California just released its much-anticipated proposed regulations to govern medical and adult-use commercial cannabis activity in the state commencing on January 1, 2018. This comprehensive set of proposed regulations replaces a prior set of regulations intended to govern just medical cannabis activity that the state withdrew in recent months. The document, 274 pages in length, is broken into three broad categories: general licensure requirements, manufacturing-specific requirements, and cultivation-specific requirements. 

California is a dual-license state, meaning businesses must comply with both state and local regulations. Thus, if a local jurisdiction bans or restricts cannabis businesses in some way different than the state, then the business must comply with the more restrictive local requirements. Below is a broad summary of a few notable state requirements:

Temporary Licenses

• Temporary licenses will be available to existing cannabis businesses that can provide proof that the business has a valid license, permit, or other authorization issued by the local jurisdiction in which the business is operating.
• Temporary licenses will be effective January 1, 2018, and last 120 days from issuance, but may be subject to 90-day extensions.

Transition Period

To support a transition of business into the new regulated marketplace, from January 1 to July 1, 2018, California will allow the following:

• Transportation of cannabis good that do not meet new labeling requirements;
• Selling cannabis goods held in inventory that do not meet new packaging requirements;
• Selling cannabis products that do not meet new THC limits per package.

Annual State Licenses

• There is no cap on the number of state licenses that may be held by an applicant.
• There is no restriction on the types of licenses a business may hold, except testing laboratories may not hold other licenses in order to preserve their independence.
• Proof of local license, permit, or other authorization is required.
• “Owner” means a person who: (a) holds at least 20 percent aggregate ownership interest in the business; (b) is a CEO or member of the board of directors of a non-profit; or (c) will be participating in the direction, control, or management of the entity. All owners are subject to background criminal checks.
• Priority licenses are available for a business that can demonstrate that it was in operation and in good standing with the local jurisdiction by September 1, 2016.
• Premises requirements:
  • Businesses must provide proof of permission from landlord/owner and to-scale diagrams.
  • 24-hour video security measures are required at licensed premises containing cannabis and cannabis products.
• A business can operate both medical and adult-use at one location if certain restrictions are met.

Distributor Licenses

• Transportation of cannabis between licensees must be conducted by licensed distributors.
• Distributors may hold a license (a) limited to just transportation; (b) to arrange for testing, checking for appropriate packaging and labeling, and collecting taxes; (c) act as a wholesaler.

Retailer/Dispensary Licenses

• Beginning in July 2018, retailers may not package or label cannabis on the premises and all cannabis and cannabis products must be packaged and labeled before arriving at retailer.
• Retail sales are permitted between 6 a.m. and 10 p.m.