With the passing of California’s Medical Cannabis Regulation and Safety Act (“MCRSA”), California begins the process of evolving from a largely unregulated market to a state- and local-regulated medical marijuana framework. The result should prove to be one of the most complex and comprehensive medical marijuana markets in the United States. Following is a summary of the breadth and depth of the upcoming regulatory environment.

MCRSA is comprised of three legislative bills – Assembly Bills (AB) 266 and 243 and Senate Bill (SB) 643.

AB 266 is significant as it allows for-profit cannabis businesses to obtain medical marijuana state-issued licenses and permits cities and counties further regulatory oversight and licensing privileges, or dual-licensing. AB 266 also established the Bureau of Medical Cannabis Regulation (BMCR) as a part of the Department of Consumer Affairs. BMCR will be responsible to create, implement and monitor rules and regulations to support MCRSA. AB 266 establishes 17 different types of operational medical marijuana licenses – including dispensaries, cultivation centers, transporters, wholesalers, etc. There are limits on the number of licenses per licensee as well as the varying combinations of license types, or vertical integration.

AB 243 has a primary focus with rules and regulations related to the cultivation of medical marijuana, as well as environmental concerns and labeling requirements. Agencies focused on these areas will be the Departments of Food and Agriculture, Pesticide Regulation, Fish and Wildlife and the State Water Resources Control Board.

SB 643 deals with regulatory standards for physicians, doctors and applicant screening processes. Physicians and doctors may not abuse or overly recommend marijuana for approved medical use without having required “patient-doctor” relationship. They are not allowed to have direct or indirect financial interest in a dispensary to which they refer medical marijuana patients.

These three legislative bills include regulatory oversight, under BMCR, from the following state agencies:

  • California Department of Food and Agriculture
  • California Department of Pesticide Regulation
  • California State Department of Public Health
  • Department of Fish and Wildlife
  • State Water Resources Control Board
  • California Medical Board

These agencies are tasked with establishing rules and regulations for product traceability, testing standards, labeling and product safety, security and surveillance, business records required, anti-diversion programs and more. Given the inclusion of multiple agencies with regulatory oversight, managing and monitoring compliance for cannabis businesses will be of utmost importance.

Mandated Timeline

Regulatory agencies in California have until January 2018 to establish the rules adopted in MCRSA. This includes the state and local level. The BMCR agency is in charge of overall oversight and coordination at the state level. The rule making proceedings are mandated to conclude within one year and scheduled to start toward the end of 2016.

The Local Environment

On top of California’s state regulatory environment, each city and county will control licensing at the local level. This dual licensing system allows local agencies to ban and/or restrict licensing at the local level. Some of the most impactful regulatory rules and requirements will come from local legislators. A few cities have already developed fairly detailed local requirements, such as Los Angeles, Santa Ana and Santa Cruz.

Moving Forward

How do cannabis businesses in California get ready? Get ahead of the regulatory curve and start with a compliance-centric business model. Know in advance the regulatory impacts for your business license types and various ownership rules. Limits or restrictions on types of vertical integration will have an impact on most cannabis business license types. With 17 license types upcoming, including new ones such as Distribution and Transport licenses, it will be imperative to understand the operational limits and confines of each. Success in California will start with regulatory and financial compliance.

About the author(s)

Evan Eneman
Evan has more than 18 years of experience assisting private and public companies in a variety of industries including Cannabis, Financial Services, Healthcare, Technology, Media, and Entertainment. His areas of expertise include: strategy, compliance, enterprise risk management, business process, internal controls, audit, governance, and IPO readiness. Evan also has experience founding and running an early stage venture capital firm and a branding and marketing agency dedicated to the cannabis industry. Prior to his involvement in the cannabis industry, Evan spent 12 years with a Big Four firm, advising Fortune 100 and emerging growth companies on various aspects of governance, risk, compliance, operations and strategy.