California Races Against Time

Everybody wants to know: Will California’s regulatory structure be in place by Jan. 1, 2018, the deadline for the state to begin issuing marijuana business licenses?

“Yes, we’ll make our timelines,” says Lori Ajax, head of the Bureau of Medical Cannabis Regulation. “We have every intention of making the timeline.”

Considering the extent of the regulations and the size of the state, developing and implementing proper regulations is an enormous challenge. And Ajax knows it.

The Unknowns Ahead

Licensing delays have been a complaint among applicants in nearly every state that has legalized and regulated either medical or recreational cannabis.

Ajax, known informally as California’s pot czar, says the state is “on track to finalize our regulations.”

“We should have our systems up and running,” she says. “We have plans in place to make sure we can issue licenses on day one, but we won’t be able to issue licenses to everyone on day one. We want to make sure we’re doing responsible licensing.”

Ajax says her agency has the authority to issue temporary licenses to businesses that have been approved by their local jurisdictions for commercial cannabis operations. Permanent licenses won’t be granted until the state has been able to complete its background checks and other due diligence.

Businesses already in compliance with their local jurisdictions will be allowed to continue operating without a state license during the transitional stage, which should mitigate the rush of applicants when the state opens its portal for applications.

In addition to wondering whether the state will be ready on day one, Ajax has been bombarded by a wide variety of questions from potential applicants. People want to know what the application is going to look like and what info is going to be needed. They want to know when the advisory committee is going to selected. But at the moment, there are far more questions than answers.

“I’m hoping we have answers fairly soon,” she says.

Her goal right now is getting staff in place at levels that are appropriate to handle what will likely be a tidal wave of business applications in early 2018. That includes a “lot of heavy lifting on our IT system,” she says.

It’s also important for her agency to get the word out to current and prospective cannabis entrepreneurs, so they’re familiar with the steps and the process. The state has set up its Cannabis Portal (cannabis.ca.gov), which acts as a centralized site for all information regarding marijuana businesses and applications. People can also sign up for regular email alerts from the state through the site.

Applications will be available online. Prospective business owners should work with both the state and their local municipality to ensure they have their ducks in a row prior to Jan. 1, 2018.

Licensing

Similar to her counterparts in other states, Ajax had previously served as chief deputy director at the Department of Alcoholic Beverage Control, where she worked for 22 years.

Fortunately for her — but also potentially adding another layer of complications to the process — is that the Bureau of Medical Cannabis Regulation shares the licensing authority with two other state agencies. The BMCR is the lead agency and will handle retail and dispensary licenses, testing labs and distributors, while the Department of Food and Agriculture will license growers and the Department of Public Health is responsible for regulating manufacturers of cannabis-infused edibles. Myriad other state agencies will also be involved in regulatory aspects, including the State Water Resources Control Board, the Department of Pesticide Regulation and the Department of Fish and Wildlife.

“We’re all focused on what needs to get done and the time frame in which it needs to get done,” Ajax says.

Although the language is slightly different between the medical and recreational sectors, dual licensing is a cornerstone of both programs.

Under the MCRSA, businesses have to be locally licensed before they can receive a state license.

Under the AUMA, the state can’t issue a license that would be in conflict with a local regulation or ordinance.

Both programs give a great deal of control to individual municipalities, so it’s vital that applicants communicate with their local governing agencies.

All three licensing agencies have been and will continue to hold meetings on proposed regulations. Ajax encourages feedback from members of the industry and the general public.

“Nothing is finalized yet and we’re really hoping people participate in that process,” she says. “We really have encouraged people to provide feedback on draft regulations.”

The sun sets over Canndescent’s non-descript cultivation facility in Desert Hot Springs, California.

Outreach

Another frequent question that comes up revolves around the subject of banking. Entrepreneurs want to know what — if anything — the state will do to address the lack of access to traditional banking services and problems with the cash-only nature of the cannabis industry.

Ajax says it’s an important subject from a state perspective, in particular because it has to do with public safety.

“We’re trying hard to make sure that we solve that issue and that may mean some engagement at the federal level,” Ajax says. “It would be great if we had this solved by Jan. 1, 2018, but I’m not sure that can happen. We want to make sure people are safe. I don’t think anybody wants folks dealing with such large amounts of cash. It definitely is an issue and something that we’re committed to solving in California.”

Ajax has been researching the pros and cons of other state legalization programs and reaching out to her counterparts in Colorado, Washington and elsewhere.

“They were the first, so I always want to make sure that we’re benefiting from what they’ve learned,” she says.

For example, she says, early incidences of problems with edibles in Colorado have spurred conversations about dosages, packaging, limiting THC potency per serving, requiring THC symbols on packages and other ways to promote safe and responsible practices.

Testing is another complication every previous state has had to tackle and if preliminary reports are any indication, California could be in for a grave awakening when it comes to pesticides and other contaminants (see more on this subject in The Green Pages starting on Page 128).

However, Ajax is careful to point out that not all teachable moments from other states have been negative. She’s been impressed with how early adopters of legal marijuana have handled public outreach — a key element to California’s roll-out based on the sheer size and population of the state.

Ajax says her counterparts in other states have been “very generous with their time.”

“I’ve been very grateful how much they want to help us and make sure we get it right,” she says.

She also believes in keeping the regulations fluid and adaptable.

“I think even after they’re finalized this year, we’re going to be constantly making changes to them,” she says. “There’s going to be things in our regulations that have unintended consequences. I’ve always felt as a state, we need to react to those things quickly.”

Medical and Recreational

When Governor Jerry Brown first appointed Ajax, her agency was only responsible for regulating California’s medical sector under the Medical Marijuana Regulation and Safety Act. That task alone would have been monumental as medical marijuana has been legal in the Golden State for more than 20 years without any significant statewide regulations or licensing.

In many cities, local licensing has created a glut of gray market businesses with a limited path to full compliance.

Ajax’s challenge ballooned almost overnight when California voters approved the Adult Use of Marijuana Act in November 2016. She was appointed chief of the Bureau of Medical Cannabis Regulation in February 2016 (the agency was originally called the Bureau of Medical Marijuana Regulation — and derisively nicknamed “Bummer”). Despite its direct connection to “medical” cannabis, the agency will oversee both the medical and recreational sectors.

Based on population, the size of other states’ retail markets and other factors, Ajax estimates the state will receive roughly 6,000 applications for retail licenses, including both the medical and recreational sectors.

Size and geography will be somewhat unique challenges for California’s regulatory agencies, but those factors will impact the roll-out more so than the actual regulations, Ajax says.

“It will be interesting to see how that shapes up next year,” she says.

But she admits that the agency doesn’t know exactly how many dispensaries are currently operating within the state, whether legally or illegally.

“We don’t really have a good solid number to give you,” she says. “We’ve done research on the websites and you can talk to the locals, but there are some areas where we don’t have a good sense of how many dispensaries are out there.”

In 2016, Marijuana Business Daily reported that approximately 2,800 dispensaries were operating in California and had generated about $850 million in revenue. By comparison, Marijuana Business Daily’s numbers indicate California had 10% more dispensaries than the rest of the country combined (yet, had reported about 30% less revenue).

Just one year prior, there were fewer than 2,200 dispensaries in the state, according to research by economics professor Erick Eschker of the Humboldt Institute for Interdisciplinary Marijuana Research, a research organization based at Humboldt State University.

Ajax says she recognizes the importance of developing regulations that are robust, but aren’t so burdensome that existing businesses move back toward the black market.

However, once businesses are licensed, the state will work on a plan to deal with those that are operating outside the regulated market. Ajax says her agency is collaborating with California Highway Patrol and other law enforcement agencies to eventually shut down unlicensed businesses.

“You want to give them some incentive to come into the regulated market,” she says.

 

 

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