Cannabis businesses in California are starting to experience more and more regulatory hurdles. With cities and counties continuing to develop and publish new regulatory code and marijuana statutes, the compliance landscape in California is emerging. The number of regulatory agencies a cannabis business will need to contend with is overwhelming. Operational marijuana business licenses in California will face Federal, State and Local compliance regulators:

Federal Compliance Agencies:

  • Internal Revenue Service (IRS)
  • Occupational Safety and Health Administration (OSHA)
  • Department of Agriculture
  • Department of Labor
  • Environmental Protection Agency (EPA)
  • Consumer Protection Act

State Compliance: MCRSA and BMCR, includes six regulatory 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

County/City Compliance

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. On top of Federal and State regulations, city and county ordinances, rules and requirements will need to be taken into consideration in terms of overall compliance and standard operating procedures.

Regulator’s Perspective

ELLO is working directly with city and county regulatory authorities in California to help manage the Medical Marijuana Tax (MMT) initiatives and perform financial assessments and audits on cannabis operations. As cities and counties across the State of California face increasing cost pressure, many government executives are planning to turn to Medical Marijuana businesses as a source of additional tax revenue.

At a minimum, this strategy is the logical choice for meeting the unique cost burden driven directly by the marijuana industry. At a maximum, taxation has the potential to ease cost pressures in other areas of the budget. Creating a regulatory tax system is critical not only to promote fiscal strategies but it can also be helpful for marijuana businesses seeking to comply with safety and control policies related to the product and its distribution.

As more and more agencies get involved the greater the risk to cannabis businesses for fines, penalties and administrative actions. If state and local municipalities share a compliance notification process, a state or local infraction could lead to multiple agencies levying fines and penalties. Unfortunately, this is already a common occurrence in Colorado. At times, when the State of Colorado Marijuana Enforcement Division levies fines and penalties, local city/county agencies often duplicate the violation at the local level. This ‘waterfall’ penalty effect can be extremely detrimental to an upstart business.

How to Prepare

How do cannabis businesses in California get ready? Local regulators can be proactive with the cannabis industry by helping businesses get to know in advance the regulatory impacts for their 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. By helping this industry get ahead of the regulatory curve and supporting a compliance-centric, standard operating procedure-driven business model, potential future issues and challenges can be mitigated. Success in California will start with regulatory and financial compliance and proactive partnerships between the regulators and the industry.

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.