California Cannabis Cultivation: DFA’s Proposed Permanent Rules

24 Oct California Cannabis Cultivation: DFA’s Proposed Permanent Rules

On Friday, the three California agencies charged with issuing and enforcing rules for cannabis business licensees issued a stack of proposed changes to the final rules it had previously proposed in July. Many of the most dramatic changes came from the BCC and will likely motivate more than a few comments during the rulemaking process (deadline for comments on these proposed changes is Nov. 5, FYI).

The Department of Food and Agriculture, which administers the cannabis cultivation licensing program, issued its own set of proposed rule changes that, while not as jaw-dropping as some of the BCC’s proposed changes, are still noteworthy.

Most importantly, the rules for cultivation plans just got a lot more onerous for licensees that plan to “stack” small licenses for use on one premises. Recall California’s controversial decision last year not to cap the total cultivation acreage per licensee to one acre, and the resulting benefit to mega farms that were then free to “stack” multiple smaller licenses to get a larger total cultivation area that they would otherwise be prohibited from getting due to the one-per-licensee limit of 1-acre outdoor licenses and the prohibition on Type-5 “large” cultivation licenses until 2023. A key element to that loophole’s benefit to large growers was AB 133, which clarified that a licensee could maintain one big “premises” upon which to operate all of its licenses, and was not required to make each license have its own “separate and distinct” premises. This would allow for economies of scale, as it would be arbitrary and inefficient to require every single chunk of canopy on a parcel to have its own fencing, security, etc.

Cue the DFA, which through its new proposed rule modifications, now says there are certain categories of a licensed premises that categorically cannot be shared among licenses owned by a single licensee.  Permissible shared areas must be contiguous, and they are limited to areas designated for pesticide storage, composting, cannabis waste storage, and harvested cannabis storage, in addition to traditional common areas such as hallways, bathroom, and break rooms. However, areas that cannot be shared among multiple licenses held by one licensee include: (i) areas outside of the canopy where only immature plants are grown (i.e. nursery-type areas); (ii) processing or packaging areas (i.e. “drying, curing, grading, trimming, rolling, storing, packaging, and labeling”); and (iii) areas designated for physically segregating cannabis during an administrative hold pending resolution of a notice of violation from the state. While it is not clear exactly how the DFA would interpret this proposed new rule language in practice, a likely result could be that cultivation licensees holding multiple licenses (either of the same type or a variety) for use on a single premises would no longer be able to take advantage of the same economies of scale for processing and packaging or for cultivation of immature plants, and that each separate license would require its own dedicated room for each such activity. We also know that the BCC requires separate walls and sealed doors when it calls for premises to be separate. Time will tell how this rule will look in a few months, but as it stands now it could harm companies with limited access to space and resources for building additional rooms, and would certainly add to costs of compliance.

Other notable small changes that could add to licensing costs include requirements that each license applicant must now agree to put one supervisor and one employee through a standard 30-hour Cal-OSHA course for workplace safety; and beginning in 2020, all cannabis and nonmanufactured cannabis products packaged or labeled by a licensed cultivator must come in child-resistant packaging, which conforms to the requirements of BCC and DPH for packing of other cannabis products.

Finally, one proposed change in the BCC rules that may end up having more of an effect on cultivators is that all structures included as part of the licensed premises must now be permanently affixed to the land for an indefinite period of time. Off-the-grid type operations are notorious for using RVs, mobile homes, lightweight moveable greenhouses, etc., so this rule change might also serve to prevent what would otherwise be a quick fix to the first issue identified above.