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Proposition 65 Hits the Cannabis Industry – Alerts About Potential Chemicals in Product

California’s cannabis regulatory scheme is far from established. Given the prior history of the inability to test for chemicals in cannabis and the effects of long-term cannabis use, an area of vast underdevelopment is state regulation related to allowable levels of chemicals (if any) within cannabis that the state deems safe under Proposition 65.

Thousands of cannabis companies, primarily manufacturers, have recently received Proposition 65 notices from attorneys, accusing companies of exposing consumers to certain chemicals, specifically, fungicides and pesticides. But what significance do the notices hold and how should companies and consumers react?

Proposition 65 was passed in California to protect the public from exposure to chemicals that are known by the state to cause “cancer or reproductive toxicity”. Cal. Health & Safety Code § 25249.6. The state publishes those chemicals in a list that is updated annually, which now includes over 900 chemicals, including “Marijuana smoke”. Proposition 65 requires businesses to warn consumers of those chemicals if significant amounts are within their products. Given the large number of chemicals, most Californians have seen the warning on products, buildings or online:

“WARNING: This product contains a chemical known to the State of California to cause cancer, birth defects or other reproductive harm.”

Failure to notify consumers can result in significant penalties, up to $2,500 per violation, per day.

Proposition 65 can be enforced by the attorney general, but it is usually enforced through civil lawsuits. Enter the bounty hunter attorneys. As in the current matter, these attorneys send notices to businesses allegedly failing to comply with Proposition 65 and attempt to settle with the business or obtain a portion of the penalty assessed.

Cannabis businesses have a few options when served. The most common response is to put the Proposition 65 warning on the product label and pay the noticing party $500 (along with a few other minor requirements). This approach is usually the more cost effective approach.

Alternatively, a cannabis business could refrain from putting the label on their product, likely get sued by the bounty hunter attorney, and attempt to establish that the chemicals are either not in their product or are at “risk free” levels. Because the State has not established what the “risk free” levels are, companies would have to prove that the levels are not harmful through their own testing—a very expensive process which will be challenged.

Whether a company chooses to place the warning on their product or fight the allegations of the notice, thorough policies and procedures in the acquisition of cannabis and processing of products should be implemented. The policies and procedures can help identify and prevent chemicals in the production of products. The foregoing may reduce penalties if ever assessed, but more importantly, will create a higher-quality product and force cultivators to use the best practices available.

Given the lack of state regulation, consumers are left to research cannabis company practices on their own. Consumers should compare different companies’ transparency, product test results and their basic policies and procedures to determine the relatively higher levels of practice. These higher levels of practice will be closest to and may exceed state expectations when established.

Cole MorganCole Morgan

Cole Morgan

Mr. Morgan practices real estate and corporate transactional law, including negotiating and drafting agreements, conducting due diligence, and advising on legal and compliance issues. He represents a wide range of companies, from start-up businesses in need of formation and negotiation of initial transactions, to mature companies that require complex reorganizations.

Mr. Morgan has assisted numerous clients in the cannabis industry of all license types, including vertically integrated companies, with their commercial real estate and corporate needs. His experience includes property acquisition, leasing, joint venture agreements, corporate reorganization, structuring investments, and many other transactional matters.

He has assisted in negotiating some of the largest cannabis-related leases and property acquisitions in California, including all leases filling a multi-building industrial project of over 200,000 square feet in Desert Hot Springs, lease of an industrial building of over 100,000 square feet in Long Beach, and purchase and sale of an 85,000 square foot distribution and manufacturing facility in West Sacramento.

Recently, Mr. Morgan successfully closed the sale of a cannabis retail license and related leasehold interest located in Santa Ana, California, on behalf of the selling parties. The purchaser, Planet 13 Holdings, Inc., is a leading vertically integrated publicly traded cannabis company.

Mr. Morgan has been selected to the 2020 Southern California Super Lawyers Rising Stars list. In addition to his professional achievements, Mr. Morgan is involved with StandUp for Kids, a nationally recognized non-profit charity that finds homes for homeless youth across the country and educates them on entrepreneurship and business formation. Mr. Morgan serves as a mentor and regularly lends his legal perspective at StandUp for Kids events throughout the year.

Mr. Morgan is the co-founder of the Newport Coast CBD Invitational, a golf tournament at Pelican Hill benefitting the Infinite Hero Foundation, an organization committed to helping our veterans using innovative technologies.

Prior to joining Stuart Kane, Mr. Morgan practiced corporate and commercial real estate law with Madden, Jones, Cole & Johnson.

He can be contacted through his email: [email protected]

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