California Cannabis: Breaking Down the CDPH Permanent Regulations

22 Jan California Cannabis: Breaking Down the CDPH Permanent Regulations

The State of California finally adopted permanent cannabis regulations earlier this month. In a series of posts, we’re going to cover the highlights of each agency’s permanent rules so that you know what big changes to expect during 2019. This post will cover the main changes (in our opinion) regarding the California Department of Public Health Manufactured Cannabis Safety Branch’s (“CDPH-MCSB”) permanent regs. Without further ado:

No more Farm Bill hemp-CBD ingredients or additives. It’s no secret that the California Department of Health Food and Drug Branch (“FDB”) has an issue with hemp-CBD. Specifically, an FAQ that issued from FDB last year made clear that FDB prohibits hemp-CBD in “Food” for humans and pets. Now, CDPH-MCSB is following suit (indirectly). Pursuant to new regulation 40175(c), “a manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” What this means is that using Farm Bill hemp-CBD as an ingredient or addictive to cannabis manufactured products is not allowed unless it comes from a licensed cannabis cultivator. The protections of the Farm Bill won’t apply.

Owners and financial interest holders. I recently wrote about how it’s unclear as to how far the state will now go in finding and vetting entity owners and entity financial interest holders, especially since the Bureau of Cannabis Control (“BCC”) articulates in its rules that it intends to locate and vet every human possible in pretty much any ownership structure. But what about MCSB? MCSB entity owner regulations now state that “if the owner . . . is an entity, then the chief executive officer and members of the board of directors of the entity shall be considered owners,” and for financial interest holders, MCSB rules mandate only that “financial interest holders shall be disclosed on the application for licensure.” On balance, the BCC’s owner and financial interest holder rules are much more aggressive than MCSB, and the BCC’s comments to its owner and financial interest holder rules was that all agencies would apply the same standards for vetting. However, this clearly isn’t going to be the case if stakeholders go off of a plain reading of the law. Though it will be strange, the MCSB will very likely stick to its minimal vetting requirements while the BCC goes full bore on retailer, distributor, and lab owners and financial interest holders.

Changes in ownership. Again in contrast with the BCC, the MSCB is going to be much easier on changes in ownership of licensees. Under BCC regulations, if there’s a full buy-out of all existing owners, the entity can no longer operate while the change of ownership is being reviewed and processed by the BCC. The MCSB however has no such standard, at least not one that’s codified under the new regs. Specifically, for any changes of ownership or changes to financial interest holders, the MCSB expects the following protocol:

“The licensee shall notify the [MCSB] of the addition or removal of an owner through [the agency’s online system] within 10 calendar days of the change; Any new owner shall submit the information required [by law]; The [MCSB] shall review the qualifications of the new owner in accordance with [state law] and these regulations to determine whether the change would constitute grounds for denial of the license. The [MCSB] may approve the addition of the owner, deny the addition of the owner, or condition the license as appropriate, to be determined on a case-by-case basis; An owner shall notify the [MCSB] through [the state agency’s online system] of any change in their owner information . . . within 10 calendar days of the change; and a licensee shall notify the [MCSB] through [the state’s online system] of any change in the list of financial interest holders . . . within 10 calendar days of the change.”

Labeling. Labeling is still just as intense and comprehensive as it was under the emergency regulations. Now though, manufacturers need to ensure that, if a product container is separable from the outer-most packaging (e.g., a container placed inside of a box), the product container includes the following: (1) For edible cannabis products, topical cannabis products, suppositories, or orally-consumed concentrates, all information required for the primary panel except for cannabinoid content, and (2) for inhaled products (e.g., dab, shatter, and wax), the universal symbol (which is the black triangle with a cannabis leaf and an “!” with “CA” underneath). We also now (finally) have specific labeling requirements for pre-roll and packaged flower that didn’t exist before outside of the statute, itself. Overall, there are additional technical change requirements for labeling, including the weight of the product now needing to be in metric and U.S. customary units, specific labeling for flavoring in line with federal law, and more specific labeling restrictions for cannabinoid content.

Packaging. Until 2020, manufacturers are off the hook for providing child resistant packaging (“CRP”). Until then, retailers will bear the burden of CRP through the continued use of CRP exit packaging. Once CRP for manufacturers kicks in though, they’ll need to adhere to a litany of requirements, including compliance with the Poison Prevention Packaging Act of 1970 Regulations.

New product definitions. Via the permanent regulations, MCSB has introduced a number of newly defined terms, which is ultimately better for licensees so that confusion doesn’t abound as product development continues. For example, we now have as recognized definitions like:

• “Infused pre-roll,” which means “a pre-roll into which cannabis concentrate (other than kief) or other ingredients have been incorporated”;
• “Kief,” which means “the resinous trichomes of cannabis that have been separated from the cannabis plant”; and
• “Orally-consumed concentrate,” which means “a cannabis concentrate that is intended to be consumed by mouth and is not otherwise an edible cannabis product. ‘Orally-consumed concentrate’ includes tinctures, capsules, and tablets . . .”

OSHA training. Given that cannabis remains federally illegal, people often think that violating one federal law somehow gives you a license to violate every federal law, which is entirely untrue. Under the permanent MCSB regulations:

“for an applicant entity with more than one employee, the applicant employs, or will employ within one year of receiving a license, one supervisor and one employee who have successfully completed a Cal/OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course.”

Clearly, safety and federal compliance in the workplace still applies, even to cannabis operators, which is now demoralized under the permanent MCSB rules.

Changes to operations that now require state approval. As the state moves along with licensing and enforcement, it was inevitable that certain licensee actions would first require state approval. What this usually means is that major changes to your business or SOPs can’t go down without the state’s blessing, which can take weeks or months to secure. Specifically, for the MCSB, licensees will now have to report to and clear with the state the following action items before the licensee pulls the trigger on them (all to the tune of a $700 change application fee, which is non-refundable):

• the addition of any closed-loop extraction method;
• the addition of any other extraction method that necessitates a substantial or material alteration of the premises;
• the addition of infusion operations if no infusion activity is listed in the current license application on file with the [MCSB] (you’ll also have to tell the state about “any changes to the product list on file with the [MCSB] and provide a new product list within 10 business days of making any change” to the products you’re making”); or
• a substantial or material alteration of the licensed premises from the current premises diagram on file with the [MCSB].

Importantly, a “substantial or material alteration” includes: “the removal, creation, or relocation of an entryway, doorway, wall, or interior partition; a change in the type of activity conducted in, or the use of, an area identified in the premises diagram; or remodeling of the premises or portion of the premises in which manufacturing activities are conducted.” Be advised!