In our last blog, we provided a 10,000 foot summary of the California cannabis industry and introduced the government regulatory agencies and the available licenses.  In Part 2 of the series, we will provide a 5,000 foot summary of what commercial cannabis activities require a manufacturing license and what cannabis products can be produced and introduced into the California cannabis market.

Manufacturing

The manufacturing of cannabis products is currently regulated by the California Department of Public Health (the “CDPH”).[1]  Under the CDPH regulations, a manufacturing license is required if you are compounding, blending, extracting, infusing, or otherwise making or preparing a cannabis product, which includes packaging or repackaging, and labeling or relabeling the packages of cannabis products.  There are a few exceptions regarding the repacking from a bulk container, preparing pre-rolls, collecting resin or kief, or adding limited information to the packaging label; however, those exemptions require other license types.

Extraction Types

If the desired cannabis product is a concentrate or extract, you will need to conduct some type of extraction manufacturing.  California allows only certain types of extraction manufacturing, which are broken down into two categories; nonvolatile and volatile.

Permissible nonvolatile extraction processes include (1) mechanical extraction; (2) chemical extraction using nonvolatile solvent; and (3) chemical extraction using a professional closed loop CO2 gas extraction system.  Other types of nonvolatile extraction may be permissible if requested and approved by the CDPH.

Volatile extraction includes extraction processes that use solvents that are or produces a flammable gas or vapor that, when present in the air in sufficient quantities, will create explosive or ignitable mixtures, including, but not limited to, butane, hexane, and propane.

Prohibited Activities

Whether you are conducting extraction, infusion, blending, packaging, or compounding activities, certain restrictions apply to all manufacturing license holders.  Under the CDPH regulations, license holders cannot do the following:

1. Manufacture, prepare, package, or label any products other than cannabis products at the licensed premises;
2. Employ or retain an individual under 21 years of age;
3. Use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a non-licensed cannabis cultivator;
4. Manufacture, prepare, package, or label cannabis products in a location that is operating as a retail food establishment or as a processed food registrant; or
5. Manufacture, prepare, package, or label cannabis products in a location that is licensed by the Department of Alcoholic Beverage Control.

Prohibited Products

In addition to prohibiting the type of activities manufacturers can do in California, the CDPH also restricts the type of products that can be made and released into the market.  The following is a list of products that cannot be sold as, or manufactured into, cannabis products:

1. Alcoholic beverages (does not apply to tinctures that require additional packaging requirements).
2. Products containing any non-cannabinoid additive that would increase potency, toxicity, or addictive potential, including, but not limited to, caffeine and nicotine (does not apply to products containing naturally occurring caffeine, such as coffee, tea, or chocolate).
3. Products that must be held at or below 41 degrees Fahrenheit to keep it safe for human consumption (does not apply to juices, beverages, or infused butter).
4. Thermally processed low acid cannabis products packed in a hermetically sealed container, such as canned beans or canned vegetables.
5. Any acidified cannabis product, such as pickles or other pickled food products.
6. Any juice that is not shelf-stable or processed not in accordance with CDPH regulations.
7. Dairy products of any kind, except infused butter.
8. Meat products other than dried meat products prepared in accordance with CDPH regulations.
9. Seafood products.
10. Products that are manufactured by including a cannabis concentrate or extract to commercially available candy or snack food items without further processing of the product.  Commercially available candy or snack food items may be used as ingredients, but they must be rendered unrecognizable as the commercially available items.
11. Products that are attractive to children or made in the shape of, or imprinted with the shape, either realistic or caricature, of a human being, animal, insect, or fruit.

Requirements for Edibles

After you figure out what type of product you want to manufacture and ensure it does not fall within the list of prohibited products, you will need to ensure that product will meet the following requirements if the desired product is an edible:

1. All non-cannabis ingredients must be permitted by the United States Food and Drug Administration for use in food or food manufacturing.
2. If there is more than one serving it must be scored or delineated to indicate one serving or, if the edible is not in a solid form, packaged in a manner such that a single service is readily identifiable or easily measured.
3. An edible consisting of multiple servings must be homogenized so that each serving contains the same concentration of THC.
4. The edible cannot exceed the following THC concentration limits:
   1. 10 milligrams THC per serving; and
   2. 100 milligrams THC per package.
   3. Certain medicinal only edibles can have up to 500 milligrams of THC per package.

License Types

Once you have determined which type of cannabis product you would like to manufacture you can then determine the type of license you will need to obtain to manufacture such cannabis product.  The CDPH offers the following license types:

Type S – Conduct commercial cannabis manufacturing activities at a registered shared-use facility.

Type P – Packaging and Repackaging cannabis products or label or relabel cannabis products containers or wrappers.

Type N – Produce cannabis products other than extracts or concentrates that are produced through extraction.  Type N licensee may also conduct activities allowed under a Type P license and register and operate the licensed premise as a shared-use facility.

Type 6 – Conduct extractions using mechanical methods or nonvolatile solvents.  Type 6 licensees may also conduct infusion operations on the licensed premises and conduct activities allowed under a Type P license.

Type 7 – Conduct extractions using volatile solvents.  Type 7 licensees may also conduct activities allowed under a Type 6 license.

Shared Use Facilities

One unique aspect of having a Type 6, 7, or N manufacturing license is that you are allowed to share your facility with others so long as you register your facility as a shared facility and each manufacturer obtains a Type S license.  However, there are some restrictions for individuals seeking a Type S license.  Type S license holders are restricted to the following:

1. Only available to applicants with a gross annual revenue of less than $1,000,000.
2. Only allowed to conduct infusions, packaging and labeling, and extractions with butter or food-grade oils which can only be infused into its own products.

Given the restrictions, the Type S license would be a good license for a bootstrapped startup looking to establish its brand before raising capital or investing a significant amount of money into building out its facility.

Local Licensing

As always in California, once you figure out the type of product you want to manufacture, the type of manufacturing you will need to conduct, and the type of state license you will need to obtain, you will first need to secure local authorization for the desired manufacturing operation.  We will go into greater detail on securing local authorization for commercial cannabis activities in later blog posts.  For now, know that you will need to find a municipality that allows the type of desired manufacturing (volatile manufacturing is allowed in limited municipalities), and then you will need to apply for the applicable permits and/or licenses with that local government.  Once local authorization is obtained, you can submit an application with the CDPH for the state license.

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[1] The 2021-22 California budget consolidates the regulation of commercial cannabis activity from the Bureau of Cannabis Control, California Department of Public Health, and the California Department of Food and Agriculture to a newly created Department of Cannabis Control.