California Prop 64 Transition: Dispensary Licensing

by Jayson Filingeri,

California’s Proposition 64 — the 2016 ballot item that legalized recreational marijuana use — brought a regulatory sea change to the state’s 20-year old cannabis industry.

After two decades without state-level regulations, California implemented extensive new rules defining both its medical and recreational commerce. State licensing is newly in effect for 2018, and cannabis companies are struggling to make sense of which license (or licenses) they’ll need to be operational.

Temporary operating license requirements

Fortunately, the Bureau of Cannabis Control is implementing a transition period that will last until July 1st, 2018. During this time, they will allow temporary licenses. Within the 120-day span of that temporary license, companies must apply for an annual license.

A local license is required to receive a temporary one. If you’re in good standing with municipal and county regulators, the state will grant a temporary license and, if you’ve been licensed with the local jurisdiction since September 1st, 2016, your company is eligible for priority licensing to speed you along. Past relations with local regulators can affect your state application too: a previous denial on a local application can be grounds for dismissal of the state license.

An acceptably clean criminal record is required to receive a license. Because of cannabis’ former illegality, industry folk may have drug-related offenses. The state will give consideration to cannabis-related offenses that would no longer be illegal under current law, but they will deny applications based on felony trafficking or selling to minors. The BCC will consider criminal histories on a case-by-case basis, rather than setting rigid rules. Proof of rehabilitation and the amount of time elapsed since the conviction may help plead your case if you have some background blemishes.

License types

The BCC will offer 19 license types to cover all forms of cannabis commerce. Dispensaries will be awarded a Type-10 or if they have three or fewer locations, a Type-10A license. The annual licensing fee for a retail establishment ranges from $4,000 to $72,000 based on sales volume. A 1,000-dollar, non-refundable application fee applies to all license types.

For vertically integrated companies, the state will offer a “micro-business” license which allows several forms of business: cultivation, manufacturing, distribution, and/or retail. To qualify for a micro-business license, an applicant must engage in at least three of those four business activities listed above. In addition, cultivators must apply for a license with the California Department of Food and Agriculture (CDFA), and cannabis product manufacturers will need to license with the California Department of Public Health (CDPH).

The BCC is emphasizing the distinction between adult-use and medical products. So, they’ll be approving separate ‘A’ and ‘M’ versions of all license types. The transition period allows for continued business-to-business commerce—regardless of license type. In July, the state segregates adult-use and medical marijuana so that only like types can do business together.

If you hold both adult-use and medical licenses, however, you can operate under the same roof—if you maintain separate records. The state’s definition of records includes financial data, local licenses, contracts with other licensees, and seed-to-sale tracking data, amongst other paperwork. Be ready to furnish nicely separated records should the BCC ask, and they may ask for either electronic or paper forms. Keeping with the idea of supply chain separation, marijuana products sold by a dually-licensed retailer must be clearly marked with an ‘A’ or an ‘M.’

California Cannabis Retail

The Bureau of Cannabis Control’s Proposed Text of Regulations dictates retail operating procedures in Chapter 3. It paints the picture of the retail environment for the latter half of 2018 and, ultimately, defines what you’ll need to do to get a license. Refer to Chapter 3 of the regulations for detailed information on inventory tracking, packaging, displaying products, security practices, and delivery service rules.

As your company navigates the California temporary licensing process and the transition period, look to the big regulatory picture of 2019. Aspiring to the final version of the Bureau’s rules now will help you secure an annual license; adhering to them come July will ensure that you keep it.

For more information on retail compliance in California, reference the Bureau of Cannabis Control’s Proposed Text of Regulations.

Wondering how to successfully transition your dispensary?