Manufactured Cannabis Safety Branch (MCSB) released proposed emergency regulations for California’s much anticipated shared-use cannabis manufacturing (“Type S”) licensing. The regulations were filed with the Office of Administrative Law on Tuesday and will now undergo a 5-day public comment period. They are expected to take effect on April 13, 2018.

The new license type was created in large part to address the cost prohibitive nature for small cannabis manufacturing businesses, particularly edibles manufacturers, of obtaining their own space and building out code compliant facilities such as commercial kitchens in order to get licensed and operate legally. The new regulations allow these smaller cannabis manufacturing businesses to instead use the space, equipment, and facilities of larger manufacturers.

Who can participate:

Under the regulations, cannabis manufacturers with a Type 7 (volatile extraction), 6 (non-volatile extraction), or N (infusion) license can register their licensed location as a shared-use facility and become a “primary licensee.” MCSB Emergency Regulations for Shared-Use Facilities (Shared-Use Regs) § 40190.

Other manufacturers can then apply for a Type S license to operate their business at the registered facility of the primary licensee. The Type S license is only available to applicants with a gross revenue of no more than $500,000. Type S licensees can conduct infusions, packaging, and labeling operations. They can also conduct extractions with butter or food-grade oils, but any extracted oils or concentrate can only be used in the licensee’s own products and cannot be sold to other licensees. Shared-Use Regs § 40191(b).

How it works:

Once the rules take effect, temporary facility registration and Type S applications will be available on CDPH's website. To register, primary licensees must provide evidence of local authorization to operate as a shared-use facility. Because many local laws mimicked the original state laws and prohibited multiple licensees from operating on the same premises, it may take time for local jurisdictions to catch up and authorize spaces for shared-use. No licensee can operate as a shared-use facility without first receiving CDPH approval.

Once registered, primary licensees can then host Type S licensees by letting those licensees use the facility during designated times. While there is no limit to the number of Type S licensees that can be hosted by a primary licensee, only one licensee can use the facility at a time. Type S licensees must each be assigned a "designated area" where that licensee has exclusive use and control, and can securely store its cannabis and cannabis products.

Manufacturers can apply for temporary Type S licenses by providing, among a few other requirements, evidence of local authorization (i.e. a copy of a local permit or license) to use a registered facility. Annual licensing applications will require additional submissions, including a use agreement between Type S licensees and primary licensees, more detailed business owner information, diagrams of the space, the occupancy schedule, and applicants for annual licenses must also demonstrate their compliance with, or exemption from CEQA regulations.

There is no application fee for temporary Type S licenses and a $500 application fee for annual licenses. The annual license fee for Tier I manufacturers (with an annual gross revenue of up to $100,000) is $2,000 and the fee for Tier II manufacturers (with an annual gross revenue of up to $500,000) is $7,500. For annual licenses, the $500 application fee is paid when the application is submitted and the license fee is paid once the application is approved. See MCSB Emergency Regulations for Cannabis Manufacturers (Emergency Regs) § 40150; Shared-Use Regs § 40191.

Licensees responsibilities:

Primary licensees are responsible for maintaining the facilities and ensuring the facilities meet state and local regulations, which includes providing security, waste management, contamination controls, and secured storage for Type S licensees in their designated areas. The primary licensee is also responsible for maintaining an up-to date schedule with CDPH. Shared-Use Regs § 40194.

Although the rules allows primary licensees and Type S licensees to allocate responsibilities between themselves for issues such as security, fire monitoring, liability for the theft or violations by agreement, the rules state “such agreement is not binding on the Department in taking any compliance or enforcement action.” The rules likewise provide that while a licensee is responsible for any violations that occur during that licensee’s scheduled time or within that licensee's designated area, a violation could also be deemed a violation for which all licensees who use the facility are responsible. Shared-Use Regs § 40196.

More details and information can be found CDPH's website, including MCSB's summary of the emergency regulations for shared-use facilities, which is linked here.

Hannah Strassburger