DCC’s New Emergency Regulations

On July 12, 2021, Governor Newsom signed California Assembly Bill 141, which consolidated the former three cannabis licensing authorities into a single Department of Cannabis Control (DCC). In response, the DCC proposed new Emergency Regulations in early September 2021 to consolidate, clarify, and make consistent the cannabis regulations with AB 141 and MAUCRSA. The approved final Emergency Regulations became effective on September 29.

IMPORTANT NOTE: The marked-up pdf file contains only those sections that were changed in the emergency rulemaking process, but is not a complete set of regulations. The DCC did not issue an alert (by email or on the website) clarifying that these are not the full set of regulations, thus leading to confusion within the industry as to which regulations are still applicable. Until the DCC issues the final and completed set of regulations, make sure you read the final emergency regulations in conjunction with the California Code of Regulations Title 4 Division 19, but note the date upon which they were last updated (must be after September 30 to be current).

Today, we break down our Top Five important changes that impact California cannabis operators:

1. Provisional Licensing Deadlines

The trailer bills and subsequent regulations impact the provisional licensing framework by creating new deadlines by license type, cultivation square footage, and/or local equity applicant status. To help you identify the deadlines pertinent to your operations, we made a provisional licensing “Choose Your Own Adventure” decision tree. Check out our downloadable chart here (feel free to share!).

Reminder: We recommend that you submit your applications at least 2 months before the deadline.

2. Definition of “Owner” refined, slightly expanded and also significantly narrowed by eliminating “Russian Doll Rule”

Who is an owner? (Section 15003)

Not new: Property interests: Persons who hold an “aggregate” (see below) ownership interest of 20 percent or more
Not new: Corporate Managers: Officers, Directors, LLC Managers, Trustees
New: Operations Managers: Any person who manages, directs, or controls the operations, including vice president, general manager or their equivalent.
New: Entities: If an entity is an “Owner,” now only the individuals within the entity that “manage, direct, or control the operations of the commercial cannabis business” must be disclosed as “owners.” (Section 15003(b))

This is a significant narrowing of the prior rule, which required many layers of disclosure. Previously, (1) every entity had to be opened up to reveal its owners and its owners until individuals were left, and (2) all financial interest holders of owners had to be disclosed (what we liked to call the “Russian Doll Rule”). Now, that level of granularity is required only if the underlying individuals have actual direction, management, or control over the cannabis operations. Which means that non-directing, silent, investment-only, entity-“Owners” and FIH’s-of-Owners are no longer be required for disclosure as “owners,” even if the entity itself is properly disclosed as an “Owner.” This rule has a more logical nexus to the overall regulatory objective of disclosures and we celebrate this change. Hooray!

“Aggregate” means:

The total ownership interest held by a single person through any combination of individually held ownership interests in a commercial cannabis business and ownership interests in an entity that has an ownership interest in the same commercial cannabis business. For example, a person who owns 10 percent of the stock in a commercial cannabis business as an individual shareholder and 100 percent of the stock in an entity that owns 10 percent of the stock in the same commercial cannabis business has a 20 percent aggregate ownership interest in the commercial cannabis business. (Section 15003(a)(1))

3. Definition of “Financial Interest Holder” refined, narrowed.

Previously, anyone with (1) and ownership or (2) profits interest under 20 percent was considered a Financial Interest Holder.

Today: Only equity holders or profits interests 10 percent or more = FIH. This means that under 10 percent FIHs no longer need to be disclosed. (Section 15004(b)(4).) The same non-exclusive list of what constitutes a “profits interest,” including commissioned sales people, still exists. (Section 15004(a)(3)(A)-(F))

4. Trade Samples Authorized via Distributors

Regulated trade samples are finally authorized. Super yay!

The regulations outline procedures for the designation and transfer of trade samples. Like other cannabis goods transferred between licensees, distributors will move samples and arrange for laboratory testing. Live plants or seeds can’t be designated as trade samples. Trade sample limits are calculated based on units and pounds per month, and the designation in Metrc can’t be reversed. They must be in final form and labeled as trade samples before they are provided to the recipient licensee.

(Sections 15041.2-15041.7).

Note: You will need different procedures for trade and testing samples.

5. Advertising and Branded Merchandise: Good changes here!

Advertising free NON-cannabis products no longer prohibited: The final emergency regulations clarify promotional activities, such as giveaways and buy-one-get-one (BOGO) offers. The restrictions apply to cannabis goods and cannabis accessories only, and no longer to non-cannabis products. (Section 15040).

Branded Merch: DCC-approval is no longer required, but all branded merch must include license number: The approval process for branded merch has been removed entirely. In its place – Starting in 2022, all branded merchandise must include a visible license number. (Section 15041.1).

Retailers can sell ANY licensee’s branded merchandise. Another smart, logical change. Can you say “woot!”? (Section 15407).

Don’t forget, if a rule does not appear in the Approved Emergency Regs, that does not mean it’s not still a rule. Check the updated Code of Regulations for updates made after September 30, 2021.

As always, we’re here to help with specific questions.

Happy October!

-CH LLP Team

UPCOMING EVENTS

LACBA complimentary Zoom webinar

California Cannabis 2.0: Reviewing the New Department of Cannabis Control Regulations.

Katie Podein will be speaking on the topic of revisions to the advertising and marketing of cannabis goods.

When: TOMORROW, October 14th, from 12:00pm-1:30pm

BASF Cannabis Law Section presents the 4th Annual Cannabis Conference

The BASF Cannabis Conference provides attorneys an opportunity to enhance their practical skills in the rapidly evolving cannabis space; offers attorneys the chance to learn about the cannabis industry and movement; and provides attorneys the chance to build connections and a strong bar for San Francisco.

When: November 18th from 9:00am – 12:35pm online and is worth 3 MCLE hours.

Clark Howell in the News

The following links are to three articles to which CHLLP contributed:

Lessons the Psychedelics Industry Can Learn From the Cannabis Market Bubble

DoubleBlind Article: Shroom Delivery is now a thing

Meet Ariel Clark | Cannabis & Psychedelics Business and Regulatory Attorney

If you have any questions about how the above or would like to discuss how it could impact your business, please contact your attorney directly or call our main line at 877-257-2442.

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