California Governor Signs New Cannabis Regulatory Bill Into Law

July 14, 2021

On Tuesday, California Governor, Gavin Newsom, signed into law Assembly Bill 141 which consolidates the three state licensing agencies into one – the Department of Cannabis Control (“DCC”). The DCC is now the lead agency issuing state licenses. Governor Newsom appointed Nicole Elliot to serve as Director of the Department.

Current regulations from the three former state licensing agencies currently remain intact. However, according to the new DCC website, the DCC will be publishing changes to the rules to combine the current set of three regulations into one. However, it’s unclear when this will occur. DCC is authorized to issue emergency regulations which will have a 5-day public comment period.

Some of the changes identified in Assembly Bill 141 are detailed below:

Provisional Licenses

The new law now carves out an entire section relating to provisional license holders. DCC is authorized to issue provisional licenses until June 30, 2022. Renewals will not be permitted after January 1, 2025 and no provisional license shall be effective after January 1, 2026. (Bus. & Prof. Code § 26050.2(o)). Applicants will be required to provide compliance with California’s Environmental Quality Act and with local ordinances, or compliance that these requirements are underway. (Concerns over AB 141's CEQA language have been raised by industry advocates, and it's expected that lawmakers will undertake clarification on these issues in August).

Provisional licensees that includes cultivation activities will also need to provide either a final streambed alteration agreement, or a draft of the agreement, or written verification from the Department of Fish and Wildlife that meets the requirements detailed in Section 26050.2(a)(1)(C) of the Business and Professions Code.

In the event, DCC refuses, revokes, or suspends a provisional license, this action will not entitle the applicant or licensee to a hearing or an appeal of the decision. (Bus. & Prof Code § 26050.2(m)).

Provisional Cultivation Licenses

The law prohibits the DCC from issuing a provisional cultivation license that exceeds specified canopy size. If a cultivation application is submitted on or after January 1, 2022, the Department “shall not issue a provisional license...if issuing the provisional license would cause a licensee to hold multiple cultivation licenses on contiguous premises to exceed one acre of total canopy for outdoor cultivation, or 22,000 square feet for mixed-light or indoor cultivation.” (Bus. & Prof Code § 26050.2(a)(2)). The same rule will apply to any provisional cultivation license renewals after January 1, 2023 and after January 1, 2024. (Bus. & Prof Code § 26050.2(g)(1).

Thus, cultivators holding multiple provisional cultivation licenses that exceed the total canopy limits will need to conform their operations to ensure their total canopy requirements do not exceed the specified size requirements under the new law, otherwise their provisional license will be denied.

Trade Samples

Licensees are still prohibited from giving away any cannabis or cannabis product as part of a business promotion (with the exception of donations to patients and primary caregivers). Now, the law implements a new section regarding “Trade Samples.”

Trade samples shall “only be given for targeted advertising to licensees about new or existing cannabis or cannabis products.” No form of payment, consideration, cost, or compensation shall be provided for the trade sample, and it must be labeled with the following: “TRADE SAMPLE. NOT FOR RESALE OR DONATION.” (Bus. & Prof Code § 26153.1).

Testing Laboratories

Clarification was added to identify that a person with a financial interest in a state testing laboratory license shall not hold a financial interest in any other type of cannabis license. This rule intends to further clarify current law that prohibits a person holding a testing laboratory license from holding ownership in another type of cannabis license, or from employing a person that is employed by another licensee. (Bus. & Prof Code § 26053).

Additionally, explicit language was added to further clarify that testing laboratories may test samples from manufacturers and cultivators for quality control purposes – but not for retail sale. (Bus. & Prof Code § 26104(d).