Local Regulations Create Patchwork of Rules Across California

By Victor Ponto, Best Best & Krieger LLP

Recreational cannabis sales became legal Jan. 1 in California, but with local zoning and land use regulations — as well as outright bans — guiding the growth, distribution and sale of cannabis still being drafted and carried out, the State is covered in a patchwork of regulations that can vary across narrow dividing lines.

California’s largest cities provide a snapshot of the State’s varying cannabis regulatory landscape.

Lawmakers in San Bernardino, San Francisco, Sacramento, Los Angeles and San Diego have welcomed the commercial cannabis industry, fully allowing the cultivation, manufacturing, testing and retail sale of cannabis and related products to both medical and recreational customers within city limits.

Fresno, on the other hand, has taken a more hardline approach. The City, which initially outright banned commercial cannabis operations, loosened its reigns late last year to open the door for medical cannabis dispensaries and other businesses in the supply chain.

Orange County cities, too, with the exception of Santa Ana, have been slow to allow cannabis businesses. Meanwhile, others across the State are trying to gain a regional advantage in the industry that is expected to reach more than $3 billion in sales this year alone.

The State’s cannabis industry is still in its infancy, however, and city regulations will likely shift over time as the statewide new network of businesses gets underway.

Below, we explore key legislative measures passed since 2016, as well as those on the horizon, that are shaping California’s budding cannabis landscape and could impact local communities looking to either regulate or ban commercial activities of the emergent cannabis industry.

A Single, Regulatory Scheme

The State legalized medicinal cannabis in 1996 with no licensing system or taxes.

Once recreational cannabis was legalized, legislators had to address concerns about how a statewide, combined recreational and medicinal cannabis market would work. Enter Senate Bill 94. SB 94, also known as the Medical and Adult-Use Cannabis Regulation and Safety Act, basically fused the Medical Cannabis Regulation and Safety Act with Proposition 64, the Adult Use of Marijuana Act, into a single regulatory scheme to oversee both medicinal and recreational cannabis.

MAUCRSA created the Bureau of Cannabis Control to oversee the industry — including the issuance, denial, review, suspension and termination of licenses for the transportation, storage, distribution, testing and sale of cannabis.

It also established law enforcement guidelines, taxation plans and a consolidated licensing system for both commercial-medicinal and recreational cannabis activities. The law levied a cultivation tax on cannabis flowers ($9.25 per dry ounce), leaves ($2.75 per dry ounce) and a 15 percent excise tax to be calculated on the average market price — not a percentage of average gross receipts on retail sales.

These revenues will fund industry regulation and be used toward substance-abuse and behavioral-health programs as well as school and other community grants to address the health and safety of local residents through law enforcement, fire protection and other programs. Such grants will not be given to communities that have banned outdoor cultivation and the sale of cannabis.

Statewide, cities are also adopting their own tax measures.

In Davis, for example, there is a 10 percent tax on the gross receipts of cannabis businesses via a business-license tax, while Sacramento has levied two taxes on cannabis businesses — a four percent and 10 percent tax on gross receipts for medical and recreational cannabis, respectively.

Separate, Distinct Premises No More

Months after MAUCRSA’s passage, state legislators provided a technical fix for rules pertaining to California’s licensed commercial cannabis businesses.

First, Assembly Bill 133 removed the requirement that businesses holding different commercial cannabis license types maintain “separate and distinct” premises — meaning, while still subject to local ordinances, a business with a single physical location can hold multiple state licenses, with the exception of cannabis testing facilities, which must remain independent.

It also made changes that opened the technology door for retailers. Cannabis deliveries are now permitted through technology platforms not owned or operated by the retailer. The law also removed a requirement that the licenses maintain a “physical” copy of a customer’s delivery request.

AB 133 clarified that only harvested products meeting all quality assurance and testing requirements are subject to the state cultivation tax. Other amendments made by AB 133 include: repealing the requirement that medicinal cannabis manufacturers only manufacture products for sale by medicinal retailers and increasing the unlawful possession amount of concentrated cannabis from 4 grams to 8 grams.

Protections for Cannabis-Using Patients

Though legal, California employers can maintain a zero-tolerance policy where cannabis usage is concerned. That could change with Assembly Bill 2069.

Introduced in February, AB 2069 would amend the California Fair Employment and Housing Act to include medicinal cannabis cardholders on FEHA’s list of protected classes. Eleven states have laws in place protecting medicinal cannabis patients from workplace discrimination.

The bill isn’t without exceptions. Since federal law classifies cannabis as a Schedule 1 drug, businesses doing work with or for the federal government must maintain a drug-free workplace. As such, employers could terminate or refuse to hire an employee if it stood to “lose a monetary or licensing-related benefit under federal law.” AB 2069 would also allow employers to terminate, or take corrective measures against, an employee for using cannabis on site or who is under the influence of cannabis while working.

This is a snapshot of California’s cannabis puzzle. To delve further into the issues surrounding the local regulation of cannabis sales, cultivation and more, watch Best Best & Krieger’s webinar: So You Want to Regulate Marijuana in Your Community and check back for updates.

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Victor Ponto, an associate in Best Best & Krieger LLP’s Ontario office, advises public agencies on municipal law issues, with an emphasis on cannabis regulation. He has crafted dozens of land-use ordinances regarding cannabis activities. Victor serves as assistant city attorney for Adelanto and Fontana. Get in touch at victor.ponto@bbklaw.com.