The California Bureau of Cannabis Control has submitted the new cannabis rules for final review
Today the proposed BCC regulations were submitted to the Office of Administrative Law (meaning these will be the final version if passed by OAL).
And there is great news -- public comment did not go unheard.
Here is a roundup of important issues we noticed in the submission.
ISSUE #1: WHITE LABELING
Good news! The regulations submitted DID NOT include the language in the previous proposed regulations specifically banning white labeling contracts. Now the new regulation only states:
“(b) Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act.”
This means that this rule is limited to only contracts dealing with commercial cannabis activities, which is defined as “the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.” The packaging and labeling section means the actual act of packaging and labeling the product, not the design/brand. Branding and marketing is NOT included in this definition.
Bottom line: white labeling is allowed and will remain legal under the newest proposed regulations.
ISSUE #2: DEFINITION OF OWNER
The regulations submitted DID NOT include the language in the previously proposed regulations (10/2018) defining an owner as “any individual who assumes responsibility for the license” and specifically calling out individuals who are (1) managing or directing the business in exchange for a profit; (2) assuming responsibility for the debts of the business; (3) determining how a portion of the business is run, including non-cannabis touching portions such as branding/marketing; and (4) determining what cannabis goods the business will cultivate, manufacture, produce, or sell. In a nutshell, this means that any individual performing the above activities is NOT considered an owner per se.
The rules DID include within the definition of owner: “an individual entitled to a share of at least 20% of the profits of the business” meaning anyone with such a share of the commercial cannabis business must now be disclosed as an owner.
Also new and important is when an entity is an owner, all entities and individuals with a financial interest in the entity must be disclosed until owner individuals remain. For example, this includes all entities in a multi-layer business structure, the CEO, the members of the board of directors, partners, trustees and all persons with a control of a trust, and managing or non-managing members of the entity.
ISSUE #3: FINANCIAL INTEREST HOLDER
The regulations submitted re: definition changes to Financial Interest Holders remained the same. This means if OAL passes the regulations, now all of the following individuals must be disclosed as Financial Interest Holders:
1. Employees under a profit sharing plan with the cannabis business
2. Landlord who entered into lease agreement with the cannabis business in return for a share of the profits
3. Consultants providing services to the cannabis business in return for a share of the profits
4. A broker engaging in activities for the cannabis business for a share of the profits
5. Salespersons earning a commission
Also new and important is when an entity is a financial interest holder, all entities and individuals with a financial interest in the entity must be disclosed until owner individuals remain. For example, this includes all entities in a multi-layer business structure, the CEO, the members of the board of directors, partners, trustees and all persons with a control of a trust, and managing or non-managing members of the entity.
ISSUE #4: VEHICLE TRANSPORTATION-LOCKED ENCLOSURES
The BCC’s newest regulations submitted to OAL included the language requiring all transport vehicles to have fully enclosed containers/cages that are not comprised of any part of the vehicle. The Bureau reasoned that this change was necessary to clarify transport requirements due to confusion over what qualifies as a compliant container. While the regulation seems like an additional burden on distributors, we are actively working on common sense solutions to use existing vehicles, while remaining complaint.
We will keep you updated when the regulations pass (typically by quarter, so by April 2019, however we anticipate much sooner).
It’s nice to know that public comments do not go unheard!