APPLY FOR YOUR CULTIVATION STACKING LICENSES NOW

THE LICENSES

As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis.  The small license is a (Type 2) license that allows one to grow up to 10,000 square feet (close to a quarter acre).  That license is the smallest license.  The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet (around a half acre).  The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023.

THE LOOPHOLE

However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one.  However, there is no stated limit in the regulations for the amount of type 2 two licenses one can apply for.  Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of multiple Type 2 licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This stacking system is how the big growers can cultivate multiple acres for cannabis at this time.

THE LAWSUIT

The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims that Proposition 94 clearly spells out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.

If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation.  The court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with the ability of cultivation only a ¼ acre lot.

THE DECEPTION

The fact that California’s new regulations issued by the  CDFA CalCannabis Cultivation Licensing Department by allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected, makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.

THE PROBABLE VERDICT

I have been a lawyer for twenty five years, and it is my opinion that the Court will rule in favor of The California Growers Association and close the loop hole so grows will be limited to one half acre licenses until 2023.

Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very compelling argument.  It is very clear in the language of Proposition 94 that its intent was to protect small cannabis farmers.  The CDFA CalCannabis Cultivation Licensing Department when issuing its regulations was clearly supposed to conform their regulations to Proposition 94 in that their regulations were supposed to help protect the family farm CalCannabis seemed to be setting up a regime that on its face limited massive cultivations because that regime created licenses for quarter acre and half acre lots and won’t allow grows that are larger than twenty two thousand square feet until 2023.  Why else would they have structured the law this way if not to protect the small farmer?   However, the 1/4 loophole of stacking licenses completely defeats the purpose of making people wait until 2023 to apply for large licenses, when they can get all the cultivation acres they need with stacking type 2 licenses.

THE POSSIBLE CATASTROPHE

It is clear that the CDFA CalCannabis Cultivation Licensing Department was attempting to look like they would protect small farmers when in fact; through the ¼ loophole they were doing just the opposite.  If the California Courts rule against the California Growers Association they will have to go through some serious legal calisthenics to justify their ruling.  The obvious ruling would be to agree with the California Growers Association and close the stacking loophole but the practical effect would be catastrophic.    All the large multiple grows that exist or are being planned would immediately become illegal.  That would obviously create a lot of law breaking cultivators in one stroke and seriously reduce and hamper the availability of legal Cannabis in California.

THERE IS STILL HOPE

However, there is hope for the large cultivator.  In my opinion, if the court rules in favor of closing the loophole, they will grandfather in all the grows that are larger than a ½ acre that were licensed before the court’s ruling.  Why would The Court do this?  Because when these growers applied for the stacked licenses such licenses were legal.  There is a strong precedence for this type of court ruling.  California used to use what was called the blanket primary.  I won’t go into to the details but basically the blanket primary put all the candidates, Republican, Democratic or other party candidates on the same primary ballot (this blanked primary system is actually different than an open primary, and if you are interested in the details of why please contact me).  Many candidates, who would not have been elected under the old election system in California, won their seats because of the blanket primary.  In other words, if not for the open primary, they would have not won their seats.  California used the blanket primary in a few election cycles before the U.S. Supreme Court struck down the open primary system as Unconstitutional in the year 2000 in California Democratic Party v. Jones which was a 7-2 opinion.

IT’S GOOD TO BE A GRANDFATHER

After the Supreme Court reached this decision the big question was: what to do with the candidates who would have lost their elections but only won because of the blanket primary system that was in place until the Supreme Court stated it was Unconstitutional.  The court decided to let the candidates who won under the now illegal open primary system retain their seats, instead of giving their seats to the candidates that would have won if the primary system was not in place.  In other words, the Supreme Court ruled that the candidates that won in a blanket primary system that would have otherwise lost in a normal system could keep their seats.  The court’s reasoning was that the candidates that won before the US Supreme Court declared the blanked primary unconstitutional could keep their seats because the blanket primary was the valid law of the land before the US Supreme Court declared the system unconstitutional.  The court realized that going back and kicking candidates out of their seats was completely unpractical and would lead to too much chaos and uncertainty.

THE PROBABLE OUTCOME

Following this precedent, it is my strong opinion that if the courts rule that the stacking loophole violates the parameters set down by Proposition 94 the courts will rule just like they did with the open primary.  In other words, the cultivators that received stacked licenses before the court decision to close the stacking loophole would get to keep their licenses but courts would not allow future stacking licenses to be issued in the future.

Like the Supreme Court when faced with the chaos of declaring the blanket primary unconstitutional, and to avoid such chaos, the California courts should grandfather in the stacked licenses in existing.  The courts could choose to do noting and keep the status quo.  The court could completely close the stacking loophole and then everyone that has either a licensed large grow or planning on cultivating and a large grow is screwed.  But if the court chooses the third path and closes the loophole but lets the people who currently have stacked licenses keep them that will give the people or organization with existing stacked licenses a huge advantage.

BOTTOM LINE:  APPLY FOR AND STACK YOUR LICENSES BEFORE THE CALIFORNIA COURTS CLOSE THE STACKING LOOPHOLE. 

Medicinal and Adult use Cannabis: Do they get the same treatment? Part 2

Drop you linen and stop your grinning.  It looks as though the Manufactured Safety Branch of the California Department of Health and Safety Brand has had a change of heart.

The adoption of emergency regulations for cannabis manufacturers, issued by the California Department of Public Health (CDPH), has been approved. The effective period for these regulations and those issued by the Bureau of Cannabis Control and California Department of Food & Agriculture has been extended 180 days while the state licensing authorities finalize permanent regulations.
The re-adopted regulations, summary of changes and findings of emergency can be viewed at the links below:

One of the most prominent changes in this adoption is removal of restrictions created by the adult use (“A”) and medicinal (“M”) license designations. Businesses will be able to complete one license application and receive one license allowing them to operate in both markets. Beginning June 6, 2018, designation of cannabis and cannabis products as adult-use or medicinal will primarily occur at the time of retail sale, except for higher-THC products permitted only in the medicinal market.

The state cannabis licensing authorities developed emergency regulations to implement the mandates of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), signed into law in June 2017. CDPH’s regulations, which became effective on December 7, 2017, outlined the statewide standards and licensing requirements for commercial cannabis manufacturers. Emergency regulations are effective for 180 days and must be re-adopted to stay in effect. CDPH provided public notice of the re-adoption on May 18, a public comment period was held from May 25-29, and OAL approved the regulations on June 6.

So basically, it is time to get your manufacturing license approval before June 6, 2018.  This mean if you haven’t already started, it  is time to get approval from you local authority (City, Town or County), get approved and then apply for the state emergency temporary license.  The perfect time to get start is now.

Goodnight and good luck

The barriers are High to Enter the California Cannabis Market

Proposition 64 created a taxed and regulated marketplace for cannabis cultivation and distribution in California.

California Growers Association (CGA), with an estimated 68,150 cannabis farmers working in California today, the CGA is concerned with the open question of how many of them will end up licensed in the legal market.

Essentially in every step of the process, thousands and thousands of dollars are foisted upon preexisting businesses that have been for the most part operating at a subsistence level.   For a lot of people who are just getting involved, these costs are being assessed right now. It’s a massive burden. People can’t get bank accounts, and they can’t get financing because they are too small and the industry is still illegal federally.   People are being asked to do things that are pushing them into bad situations with really little recourse.”

As of March 19, the California Department of Food and Agriculture (CDFA) had issued only 2,477 temporary cultivation licenses. O’Neill says that the path to legitimacy in California is too much to bear for many farmers; a lot of them aren’t even applying for licenses. The CDFA has received 4,451 applications; that’s a 6.5-percent application rate in the first three months of the year.

California’s regulatory costs favor well-financed businesses that focus solely on cultivating and manufacturing cannabis as a monocrop—businesses that can weather a few years of losses while the marketplace settles. Where subsistence farmers were once able to maintain their own financial pace, the market is insisting that those smaller operators boost their revenues (and, invariably, their expenses) enough to cover the baseline entrance fees of this new industry.

Through one-time application costs, annual licensing fees, hefty new tax codes, land-use modifications, ecological remediation expenses, building infrastructure improvements, water storage requirements—to say nothing of the stiff competition of well-heeled agricultural businesses entering the so-called “Green Rush”—the price of running a farm that’s survived for decades has suddenly become overwhelming.

Criminals do not pay taxes, ensure customers are 21 and over, obtain licenses or follow product safety regulations,” he said. “We need to give legal businesses some temporary tax relief so they do not continue to be undercut by the black market.

This current licenses and regulatory climate in California compelled the CGA to author a report titled, “An Emerging Crisis: Barriers to Entry in California Cannabis” earlier this year. In 38 pages, the organization laid out a case that state regulations were actually achieving the opposite of what many voters had anticipated at the ballot box in 2016. Growers with deep pockets can now waltz into the marketplace with ease, and small farmers are draining their balance sheets just to have a shot at the fringes of commerce.

The MAUCRSA regulations are only temporary for now. Licenses issued by the state of California—for cultivation, manufacturing, distribution, retail—are good for only four months. The state is expected to deliver more permanent regulations this summer.

And it may be that the regulators are aware of this problem and are addressing it.  A bipartisan pair of California lawmakers has announced a bill which would drop the state excise tax on cannabis to 11% from the current 15% for a period of three years. As Leafly reported on March 16, 2018, the bill was introduced by Assembly members Tom Lackey (R-Palmdale), Rob Bonta (D-Oakland). The bill’s co-authors include Assembly members Ken Cooley (D-Sacramento), Reggie Jones-Sawyer (D-Los Angeles), and Jim Wood (D-Healdsburg).

Since recreational cannabis became legal in California at the start of this year, medical marijuana dispensaries and cultivators have struggled to make the transition to a new market with new, often waitlist-requiring steps toward being licensed and legal. Between legal cannabis’ banking challenges, the significant regulatory changes, and California’s booming grey and black market operators, smaller businesses, in particular, have had to face a lot of legal and financial issues to survive in 2018.

How Serious is the State of California in Enforcing the New 2018 Regulation System

California’s Bureau of Cannabis Control has issued more than 1,000 cease-and-desist letters to unlicensed cannabis operators since the recreational use law took effect on Jan. 1, 2018, according to a KCET report.

According to the report, regulators are using online advertising platforms to find the illegal shops. This likely includes Weedmaps, who were sent their own cease-and-desist by regulators last month due to their advertising of unlicensed retailers.

The BCC is including information on how to obtain licenses along with the cease-and-desist letters, and is issuing temporary licenses, free of charge, which are good for 120 days and can be extended by the agency for additional 90 days.

Licensing fees in California run from $4,000 to $72,000, depending on the size of the operation, but, according to the report, fines can run four times the amount of the license itself.

Over 6,000 cannabis businesses have received temporary state licenses in the five months since California began issuing such permits.

Most of California’s massive marijuana industry is still operating without permits.  But these operators should not be complacent.  The fact that that the State of California has issues over 6,000 Cannabis licenses and that number is growing daily and the fact that they have issued over a thousand cease and desist letters shows that California is serious about implementing the Cannabis regulatory system that went into effect on January 1, 2018.

Some people thought that California would be lax in implementing this system, but they are very wrong. My guess is that the Legislature can’t wait to get the tax revenue under the new system and therefore they are pushing for change.  In any event, all cannabis business operators should get their new state licenses quickly before they are fined by the state.

Medicinal and Adult use Cannabis: Do they get the same treatment? Part 1

After Proposition 64 legalized recreational marijuana, the legislature passed the passed the “Medical and Adult-Use Cannabis Regulation and Safety Act” (“MAUCRSA”), creating a combined regulatory system for both medical and recreational marijuana.

When this law was passed it was thought that subsequent regulations from the three regulatory bodies, the Bureau of Cannabis Control, CA Department of Food and Agriculture, CA Department of Public Health would make no distinction between Medicinal and Recreational Marijuana and therefore licenses from these organizations would be for Marijuana and they would not be divided between medicinal and adult Use Cannabis.

However the regulations that were issued on November 19, 2017 and came enforceable on January 1, 2018 did make a distinction between medicinal and adult use marijuana.  All the licenses issued by these State Regulatory Bodies, like a Transportation License, Cultivation license or a manufacturing license, if one wants to sell both medicinal and adult use marijuana they have to send in two applications for each license: one for medicinal use and one for adult use marijuana and medicinal use marijuana.

The interesting point here is that the medicinal marijuana and adult use marijuana for all the state licensing use the same license.  You just simply check a box for medicinal or adult use marijuana.

Below is a question posed to The California Department of Public Health’s Manufactured Cannabis Safety Branch (MCSB) which issues manufacturing licenses to cannabis businesses.  They say that one needs two licenses.

So as I stated one needs to obtain two licenses from each licensing category if they want to do both medicinal and adult use cannabis.  However, the interesting point about these licenses is that each type of license uses the same application for both medicinal and adult use cannabis.  In other words, each license contains a question of whether your applying for medicinal use or adult use marijuana otherwise all the questions on the license are the same.  You just simply check a box either for adult use marijuana or for medicinal marijuana. So in a practical sense that means you send in the exact same license application for both medicinal and adult use cannabis, you just need to check the adult use marijuana or medicinal marijuana, and your answers the rest of the questions are all the same.  Please review the license for manufacturing issued by the CDPH Manufactured Cannabis Safety Branch.

Manufactured Cannabis Safety Branch – Temporary License Application

In practical terms, this means that medicinal marijuana and adult use marijuana state application have the exact same requirements for approval.  This lack of distinction begs the questions of why have two applications for medicinal and adult use marijuana if the requirements are the same?

One explanation is that some local jurisdictions only allow medicinal use marijuana.  Remember that one has to get a local jurisdiction license, (city, town or county), before one can apply for a state license.  So if the state had only one application for medicinal or adult use marijuana that would be mean in practical terms the local jurisdiction would have no way of ascertaining whether an applicant was planning on doing only medicinal or if they were selling both medicinal and adult use marijuana.  If the is some other reason for the state making this distinction please let me know.

THE IMPORTANT POINT HERE IS THAT ANY MARIJUANA BUSINESS THAT IS DECIDING WHERE TO LOCATE THEIR CULTIVATION, COMMERCIAL KITCHEN OR OIL EXTRACTION OPERATION IN A CERTAIN LOCATION, THEY HAVE TO MAKE SURE THAT THE LOCAL JURISDICTION (COUNTY, CITY, OR TOWN) ALLOWS BOTH MEDICINAL AND ADULT USE MARIJUANA.

Here are some links for further research on this issue.

Bureau of Cannabis Control – Licensing Information

 Manufactured Cannabis Safety Branch – Licensing Information

 CalCannabis Cultivation Licensing – Licensing Information

How much marijuana can I grow?: Part 3 – THE DANGEROUS LAWSUIT

As stated earlier in my blog posts, there are three types of cultivation licenses that allow one different size lots on which one can cultivate cannabis.  The small license is a (Type 2) license that allows one to grow up to 10,000 square feet.  That license is the smallest license.  The next sized license (or type 3 license), also known as a medium license, allows you to grow up to 22,000 square feet.  The Type 5 license which would allow one to grow more than 22,000 square will not be issued before January 1, 2023.  Therefore one would think that the largest cultivation allowed would be 22,000 square feet.  At this point, the medium type 3 license is the largest license that you can apply for.  And one can only apply for one type 3 licenses.

However, as I explained before, the loop hole (which is so large you could drive a Mack Truck through it) is there is a limit to the amount of type three licenses you can obtain; (only) one.  However, there is no stated limit in the regulations for the amount of 2 two licenses one can apply for.  Therefore, if you apply for ten small (Type 2) licenses, you could theoretically develop 100,000 square feet of Cannabis. This acquiring of my multiple licenses is called stacking and the state has allowed some growers to stack as much as thirty type two licenses. This is how the big growers can cultivate multiple acres for cannabis at this time.

Obviously these licensing regulations have the odor of duplicity and deception.  Why even have medium acre grows, or type 3 licenses if one can just stack type 2 licenses.  And why would they postpone the type 5 licenses until 2023? You would think that they were postponing the type 5 licenses to give the small growers time to establish themselves before the big cultivators started to operate.  However, the postponed 2023 licensing is deceptive because right now large corporation can cultivate multiple acres by stacking type two licenses.  So no one needs to wait until 2023 to cultivate more than ½ acre.

This loop hole of stacking type 2 licenses really makes the medium type 3 licenses and the large type 5 licenses superfluous.  With stacking type two licenses large cultivator have no need of type 3 for type 5 licenses.

As I stated, since January 1, 2018 many grows have stacked licenses to at least ten acres, and probably more.  Therefore now all these large growers have nothing to worry about.  However, some people saw the misdirection and hypocrisy of the cultivation licenses limits and started a lawsuit claiming that the current regulations do not follow the intent of the of Proposition 64 which was to protect small growers and give them time to establish themselves before the large corporate cultivators move in.

California’s largest cannabis farmer organization has filed a lawsuit against the California Department of Food and Agriculture’s decision to not limit marijuana farmers to 1 acre.

The California Growers Association’s civil litigation filed in the Sacramento County Superior Court on January 20, 20018 claims the state’s cannabis laws clearly spell out the intention to limit the regulated pot market to small- and medium-sized farms — which the group claims are grows of 1 acre or smaller — until 2023.

The association’s executive director Hezekiah Allen said Wednesday that they have exhausted every other option including meeting with state regulators and staff from Gov. Jerry Brown’s office during the past few months.

“Our government has checks and balances for a reason,” Allen said, “and it is an appropriate time for the judicial branch to weigh in and provide an interpretation of state law.”

Please see https://www.mercurynews.com/2018/01/25/california-growers-association-sues-state-seeks-1-acre-marijuana-grow-cap/

If this lawsuit is successful all of a sudden these stacked licenses will be illegal and these large growers will be in a nightmare situation.  It may be the court will grandfather in all the large grows that were created while stacking was legal.  But just as easily the court could say that all stacked licenses are now invalid and these people are only entitled to one type 2 licenses which would leave them with a ¼ acre lot.

The fact that California’s new rules allowing marijuana cultivation to favor large corporate farms despite a promise in Proposition 64 that small growers would be protected makes a strong argument for closing the loophole that allows the stacking of type 2 licenses.

Their argument that the founders intent was to limit large grows so as to allow the small farmers to compete and adapt is a very persuasive argument.  It is a very cogent and logical argument that small farmers will be protected by quarter acre and half acre lots and won’t have to deal with grows that are larger than twenty two thousand square feet until 2023.  Why else would they have structured the law this way if not to protect the small farmer?  And the 1/4 loophole  of stacking licenses completely defeats the purpose of have to making people wait until 2023 to apply for large licenses, when they can get all the acres they need with stacking type 2 licenses.

Their argument is compelling but practically the success of this lawsuit would throw the whole cannabis cultivation sector in California into utter chaos.  Corporations hate uncertainty and try to avoid risk.  But right now many cannabis corporations that have already stacked licenses are taking a huge risk and are facing disaster if this lawsuit is successful.  And many corporations are waiting to jump into the cultivation sector until this huge uncertainty, the stacking of license, is ended.

This lawsuit is compelling but if successful it will seriously damage the cannabis cultivation sector in California.  Trying to protect small farmers is a laudable goal but only if one doesn’t understand basic economic theory.  If successful, this lawsuit will seriously reduce the amount of legal cannabis available to the California market, which would drastically the raise the price of raw cannabis, and therefore create a huge opportunity for black market cannabis.  The goal of Proposition 64 was to make all the operators in the cannabis market to become legal, therefore ending the black market and bring in an exorbitant amount of tax revenue.  However, the success of this lawsuit would just create the black-market they were trying to destroy through legalization.  The road to hell is paved with good intention and this lawsuit is a perfect example of this age old saying.