California stands to be the largest cannabis economy in history, with both medical and recreational programs coming to fruition. Last year, the Medical Cannabis Regulation and Safety Act was signed by Governor Jerry Brown to establish regulations for the medical cannabis supply chain. This November, California voters will get to decide on whether to legalize and regulate cannabis for adult use.
Yerba invites you to read this brief recap of the different nuances presented with both the existing MCRSA rules and the potential regulations that would be established with the Adult Use of Marijuana Act (AUMA).
Medical Cannabis Regulation and Safety Act
On October 9th, 2015, California Governor Jerry Brown signed three cannabis bills into law that seek to create a transparent and regulated medical cannabis supply chain. The bills (AB 266, AB 243, and SB 643), collectively referred to as MCRSA, established the Bureau of Medical Cannabis Regulation under the California Department of Consumer Affairs. This commission is tasked with licensing and reporting of cannabis products from conception to consumption.
The bills also set forth initial guidelines for manufacturing, testing, and labeling cannabis products, as well as environmental protections to empower the Department of Fish and Wildlife in their fight against illegal cannabis cultivation.
The final condition of MCRSA is that California must establish a traceability program (often referred to as track and trace) that monitors the flow of cannabis products between the different licensed businesses in the supply chain.
MCRSA does not affect the patients rights set forth by Proposition 215 (passed in 1996).
What Consumers Need to Know About Prop 64: Adult Use of Marijuana Act
When Californians head to the ballot on November 8th, they will have the opportunity to vote on the legalization of cannabis for adult use. Proposition 64 (aka AUMA) has been making a lot of headlines as California is the largest cannabis economy, and if Prop 64 becomes law, the regulatory challenges and achievements will set a standard across the nation.
Prop 64 is not perfect. There are folks on both sides who would like to see improvements regarding everything from licensing to possession amounts to personal cultivation limits. In 1996, Californians approved Proposition 215 which gave medical patients the right to use cannabis. Prop 64 will not remove or change any of the patients rights put forward in Prop 215.
Adults in California will legally be allowed possession of up to one ounce of cannabis, as well as six plants grown in a private and protected space.
Unfortunately, Prop 64 does not protect patients or recreational users from employment, housing, or discriminatory policies. However, Prop 64 does extend protections for patients from charges levied by Child Protective Services.
Prop 64 establishes a $100 fine for consuming cannabis in any public space, even those designated for cigarette smoking. This provision includes the use of vaporizers. Additionally, Prop 64 will institute penalties similar to alcohol’s vehicular open-container laws.
Business Regulations from Prop 64
Last October, Governor Jerry Brown signed several bills that intend to regulate California’s medical cannabis economy in a comprehensive and responsible way. Prop 64 also intends to regulate the flow of cannabis, although many operators argue that the stipulations under Prop 64 would not allow for business growth.
Prop 64 is similar to the Medical Cannabis Regulation and Safety Act (MCRSA) in its attempt to license cannabis companies in limited roles. Smaller cultivators and manufacturers are concerned that the permit structure as it stands would only promote larger scale operations and eliminate the cottage industry.
One major issue is the amount of taxation that would be imposed on cannabis businesses. Prop 64 would levy taxes of $9.25 per wholesale ounce of flower as well as a 15% retail excise tax on top of the existing California sales tax. It is very likely that following legalization, the market price of cannabis will increase as these taxes are passed down the supply chain tot he consumer. Long-term analysis supports the idea that cannabis prices will fluctuate before they ultimately go down after several years.
License Categories: MCRSA and AUMA
The cannabis licensing structures put forth in Prop 64 and MCRSA are very similar, and it is clear the others of AUMA wanted to reflect the same supply chain set forth with Jerry Brown’s signature. AUMA would provide for 19 different types of business licenses, 17 of which have already been established by MCRSA.
The licenses to be issued for medical and recreational operators will be distinct, although the current Medical Bureau would absorb the responsibilities of recreational licensing.
Here is a look at the subtle differences between the licensing structures put forth by both AUMA and MCRSA. Depending on the type of licenses being sought, single business entities will be limited to two permit types with the exception of combining Type 8 Testing and Type 5 large cultivation.
- Type 1A: Indoor cultivation up to 5,000 square feet (both)
- Type 1B: Mixed-light cultivation up to 5,000 square feet (both)
- Type 2: Outdoor cultivation up to 5,000 square feet (both)
- Type 2A: Indoor cultivation between 5,001 and 10,000 square feet (both)
- Type 2B: Mixed-light cultivation between 5,001 and 10,000 square feet (both)
- Type 3: Outdoor cultivation between 5,001 and one acre or 43,000 square feet (both)
- Type 3A: Indoor cultivation between 10,001 and 22,000 square feet (both)
- Type 3B: Mixed-light cultivation between 10,001 and 22,000 square feet (both)
- Type 4: Nursery cultivation (both)
- Type 5: Outdoor cultivation with no artificial lighting above one acre (AUMA only)
- Type 5A: Indoor cultivation over 22,000 square feet (AUMA only)
- Type 5B: Mixed-light cultivation over 22,000 square feet using a combination of artificial and natural lighting (AUMA only)
- Type 6: Manufacturer using non-volatile solvents (both)
- Type 7: Manufacturer using volatile solvents (both)
- Type 8: Testing laboratory (both)
- Type 10: General retail including sale and delivery (both)
- Type 10A: Retailer with no more than 3 locations (MCRSA only)
- Type 11: Distribution (MCRSA mandatory, AUMA optional)
- Type 12 MCRSA: Transporter (different from Type 11 Distribution)
- Type 12 AUMA: Microbusiness with cultivation up to 10,000 square feet and permission for licensed distribution as well as Type 6 manufacturer and Type 10 retail permits
It is likely that these permit opportunities are expanded as California regulates both their medical and recreational cannabis economies. The one requirement that is threatening a seamless roll-out of these regulations is the fact that every state license will only be granted if the business has a local license. Local jurisdictions are allowed under both AUMA and MCRSA to set independent taxation and permitting fees, which will cut into cannabis business margins even further.
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