Medicinal and Adult-Use Cannabis Regulations

December 4, 2017

RE:       Medicinal and Adult-Use Cannabis Regulations

Dear Office of Administrative Law:
The Cannabis Corporate Law Firm represents a variety of commercial cannabis stakeholders in furtherance of California’s goal in legalizing and regulating commercial cannabis activity in the state of California.  We are delighted to have had the opportunity to participate in many of the workshops and conferences sponsored by the Bureau of Cannabis Control, Department of Food and Agriculture and the Department of Public Health.

To that end, please know that the goal of The Cannabis Corporate Law Firm in submitting these comments is to further the legitimate business interests of industry stakeholders, in this case commercial cannabis retailers, distributors, transporters, testing labs and special events organizers, and to aid in establishing a practical and fair system of regulation for the industry.

To that end, please find our comments regarding specific sections within the California Code of Regulations below.

1. 5002(c)(15) suggests that an operating agreement, partnership agreement, fictitious business name statements certificates of stock, certificates of limited partnership may be required to be submitted, whereas none of these documents are filed with the Secretary of State. This regulation intrudes on trade secret, attorney work product, copyright and underlying privacy interests, all of which are protected by California law.  Recommend:  Clarification that the above documents need not be submitted UNLESS they have been filed with the secretary of state for some reason or eliminate reference to any document that is not filed with the California secretary of state.
2. 5002(c)(18)(B)-(D)– requires disclosure of all persons who invest in or make loans to commercial cannabis businesses. The availability of capital and lending in this industry is already limited.  This provision goes even farther than the cultivation regulations in requiring the terms of the loan and investment to be disclosed.  Given that cannabis remains illegal under Federal law renders investment in this industry high risk, especially given the uncertainly of evolving Federal legislation and the position of Jeff Session with respect to enforcement of federal cannabis laws.  The regulatory scheme already provides for disclosure of those who have a controlling voice in the cannabis business.  A number of innovative and talented individuals are seeking to enter the commercial cannabis space as startup companies.  Restricting their access to nontraditional commercial lending markets restricts competition and prevents quality participants from entering the market.  Recommendation:  eliminate the requirements of §5002(c)(18)(B)-(D).
3. 5411 bans free samples to recreational patients, which limits marketing opportunities for vendors and reduces consumer choice. Moreover, because even medicinal samples are restricted in that only employees of a retailer may provide free samples at a retail dispensary, it reduces information available to consumers.  At vendor sponsored events that take place at retail dispensaries, consumers have the chance to speak directly with those who are producing the cannabis products.  These opportunities foster consumer education, provide access to products that consumers might be otherwise unaware of or reluctant to try due to financial restrictions and allows vendors to receive real time feedback from consumers.   Free samples foster a more competitive market and more informed consumers.  Forcing retailers to increase staffing expenses, especially since payroll expenses are not deductible under 280E reduces consumer interaction with those who produce the products.  Moreover, the vendors and creators of cannabis products are more knowledgeable than clerk level staff at retail dispensaries.  Recommendation:  modify the language to allow for free sample distribution only at scheduled events.
4. 5014 the fee charts appear to have a typographical error in that “Distributor Transport Only” is listed on page 15 of 115, then it switches to “Self-Distribution” on page 16 of 115 then back to Distributor Transport Only, also on page 16 of 115. It appears that the first reference should be to “Self Distribution.”  As an aside, self-distribution is not discussed in the regulations.  If self-distribution is permitted, the Bureau should not require a separate entrance or premises for licensees holding cultivation and/or manufacturing licenses.  We are aware of certain landlords attempting to monopolize the distribution market by allowing only manufacturing and cultivation on certain premises, while requiring certain portions of the premises to revert back to the landlord/landowner to operate distribution businesses.  This effort to monopolize the distribution market is contrary to public policy.  Moreover, forcing cultivators and manufacturers to hire outside third parties to distribute (including facilitate testing) increases the cost to consumers.  Recommendation:  correct any clerical errors and provide regulations for self distribution to reduce potential for antitrust activities.
5. 5806 is a prior restraint on free speech conduct. Attempting to patronize women in this industry is not well received.   Women do not need to be told what they can and cannot wear to work.  Moreover, it is a fashion trend to allow the side/bottom of a breast to show.  Section (1) states that women cannot show “any portion of her breast….”  01Since there is no prohibition on topless or nude alcohol service in California, it makes absolutely no sense why such a restriction would be advanced by the state in the context of cannabis regulation.  It is common knowledge that persons under the influence of cannabis are far less likely to be aggressive or sexually inappropriate than persons who consume alcohol.  In fact, many women in the topless and nude hospitality industry would likely welcome a more docile patron to interact with.  To that end, this regulation restrict a woman’s choice about where to work.  It is fairly clear that the Bureau knew that it would be treading on protected activity, hence the inclusion of subsection (b) of this regulation.  California is not a police state and has never been known for inhibiting employees’ rights or personal rights to free speech and expression.  This regulation is sexist and offensive.  Recommendation:  Delete §5806 in its entirety.
6. 5807 is a prior restraint on free speech conduct and goes even further than §5806. Attempting to patronize women in this industry is not well received.   Women do not need to be told what they can and cannot wear to work.  Since there is no prohibition on topless or nude alcohol service in California, it makes absolutely no sense why such a restriction would be advanced by the state in the context of cannabis regulation.  It is common knowledge that persons under the influence of cannabis are far less likely to be aggressive or sexually inappropriate than persons who consume alcohol.  In fact, many women in the topless and nude hospitality industry would likely welcome a more docile patron to interact with.  To that end, this regulation restrict a woman’s choice about where to work.  It is fairly clear that the Bureau knew that it would be treading on protected activity, hence the inclusion of subsection (b) of this regulation.  California is not a police state and has never been known for inhibiting employees’ rights or personal rights to free speech and expression.  This regulation is sexist and offensive.  Recommendation:  Delete §5807 in its entirety.
7. Generally, the regulations discourage and do not provide for transfer of a license. This restricts investment and reduces the incentive to develop efficient, productive businesses.
8. For distributors, the entire process should be clarified. The procedures for distribution become clearer when read in conjunction with the Department of Tax and Fee Administration regulations. These should be included, at least at a cursory level to add clarity to the regulations.
9. Distribution, according to conversations we have had with the Bureau, includes branding of cannabis products. However, there are no regulations that clarify this type of distribution.  Recommendation:  add regulations for those businesses that will be branding white labeled cannabis products so long as the distributor does not also engage in manufacturing.

We thank you in advance for careful consideration of our comments.  Please feel free to contact our office if you would like to discuss any of these issues further.

Sincerely,

Dana Leigh Cisneros, Esq.