Understanding California's Proposition 64 - A detailed look at the nation's hottest cannabis market

With 331 pages of “proposed new regulations” (expected to be officially adopted by January 2019) and 120 pages of current “re-adopted regulations,” Prop 64 requires hours of focused reading in order to grasp the boundaries of compliant, commercial-cannabis operation. This doesn’t include the rigorous study of local zoning, health, and police codes, which you’ll also have to do.

Prop 64 proposed new regulations

The Bureau of Cannabis Control (BCC), (retail, microbusiness, distribution) and its sister agencies, the CA Department of Public Health (manufacturing/lab testing) and the CA Department of Food and Agriculture (cultivation), each issued multiple new versions of their regulations since Prop 64 took effect in 2017. Expect this process to continue for years. As a brand-new bureau in the state of California, created just over a year ago, the BCC is responsible for regulating the state’s largest cash crop from scratch. This is a Herculean bureaucratic task.

 

With the most important power of regulation left to counties and incorporated cities, “zoning” is the California cannabis industry’ hottest buzzword of 2018. California has a long, proud history of letting local authorities control the development of their communities, including the types of industries allowed to operate. With nearly 75% of California governments banning commercial cannabis activity, finding the real estate to start your business is equivalent to finding a gold mine. With all these laws, many startup cannabis businesses think they can merely follow them and be successful. However, local politics currently play the largest role in the acquisition of a commercial cannabis license. Since local governments have so much control over zoning, commercial cannabis in California is predominantly a political game, not a legal one.

 

Understanding Prop 64 is nothing short of a three-dimensional chess game. State officials at the BCC will not even allow you to submit an application without express written permission from your local government to operate your cannabis business. Without the ability to simultaneously tackle the regulations of two separately operating governments, a would-be commercial cannabis entrepreneur won’t even make it out of the gate.

 

The right professional expertise is essential for any successful commercial cannabis entrepreneur in California. You will need an accountant and a lawyer. Prop-64 cannabis taxes are hefty and complex, so in order to keep your business compliant, you’ll have to calculate all the taxes you owe to the state, local and federal government.

 

Finding the right lawyer or consultant isn’t always easy. There are many people calling themselves cannabis consultants who do not have law degrees, and there are many lawyers calling themselves cannabis legal experts who lack the in-depth experience, knowledge and network one would expect for the price. You don’t need a law degree to be a good consultant, and you don’t need a large cannabis network to provide sound legal advice. Get the most for your money by doing your own research first, and interviewing experts to find the most knowledgeable and affordable team.

 

Incorporating a new business in the state of California is painless, and costs around $150. Compiling the corporate documents required to by state business codes is time-consuming and tedious, but easy to do if you’re even slightly literate and motivated. Depending on your local jurisdiction, the scale of ease of acquiring a commercial cannabis permit ranges from hard to insane. Taking the time to calculate a strategy that will impress your local jurisdiction is time-consuming and costly. Having a legal professional do it for you -- or even better, guide you through doing it yourself -- shouldn’t cost more than $3000. People charging tens of thousands of dollars are selling fancy images that impress wealthy outside investors, who see cannabis as a huge money-making enterprise and assume the price to participate should be reasonably high.

 

The California cannabis industry hasn’t yet started to seriously litigate issues in administrative law courts, which will undoubtedly be very costly to business owners and very lucrative for consultants and lawyers.

 

Tags: Proposition 64 Prop 64 California New Proposed Regulations Bureau of Cannabis Control California



About the author

Dominic is an Associate at Wood, Smith, Henning, and Berman, LLP and Chair of the Cannabis Law Section at Alameda County Bar Association.

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