California Legalization Initiative ("AUMA") Reaches Important Milestone; What you need to know

To quote the Economist: "The argument for the legalization of cannabis has been won" and "...the beginning of the end of the futile war on weed." This is particularly true in California where the marijuana legalization ballot initiative the AUMA (Adult Use of Marijuana Act) announced that they have garnered the required 600,000 registered voter signatures to qualify for the November 8th ballot.

AUMA has also obtained several key endorsements showing its broad-based support. These include NORML, the California Council of Land Trusts, Drug Policy Alliance, Marijuana Policy Project, California Cannabis Industry Association, California Medical Association California NAACP, CA Lt. Gov. Gavin Newsom, former Facebook President Sean Parker, GOP congressman U.S. Rep. Dana Rohrabacher (R-Costa Mesa), and a growing coalition of politicians, physicians, environmental leaders, business owners, small farmers, civil right groups and social justice advocates.

With all of this support as well as a state population that is strongly in favor of legalization, the end of prohibition in the California is would seem almost certain. Unfortunately, the election is still several months away and voters have yet to be subjected to negative campaigning from marijuana legalization's very strong foes. These include the alcohol industry, tobacco, pharma, and prison unions to name a few. 

Somewhat surprisingly to those not following closely, AUMA is not universally popular with marijuana activists. Their position is that AUMA does not go far enough and, like MMRSA under which it was modeled, AUMA's taxes are too high, its regulations too onerous, and it does not go far enough in protecting the rights of cannabis users. In fact, AUMA was borne out of consensus and it does indeed include exceptionally strong regulatory requirements and new taxes (both of which were added to ease passage). Some important points for entrepreneurs and investors in California's cannabis industry:

  1. MMRSA's Bureau of Medical Marijuana Regulation (appropriately referred to as "bummer" even by its own staffers) gets renamed to Bureau of Marijuana Control and appears to become even larger. The Departments of Consumer Affairs, Health, and Agriculture all retain the powers granted to them in MMRSA. The State Board of Equalization similarly retains its god-like powers.
  2. Like MMRSA, applications for licenses won't even start until January 2018 (at their earliest) so California's "kabuki" like system of collectives will continue at least a few more years.
  3. Also like MMRSA, California residency requirements remain for licensing. Also like MMRSA, it isn't exactly clear what this really means. Key definitions such as "controlling" will be left up to regulators, legislators and most likely the courts.
  4. The priority systems for licenses also remains in-tact but the trigger date is moved back from January 1, 2016 to September 1, 2016. This means that marijuana businesses have a little more time to become compliant with local authorities (and importantly the BOE) to obtain a priority status for licensing.
  5. Large scale cultivation licenses (indoor over 22,000 square feet and outdoor over an acre) are being held back until at least 2023 (in theory protecting the ability of small cannabis farmers to compete), However until the details for licensing are established, it's uncertain that economies of scale still won't drive a large number of licenses to be controlled by a small number of companies.
  6. Local law still rules. This essentially means that regardless what happens at the state level, if any municipality or county doesn't want recreational marijuana, it doesn't have too. And they are free to add additional regulations and taxes on top of what the state implements.

Overall, AUMA is a step in the right direction for California's cannabis industry and consumers, but it certainly comes at a cost. Furthermore, it's certain that many current participants will be tempted to stay in the shadows and not come into the heavily regulated system until they are forced to. Consequently regulators and law enforcement will likely be busy chasing down the grey market for the first several years. 

Link to the full text of the AUMA initiative.