California’s Department of Cannabis Control (DCC) on Friday issued three notices along with accompanying proposed drafts of new regulations for the cannabis industry, with public comments for each due August 2. The regulations and proposed language target three distinct areas of focus within the industry:

• Large cultivation licenses and conversion to large and medium licenses.
• Standard cannabinoids test method and standardized operating procedures.
• Cannabis license fee waivers and deferrals.

Large Cultivation Licenses and Conversion to Large and Medium Licenses

The new regulations were created to comply with requirements of MAUCRSA (Medical and Adult Use Cannabis Regulation and Safety Act, 2017), which directs the DCC to begin issuing Large Cultivation Licenses on January 1, 2023. Per the DCC, “The proposed regulations provide the specific requirements for submitting an application for a Large Cultivation License, the requirements for converting smaller-sized cultivation licenses into a Large Cultivation License or a Medium Cultivation License, the fees applicable to a Large Cultivation License, and the regulatory requirements that apply to any cultivation activity occurring under a Large Cultivation License.”

Currently, California issues the following cultivation license types:

• Specialty cottage
  • Specialty cottage outdoor – up to 25 mature plants
  • Specialty cottage indoor – up to 500 square feet of canopy
  • Specialty cottage mixed-light tier 1 and 2 – up to 2,500 square feet of canopy
• Specialty
  • Specialty outdoor – up to 50 mature plants or up to 5,000 square feet of canopy
  • Specialty indoor – 501 to 5,000 square feet of canopy
  • Specialty mixed-light tier 1 and 2 – 2,501 to 5,000 square feet of canopy
• Small
  • Small outdoor – 5,001 to 10,000 square feet of canopy
  • Small indoor – 5,001 to 10,000 square feet of canopy
  • Small mixed-light tier 1 and 2 – 5,001 to 10,000 square feet of canopy
• Medium
  • Medium outdoor – 10,001 square feet to 1 acre of canopy
  • Medium indoor – 10,001 to 22,000 square feet of canopy
  • Medium mixed-light tier 1 and 2 – 10,001 to 22,000 square feet of canopy

The new licenses (Types 5, 5A, and 5B) are defined as:

• Large Outdoor – more than one acre of total
• Large Indoor – more than 22,000 square feet of total
• Large Mixed-Light – more than 22,000 square feet of total canopy.

The new rules ostensibly represent the beginning of legal large grows in the state, but loopholes in California law have long since allowed people to “stack” small cultivation licenses in violation of the original intent of Prop 64, which was to limit cannabis cultivation to one acre until 2023. The result has been a surge in cultivation sites that effectively meet the definition of Type 5 grows.

According to the DCC, “It is estimated that under the proposed regulations, 4,239 existing cultivation licenses will be consolidated into 319 Large Cultivation Licenses. Additionally, it is estimated that 103 existing cultivation licenses would be consolidated into 29 Medium Cultivation Licenses.

“It is estimated that savings in total annual license fees paid by cultivators will equal $4.549 million per year. The estimated annual operating cost savings per stacked license due to reduced owner time and reduced hours for consulting and/or legal services is approximately $1,102 per license. Multiplied over the total reduction in licenses, the estimated total gross cost savings for operational costs of cultivation businesses is approximately $4.787 million per year. Therefore, the estimated direct benefit to cultivation businesses equals $9.336 million per year.

“When compared to the estimated cost to businesses, the direct net benefit to cultivation businesses from the proposed regulations is estimated to equal $8.041 million per year.”

In a Friday Facebook post, Origins Council Executive Director Genine Coleman noted, “Small outdoor (10k) licenses are roughly $5k annually, so a 20 acre outdoor canopy farm would cost $400k annually for 80qty 10k licenses. Under the proposed regs a type 5 for a 20-acre outdoor canopy farm would cost you $281k annually.”

The DCC is accepting public comment on the proposed language until 5 p.m. on August 2, 2022. Comments should reference the rule-making topic (“large cultivation licenses and conversion to large and medium licenses”):

• By mail: DCC Legal Affairs Division, 2920 Kilgore Road, Rancho Cordova, CA 95670
• By email: [email protected]

Comments also can be submitted verbally through a public comment hearing that will be held August 1, 2022, 1 p.m. to 4 p.m.

More information can be found here.

Standard Cannabinoids Test Method and Standardized Operating Procedures

The new rules for cannabis testing labs are intended to fix weaknesses in the state’s oversight of labs that has resulted in rampant “lab shopping” in search of the highest THC levels.

Per the DCC, “On October 5, 2021, Governor Gavin Newsom signed California Senate Bill 544, which requires the Department of Cannabis Control to establish a standard cannabinoids test method, including standardized operating procedures, for use by all licensed testing laboratories. The law permits the development of the test method by the Department or through a reference laboratory. The law became effective January 1, 2022 and requires the establishment of one or more test methods by January 1, 2023.

“The proposed regulations [aim] to ensure all licensed laboratories are using the same standardized cannabinoid test method which will ensure consumers receive accurate and consistent information regarding the cannabinoid content of the cannabis and cannabis product they use or consume.”

The DCC further states, “An inherent challenge in regulating an industry that has not been federally regulated is the lack of standardized, generally accepted, and validated methods for the testing of cannabis and cannabis products. If a standard test method is not available for an analysis, new methods must be developed and validated. Accordingly, section 15712 of the DCC’s existing regulations requires licensed laboratories to develop, validate and implement test methods for the required analyses and, to the extent practicable, requires the test methods developed to comport with established guidelines such as those from the U.S. Food and Drug Administration, the Association of Analytical Communities (AOAC) International, and United States Pharmacopeia.

“Due to the lack of generally accepted standardized methods, each licensed laboratory has developed and implemented its own test method for cannabinoid content analysis. The use of different methods by individual licensed laboratories can produce inconsistent analytical results between the laboratories, thus resulting in inconsistent reporting of cannabinoid content of cannabis and cannabis products among licensed laboratories.”

Among many other requirements listed in the suite of Standard Operating Procedures (SOP) developed for cannabis labs licensed by the state, “the new regs state that a “licensed laboratory shall use the test method developed by the Department entitled Determination of Cannabinoids Concentration by HPLC (High Performance Liquid Chromatography) … to perform cannabinoid content analysis. This is necessary to make clear to licensed laboratories that the listed test method must be used when the laboratory performs the cannabinoid content analysis required by section 15724.” The SOP also provides “licensed laboratories with universal procedures and criteria for the standardized testing of cannabinoids.”

Comment on the proposed regulations can be submitted by mail or email through 5 p.m. on August 2, 2022. Send comments to DCC, and reference the rule-making topic (“test methods and standardized operating procedures”):

• By mail: DCC Legal Affairs Division, 2920 Kilgore Road, Rancho Cordova, CA 95670
• By email: [email protected]

Comments also can be submitted verbally through a public comment hearing that will be held August 1, 2022, 9 a.m. to 12 p.m.

More information can be found here.

Fee Waivers/Dismissals

On September 23, 2021, Gov. Gavin Newsom signed SB 166. Codified in BPC section 26249, the bill “requires the department to develop and implement a program to provide waivers and deferrals for licensing fees, with at least 60 percent of the total amount of fee waivers and deferrals allocated to local equity applicants and licensees,” according to the DCC. “Designed to assist people and communities that have been harmed by the War on Drugs, BPC section 26249 facilitates the first statewide cannabis equity fee relief program of its kind in an effort to help disadvantaged cannabis entrepreneurs.”

Per the draft regulation, “To be eligible for a fee waiver or deferral from the Department, BPC section 26249 requires applicants and licensees to meet one of the following criteria:

• The applicant or licensee has previously been convicted for a cannabis related
• The applicant or licensee has been arrested for a previous cannabis related
• The applicant or licensee resides in a household whose income is less than or equal to 60 percent of the area median income for the local jurisdiction.
• The applicant or licensee resides in an area with a population disproportionately impacted by past criminal system policy.

Among other requirements, the proposed law “requires that the qualified equity applicant or licensee, individually or in combination with other qualified equity applicants, own no less than 50 percent of the commercial cannabis business requires,” and also “that prospective fee waiver requestors be an applicant that expects a gross revenue less than or equal to $5,000,000, or a licensee with a gross revenue less than or equal to $5,000,000. Based on feedback from licensees that currently participate in their local jurisdiction’s equity programs, the Department determined that an expected gross revenue less than or equal to $5,000,000 more accurately corresponds to licenses held by equity commercial cannabis business operators.”

You can comment on the proposed regulations until 5 p.m. on August 2, 2022 by submitting comments by mail or email. Send comments to DCC, and reference the rule-making topic (“license fee waiver and deferral regulations”):

• By mail: DCC Legal Affairs Division, 2920 Kilgore Road, Rancho Cordova, CA 95670
• By email: [email protected]

Comments also can be submitted verbally through a public comment hearing that will be held August 2, 2022, 10 a.m. to 1 p.m.

More information can be found here.