California Medical Cannabis: How To Get Priority Licensing

Earlier this week, I was a guest on “Which Way, L.A.?” discussing with Warren Olney and fellow guest Assembly Member Reginald Jones-Sawyer the massive legal and regulatory changes coming to California under its Medical Marijuana Regulation and Safety Act (MMRSA). The show mostly focused on the bigger issues California state agencies will face under the MMRSA, like edibles regulation, environmental impacts, and the actual licensing of 17 different type of licensees.

The time is now for getting priority for a California medical cannabis license.
The time is now for getting priority for a California medical cannabis license.

We didn’t have time to discuss the specific issues faced by new or current medical marijuana entities under the MMRSA, including how a medical marijuana entity can obtain “priority” licensing status from California in 2018. As a result, this post focuses on what will be required to obtain that coveted status. For an overview on California’s new medical cannabis rules, check out California’s New Medical Marijuana Laws: What You Need to Know Now.

What does the MMRSA say about “priority” licensing status for medical marijuana operators? AB 266, at Article 4, Section 19321, states that:

In issuing licenses, the licensing authority shall prioritize any facility or entity that can demonstrate to the authority’s satisfaction that it was in operation and in good standing with the local jurisdiction by January 1, 2016.

“Licensing authority” means “the state agency responsible for issuing, renewing, or reinstating the license, or the state agency authorized to take disciplinary action against the license.” Here, “licensing authority” likely means the California Bureau of Medical Marijuana Regulation and/or the California Department of Consumer Affairs, both of which are tasked with overseeing licensing of medical marijuana businesses under the MMRSA.

What does “priority” mean under AB 266? Though no California state agency has yet defined that word, we know from other states in which we have handled licensing applications that it will almost certainly mean that those with priority status in California will be the first to be licensed. This priority will likely be important in California for two reasons. First, given the number of entities that will apply for a license when able to do so, being first to market will have major long term benefits both with transitioning patients and in obtaining quality inventory. Second, we expect a number of California cities and counties will limit the number of cannabis entities they are willing to license or permit to operate within their jurisdiction and the state may eventually do the same. In these sorts of situations, getting in early with a license may be the only way to get in at all.

A number of our California medical cannabis clients and even more potential clients have called or emailed us with two questions. One, what does “satisfaction,” “in operation,” and “in good standing with the local jurisdiction” mean in Article 4, Section 19321. And two, what should we be doing now to ensure we will be deemed to have fulfilled these requirements. Having represented cannabis businesses in multiple other states with similar priority licensing requirements, our cannabis lawyers are familiar with the sorts of priority requirements set forth under California law and with the sorts of things California cannabis businesses need to be doing now to satisfy these requirements.

The State of California will likely define “satisfaction,” during its rule making period set to take place from when the MMRSA becomes effective until January 2018, at the earliest. But, based on our work in other states, we are convinced that, among other potential standards, California will tie “satisfaction” to an MMJ entity’s ability to show that it is registered with the California Board of Equalization and that it has paid (and is paying) all applicable state and local taxes.

The State of California will also likely define “in operation” and “in good standing with the jurisdiction,” during its rule making period, but they both have obvious meanings that reveal what California cannabis entities should be doing now to ensure priority status before January 1, 2016. To meet the “in operation,” requirement, MMJ operators should register their medical marijuana operation right away with the California Secretary of State as a non-profit mutual benefit corporation or a statutory cooperative. See Prop. 215 and SB 420. But anyone looking to form and register these sorts of entities needs to take great care with the articles of incorporation, bylaws, and  treatment of “membership,” as anything done now should be done with an eye towards converting or winding-down that entity and replacing it with a for-profit business as permitted under the MMRSA. See AB 266 at Section 4, Article 1, 19300.5 (aj).

“In good standing with the local jurisdiction” speaks for itself. Since California cities and counties are able to create their own regulations for medical marijuana and will be able to do so under the MMRSA, each city and county has different (or no) medical marijuana regulations. So depending on where your medical marijuana operation is situated, you’re going to want to be able to show the state that you meet all required local permitting and/or licensing and that you have a good history of complying with zoning, licensing and permitting requirements. The January 1, 2016 deadline means current California MMJ operators must have their corporate and tax documents, records, and books up-to-date and in compliance with California’s Corporations Code, and can show they are in good standing with their city or county.

New operators will need to hustle to get their foot in the door by January 1, 2016 to secure priority licensing status in 2018. This will require — at minimum — finding a properly zoned location (if MMJ operations are even allowed in your proposed jurisdiction), executing an appropriate leasehold or purchase and sale for that property, corporate selection, formation and registration, registration with the Board of Equalization, having all of the correct and compliant qualifying patient agreements in place, and abiding by all local and/or county laws concerning any additional licensing and permitting. All by January 1, 2016. Oh, and while you are at it, now would also be a good time for you to get your trademarks and other intellectual property house in order so as to position yourself for the legalized and competitive cannabis marketplace that is to come.

If you want priority licensing in California, get to work now. Time is a wasting….