The California Bureau of Medical Cannabis Regulation (BMCR), Department of Public Health (DPH) and the Department of Food and Agriculture (DFA) collectively released almost 300 pages of proposed rules to regulate the medical cannabis industry in California. These are proposals, not finalized rules, and may change subject to public commentary (not to mention lobbying). Furthermore, there are some notable differences between these rules and the approach taken by California Governor Jerry Brown in his spending “trailer” bill, which may have to be reconciled. Finally, the above-mentioned departments have yet to release how they propose to regulate nonmedical (that is, “adult use”) cannabis and those rules are still forthcoming. In short, this is the first step in what will be many steps to develop a complete set of industry rules. One thing is for certain, cannabis in California will be highly, highly regulated.
The attached non-comprehensive notes have been designed to give an idea of the breadth and depth of the regulatory burden about to be placed on the legal medical cannabis industry.
Status of MCRSA:
- MCRSA passed in 2015 establishing the framework for the legal medical cannabis market.
- Proposed BMCR regulations issued (May 2017)
- Stakeholder meetings and review (ongoing).
- If Governor Brown’s “trailer bill” passes (June 15th), then any inconsistencies between it and the BMCR regulations will have to reconciled.
- Expect tweaks but most of the requirements will likely survive intact.
- Adult use regulations to be issued in coming months.
- MCRSA concerns state laws. Businesses will still need local licenses and will need to comply with those regulations as well.
Timeline (all licensing types):
- State licensing will begin January 1, 2018, however cannabis businesses who have a municipal license as of Jan 2, 2018 may continue to operate while their application is pending if a completed application is made by July 2, 2018.
- The state will prioritize license applications for veterans and for businesses that were open and in good standing with their local city or county by Jan. 1, 2016.
- Licensed shops can only sell products from licensed distributors (who themselves have gotten those products from licensed manufacturers / cultivators). However, licensed shops may continue to sell unlicensed inventory for up to 180 days after licensing or until Dec. 31, 2018, whichever comes first. During this period, unlicensed products will have to be stickered stating that the products haven’t been tested nor are they licensed per new state laws.
Owner (all licensing types):
For the purposes of licensing, an “owner” is defined as:
- Any individual who has, in aggregate, greater than a 20% ownership interest (excluding the ownership of a security interest in, lien on, or any other encumbrance of the business entity applicant).
- For public entities, owners are defined as the CEO or any person or entity that has, in aggregate, greater than a 5% ownership interest.
- For businesses that have an ownership stake of greater than 20% in the entity, its CEO and all directors are considered owners.
- Most importantly, an individual is considered an owner if he or she participates in directing, controlling, or managing the applicant (defined as authority to hire / fire employees, buy / sell products, or participate in making policy decisions).
- Individuals who invest in licensed entities will not to have to register with the state if they have less than 20% ownership. If the company is publicly traded this threshold is reduced to 5 percent.
Licensing and Applications (all licensing types):
- Applications will include: a) All “owners” (see above), which must also list all of their past criminal convictions; b) Start date of business; c) Local license information; d) Lease and letter from landlord; e) Detail of every loan, investment, or “gift” to the business; and f) Resale permit.
- License fees are based on sales volume, for example the license fee for sales above $5m is $50k (since licenses are good for 1-year, licenses will have to be renewed annually along with the payment of license fees).
- The state estimates that the cost of compliance will be on average $310k / year.
- Licenses are not transferable and any change to ownership or structure will require a new application (including a new license fee).
- For applicants with 20 or more employees, a labor peace agreement is required.
Employees (all licensing types):
- All personnel must have laminated ID badges with specific sizing and copy requirements. Non-employees must be accompanied whenever on premises.
- Sign-in, sign out procedures must be maintained.
- Distributors can’t hire employees (or volunteers) who work at another licensee (unless another distributor).
- Employees can’t have a financial interest (defined as any equity or even a loan) in another licensee.
- Appropriate outer garments as appropriate (manufacturing, packaging, etc.) must be worn to avoid allergens and other forms of contamination.
Licensed Premises (all licensing types):
- The definition of “premises” allows multiple licenses to be located in the same facility if they are in separated areas.
- Security Cameras: Minimum 1280 x 1024 @ min 20 FPS, stored for 30 days, and covering all points of entry / exit, anywhere cannabis is weighed, packed, stored, loaded, etc. plus the security room itself.
- Can’t materially alter premises (defined, e.g., moving a door) after licensing without prior written approval from applicable licensing authority.
- Storage areas for cannabis must be separated from break rooms, changing facilities, and bathrooms.
- Moving premises will require obtaining a new license.
Inventory Handling (all licensing types):
- The state is implementing a comprehensive “Track & Trace” software platform that will monitor marijuana from cultivation through manufacturing, distribution, testing, transportation and ultimate sale. Patient purchases will be tracked as well.
- Daily and weekly inventory reconciliation is required and licensees must notify authorities of discrepancies above specific thresholds (e.g., $1000/day or $2000/month).
- Medical and non-medical goods can’t be stored together.
- Batches must always be stored separately.
- Storage containers (as opposed to consumer packaging) need to have: a) Manufacturer name & license #; b) Unique batch ID; c) Date entered storage area; and d) Weight.
- Very specific manner for handling cannabis waste including 72-hour quarantine (where authorities can inspect it), first mixing it with non-cannabis materials to get below 50% and then taking it to a permitted disposal facility.
- More rules coming.
- Edible packaging must be opaque.
- All products must be “tamper evident.”
- All products must be “child resistant” (re-sealable if more than one dose).
- Packaging / labeling regulations have 180-day grace period.
- Specific rules not yet published. Coming soon.
- It is expected that cannabis products sold to the public will have to be clearly differentiated as either medical or adult-use products.
- Labels must contain product weight and testing results.
- After testing and issuance of certificate of analysis, label must match this certificate in terms of cannabinoid content and contaminants.
- List all ingredients in descending order.
- Must feature official red triangle cannabis product symbol (see top of this summary).
- Can’t include any health claims.
- No alcohol, nicotine, or caffeine.
- No food that must be refrigerated.
- No canned products.
- Must be shelf stable.
- No juices (fruit or vegetable).
- No dairy products.
- No meat or seafood.
- No infusing commercially available candy or snack food.
- Other than cannabinoids, no ingredients that aren’t already approved by US FDA for food.
- Serving sizes can have no more than 10 milligrams of THC and no more than 100 milligrams of THC for the total package.
Manufacturing (Department of Health):
- New type “N” license for infused edibles w/out extraction. If you want to make extracts or concentrates, you will need a Type 6 or Type 7 license but not the N license.
- New type “P” if a manufacturer wants to package for other licensees. (Note: If you have a manufacturing license and only packaging your own products then you won’t need a P license.)
- Vapes (and other manufactured products, such as tinctures and waxes) can have up to 1,000 milligrams of THC per package.
- Any change in ownership, SOPs, extraction practices, types of projects, floor plans, etc. either needs approval by or notification to DPH.
- Products must be in final form before going to distributor. (Note: Sending to a P License is a likely exception.)
- Very detailed requirements for volatile solvent licensees.
- Wash stations with running water at least 100 degrees / shatter resistant light bulbs, etc.
- If using a freezer, it must have a thermostat that shows the inside temperature.
- Written procedures for raw materials – inspection and quality.
- Raw materials held in bulk but must be protected from cross-contamination and humidity.
- Detailed SOPs on cleanliness and dealing with allergens and cross contamination.
- Detailed hazard analysis addressing everything that could go wrong as well as mitigation and preventive controls.
- Verify and regularly re-verify that all equipment is being used for its intended use and was installed in compliance of manufacturers design specification and within expected operating range and that the company is using proper SOPs.
- Documentation of everything imaginable.
- Each formulation must have its own master manufacturing protocol: Detailed steps, controls, and expected outcomes (e.g., potency, weight, etc.) and this should be done for each batch size.
- Weight verification: For both inputs and outputs, one person weights while a different person verifies.
- Written procedures for tracking and responding to complaints, including: 1) Review to see if complaint involves a failing product to specs; 2) Investigate as appropriate; and 3) Written record of findings, response and reply to the person(s) making the complaint.
- Recall procedures.
- Training program – health & safety hazards, emergency procedures, security procedures, etc.
- Must report to DPH any inventory discrepancy greater than 5%.
- 3rd-party distribution required. Distributors can’t own any other license (other than transport).(Note: this is one of the major differences with Governor Brown’s trailer bill so this may very well change.)
- Distributors are responsible for testing (see “Testing” below).
- Distributors must receive products in final form from manufacturers and cultivators (i.e., packaged) but can provide packaging services with a “P” license. (Without “P” license, distributors cannot pack, repackage, label or relabel products).
- Distributors take title of product (transporters do not).
- Distributors may not sell on consignment to dispensaries.
- Detailed written SOPs are required for all aspects of operation.
- Detailed and structured training and training records.
- Note: There is a 180-day grace period following licensing for testing.
- Each “batch” must be tested. Batches can be no bigger than 10 lbs.
- “Batch” means a single cycle using identical input materials and procedures (identical formulation).
- Testing lab technician comes to your facility to select samples (or you send entire batch to them where they then select the samples).
- If a sample “fails,” the entire batch must be destroyed.
- If passes, lab issues a certificate of analysis, then product can be sold (subject to proper labeling where the label must match the certificate of analysis).
- For edibles, labs will perform “homogeneity” tests for THC or CBD and if the relative standard deviation is greater than 15%, the batch fails.
- For cannabinoid potency testing of manufactured cannabis products, samples will pass if the concentration of THC is within 15% of the labeled potency of THC.
- For residual-solvent testing, the samples pass if the concentrations of residual solvents and processing chemicals are at or below the set levels.
- For pesticide testing, the concentrations must be below the levels set.
- For mycotoxins testing, the laboratory shall report that the sample “passed” mycotoxins testing if the concentration of mycotoxins is below the following standards: (1) The total of aflatoxin B1, B2, G1, and G2: < 20 μg/kg of substance; and (2) Ochratoxin A: < 20 μg/kg of substance.
- Laboratories shall also analyze samples for filth and foreign material at set levels.
- Laboratories shall also test for the heavy metals
- If a product labeling says that the sample contains discrete terpenes, the laboratory shall test for those terpenes. The testing laboratory shall report to one-hundredth of a percent the concentration in percentage in the certificate of analysis.
- A batch may not be retested following a failed testing unless it has gone through a remediation process. Prior to retesting, the distributor shall provide to the testing laboratory a document specifying how the product was remediated.
- Must have transport license (note: Governor Brown is trying to do away distributors having to get a separate transport license)
- Products can’t be visible during transport.
- Vehicles must have secured “lock boxes” for storing cannabis.
- Vehicles must be attended at all times while in residential neighborhoods.
- Can’t transport medical and non-medical cannabis at the same time.
- Detailed transport manifests and delivery labeling (manifest info, unique ID, weight) is required.
- Flower will be distributed to dispensaries already packaged for sale.
- Dispensaries may only be open and deliveries may only take place from 6 a.m. to 9 p.m. (Local jurisdiction can set lesser hours but not longer hours).
- Shops can only sell up to 8 ounces of cannabis to one patient or caregiver on any single day.
- Businesses will have to be at least 600 feet away from schools. (For the purposes of this section, “school” means any public or private school providing instruction in kindergarten or grades 1 to 12, inclusive, but does not include any private school in which education is primarily conducted in private homes.)
- Delivery services are only allowed as part of a brick and mortar dispensary and only when the dispensary is in a municipality that allows delivery. (There are no stand-alone delivery licenses available under MCRSA.)
- Goods on display can’t be accessible to customers and dispensaries can’t display more product than the average amount of medical cannabis goods the licensed dispensary sells in one day.
- No free samples either from vendors or by the dispensary themselves. (Nothing said about very inexpensive promotions – e.g., 25 cent samples).
- All products must leave shops in child resistant “exit” packaging.
- Managed by the Department of Agriculture.
- Numerous restrictions and disclosures on water source(s).
- The largest cultivation license goes up to 22,000 square feet and fees are based on square footage. For example, a 10k-22k “Medium Mixed-Light” (light deprivation) cultivation license has an annual license fee of $21,915/year.
- A single property can have multiple cultivation and other licenses if each licensed premise has a unique entrance and immovable physical barriers between them.
- Must file a pest management plan detailing all pesticides and protocols that will be used – must comply with rules established by Department of Pesticide Regulation.
- Unless selling to a manufacturer, cultivators can only sell cannabis that is already packaged for sale in tamper-evident containers.
- Six months after licensing (or 12/31/18, whichever is sooner) must apply label information as required by MCRSA and track and trace unique ID for each plant.
- Cultivators that sell seeds or immature plants to other licensees will require a special Nursery License.
- Cultivators must immediately halt cultivation if human remains are discovered. (Seriously, this is one of the requirements.)
- For indoor licenses, on-grid power must come from 42% renewable source or purchase carbon offsets for any portion above 58%. (Note: Growers can satisfy this requirement by demonstrating that their equipment is 42% more energy efficient than standard equipment using 2014 as baseline year).
- Must maintain $1m umbrella for injury and property damage. Must maintain $5k bond to cover cannabis destruction.