Subset of California Medical License Applicants Granted Priority Review by State
Written by Kenzo
Recent opposition by California Governor Jerry Brown on what he suggests to be an 'anti-competitive' cannabusiness rules proposed under the more restrictive provisions of the Medical Cannabis Regulation and Safety Act (MCRSA), was followed by the introduction of Governor Brown’s proposed legislation involving the contending Adult Use of Marijuana Act (AUMA), which is closely associated with Proposition 64, a 2016 California ballot initiative which made way for California’s regulated recreational-use market planned to go live on January 1st, 2018.
For a quick recap of how the two unique legislations will impact the market, we first look at the proposed provisions from a macro economic standpoint and find the differences between AUMA and MCRSA are such that; AUMA favors the vertical integration without imposing a independent distributor requirement for growers, manufacturers and retailers alike; while MCRSA favors the segmentation of the industry from seed to sale, distributing the responsibilities over multiple-independent organizations.
Governor Brown endorses AUMA, noting that he does not agree with how “overly restrictive vertical integration stifles new business models and does not enhance public and consumer safety” as it pertains to the cannabis industry. Brown believes that by “allowing for a business to hold multiple licenses including a distribution license will make it easier for business to enter the market, encourage innovation, and strengthen compliance with state law.”
The debate on whether the provisions related to MCRSA legislation are ‘anti-competitive’ in nature because of the restrictive regulatory requirements it imposes, are met with an opposing rhetoric that alleges that AUMA provisions raise ‘anti-trust’ concerns as the lack of crucial AUMA regulations could potentially result in California’s cannabis industry being capsized and controlled by the interests of a few fiscally capable organizations.
In order to understand the type of impact either legislations may have, we first must take a look into the case-studies available to us through the existing legislations made law in the current US Recreational cannabis states. Although there are cases where multiple licenses are granted to a single individual or entity, each state has designed their system to segment the responsibilities of the seed to sale cycle to prevent vertical integration. Per the Washington State Liquor and Cannabis Board, producer and/or processors are ineligible to apply for or maintain a separate retailer license, noting that if another sister-entity or relative holds an adjacent license “you may not take profits, make business decisions, be a true party of interest, or have other financial gain/interest in their business.” Each state requires that applicants and license holders maintain a clean criminal background, be a resident of the state, 21+ years old, located a safe distance away from restricted entities (i.e. schools), as well as not concurrently possessing a conflicting licenses within the state. A further look into each state allows us to see how it is generally common practice to segmented the seed to sale cycle distributing the responsibilities:
- Medical Marijuana Center:Facility from which Medical Marijuana Registry patients purchase Medical Marijuana and Medical Marijuana infused products. Owners of this type of facility must also own and operate at least one Medical Marijuana Cultivation and produce a minimum of 70% of all on-hand inventory (C.R.S. §12-43.3-402)
- Medical Marijuana Infused Product Manufacturer: Facility which produces Medical Marijuana infused products such as: edibles, concentrates (hash), tinctures or beverages. These facilities are only authorized to wholesale their products to MED licensed Medical Marijuana Centers (C.R.S. §12-43.3-404)
- Medical Marijuana Optional Premises Cultivation: Facility which cultivates Medical Marijuana; there are no Independent Medical Marijuana Optional Premises Cultivation (OPC) Licenses - these facilities must be associated with either a Medical Marijuana Center or Infused Product Manufacturer facility and may only provide their product to that specific entity (C.R.S. §12-43.3-403)
- Medical Marijuana Testing Facility: Facility which conducts testing and research on Medical Marijuana for MED Medical Marijuana business Licensees. The facility may develop and test Medical Marijuana products (C.R.S. 12-4303-405)
- Medical Producer License: To produce mariuana for sale at wholesale to marijuana processor licenses and to other marijuana producer licensees. Tier 1 allows for two thousand square feet or less of dedicated plant canopy. Tier 2 allows for between two thousand square feet and ten thousand square feet of dedicated plant canopy. Tier 3 allows for between ten thousand square feet and thirty thousand square feet of dedicated plant canopy. Any entity and/or principals within an entity are limited to no more than three marijuana producer licenses.
- Marijuana Processor License: To process, package, and label usable marijuana and marijuana-infused products for sale at wholesale to marijuana retailers. Allowed to blend tested useable marijuana from multiple lots into a single package for sale to a marijuana retail license providing the label requirements for each lot used I the blend are met and the percentage by weight of each lot is also included on the label.
- Marijuana Retailer License: To sell only usable marijuana, marijuana-infused products, marijuana concentrates and marijuana paraphernalia at retail in retail outlets to persons twenty-one years of age and older.
- Internet sales and delivery of product is prohibited.
- Marijuana retailers may not sell marijuana products below their acquisition cost.
- Any entity and/or principals within any entity are limited to no more than three retail marijuana licenses with no multiple location licensee allowed more than thirty-three percent of the allowed licenses in any county or city.
- Marijuana Transportation License: A Marijuana Transportation license is required for the licensee to physically transport or deliver marijuana, marijuana concentrates, and marijuana-infused products between licensed marijuana businesses within Washington State.
- Marijuana Producer License: Ability to plant, cultivate, grow, harvest and dry marijuana.
- Marijuana Processor License: Ability to process, compound, or convert marijuana into cannabinoid products, concentrates, and/or extracts.
- Wholesale: Can purchase quantities of marijuana from other licensed facilities and sell the products to licensed retailers, processors, producers, other wholesalers, or research certificate holders.
- Laboratory: Accredited by ORELAP and responsible for testing marijuana items for pesticides, solvents or residual solvents, tetrahydrocannabinol and cannabidiol concentration, and for microbiological or other contaminants.
- Retail: Can sell or deliver marijuana items directly to consumers.
- Research Certificate: Ability to research marijuana for the purpose of benefiting the state’s cannabis industry, medical research, or public health and safety.
Contrary to Governor Jerry Brown’s perspective on a distributed market, evidence suggests that each of the three existing recreational states have restricted vertical integration. With that said, let’s look at what’s next on California’s agenda as we approach 2018’s recreational market.
According to the Bureau of Marijuana Control, they have begun taking priority applications from qualifying medical marijuana license applicants and licensees. In order to qualify for priority review, the business applicant must provide evidence of actively conducting commercial cannabis activities under a legal entity in good standing prior to 2016 and without interruption, continues to conduct similar activities in their local jurisdiction. Applicants are required to furnish proof of incorporation, corporate by-laws, tax forms and applicable licenses and permits from local jurisdiction. For the complete list of requirements, please consult a licensed Californian Attorney versed in the cannabis industry, preferably in your local jurisdiction.
Proposed MCRSA provisions, pursuant to AB 266, Article 4 Section 19321:
- ‘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.’
Priority review of the application shall be given to applicants that were in operation and in good standing with the local jurisdiction by January 1, 2016, and whose business ownership or premises are currently the same as they were on January 1, 2016. Priority applications shall be processed for review in the order in which they are received.’
Similarities between MRSCA and AUMA have provided Californian counties and cities with the authority to form variations of their own local law as it pertains to the permitting, regulating or under the most unfortunate cases, explicitly banning medical cannabis activities within their borders. Local governments are conducting city hall hearings to discuss key topics related to the structuring of the cannabis market, or lack-of, for their local cannabis community.