Now that California’s Department of Public Health (through its Office of Manufactured Cannabis Safety) has released its initial rules for cannabis manufacturing, our California cannabis attorneys are fielding numerous calls from existing cannabis businesses (along with new entrants into the field) with a simple question: How do these rules affect me? Last week we covered some of the technical provisions of the rules. Since the regulations for manufacturing come in at a hefty 95 pages, I thought it would be helpful to go over some more rules and how they can affect your cannabis manufacturing business in California. First, it’s important to note that these regulations may change after the public and interested stakeholders have a chance to comment on them, but this is still a significant first step in clarifying what was previously a confusing landscape. The regulations for manufacturing are a clear and effective attempt by California to enact robust regulation to comply with the Cole Memo issued by the U.S. Department of Justice. Here are some areas of importance for anyone looking to engage in cannabis manufacturing in the Golden State:
Types of Licenses. The regulations state that California’s Department of Public Health will issue four types of licenses: Type P, Type N, Type 6, and Type 7. Type N licensees can conduct infusions and can package and label their own products while Type P licensees can do only packaging and labeling for other licensed cannabis manufacturers. Type 6 (non-volatile) and Type 7 (volatile and non-volatile) licensees can conduct extractions and infusions, and can package and label their own products. If you obtain a license there are two important things you need to consider: 1) Unless you obtain a type 7 license you will need to submit a new application if you want to change the type of manufacturing you are conducting; and 2) You need to be sure your cannabis manufacturing operations are in a location that can be sustained because relocating any portion of your manufacturing operation to new premises will require you submit a new license application.
DON’T PROCRASTINATE! If you have a cannabis manufacturing business that is legally operating in California before January 1, 2018, you will be able to continue operating it until the Department of Public Health approves or denies your application. This is extremely important considering it’s the next best thing to getting priority of review – which only applies to cannabis manufacturers that were operating and in good standing with their local jurisdiction as of January 01, 2016.
DO YOU REALLY KNOW YOUR BUSINESS PARTNER?! We’ve already covered who is considered an owner under California’s new cannabis regulations and it’s important you go over the ownership classifications because it can have profound implications on your business. Your application can be denied for a number of acts that your business partner may have committed. Strict attention must be paid to past acts because these prior offenses can torpedo your application and they’re not all obvious. Ever heard of the California Food Sanitation Act? How about the Sherman Food, Drug, and Cosmetic Law? You don’t need to know them inside and out but you do need to make sure your business partner never violated either of those acts because they can be grounds for denying your application.
DON’T EVEN THINK ABOUT IT. The rules state that no applicant or associated applicant shall hold a Type 8 (testing) or Type 11 (distribution) license. The rules also state “a manufacturer licensee shall not manufacture, prepare, package or label any products other than cannabis products at the licensed premises.” If you hoped to merge your cannabis manufacturing operation with a non-cannabis business for increased efficiency, sorry but NO SOUP FOR YOU. Lastly, the rules prohibit a manufacturer licensee from subletting any portion of the licensed premises.
These proposed regulations for cannabis manufacturers could not have come out at a better time, as the lack of legal specificity for cannabis manufacturing had been dampening the enthusiasm and desire of those looking to operate a marijuana manufacturing business in California. Before these new rules issued, our California cannabis attorneys were starting to see a slow but steady increase in sophisticated clients looking to start a California cannabis manufacturing business, but even just since they have come out the number has soared.