Interstate Cannabis Agreements in California

I get asked a lot of questions about what California cannabis licensees can and cannot do under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). California is actually business friendly once operations get going with a license– despite its many issues with the cannabis industry. For example, vertical integration is allowed. There’s no license cap, and you can apply for a license year-round. We allow for cannabis delivery apps. And California permits consumption lounges in line with local law.

So what’s next? Well, at this point California is also going to try to allow for interstate cannabis agreements, similar to what Oregon did back in 2019 under its Senate Bill 582. In California, the proposal up for discussion is SB 1326.

Interstate cannabis agreements

According to AB 1326:

MAUCRSA specifies that its provisions shall not be construed to authorize or permit a licensee to transport or distribute, or cause to be transported or distributed, cannabis or cannabis products outside the state, unless authorized by federal law. This bill would make an exception to the above-described prohibition and would authorize the Governor to enter into an agreement with another state or states authorizing medicinal or adult-use commercial cannabis activity, or both, between entities licensed under the laws of the other state or states and entities operating with a state license pursuant to MAUCRSA, provided that the commercial cannabis activities are lawful and subject to licensure under the laws of the other state or states.
How interstate cannabis agreements would work

Interestingly, these interstate cannabis agreements would be between states. Not licensees. Licensees would still need to engage in contracts with each other for the actual import, export, and distribution of cannabis across state borders. The governor of California would be able to enter into these interstate agreements with governors from other states so long as:

  1. The commercial cannabis activities are lawful and subject to licensure under the laws of the contracting state.
  2. With respect to the interstate transportation of cannabis or cannabis products, the agreement prohibits both of the following: (a) The transportation of cannabis and cannabis products by any means other than those authorized under both the laws of the contracting state and the regulations of the [California Department of Cannabis Control]. (b) The transportation of cannabis and cannabis products through the jurisdiction of a state, district, commonwealth, territory, or possession of the United States that does not authorize that transportation.
Contracting state

The interstate agreement between the states would require that the contracting state agree that its cannabis licensees be bound by California’s requirements around public health and safety, track and trace, testing, inspection, packaging and labeling, and adulterated and misbranded cannabis. The contracting state must also impose “restrictions upon advertising, marketing, labeling, or sale within the contracting state that meet or exceed the restrictions” in California for the same. And all California taxes apply, too. See here for more on California’s recent cannabis tax reform.

Foreign licensees

A “foreign licensee” is a cannabis licensed and based in a state other than California. A foreign licensee cannot engage in commercial cannabis activity in California “without a state license, or engage in commercial cannabis activity within a local jurisdiction without a license, permit, or other authorization issued by the local jurisdiction.” So, foreign licensees will also be plagued by California’s local control issues if they seek to do business in one of our cities or counties that allows for commercial cannabis activity.

The catch

While it would be truly amazing to have interstate cannabis movement between licensees from San Diego up to Bellingham, Washington, there’s one massive catch here. The Feds. SB 1326 really won’t do anything unless and until one of the following four events occurs:

  1. Federal law changes to allow for the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses, i.e., legalization. (There have been recent efforts at the federal level to allow interstate transfer, even without changes as to the federal prohibition of cannabis.)
  2. Federal law is enacted that specifically prohibits the expenditure of federal funds to prevent the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses.
  3. The Department of Justice issues an opinion or memorandum allowing or tolerating the interstate transfer of cannabis or cannabis products between authorized commercial cannabis businesses.
  4. The Attorney General issues a written opinion through the process . . . that implementation of interstate cannabis agreements will not result in “significant legal risk” to the State of California based on review of federal judicial decisions and administrative actions.

Number four is very interesting. Basically, if the California Attorney General releases a legal opinion that interstate cannabis agreements will not put California at risk of lawsuits or arrests and prosecutions by the Feds, then these agreements will be effective. Not sure if the California A/G’s office will stick its neck out like that, but it may if the political climate is ripe.

The bill is currently in the Senate appropriations committee heading for a suspense file hearing. It’s chances of passing probably aren’t that great, but the fact that it’s even being considered is really a huge step forward for the maturation of the industry.

Be sure to stay tuned as we keep an eye on interstate cannabis agreements. In the meantime, check out the following related posts, especially if you are interested in the Constitutional viability of an export regime, and issues around federal consent if AB 1326 ultimately passes.