Final Friday, we wrote concerning the amended proposed everlasting hashish laws that at the moment are in a 15-day notice-and-comment interval for every California company—the Bureau of Cannabis Management (“BCC”), Division of Public Well being (“DPH”), and Division of Meals and Agriculture (“DFA”). Every of the proposed guidelines could be discovered right here, right here, and right here. The subsequent spherical of written public feedback is due to every company by November 5, 2018. It’s essential then for California hashish companies to get a deal with on the proposed laws as shortly as attainable to decide whether or not to present written feedback since some impactful modifications are coming.
Listed here are the important thing proposed modifications from the BCC laws:
Mental Property Licenses: Yesterday, we defined the menace that the BCC’s laws pose to hashish mental property licensing in California. Our California hashish legal professionals are frequently concerned in mental property licensing offers and we expect it’s essential for hashish companies to converse up in opposition to this proposed rule. California can be the one state within the hashish union to bar third-party IP-licensing offers for hashish licensees, which will definitely undercut the enterprise progress of an excellent quantity of operators if this rule passes.
“Owners”: The BCC modified the definition of “owner” (in addition to “financial interest holder”; see under), which now consists of “[a]n individual entitled to a share of at least 20 percent of the profits of the commercial cannabis business.” That is a lot broader than the prevailing 20 % combination possession threshold (which additionally nonetheless stands). For instance, the present possession threshold definition expressly states that it doesn’t apply the place that curiosity holder holds “solely a security, lien, or encumbrance.” This new addition to the principles appears to seize a mere safety holder—as long as that safety holder is entitled to 20 % of the income.
The BCC additionally expanded upon the type of “ownership” that requires disclosure based mostly on assumption of duty for the license, by specifying sure sorts of individuals or entities who qualify (notice that this record is just not exhaustive or full, so it probably can be learn much more broadly), as:
- Individuals who handle or direct the licensed enterprise in trade for a portion of the income. Notice, there isn’t a minimal threshold for revenue entitlements right here, so this might embrace individuals who anticipate lower than 20 % of the income.
- Individuals who assume duty for the licensed enterprise’ money owed. Right here too, there isn’t a threshold for debt assumption.
- Individuals who decide how “a portion” of the licensed enterprise is run. This consists of issues similar to “non-plant-touching portions of the commercial cannabis business such as branding or marketing”, nevertheless it too might embrace far more broad classes of enterprise operations.
- Individuals who decide what hashish items can be cultivated, manufactured, distributed, bought, or bought.
Notably too, these modifications now take the place that if an “owner” is an entity, all entities and people with a monetary curiosity in that entity have to be disclosed to the BCC and could also be thought-about house owners of the business hashish enterprise. The BCC emphasised that every entity and individual within the company chain have to be disclosed till the applicant can determine precise individuals.
The takeaway from these modifications is that the BCC now needs full identification of any one that has something to do with an applicant entity—even when that individual merely owns an organization a number of steps away in a company chain. That isn’t dissimilar to what our hashish enterprise legal professionals have seen in Oregon and Washington.
“Financial Interest Holder”: Like earlier than, the BCC considers a monetary curiosity to embrace an settlement to obtain a portion of the income of a licensed entity. Now, nevertheless, the BCC provides a variety of examples of what qualifies as such an settlement:
- An worker who enters right into a profit-share plan with a licensee.
- A landlord who enters right into a lease settlement with a licensee for a share of the income.
- A marketing consultant who offers providers to a licensee for a share of the income.
- An individual who acts as an agent, resembling an accountant or lawyer, for the licensee for a share of the income.
- A dealer who engages in actions for the licensee for a share of the income.
- A salesman who earns a fee.
The BCC will now additionally require the identification of all individuals within the company hierarchy for curiosity holders, comparable to the principles relating to house owners. Which means, if a monetary curiosity holder is an entity, everybody in that entity is getting disclosed .
Annual License Charges: The BCC scrapped its earlier check for figuring out the quantity of applicable charges for the annual licenses—estimating the utmost greenback worth of deliberate operations—and now has created a brand new components: “To determine the appropriate license fee due, the applicant or licensee shall first estimate the gross revenue for the 12-month license period of the license.”
Modifications in Possession: The BCC can also be increasing its prohibition on modifications of possession over a licensed entity. If any new individual is added as an “owner” by advantage of a change in possession of a licensed entity, that individual will want to present the huge classes of data required by part 5002(c)(20) inside 14 calendar days of the switch. It will clearly have an effect on California hashish M&A. The enterprise can nonetheless function pending the change as long as one earlier proprietor stays on; in any other case, operations will want to stop pending the BCC’s evaluate of the brand new proprietor. The BCC can also be now requiring 14 calendar days’ notification of modifications in any of the next:
- Any modifications to the contact info that was offered to the BCC within the unique software;
- Any change in authorized identify, enterprise identify, commerce identify, or fictitious enterprise identify of the licensee;
- Any change to monetary info, together with funds, loans, investments, and presents required within the unique software;
- Any change within the required bond; or
- Any change or lapse in a distributor’s insurance coverage protection.
Annual License Purposes and Necessities: As to annual licenses, the BCC made tweaks to the knowledge that it’ll require for submission, which alerts its want to place extra scrutiny on candidates and guarantee compliance with California regulation. We gained’t clarify each change right here, however listed here are the important ones:
- First, the BCC modified the requirement to present it with “The business-formation documents” for the licenses enterprise to “All business-formation documents”.
- Second, the BCC is requiring that candidates present it with state employeridentification numbers (“SEIN”), which the BCC explains in its discover of modification as being “necessary to ensure that all applicants that are required to obtain such a number have obtained it and are thus, in compliance with California law.”
- Lastly, licensees with multiple worker should attest that inside one yr of receiving their license, the licensee could have staff who’ve undergone sure Cal-OSHA security coaching.
The BCC can also be beefing up its necessities for renewal of licenses to require documentation of any change to any merchandise listed within the unique software. So, likelihood is that if a hashish enterprise obtains an annual license earlier than these proposed modifications turn out to be efficient (and assuming they do), that enterprise will want to present these further disclosures later.
Premises: There are a selection of modifications to the proposed guidelines regarding licensed premises, however listed here are the highlights:
- Whereas it’s been routine for a number of licensees to function on the identical premises, the proposed modifications now expressly state that they don’t “prohibit two or more licensed premises from occupying separate portions of the same parcel of land or sharing common use areas, such as a bathroom, breakroom, hallway, or building entrance.”
- The premises should include everlasting buildings—delivery containers, modular buildings, or something on wheels are a no-go—which are affixed to the bottom and never able to motion.
- There’s now a type (BCC-LIC-027) to submit to the BCC to request to make a bodily change or alteration to the premises.
Advertising and Promotions: Licensees can be prohibited from promoting or transporting items which might be recognized as any sort of alcoholic product (they usually can’t refer to something as containing or being an alcoholic product). There are additionally now definitions for promotional items and branded items. If licensees need to promote branded items that aren’t listed within the definition, they’ll want to search BCC approval first. The proposed modifications additionally make clear that licensees can present clients with promotional non-cannabis items—and it seems to be like these items might be offered on the premises or by way of supply, too.
Packaging: The proposed modifications arrange a time tier for hashish packaging, whereby till January 1, 2020, hashish packaging wants to be tamper-evident, in some instances re-sealable, and should not appear to be packaging that’s marketed to youngsters. Till January 1, 2020, retailers and microbusinesses can fulfill this rule by offering opaque exit packaging that meets the foregoing requirements.
Testing and High quality Assurance: The proposed laws embrace prohibitions on re-sampling beforehand examined batches, new necessities for remediation plans for failed batches, and new necessities for high quality assurance testing for the extent of THC, CBD, and terpenoids, amongst different issues. If items have undergone testing and haven’t been bought in 12 months, they now have to be destroyed.
Retailer Packaging: Comparable to the revised distribution guidelines, the proposed modifications arrange a schedule that require tamper-evident packaging till January 1, 2020, and re-sealable, tamper evident, and child-resistant packaging thereafter. There are reverse necessities for retailer exit packaging—it have to be child-resistant, re-sealable and opaque till 2020, after which simply opaque thereafter.
Deliveries: The principles now extra closely regulate a retailer’s use of tech platforms for supply (i.e., the platform can’t share income and may’t be the one doing the supply, presumably until it too is licensed). Supply automobiles can’t include any exterior markings that point out that they’re delivering hashish items. Supply automobiles might now carry solely $5,000 in hashish items directly. And the most important change of all, per the modified part 5416(d), deliveries could be made into any jurisdiction within the state, as long as they adjust to the BCC’s supply guidelines. Presently, localities can and do prohibit deliveries from different jurisdictions. The BCC’s proposed laws, nevertheless, now open the floodgates to beforehand “dark” supply jurisdictions.
For the subsequent few days, we’ll be writing on the proposed guidelines issued by DPH and DFA. We can’t emphasize sufficient how licensee stakeholders want to converse up and supply public remark for the principles they like and don’t like in order that business can higher form the regulatory enjoying subject. So, get these feedback in by November 5!