On September 8, 2021, the consolidated cannabis regulatory agency, the Department of Cannabis Control, released its proposed consolidated emergency regulations.  According to the Department of Cannabis Control’s statement, the consolidated regulations are meant to “clarify and make consistent requirements, including aligning license application requirements, ownership and financial interest of a cannabis business, and establishing uniform terminology and definitions across license types.” The Department of Cannabis Control’s statement on the new regulations can be found here.

For background, before the creation of the Department of Cannabis Control, three agencies regulated the California cannabis industry: Bureau of Cannabis Control (retail, distribution, and testing), California Department of Public Health (manufacturing), and California Department of Food and Agriculture (cultivation).  Each authority had its own set of regulations to regulate the specific activities it was authorized to regulate.  Now, the regulatory authority has been consolidated into the Department of Cannabis Control and, as such, it has released proposed consolidated regulations.  The consolidated regulations are in the California Code of Regulations, Title 4, Division 19.

For the most part, the consolidated regulations did not make significant changes to the prior regulations.  However, there are some changes that need to be noted and all operators should take them into consideration.  Below is a summary of the key changes to the regulations. Find the full text of the regulations here.

Provisional Licenses

• Removed Temporary Licenses language/provisions because those are no longer issued.
• Codified the provisional license extension that was provided for in July’s Assembly Bill 141 which allows provisional licenses to be effective until January 1, 2026. Cal. Code Regs. §15001-15001.4
• The Department can issue additional non-cultivation provisional licenses until June 30, 2022, and cultivation provisional licenses until September 30, 2022.  However, if the application is received after January 1, 2022, the Department will not issue provisional cultivation licenses for a premises that exceeds 20,000 sq. ft. of outdoor total canopy or if it would cause the cannabis business to hold multiple cultivation licenses on contiguous, connecting premises to exceed one acre of outdoor, or 22,000 sq. ft. of mixed-light or indoor. Cal. Code Regs. §15001.1
• Until June 30, 2023, the Department may, in its sole discretion, issue a provisional license to a local equity license applicant.  Cal. Code Regs. §15001.1

Application Disclosures

• Removed the required disclosure of a proposed cannabis business’ bank information, loans, investments, and gifts when applying of an annual license. Cal. Code Regs. §15002
• Removed the required disclosure of details regarding owners’ prior convictions.  However, owners must still submit to a DOJ background check. Cal. Code Regs. §15002

Labor Peace Agreement Timeline

• Requires businesses with less than 20 employees to enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th employee. Cal. Code Regs. §15002

California Environmental Quality Act

• Provided further clarification on the CEQA compliance or exemption documentation required to meet the Department’s standards.  Cal. Code Regs. §15010

Renewal Application

• Beginning January 1, 2022, renewal applications must include information regarding energy usage and source. Cal. Code Regs. §15020

Change of Ownership

• Change of ownership provisions were not materially changed from those found in the old BCC regulations.  All licensees must adhere to the old BCC change of ownership process whenever there is a change in ownership.  Cal. Code Regs. §15023

Branded Merchandise

• Branded merchandise that is designed in any manner that is likely to appeal to anyone under 21 years of age is prohibited. Cal. Code Regs. §15041.1

Trade Samples

• Operators are now allowed to have trade samples.  Products designated by a licensee as trade samples can be provided to other licensees for targeted advertising. 
• Once designated as a trade sample, that designation cannot be changed.  Trade samples cannot be provided to event organizers, distributor transport only licensees, or testing laboratory licensees. 
• Retailers, event organizers, distributor transport only licensees, and testing laboratory licensees cannot provide trade samples. 
• All movement of trade samples must be recorded in METRC. Additionally, “transportation of cannabis goods designated as trade samples must be conducted in accordance with the cannabis transportation requirements in the Act and the Department’s regulations.”  However, “an employee of a licensee authorized to engage in transportation may transport cannabis goods designated as trade samples in a vehicle that is not a registered vehicle of the licensee. Employees transporting cannabis goods under this subsection shall not transport an amount of cannabis goods that exceeds the [personal] possession limits.” 
• Licensees are limited to the following trade sample designations per month: 2 pounds of flower and 900 units of manufactured or non-manufactured products.  Trade sample recipients are also limited to receiving the following amount of trade samples per month per licensee: 5 grams of flower per strain and no more than 6 strains and 5 units of no more than 6 different cannabis products.
• Cal. Code Regs. §15041.2-15041.7

Retail Changes

• Retailers cannot sell plant that are taller than 18 inches. Cal. Code Regs. §15408
• Delivery drivers can now carry cannabis accessories, branded merchandise of any licensee, or promotional materials in addition to cannabis and cannabis products. Cal. Code Regs. §15418.

Label Accuracy

• Change to the required accuracy in testing any one cannabinoid, Total THC, and/or Total CBD claimed to be present on a label shall not be considered inaccurate if the difference in percentage on the certificate of analysis is plus or minus 10.0%.  Cal. Code Regs. §15724
• Until January 1, 2022, for edible cannabis products where milligrams per serving for THC does not exceed 10 milligrams per serving, as provided for under subsection (d)(1) of this section, Total THC claimed to be present on a label shall not be considered inaccurate if the difference in percentage on the COA is a plus or minus 12.0%. Cal. Code Regs. §15724

Definitions

• Cannabis Waste consisting of solely plant material is now defined as organic waste. Cal. Code Regs. §15000(l)
• An “Immature Plant” is now defined as follows: “has a first true leaf measuring greater than one half inch long from base to tip (if started from seed) or a mass of roots measuring greater than one half inch wide at its widest point (if vegetatively propagated), but which is not flowering. For purposes of retail, ‘immature plant’ or ‘immature’ means a cannabis plant that is nonflowering and shorter and narrower than 18 inches.”  Cal. Code Regs. §15000(bb)
• Revised the definition to an “owner” as follows:  
  • A person with an aggregate ownership interest of 20 percent or more in the commercial cannabis business, unless the interest is solely a security, lien, or encumbrance. For purposes of this section, “aggregate” means the total ownership interest held through an entity. For example, an individual owning 50% of an entity that owns 50% of the cannabis business would have a 25% aggregate ownership interest in the cannabis business.
  • An individual who manages, directs, or controls the operations of the commercial cannabis business, including but not limited to:
    • A member of the board of directors of a nonprofit.
    • A general partner of a commercial cannabis business that is organized as a partnership.
    • A non-member manager or managing member of a commercial cannabis business that is organized as a limited liability company.
    • The trustee(s) and all persons who have control of the trust and/or the commercial cannabis business that is held in trust.
    • An individual with the authority to provide strategic direction and oversight for the overall operations of the commercial cannabis business, such as the chief executive officer, president or their equivalent, or an officer, director, vice president, general manger or their equivalent.
    • An individual with the authority to execute contracts on behalf of the commercial cannabis business.
  • If the commercial cannabis business is owned in whole or in part by an entity and the entity includes individuals who manage, direct, or control the operations of the commercial cannabis business those individuals shall also be disclosed as owners.
  • The Department may determine, on a case-by-case basis, that additional individuals have the ability to manage, direct, or control the commercial cannabis business and meet the criteria of an owner. Upon notification by the Department, the applicant or licensee must disclose the individual as an owner and submit the information required by section 15002 of this division or demonstrate that the individual does not qualify as an owner.
  • Cal. Code Regs. §1500
• The consolidation regulations also provide further clarification on the definition of a “Financial Interest Holder” which is now defined as follows:
  • A person with an aggregate ownership interest of less than 20 percent, except as specified in subsection (b).
  • A person providing a loan to the commercial cannabis business, except as specified in subsection (b).
  • A person that contracts with the cannabis business to cultivate, manufacture, package, or label cannabis or cannabis products under that person’s brand name.
  • A person entitled to receive 10 percent or more of the profits of the commercial cannabis business, including:
    • An employee who has entered into a profit share plan with the commercial cannabis business.
    • A landlord who has entered into a lease agreement with the commercial cannabis business for a share of the profits.
    • A consultant who is providing services to the commercial cannabis business for a share of the profits.
    • A person acting as an agent, such as an accountant or attorney, for the commercial cannabis business for a share of the profits.
    • A broker who is engaging in activities for the commercial cannabis business for a share of the profits.
    • A salesperson who earns a commission.
  • Subsection (b) excludes the following people from the definition of a Financial Interest Holder:
    • A bank or financial institution whose interest constitutes a loan;
    • Persons whose only financial interest in the commercial cannabis business is through an interest in a diversified mutual fund, blind trust, or similar instrument;
    • Persons whose only financial interest is a security interest, lien, or encumbrance on property that will be used by the commercial cannabis business; and
    • Persons who hold a share of stock that is less than 10 percent of the total shares in a publicly traded or privately held company.
  • Cal. Code Regs. §15004