The California Department of Cannabis Control is Now Live

15 Jul The California Department of Cannabis Control is Now Live

This week, Governor Newsom took a major step in reforming California’s (pretty tortured) cannabis licensing program by signing into law Assembly Bill 141, which generally consolidates all cannabis licensing and oversight into the Department of Cannabis Control (“DCC”). In our view, centralizing all licensing and regulatory oversight into a single agency in California is a very good move on behalf of the state. Having to answer to three potential administrative agencies, all with different takes on the regulations, was incredibly cumbersome for licensees.

The consolidation will occur specifically within the Business, Consumer Services, and Housing Agency, replacing: 1) the Bureau of Cannabis Control (which previously licensed retailers, delivery services, microbusinesses, distributors, testing labs, and event organizers), 2) the California Department of Public Health Manufactured Cannabis Safety Branch (which previously licensed manufacturers), and 3) the California Department of Food and Agriculture CalCannabis (which previously licensed cultivators, including nurseries and processors).

More specifically, AB 141 transfers to the DCC all of “the powers, duties, purposes, functions, responsibilities, and jurisdiction” of these former agencies. Governor Newsom also named Nicole Elliott as the director of the DCC. Close followers of California cannabis regulation may recall that Ms. Elliott has been the Governor’s senior cannabis policy advisor since 2019.

Apart from creating the DCC, AB 141 also institutes some technical fixes and substantive changes to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). This will inevitably lead to more rule making at the DCC level and affect all licensees. We’ve written before about what we hope the DCC will address in the current rules (which are not that comprehensive or consistent across a variety of licensee issues), but for now, these are the topics the DCC will have to consider:

Broader definition of commercial cannabis activity

The definition of “commercial cannabis activity” now includes acting as a cannabis event organizer for temporary cannabis events.

More public information about licensees

To date, the public has not had great access to certain information about licensees (other states, for example, will publish data about taxes and license cancellations on a quarterly basis, or even more often that that). Beginning January 2022, the DCC has to provide on its website information regarding suspensions and revocations of licenses and final decisions adopted by the DCC for licensees. Sensitive identifying information for the licensees will not be disclosed. I actually just received an e-mail from the DCC on the 14th containing a Licensing Information Report spreadsheet for cultivation licensees.

Provisional license changes, generally

Provisional licenses receive significant attention in AB 141. Provisionals were supposed to end on January 1, 2022. However, AB 141 allows applicants and licensees to continue to receive and renew provisional licenses through June 30, 2022 so long as the applicant:

(i) can show that compliance with the California Environmental Quality Act (“CEQA”) is complete or “provide evidence that compliance is underway” (CEQA has been a major point of contention in California cannabis, see here); (ii) local approval or the provision of evidence that securing local approval is underway; and (iii) the application is filed before March 31, 2022.

If the provisional application is for a cultivation license, in addition to (i)-(iii), the applicant must provide the DCC with any of the following:

(a) a final streambed alteration agreement; (b) a draft streambed alteration agreement provided by the Department of Fish and Wildlife (“DFW”) and signed and returned to the DFW; (c) written verification by the DFW that a streambed alteration agreement is not needed; (d) written verification by the DFW that the applicant has submitted a 1602 notice, submitted payment of applicable fees, and is “responsive” to the DFW.

Provisional cultivation licenses

There’s an interesting curveball in AB 141 regarding provisional cultivation licenses filed with the DCC after January 1 of next year. AB 141 dictates that:

“If an application for a cultivation license is submitted on or after January 1, 2022, the [DCC] shall not issue a provisional license . . .  if issuing the provisional license would cause a licensee to hold multiple cultivation licenses on contiguous premises to exceed one acre of total canopy for outdoor cultivation, or 22,000 square feet for mixed-light or indoor cultivation.”

In California, cultivation licensees are limited to one Type 3 cultivation licensee, which affords up to 22,000 square feet indoors or with mixed-lighting, and up to an acre outdoor (it’s currently the largest cultivation license in California until 2023). At the same time, to get around this limitation, cultivators desiring large scale cultivation “stack” multiple, smaller cultivation licenses on contiguous parcels. The other requirement in California is “one licensee per premises”; in this situation, a cultivator will have multiple contiguous parcels of land0–each a “premises”–and just apply for smaller licenses for each parcel/premises to “stack” up to a massive grow site.

While this new restriction in ABA 141 was likely to address concerns over large scale cultivation sites getting around having to fully comply with CEQA before receiving provisional licenses, it’s also going to close a significant loophole that’s existed since January 2018 when licensing began. Note also that any renewal after January 1, 2023 of indoor or mixed-light cultivation provisional licenses that violate this new prohibition will be denied by the DCC (and the same goes for outdoor cultivation provisional licenses after January 1, 2024).

Cannabis Equity Act grant program

Regarding the California Cannabis Equity Act, the Governor’s Office of Business and Economic Development will administer the grant program created by that Act.

Background documentation search refinement

Rather than continuing to access applicant criminal history through the Department of Justice and the Federal Bureau of Investigation, the bill allows the state to secure the required criminal history for “owners” from local or state agency certified records of all arrests and convictions, certified records regarding probation, and any and all other related documentation needed to complete an applicant or licensee investigation.

Changes for labs

Labs are going to see a few changes under ABA 141, including that (i) labs must now directly employ drivers that transport testing samples, (ii) labs can receive testing samples for quality control purposes directly from manufacturers and cultivators (testing for retail sales still has to be coordinated through a distributor), and (iii) financial interest holders in a lab cannot have a financial interest in other cannabis-licensed business (and vice versa).

Trade samples

California is finally going to establish a system for trade samples. By January 1, 2023, the DCC must institute the concept of trade samples. As further detailed by AB 141, trade samples have to be tested for quality assurance and they have to be entered into the track and trace system and they must be labeled accordingly as samples. Don’t get too excited though– these samples are only for licensees and they’re not meant for distribution to customers at retail. Further, licensees cannot compensate each other in anyway for samples. The language reads: “cannabis or cannabis products designated as trade samples shall only be given for targeted advertising to licensees about new or existing cannabis or cannabis products.”

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As of now, the DCC is in full control of the cannabis game in California, and the final adopted regulations from the other agencies are still in play (just under the DCC). Be sure to stay tuned as the DCC embarks on rulemaking to implement the directives AB 141.