By Hilary Bricken
The state will try to limit illegal cannabis operators in California. Here’s what else we should expect in the coming months.
For state-by-state legalization to succeed, state and local governments often need to take significant enforcement measures against “gray market” cannabis operators to ensure an even playing field for licensed operators who face the financial pinch and responsibility of comprehensive licensing regulations and robust taxation. To date, each state with an existing, unregulated medical cannabis industry has taken action to make sure unlicensed, unregulated medical cannabis operators do not undermine or disenfranchise their otherwise licensed counterparts (see Washington State as a prime example, or the continuing legislative efforts in Oregon).
In 1996, California became the first state to adopt medical marijuana legislation and that also makes it the state with the longest reigning gray marijuana marketplace. Under California’s Compassionate Use Act of 1996 (“CUA”), qualified patients and their caregivers have been using closed-loop, non-profit cooperatives and collectives to provide consistent access to cannabis for medical use. These cooperatives and collectives (and their members) enjoy immunity from state law criminal prosecution so long as they comply with the CUA. Since 1996, these collectives and cooperatives have operated under a gray area of the law — mostly according to this 2008 state attorney general memo. Each California city and county has treated these collectives and cooperatives differently. Though not every CUA collective or cooperative is engaged in illegal commercial cannabis activity, this legal gray area has allowed many CUA collectives and cooperatives to engage in outright illegal conduct, including selling cannabis for a profit, tax evasion, and diverting cannabis over state lines.
With California’s 2017 passage of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), California now has laws that comprehensively regulate and tax licensed cannabis businesses engaged in commercial cannabis activity. Existing CUA collectives and cooperatives that still engage in mass, unregulated wholesale and retail commercial operations threaten to undermine participation in California’s MAUCRSA marketplace and California is now taking steps to stop the unlicensed and illegal sale of cannabis within its borders, including by CUA collectives and cooperatives.
California does not have much choice but to tolerate the CUA collective model through early 2019 because MAUCRSA preserves the criminal immunity of CUA collectives and cooperatives for up to one year after the first MAUCRSA licenses begin to issue. The MAUCRSA drop-dead date on those collectives and cooperatives is now January 9, 2019, giving CUA collectives and cooperatives at least 10 more months to operate in the legally gray marketplace. This though has not stopped the California Bureau of Cannabis Control from targeting those CUA collectives and cooperatives that openly engage in unlicensed commercial cannabis activity.
California has started sending cease-and-desist letters to unlicensed CUA collective and cooperative operators believed to be engaging in commercial cannabis activity that violates MAUCRSA. It has also started cracking down on ancillary advertisers, like Weedmaps, for promoting unlicensed operators and their products in violation of MAUCRSA marketing and advertising restrictions. These will not be the last efforts we see on behalf of the state to try to limit illegal cannabis operators in California. Here’s what else we should expect in the coming months:
Hilary Bricken is a partner with the law firm Husch Blackwell, where she advises clients in the cannabis, healthcare, and life sciences spaces on transactions, regulatory compliance, governance matters, and other corporate needs. Hilary may be reached at [email protected].
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