Member Blog: News Flash – Quirky Cannabis Regulations Unchecked

by Robyn Ranke, Eskaton Law

California Bureau of Cannabis Control (BCC) Proposed Final Regulations:

There are some quirky cannabis regulations seldom discussed by industry professionals which have a hidden impact on your business operations. Most business owners are, as they should be, preoccupied with the more prevalent draconian-styled regulations, like license fees, taxation, and testing.  

Obviously the state has public safety concerns with the legalization of marijuana, but has the state overreached in its mission to craft “robust regulations” for the industry. Upon review of 142 pages of proposed regulations, we opted to shine light on what we consider to be quirky cannabis provisions that have gone unnoticed by cannabis business owners. Some are laughable, others insulting; and as to the remainder, the state’s regulation of your cannabis business simply never ends.   

The California Bureau of Cannabis Control BCC proposed final cannabis regulations are currently under review of California Office of Administrative Law AOL to complete the rulemaking process. After considering the following, one might ask, what exactly were the rule-makers thinking when they wrote these provisions?  

California Quirky Cannabis Regulations

No. 1 No Naked Employees

  • 5806 Attire and Conduct

No licensee shall employ or use the services of any “host or other person to mingle with the patrons” … “in the sale or service of cannabis goods in or upon the licensed premises while such person is unclothed or in such attire, costume, or clothing as to expose to view any portion of the male or female breast below the top of the areola or of any portion of the pubic hair, anus, cleft of the buttocks, vulva, or genitals.”  Nor shall the licensee encourage or permit any person “to touch, caress, or fondle the breasts, buttocks, anus, or genitals of any other person.”

– Cannabis Strip Club?  

No. 2 Beware Of Fake Buyers

  • 5805 Minor Decoys

“Peace officers may use a person under 21 years of age to attempt to purchase cannabis goods, for the purposes of enforcing the Act, and to apprehend licensees, employees, or agents of licensees who sell cannabis goods to minors.”

– Entrapment?

No. 3 Your Coffee Cup Is Regulated

  • 5041.1 Branded Merchandise Approval

If a licensed distributor, retailer, or microbusiness “wishes to sell branded merchandise” – goods other than cannabis such as clothing, hats, pencils, pens, keychains, mugs, water bottles, beverage glasses, notepads, lanyards, cannabis accessories – “the licensee must receive written approval from the Bureau.”  

To obtain a approval, the licensee must submit a written request and provide a photograph to the Bureau.  Notably, there appears a discrepancy in the language of the regulation 5041.1 as to whether or not approval is required for all items listed in §5000(b) definition of “branded merchandise.”

  • Is this kindergarten?  

No. 4 $500 State Fee To Modify Your Reception Area

  • 5014 Licensing Fees

An application and licensing fee of $500 is charged for “Physical Modification of Premises.”  

Alterations or modifications to the premises include, but are not limited to: “the removal, creation, or relocation of a wall or barrier; or changing the activities conducted in or the use of an area identified in the last premises diagram provided to the Bureau.”

  • Hidden fee for commercial lease space improvements?   

No. 5 Cannabis Goods Intended For Disposal Must First Be Destroyed On The Premises Except Vape Cartridges Filled With Cannabis Oil

  • 5054 Destruction of Cannabis Goods Prior To Disposal   

Cannabis goods intended for disposal must remain on the licensed premises until destroyed into cannabis waste.  The licensee must restrict access to the cannabis goods intended for disposal, store the disposal goods separate from the other goods, and first destroy the goods “on the licensed premises.”  This includes separating the cannabis goods from any packaging, or container rendering it “unrecognizable and unusable.”  

However, the licensee is not required to empty vape cartridges of cannabis oil prior to disposal, “provided that the vape cartridge itself is unrecognizable and unusable at the time of disposal.”

  • Statutory rhetoric?   

No. 6  You Get One Chance, With One Lab, To Test Your Cannabis

  • 5305.1 Re-sampling

Once a cannabis sample has been obtained for testing by the laboratory employee – which sampling must be “video recorded with the batch number stated verbally or in writing on the video at the beginning of the video and a visible time and date indication on the video recording footage” (§5305) – a licensed distributor may not have another licensed testing laboratory sample or re-sample the same batch for regulatory compliance testing without the Bureau’s blessings, e.g. you must first making a written request to, and obtain, the Bureau’s written approval to re-sample the same batch (§5705(g).)  

  • Unnecessary barrier to quality control leading to heightened chance for product recall?  

No. 7  Unfettered Discretion To Audit Your Business 24/7 Without Notice

  • 5037 Record Retention

Licensees shall keep and maintain all business records related to commercial cannabis activity for at least 7 years to and including (a)(9) “all other documents prepared or executed by an owner or their employees or assignees in connection with the licensed commercial cannabis business.”

(d) All records are subject to review by the Bureau anytime . . . .  Prior notice by the Bureau to review records is not necessary. The Bureau may review records outside of the licensee’s standard daily business hours.”    

– Something Unconstitutional About This, Right?  

No. 8   Ultimate Veto Power Over Renewal Of Your Retail License

  • 5019 Excessive Concentration

Even if you satisfy all licensing regulatory requirements on both the local and state levels – the Bureau maintains the exclusive discretion to deny you a license and/or deny renewal of your license if the Bureau determines that (a) “an excessive concentration exists in the [geographical] area” where you operate.  

Excessive concentration applies when either of the following conditions exist: “(1) the ratio of licensees to population within the census tract or census division in which the applicant premises is located exceeds the ratio of licensees to population in the county in which the applicant premises is located . . . . (2) The ratio of retail licenses or microbusiness licenses to the population within the census tract, census division, or jurisdiction exceeds that allowable by local ordinance . . . .”  

Should the Bureau deny your license on this basis, the burden is on the you, the applicant licensee, to (f) “provide reliable evidence establishing, to the satisfaction of the Bureau, that a denial of a license would unduly limit the development of the legal market so as to perpetuate the illegal market for cannabis goods.”

  • Unreasonable evidentiary burden and extraordinary cost on applicant licensee to conduct an economic field study on an illegal market that is, in effect, a legal impossibility to achieve under any circumstances.

The list goes on. While the California BCC has clearly satisfied its commitment to promulgate “robust state regulations” for the industry, one wonders about the state’s definition of robust.  


An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve. 

Member Blog: Increased Enforcement Is Coming – Takeaways for California and the Broader Cannabis Industry

by Michael Cooper, MadisonJay Solutions, LLC

As June came to a close, so too did California’s phase-in “Transition Period” of cannabis regulation. As a result, a number of additional labeling and testing requirements are now live. And with those newly effective regulations, there are also heightened prospects for enforcement actions. But the lessons from California’s regulatory rollout do not stop at the state border.  

What should California cannabis businesses be doing differently? The simplest answer is, of course, the same as in every state cannabis market: follow the rules that are in effect. But it is a universal truth of highly regulated industries that not every possible scenario will be addressed by the rules. That is, in cannabis as in all highly regulated industries there are potential ambiguities and questions of interpretation inherent in the regulations.

California Bureau of Cannabis Control chief Lori Ajax recently tried to help calm industry concerns by offering insights into her team’s enforcement mindset. Ajax noted that “[t]here’s a lot of confusion out there” on what is and is not compliant. As a result, she explained that when the Bureau finds conduct it concludes is a violation, the regulatory response will be informed by whether the business “honestly thinks they’re in compliance.”

So how should a business go about demonstrating its good faith attempts to comply with cannabis regulations, in California and in the other state-legal markets?  

Start at the Top

Good compliance practices start with the tone at the top of the company. There is a reason why so many of the nation’s leading companies involve their senior executives in formulating and promoting compliance efforts. Doing so sends a strong message to the entire organization that compliance is a priority, and that the path to corporate advancement does not involve cutting corners. Putting real resources into compliance provides a powerful indicator of a company’s values, and senior executives’ time is a key corporate resource. Put another way, if a regulator is trying to decide whether you have made a good faith effort to comply with the rules, you do not want to lay the decision at the hands of an inexperienced intern.  

Build Strong Processes

Leaders in highly regulated industries tend to implement strong compliance processes. Why?  For one thing, clear written policies help staffers understand what they can and cannot do. And these policies are a permanent resource for your team, even when your compliance staff is not on premise. But in addition to helping your team follow the rules, strong processes also help regulators understand what you are doing. If, for example, a regulator wants to see if you “honestly think[]” you are in compliance, one of the best pieces of evidence is a clear roadmap of your efforts to be in compliance.

Maintain Focus

This is a fast-moving industry, and the rules are rarely static. A business could have a strong commitment to compliance and detailed processes, but if its compliance efforts are keyed to regulations that have been out of date for many months that is unlikely to sway a regulator. For example, regardless of what they may have done in the past, a Colorado retail licensee would likely receive little sympathy from regulators if they failed to update their policies regarding statements on possible health benefits of their products in the wake of the MED’s recent bulletin regarding retailers recommending cannabis for morning sickness. A regulator will have little sympathy for a business that fails to alter its compliance efforts in the wake of contrary guidance. Effective compliance requires vigilance.  

In short, cannabis businesses in California can likely expect heightened levels of enforcement as these additional rules come into effect. But the best practices for California businesses are no different than for those around the nation: by prioritizing compliance throughout the organization and building and updating strong compliance procedures, a highly regulated business takes key steps towards demonstrating its good faith, honest attempts to comply with the law.


Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to cannabis companies and a member of the NCIA. A graduate of Harvard College and Harvard Law School, he previously served as General Counsel of MHW, Ltd., which provides compliance services to the beverage alcohol industry, and in the litigation department of Cravath, Swaine & Moore LLP, known as one of the nation’s premier law firms for nearly two centuries.

Mr. Cooper can be reached at mcooper@madisonjaysolutions.com. Learn more at https://www.madisonjaysolutions.com

 

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