Cannabis businesses in California are starting to experience more and more regulatory hurdles. With cities and counties continuing to develop and publish new regulatory code and marijuana statutes, the landscape for compliance in California is emerging. The number of regulatory agencies a cannabis business will need to contend with is overwhelming.

Operational marijuana business licenses in California will face:

Federal Compliance

• Internal Revenue Service (IRS)
• Occupational Safety and Health Administration (OSHA)
• Department of Agriculture
• Department of Labor
• Environmental Protection Agency (EPA)
• Consumer Protection Act

State Compliance

MMRSA and BMMR, includes six regulatory agencies:

• California Department of Food and Agriculture
• California Department of Pesticide Regulation
• California State Department of Public Health
• Department of Fish and Wildlife
• State Water Resources Control Board
• California Medical Board

County/City Compliance

Each city and county will control licensing at the local level, which will allow local agencies to ban and/or restrict licensing at the local level. City and county ordinances, rules, and requirements will need to be taken into consideration in terms of overall compliance and standard operating procedures in addition to federal and state regulations.

Regulator’s Perspective

MGO CPA and Advisors is working directly with city and county regulatory authorities in California to help manage the state’s Medical Marijuana Tax (MMT) initiatives. They will perform financial assessments and audits on cannabis operations.

“As cities and countries across the State of California face increasing cost pressure, many government executives are planning to turn to Medical Marijuana businesses as a source of additional tax revenue. At a minimum, this strategy is the logical choice for meeting the unique cost burden driven directly by the marijuana industry. At a maximum, taxation has the potential to ease cost pressures in other areas of the budget,” said Scott P. Johnson, the State and Local Government Advisory Services Partner at MGO CPA and Advisors.

“Creating a regulatory tax system is critical not only to promote fiscal strategies but it can also be helpful to provide marijuana businesses to comply with safety and control policies related to the product and its distribution,” said Johnson.

As more agencies get involved, the risk increases to cannabis businesses for fines, penalties, and administrative actions. If state and local municipalities share a compliance notification process, the state or local infraction could lead to multiple agencies levying fines and penalties. Unfortunately, this is already a common occurrence in Colorado. When the State of Colorado Marijuana Enforcement Division levies fines and penalties, many local city/county agencies will often duplicate the violation at the local level. This ‘waterfall’ penalty effect can be extremely detrimental to an upstart business.

How to Prepare for Compliance in California

How do cannabis businesses in California get ready? Know in advance the regulatory impacts for your business license types and various ownership rules. Limits or restrictions on types of vertical integration will have an impact on most cannabis business license types. Get ahead of the regulatory curve and start with a compliance-centric, standard operating procedure-driven business model. Success in California will start with regulatory and financial compliance.