420 in 3…2…1…

By David S. Rugendorf and Susan Kohn Ross

Breaking out the bubbly is a hallowed part of the New Year’s Eve tradition, but this year, as the clock strikes twelve and we look to usher in 2018; what you see and hear bubbling may be coming from a bong – and not from a champagne glass.  This is because on January 1, 2018, California’s adult-use cannabis regulations will come into effect.  Although the voters approved Proposition 64 (and pretty handily, too) at the November 2016 election, it took the powers that be time to craft the applicable regulations.  While medicinal marijuana has existed for two decades in California (Proposition 215, 1996), the new year will bring major changes, as cannabis will be for sale in the so-called “recreational” markets.

Here are some highlights:

  • Individuals over age 21 without a medical recommendation may possess up to one ounce of cannabis, eight grams of cannabis concentrates and six plants. With a medical recommendation, the limits may be larger.  As for the plants, they must be grown outside of public view.
  • In addition to retail stores and dispensaries, delivery services will be allowed, again subject to local as well as state regulations. No late night weed and munchies runs – the legal hours for retail use will be limited to between 6 a.m. (wake and bake!) and 10 p.m.
  • Smoking in public is still not legal, and nor is underage consumption or driving while consuming. Like alcohol, it will be illegal to possess “open” cannabis in a vehicle or to consume it while driving.  For the time being, there will not be “420 bars” where one can enjoy their favorite cannabis strain in a public setting, although this may eventually evolve, and Los Angeles will be able to claim the title “Amsterdam-by-the-Pacific.”  Of course, no use will be allowed wherever cigarette smoking is currently prohibited.
  • The California Bureau of Cannabis Control is issuing licenses to retailers, who in addition to complying with state law, must adhere to local ordinances and regulations. While the issuing process takes place, medicinal dispensaries that are in compliance may apply for retail licenses.  Medicinal licenses will remain, and establishments may be classified in either, or both, categories.  Medicinal licenses allow an establishment to sell to patients over the age of 18, with a medical recommendation.
  • Of course, taxes – the state is imposing a 15 percent excise tax. Los Angeles County alone is assessing a 9.5 percent sales tax, though that will not be charged for medicinal purchases.
  • Local licensing policies may vary. Los Angeles will likely follow the lead of Oakland and other localities who have introduced a “social equity” component into the licensing process.  Low income and minority communities disparately impacted by marijuana prohibition will likely receive preferences for licenses, as well as access to training and support services.
  • Retail adult-use products must be sold in tamper resistant packaging. This means one will not be able to ask the “budtender” for a whiff of the product before purchasing.  Free samples of products, including edibles, will be prohibited.
  • The state is setting up a strict testing regimen for cultivators and manufacturers. Products will be tested for cannabinoid content (THC and CBD), as well as mold, pesticides and other substances.
  • Cannabis is still a Schedule I substance under federal law, and no change to that status appears imminent. This means that despite being permitted under state law, cannabis remains illegal under federal law.  For the time being, federal authorities have largely stayed out of cannabis enforcement in places where it is legal under state law, but that can change at any time.  Importantly, because banking is controlled by federal law, most banks are fearful of getting involved in the cannabis sector, so it remains largely (but not entirely) a cash-based business.
  • California’s laws and regulations are very fluid and subject to change, as the laws continue to develop at the state and local level. It is highly recommended to keep an eye on the latest developments.

MSK’s Cannabis industry group provides top-shelf legal services to cannabis producers, distributors, investors and retailers in the areas of corporate law, licensing and compliance, labor and employment, tax, immigration, trademark, real estate and other areas.

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