On September 8, 2021, the California Department of Marijuana Control (DCC) issued a proposed emergency cannabis RegulationThese emergency regulations unified the previous regulations transplanted from the first three agencies into a combined set, and they modified some of the rules and added new ones. DCC also released a revised set of Disciplinary Guidelines Follow the emergency rules.

In terms of procedures, DCC sent an email to stakeholders stating:

DCC will submit the emergency package to the Office of Administrative Law (OAL) after issuing the required five working days notice to the public. The five-calendar-day public comment period will begin when OAL publishes the proposed regulation “under review” on its website: https://oal.ca.gov/.

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If approved, the proposed regulations will take effect at the end of September. After the emergency rulemaking process is completed, it is expected that more work will be carried out in the coming months to further improve the regulation of commercial cannabis activities.

We plan to write a lot of articles about these emergency rules, but want to highlight some key things in this initial article to quickly determine their effectiveness:

Connection site planting license stacking restrictions

Rule 15001.1 permits the issuance of temporary planting permits as long as:

Issuing licenses will not result in commercial cannabis companies holding multiple planting licenses in consecutive, connected locations, with a total canopy of more than 1 acre for outdoor planting, or 22,000 square feet for mixed lighting or indoor planting, if applied Is on or after January 1, 2022.

The rule goes on to say: “For the purposes of this section, if they are connected, touching or adjacent, the sites will be considered continuous.” Therefore, it is clear that the aggregation of multiple planting permits throughout the connected site will be restricted , But it’s not clear how DCC will deal with continuous real estate pack Each has a permitted place, but these places do not necessarily touch each other. We don’t know yet, but the answer seems to be that this practice may not be completely banned.

Owner/FIH issues

DCC is changing the way it determines who constitutes the “owner” or “financial interest holder” (FIH) of a cannabis business. Here are some key points:

• Previously, the “owner” rule stipulated that the person who owned at least 20% of the “total” ownership interest was the owner. The term “aggregate” is not defined. DCC now defines “total” as “total ownership interest held by the entity”. For example, an individual who owns 50% of an entity that owns 50% of the cannabis business will have a 25% total ownership interest in the cannabis business. “This means that cannabis companies with physical ownership need to perform mathematical calculations to determine the exact total percentage. For large companies or public companies, this can be a daunting task.
• Anyone who “has the right to provide strategic guidance and oversight for the overall operation of the commercial cannabis business” is now the owner. This is not much different from the previously written rules, especially because the DCC’s example of reaching this threshold is “CEO, President or their equivalent positions, or senior staff, directors, vice presidents, general managers, or their equal.”
• DCC now considers those who “have the authority to execute contracts on behalf of the commercial cannabis business” as owners. Frankly, this is too much. For example, any lower-level salesperson who can execute a contract (such as a sales invoice) can now be considered the owner. If this rule persists, it will make compliance in this area a huge problem.
• In the case of entity ownership, anyone related to the owner of the entity managing the actual licensee’s business is now the owner of the licensee’s business. Again, this is not much different from the previous rules, but it is interesting to see that DCC fully illustrates this point.
• DCC has the right to determine a person as the owner on a case-by-case basis, and may require licensees to request disclosure of such persons.
• For FIH, the rule previously defined the provision of any type of loan or investment to cannabis companies to create economic benefits. Now, DCC removes the concept of investment, but does state that anyone who is entitled to at least 10% of corporate profits is FIH.
• Businesses that contract cannabis companies to grow, manufacture, package, or label cannabis under their brand names are considered FIHs. This is also a bit like the previous land, but it’s nice to see the final details on the desktop to avoid a lot of confusion for the licensee. This will provide a lot of clarity for intellectual property licensing transactions.
• Previously, anyone or any entity holding less than 5% of the shares of a listed company was not considered FIH.Now, this number is for the public and private company.

Trade samples

The proposed regulations will eventually allow licensees to provide cannabis products to each other and allow licensees to provide cannabis products to their employees for sampling purposes to help make purchase decisions. Trade samples still need to be inserted into METRC and need to be designated as trade samples and sold in the final form. There are many restrictions and rules that apply to trade samples, which the licensee needs to study carefully.

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Again, this is a major development, and we will update the Canna Law Blog in the coming weeks to include more content from these proposed emergency regulations, so stay tuned.