With upcoming elections and the launch of Canopy's Berkeley, CA, cannabis startup accelerator, we've followed California's regulatory environment closely. The following blog post is part of a 3-part series on California’s November 8th ballot initiative commonly referred to as the “Adult Use of Marijuana Act (AUMA)", or Proposition 64. In Part I, we take a look at the AUMA's major objectives and next steps for regulated cannabis businesses - including the importance of businesses to get involved in the development of resulting regulations.
California – Ready to Legalize Recreational Use and Regulate Commercial Activities
For many years a large percentage of the population, especially in California, have been “Waiting on the world to change.” That time is expected to come on November 8, 2016, when Californians can vote to legalize recreational marijuana.
A recent survey of 1000 potential voters showed almost 60% favor legalization. Assuming the survey is correct, California will legalize recreational use of marijuana by adults and institute comprehensive licensing of cannabis businesses just 2 months from now.
When this happens, it will mean freedom for individual users and strict regulations for commercial activities. Both represent a huge change in direction for state agencies and local governments.
For cannabis-related businesses, now is the time to anticipate where the regulatory power will reside. Time is of the essence as the proposed law authorizes issuance of temporary or interim licenses – meaning that the first licenses could be issued any time after January 1, 2017. Further, agencies will need to issue their final regulations by January 1, 2018 (See Division 26012.(c) of the Control, Regulate and Tax Adult Use of Marijuana Act cited below). To make sure that state agencies can meet these deadlines, the proposed law would authorize state agencies to receive up to $30 million in “advance funding” from California’s General Fund.
A Brief Overview of the Proposed New Law
By November 2015, 17 proposals to legalize retail sales of marijuana were competing to be on the ballot in the November 2016 general election. Now, it appears clear that 1 initiative has the best chance of qualifying for the November 8, 2016, ballot because of financial backing and political support. This is formally known as “The Control, Regulate and Tax Adult Use of Marijuana Act.” Informally, it is known as the Adult Use of Marijuana Act (AUMA or “the Act”).
Two reports provide comprehensive overviews that establish the context for AUMA. The first is the Pathways Report: Policy Options for Regulating Marijuana in California prepared by Lt. Governor Gavin Newsom’s Blue Ribbon Commission on Marijuana Policy. The second is the Center for Tobacco Control Research and Education’s A Public Health Analysis of Two Proposed Marijuana Legalization Initiatives for the 2016 California Ballot: Creating the New Tobacco Industry.
AUMA’s Major Objectives
The Act’s major objectives are to:
- Legalize personal (non-medical) use of marijuana for persons over 21 years old;
- Protect children and youth under the age of 21 from marijuana related activities;
- Reduce the number of people who are imprisoned for non-violent marijuana activities;
- Protect Californians and the environment from potential dangers (e.g., water usage, pesticides) related to marijuana cultivation, distribution, sale and use;
- Consolidate and streamline regulation and taxation for both non-medical and medical marijuana under a single state government entity;
- Tax both the growth and sale of marijuana to generate hundreds of millions of dollars annually;
- Incapacitate the black market by moving marijuana purchases into a strictly regulated legal structure;
- Preserve the right of a local government to control commercial marijuana activities within its jurisdiction, provided that, such controls are consistent with AUMA.
What’s Next for Regulated Businesses? IT’S TIME TO GET INVOLVED!
This leads to the question of how a cannabis business prepares for the change. As a business formulates its strategic plans and business models, two important questions are “Who will regulate my business?” and “What activities will be regulated?”
The most important thing for a regulated business, however, is to actively participate in the development of regulations with the state agencies that have jurisdiction over your business!
Remember: when the law changes, it will not only be new to you but also to state employees; to local governments with jurisdiction over some aspect of your business activities; and to the politically active people who get involved with state and local government regulatory activities. This last category of people is likely to have the power to impact your business by working with state agencies to develop regulations implementing a new marijuana law.
It is not in your best interest to sit back passively and just let others make decisions on new regulations that will affect your business. This is true for state licenses as well as local ordinances.
The statewide initiative likely to be approved by the voters on November 8th is called "The Control, Regulate and Tax Adult Use of Marijuana Act" and it contains a provision (Section 226202) that is critical for you to keep in mind. The Act would provide that local governments can be authorized to enforce the law and implementing regulations. A state agency or licensing authority can delegate its power simply by entering into a Memorandum of Understanding with a local government. The import of this is that when a state agency issues regulations, there is one set of rules for the entire state. If local governments are authorized to enforce these regulations, you can expect to find some diversity in actual enforcement activities carried out by local governments.
Next up: Part II of "Waiting for the World to Change" - the AUMA's proposed state agency roles to manage growth, and uses for revenues.