End of an era: After Jan. 9, California’s unlicensed medical cannabis collectives/co-ops illegal


By John Schroyer

On Jan. 10, California’s legal cannabis industry is expected to get even smaller.

Medical marijuana collectives and cooperatives will become illegal without a state license that day, per guidance that the Bureau of Cannabis Control (BCC) issued in January 2018.

Cannabis industry experts have suggested the impact of the deadline has already made its mark on the California marijuana industry by forcing nonprofits to either get licenses or close up shop.

But in many cases, the collectives/co-ops might just keep selling, turning their back on the regulations in hopes of avoiding law enforcement as long as possible.

Technically, unlicensed MMJ collectives and co-ops were allowed to operate through 2018 without state permits, because they were given a legal defense from prosecution as medical collectives under state law.

But that grandfathering period ends Jan. 9, meaning any collective or co-op being run without a state permit on Jan. 10 could be raided by law enforcement and shut down, with employees and operators facing possible criminal charges or civil fines.

While it’s unclear how many collectives and co-ops may still be operating in California to date – neither the BCC nor the California Department of Tax and Fee Administration had any firm data on existing collectives/co-ops – industry insiders estimated the number could easily be in the hundreds.

“It’s significant because, at this point, if you don’t have a license, whatever legal protection you have goes away,” said Los Angeles cannabis attorney Michael Chernis.

“And the stark reality is that for many places in California, licenses are not available,” Chernis noted, a reference to the fact that roughly two-thirds of California’s cities and counties still have MJ business bans in effect.

The issue is perhaps most pronounced in Chernis’ home region, Los Angeles, because the city has been so slow to issue licenses for cannabis retailers, including many that operated through 2018 under the same collective/co-op model that’s about to end.

“The big losers,” Chernis said, “are the businesses that have been around as long as anyone who’s been licensed, and they have to face a really difficult choice right now:

“Do they completely cease operations because the city of L.A. hasn’t gotten around to offering them a legitimate pathway to license … or do they continue operating in the black market?”

‘Symbolic’ impact or uptick in raids?

The broadest impact of the disappearing collective/co-op model will probably be on medical patients, caregivers and small local collectives and co-ops that weren’t really focused on the business end of the industry, but rather, were actually operating as nonprofit medical charities, said Ellen Komp, deputy director of California NORML.

“There will be patients who will have their access interrupted, and some of them won’t be able to access or afford a licensed facility where they can find their medicine,” she said.

“And collective owners will get caught up in the laws, prosecuted civilly or criminally for not having a license.”

Komp also noted the BCC was originally slated to perform a study on nonprofit MMJ collectives before the regulated market launched in January 2018, but that deadline was pushed back to January 2020, leaving any still-existing medical collectives in “legal limbo” for another year.

Komp and several other industry sources said it’s possible that after the collectives and co-ops become illegal there may be an uptick in enforcement efforts against unlicensed MJ shops.

“You’re still going to have a pretty robust illicit market, and what we’ve seen over the course of this past year is cities that are choosing to crack down on the illicit market … will continue to do so in the manner they have this past year, which is through code enforcement violations,” San Diego attorney Kimberly Simms said.

“I don’t think you’re going to see this huge uptick in raids,” Simms added, saying she doesn’t believe most communities have extra resources to devote to combating unlicensed cannabis shops.

“It is the sort of symbolic end to what people felt like has governed the industry for the last 20 years,” Simms said.

Hard-to-quantify impact

Another longtime MJ attorney, Oakland-based Bill Panzer, said many of the dispensaries that will face the choice Chernis referred to were never nonprofit collectives or co-ops.

Panzer said that before 2018, when all MMJ businesses were required to be nonprofits, “if you looked at the shops that were operating in California under the collective model under a magnifying glass, at least 90% would not pass muster.”

The ones that would, he added, have either already transitioned to the for-profit market and obtained state licenses, or have already exited the market.

“They’ve already been impacted,” Panzer said. “I don’t think there’s going to be many more … because the state has taken the position that nonprofits still have to get licenses. And a lot of these places can’t afford it, so they’ve been being shut down over the last year.

“I personally don’t know any (collectives) that have gotten a license and have still continued to operate as a nonprofit.”

Enforcement mostly falls to local authorities

Others aren’t as optimistic that law enforcement will turn a blind eye to unlicensed cannabis collectives and co-ops.

“Enforcement is likely to increase, because that (collective) defense isn’t there anymore,” stressed Omar Figueroa, another longtime MJ industry lawyer.

BCC spokesman Alex Traverso wrote in an email to Marijuana Business Daily that his agency will continue to use a carrot-over-stick approach and try to coax illegally operating collectives/co-ops into getting state licenses, instead of coming down hard on those without permits.

Traverso noted that, in the past month, the BCC issued more than 1,300 temporary cannabis business licenses, including to many currently operating as collectives or cooperatives.

For those companies to become fully legal and sustainable, however, they’re going to have to obtain full annual permits – a much harder threshold.

That also doesn’t exempt unlicensed collectives and co-ops from prosecution by local authorities, which have largely been running point in combating California’s illicit market over 2018.

In many of those cases, however, misdemeanors, not felonies, have been the only charges filed.

John Schroyer can be reached at johns@mjbizdaily.com.

https://mjbizdaily.com/

 

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Michael Chernis named by MG Magazine as one of “30 Powerful Cannabis Attorneys You Should Know”

Broadly defined, litigation is the process of resolving a dispute between opposing parties through the court system. In business, any relationship–with vendors, suppliers, employees, customers, or competitors–is subject to misunderstanding and miscommunication that can result in litigation. In the burgeoning legal cannabis industry, the opportunity for such occurrences is greatly pronounced.

Matters most often turning up in litigation involve issues such as ownership or partnership disputes, commercial contracts, employment disputes, trademarks and patents, real estate and landlord disputes, product liability, taxes, insurance, and even appellate advocacy, though more rarely than the aforementioned. For each such concern, there are litigating attorneys who specialize in the intricacies.


MICHAEL CHERNIS

Chernis Law Group PC, California
Practice areas: Criminal defense, regulatory law, corporate law, civil litigation
Alma mater: Fordham University Law School
Hard facts: Demonstrating his clients’ compliance with the “collective defense” created by SB420, Chernis has obtained dismissals, reductions of charges, agreements not to file charges, and returns of confiscated goods in a variety of cases. Among the most noteworthy: dismissal of Los Angeles District Attorney charges against a Berkeley manufacturer and return of its cannabis oil cartridges in 2016 and the non-filing and return of goods in a 2014 CO2 manufacturing lab raid and seizure in Riverside County. (ChernisLaw.com)

Michael Chernis

See the full list here: www.mgretailer.com

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California’s New Batch Testing Requirements

By Michael Jensen, Chernis Law Group

California’s new batch testing requirements are proving difficult to meet for the California cannabis industry. Beginning July 1, 2018, testing requirements for products became fully implemented. Under the new rules, all products must be batch tested for pesticides, microbial impurities, residual solvents, homogeneity, foreign material, and moisture.

The Bureau of Cannabis Control—the regulatory authority for retailers, distributors, and testing laboratories—has started to release weekly data on passing and failing products. The most recent reports from October 9 and 15 are reproduced below. In the October 9 report, of the 16,050 batches tested, 2,684 failed (16.7%). In the October 15 report, of the 16,869 batches tested, 2,804 failed (16.6%).

Diving deeper into the numbers, it is clear that testing compliance is most difficult for manufacturers of edibles, tinctures, and topicals, which have a failing rates of nearly 30%. Additionally, label claims are the most common reason for noncompliance.

Under the title 17 of the California Code of Regulations (CCR), section 40405(a)(4), respective THC and CBD contents for a package must be included on the label. To pass testing for THC and CBD content, the product must test within 10% of the content indicated on the label. Title 16, CCR § 5724(d). Fortunately, inaccurate label claims are curable, and a may be re-labeled by certain distributors. Title 16, CCR § 5303(c).

Navigating the regulated cannabis market in California is becoming more complicated than ever. If you are operating a licensed cannabis business and need assistance with regulatory compliance, Chernis Law Group is ready to assist you.

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Michael Chernis is our Latest Featured Speaker!

By Pincus Professional Education

Our latest featured speaker is Michael Chernis from Chernis Law Group!

Michael will be on the faculty panel at our upcoming Recreational and Medical Marijuana Law and Business in California seminar in Los Angeles on November 1-2! Michael first spoke for us at our 2017 Marijuana Law conference, where attendees’ evaluations said he was very informative and gave a fantastic presentation. We are excited to have Michael back!

Michael Chernis is one of California’s premier experts on marijuana legal issues whether it’s criminal, civil, federal, or business related. His law firm, Chernis Law Group P.C. in Santa Monica California, serves the varied needs of collectives, dispensaries, deliveries, cultivators, manufacturers and other medical cannabis clients, including a number of leading cannabis brands. His experience as a federal criminal defense attorney gives him a unique perspective on federal enforcement issues as they pertain to the cannabis industry. As Policy Director of the Los Angeles Cannabis Task Force, he has been at the forefront of driving ballot issues and working with lawmakers to enact changes in the law that will benefit existing and prospective stakeholders.

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California Passes SB 1409 Industrial Hemp Bill – What Does It Mean?

By Michael Chernis, Chernis Law Group

On Sunday, September 30, Gov. Brown signed Senate Bill 1409 into law, finally creating a pathway for legal industrial hemp farming in California that will comply with section 7606 of the 2014 Farm Bill (codified at 7 U.S.C. § 5940). While existing California law permitted industrial hemp farming, the activity was, at least practically speaking, limited to established agricultural research institutions or those who could pair up with those institutions to grow hemp for “research.” Additionally, for anyone who wasn’t an established agricultural institution, testing standards were impossibly rigid (only DEA-registered labs could test crops for THC content), seed cultivars (breeds) were limited to those certified before January 1, 2013, and hemp could be farmed only for fiber and oil-seed crop, meaning that CBD extraction was not expressly contemplated. Most importantly, California’s existing hemp law was not compliant with the federal industrial hemp farming requirements created by section 7606 of the 2014 Farm Bill.

SB 1409 amends various sections of the California Food and Agriculture Code (FAC) to change all of this and the definition of industrial hemp under the Health and Safety Code (HSC). Among the changes, S.B. 1409 does the following:

• Authorizes the California Department of Food and Agriculture to create a pilot program and regulations that are compliant with section 7606 of the 2014 Farm Bill (FAC § 81007). This means that farmers will have a pathway to register with their county agricultural commission as soon as the CDFA creates the pilot program.

• Redefines industrial hemp to remove the fiber and oilseed crop limitation (HSC § 11018.5(a).

• Expands the purpose of industrial hemp farming beyond planting for densely planted fiber or oilseed crop (FAC § 81006(a)(1)).

• Allows the Department of Food and Agriculture to determine which types of laboratories may test industrial hemp for compliance with THC requirements (FAC § 81006(d)(5)).

• Eliminates the cutoff date for certification of seed cultivars so that any certified seed may be planted, regardless of when it was certified (FAC § 81002(b)).

• Creates a yearly registration requirement for famers who are not established research institutions to register with the local county agricultural commissioner (FAC § 81003).

• Authorizes clonal propagation of industrial hemp (FAC § 81002(a)).

• Allows ornamental cultivation of industrial hemp (FAC § 81006(b)).

A big takeaway from California’s new hemp farming bill is that extraction of CBD from industrial hemp flowers will now be permitted under California law. This is important in light of the recent statement from the California Department of Public Health stating that hemp-derived CBD and certain other hemp materials in food products was banned. Stay tuned on how the Department of Public Health reacts to SB 1409, as it will undoubtedly cause it to revisit their policy.

If you are interested in industrial hemp farming or extraction activities, please contact Chernis Law Group to discuss further.

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Yes, that CBD Product in Whole Foods is (Still) Illegal

By Michael Jensen, Chernis Law Group

On September 21, the “CBD West” trade show descended on Anaheim. Given the city’s historic identification with Disneyland and all things fantasy, the CBD industry could not have selected a better forum to display and sell their products. Along with the mainstreaming of cannabis, hemp-derived cannabidiol, more commonly known as “CBD,” is becoming a staple of health food stores, online retailers, and many other commercial outlets in across the country that one would not mistake for a dispensary. The CBD market is projected to grow exponentially greater than cannabis. While walking the expo floor I viewed (and sampled) a panoply of products infused with CBD, including tinctures, skin patches, drink powders, candies, chocolates, salves, massage oil, cooking oil, and lotions.

CBD is the new rage in the alternative treatment of various health conditions. It is increasing associated with treating serious illnesses, and alleviating ordinary symptoms of illnesses, without creating the high or psychoactive effect of its cannabinoid sister THC. And unlike THC products, which will practically always violate the Federal Controlled Substances Act there is a colorable argument as to why CBD products derived from Industrial Hemp and grown in accordance with the 2014 Farm Bill do not violate the CSA.

But here’s the thing: CBD products, even when derived from Industrial Hemp, are still considered illegal under the Food, Drug & Cosmetic Act (FDCA). This is because CBD is considered an unapproved drug that is currently the subject of clinical investigations. Consequently, CBD cannot be marketed as a drug or dietary supplement and cannot be used as a food additive, since it is considered an adulterant when added to a food product.

Simply put, there is no way to sell any CBD product that is in compliance with the FDCA. Over the past few years, the FDA issued numerous letters to manufacturers of CBD products that market them as either drugs or dietary supplements to treat any number of health conditions. Fortunately, this has been the extent of federal enforcement actions.

Adding to the uncertainty, the California Department of Public Health issued a statement in July 2018 that expressly prohibits adding CBD to food products. This despite the CDPH licensing and regulating manufacturers of cannabis food products that include THC and CBD. And yet, at CBD West, and across the State of California, CBD both food and other products are widely sold.

Between the FDA, DEA, and state agencies in California, the legal landscape is confusing to say the least. The bad news is that, strictly speaking, all products containing CBD are illegal under federal law, and food products containing CBD are also illegal under California law. The good news is that federal and state enforcement has been very limited thus far, making the risk of criminal exposure minimal. Nonetheless manufacturers should tread cautiously in this marketplace and consult with legal counsel whenever marketing and selling products that contain CBD.

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