What you need to know about California’s updated marijuana rules

By John Schroyer

When California released its latest marijuana industry regulations on Friday, the response from cannabis businesses in the state was largely muted.

This perhaps indicates that the most disruptive changes are farther down the road before the rules are finalized later this year.

“That first step that Neil Armstrong took on the moon, everybody noticed, but by step No. 43, nobody really cared anymore,” joked Hezekiah Allen, the executive director of the California Growers Association.

“We’re sort of there. Everything to do with cannabis is a little exciting, but this is just one foot in front of the other, to be honest.”

California’s marijuana regulators made several noteworthy updates, according to legislative advocate Max Mikalonis of Sacramento-based K Street Consulting, which tracks state MJ policy closely.

He called the updates “business-friendly.”

“Generally, we’re very positive about what happened,” Mikalonis said. “The regulators have been listening … to the concerns raised by the industry.”

The updated rules came from the three agencies that oversee the California MJ industry: The Bureau of Cannabis Control governs retailers, distributors, testing labs and microbusinesses; the Department of Food and Agriculture regulates licensed growers; and the Department of Public Health governs edibles makers and manufacturers.

Highlighted changes
Perhaps the biggest news Friday was that a policy already in effect now is likely to be permanent, Mikalonis said.

Under the emergency industry rules issued last November, companies that hold medical licenses (dubbed “M” for short) were allowed to do business with those that held only adult-use permits (“A” for short).

“I can’t overestimate how big of a deal that would have been if that change had not been made permanent,” Mikalonis said.

That regulation allows for a unified supply chain so that nobody along the line has to arbitrarily decide if products need to be only “A” or “M” – except for highly potent topicals.

In addition, the Bureau of Cannabis Control, which regulates retailers and delivery companies, made several switches regarding cannabis deliveries:

• The monetary value of product that delivery drivers may carry at any time was increased from $3,000 to $10,000.
• A ban was placed on what many in the industry refer to as the “ice cream truck model.”

That’s a system in which MJ delivery trucks essentially are stocked as much as a retail store and drive around filling orders as they’re placed online.

“Mobile fulfillment,” as Mikalonis calls it, was essentially banned by the first set of emergency regulations issued by the state last year.

But Mikalonis said the new regulations make it explicit that drivers must receive orders and stock their vehicles at a physical location before hitting the road to deliver them.

That could put a crimp in how some cannabis delivery operators do business.

“I’ve heard that prominent delivery companies have concerns with this development,” said Mikalonis.

There also were changes seen as favorable to small businesses:

• Single facilities that house multiple licensees now may utilize the same common areas, such as break rooms and restrooms.
• Industry-friendly tweaks eliminated unnecessary overlaps for security and testing samples.
• A handful of changes favored by the Growers Association were added, such as expanded water source protection and transportation of immature plants.

Unanswered questions
Just as significant as what was changed in the regulations was what was unchanged. Or what wasn’t addressed.

Perhaps the most pressing question, Mikalonis said, is whether the state will allow previously untested product to be returned to distributors for testing so that it can be sold after July 1, when only lab-tested products can be sold to consumers.

“There is this open question of, ‘What happens to 2017-2018 product on the shelves?'” he said. “Because that wasn’t touched in the transition-period regs, (it) may mean a lot of product will need to be destroyed come July 1.

“A better solution would be to allow it to be returned to distributors to be tested and see if it’s clean or not.”

Another unsettled policy dispute is over cultivation acreage caps.

The Growers Association filed suit in January over what it contends is a regulatory loophole that commercial-scale cultivators are exploiting.

In essence, the association wants an acreage cap to encourage competition and smaller farms, while larger companies want to be able to grow as much as they want. Right now, the larger companies are getting their way.

Though Allen didn’t expect to see that situation addressed in the new emergency regulations, he said it’s a policy fight that must be resolved.

“The important step in that process is the regular rules, and we hope to see draft regular rules sooner rather than later,” Allen said, adding that he’s still hopeful there will be an acreage cap of some sort.

Also at issue, Mikalonis said, is an unsettled question about free samples of cannabis products, which were banned in the first set of emergency regulations as an advertising restriction.

The issue is broader than just advertising, Mikalonis said, and speaks instead to whether retailers are allowed to provide free medical marijuana to the indigent or poor. It’s an issue he said is still a priority for MJ companies.

It’s also related to the discussion of a statewide social equity policy, which would give more of an industry foothold to those affected by the war on drugs.

“The topic of equity is very important at the state level,” Mikalonis said, “and we’re seeing (state lawmakers) put forward … a state equity program.

“That may still be addressed, if not this year in the regs, then in statute, which could affect the regs next year.”