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California Marijuana Laws 2017: How CA Retailers Can Prepare for Recreational Sales

With the passing of Proposition 64 in November 2016, California has positioned itself to become the national posterchild for legal recreational cannabis. Beginning next year, the United States will watch as one of the largest economies in the world rolls out adult-use marijuana sales and navigates the growing pains that inevitably accompany such large-scale industrial growth. 


California lawmakers have until January 1, 2018, to implement a regulatory framework that is currently still under construction. This includes licensing procedures, taxation policy, and integrations with the state’s current medical marijuana industry, which is governed by the Medical Cannabis Regulation and Safety Act. 

Although we truly won’t know what to expect until the framework is in place, California medical retailers can look to other states who are pioneering the recreational market to gain insight into the possibilities—and the potential hurdles.

Alaska, Colorado, Nevada, Oregon and Washington have all made the transition. After watching these markets in their fledgling stages—and working directly with dispensary owners through the transition in these states—we’ve put together a list of some early preparations current California cannabis retailers can make to help ensure the smoothest transition possible.

1. Start budgeting now for license application fees.

If you already own or manage a medical dispensary, you may be aware that the application process isn’t cheap. Expect the licensing fees to be higher than you paid for your medical license with the recreational California marijuana laws.

In fact, we’ve seen dispensaries shell out as much as $80,000 for a license alone—and in some cases, that was just for a temporary license.

A safe bet would be to allocate at least $100,000 of your initial capital to licensing. This will ensure you have enough cushion to cover any unforeseen application issues and fees.

2. Be ready to show a clean source of capital. 

As you gather funding and prepare your financials, it’s critical that you are able to demonstrate clean, legitimate sources of money. Initial capital requirements have varied from state to state, but you can expect to need access to anywhere from $150,000 to $500,000 or more when California releases its application requirements.

Naturally, state legislators want to ensure that the legal cannabis industry does not become tainted with “black market” money. Expect stringent reporting guidelines and financial requirements that will show the government your business’ funds are on the up-and-up.

3. Ensure your applicants have no criminal history.

In the same vein as number 2 above, California lawmakers want to make sure this new industry is unassailable when it comes to legitimacy, consumer safety, and preventing diversion into or ties with the black market. Along with being able to track every penny of your financial resources, you’ll want to ensure that no one named on your application has any kind of questionable background or criminal record.

Traditionally, most states have required background checks of all dispensary license applicants. We expect California to be no different.

4. Make sure you are in compliance with your local government’s laws.

Although Prop 64 legalized the sale of cannabis for adult use at the state level, local governments still have the authority to regulate recreational businesses AND to ban them outright. This means that even if you meet all the qualifications for a state license, you could still be shut out or severely restricted by your city or county ordinances. 

If your municipality or county does allow rec sales, it will likely restrict them to specific zonings—which may or may not coincide with the zoning requirements for medical marijuana sales. So, the fact that you currently operate a licensed medical dispensary doesn’t necessarily mean that you’ll be able to convert your current location into a medical and recreational store. 

Your local government is also authorized to require a business license before opening your adult-use dispensary—which brings us to number 5.

5. Prepare to transition from non-profit to for-profit status.

Under the Medical Cannabis Regulation and Safety Act, medical dispensaries are allowed to function as non-profit organizations. However, if you want to be considered for a recreational retail license, you will have to form a for-profit entity.

There are several types of business structures for you to choose from, including limited liability company (LLC), traditional corporation, and joint venture. But no matter which structure you choose, you will be required to obtain a business license from the state and potentially your local government, which will require formal articles of incorporation.

Thinking about making the leap from Med to Rec?

At Green Bits, we’ve worked with hundreds of clients to successfully transition from medical-only to recreational sales. And we’ve learned a lot along the way.

That’s why we decided to share these insights in our new eBook, “Transitioning from Medical to Recreational: What Cannabis Retailers Need to Know.



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