California’s AUMA: What You Need to Know NOW to Have a Recreational Marijuana Business Later

California cannabis lawyerIt’s official, California’s Control, Regulate, and Tax Adult Use of Marijuana Act (“AUMA”) campaign has netted enough signatures to make the ballot in November and recent polls indicate that the AUMA has a good chance to pass this November. This has meant our California cannabis lawyers are getting a host of questions regarding what can and should be done now to have a California recreational marijuana business later. This post publicly answers those questions by listing the top ten things you should start doing now to increase your odds of securing a California recreational cannabis business license later.

1. Get to know your regulators: The AUMA creates the “Bureau of Marijuana Control” (“BMC”) within the Department of Consumer Affairs to regulate and license the recreational marijuana industry. This sub-agency is not the same as the Bureau of Medical Marijuana Regulation (“BMMR”) created by the MMRSA. However, the AUMA makes clear that it will “consolidate and streamline regulation and taxation for both nonmedical and medical marijuana.” So, there’s a good chance the BMMR will be subsumed by the BMC upon passage of the AUMA. In addition, the other regulators granted authority under the AUMA are as follows: The Department of Consumer Affairs will license and oversee marijuana retailers, distributors, and micro businesses; The Department of Food and Agriculture will license and oversee marijuana cultivation; The Department of Public Health will license and oversee manufacturing and testing; and The State Board of Equalization will collect marijuana taxes.

2. Figure out your financial timeline: We have seen firsthand in many other states stakeholders who have simply run out of money because of the bureaucratic delay involved with obtaining a license. The AUMA gives the heads up that licenses won’t even be ready for issuance until 2018, and it so far has nothing to say about who can invest in these businesses and how. Be sure your financial planning allows for the various uncertainties you can discern and then add in a bit more funding for those you cannot.

3. Residency issues: The AUMA contains a clear California residency standard that’s going to be good through at least the end of 2019 (unless the legislature deems otherwise):

No licensing authority shall issue or renew a license to any person that cannot demonstrate continuous California residency from or before January 1, 2015. In the case of an applicant or licensee that is an entity, the entity shall not be considered a resident if any person controlling the entity cannot demonstrate continuous California residency from and before January 1, 2015.

The AUMA does not define the term “controlling,” which means the BMC or another state agency is likely going to define the term. This could mean the door is slightly open for out of staters or foreigners if “controlling” means owning more than 50% of the company, or it could mean that all owners and anyone with a financial interest in the business must be a resident.

4. Criminal qualification issues. Criminal background requirements vary from state to state in the marijuana license application process. Some states bar any convicted felons while other states have criminal point systems that may allow for felons to hold cannabis licenses. Under the AUMA, the state may deny a license to any applicant who “has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made . . . In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made,” the state will consider a long list of offenses (found in the AUMA at section 26057), ranging from violent felony convictions to felony convictions involving fraud, deceit, or embezzlement. It looks like the state is going to have a lot of discretion regarding an individual’s criminal history and this means it will probably consider mitigating factors and individual circumstances.

5. Nineteen different types of licenses will be available. The AUMA does not prohibit vertical integration or one person holding more than one license (with the exception of a testing lab owner, which cannot own any other license under the AUMA). The nineteen license types are as follows:

  • Type 1 = Cultivation; Specialty outdoor; Small
  • Type 1A = Cultivation; Specialty indoor; Small
  • Type 1B = Cultivation; Specialty mixed-light; Small
  • Type 2 = Cultivation; Outdoor; Small
  • Type 2A = Cultivation; Indoor; Small
  • Type 2B = Cultivation; Mixed-light; Small
  • Type 3 = Cultivation; Outdoor; Medium
  • Type 3A = Cultivation; Indoor; Medium
  • Type 3B = Cultivation; Mixed-light; Medium
  • Type 4 = Cultivation; Nursery
  • Type 5 = Cultivation; Outdoor; Large
  • Type 5A =Cultivation; Indoor; Large
  • Type 5B = Cultivation; Mixed-light; Large
  • Type 6 = Manufacturer 1
  • Type 7 = Manufacturer 2
  • Type 8 = Testing
  • Type 10 = Retailer
  • Type 11 = Distributor
  • Type 12 =Microbusiness

License Types 1 through Type 4 are going to be the same size and capacity as set forth in the MMRSA. Notably, no Type 5 through Type 5B licenses (meaning any indoor or mixed light grow over 22,000 square feet and any outdoor grow over an acre) will be issued to anyone before January 1, 2023. This essentially means there will be no large scale cultivation for the first five years under the AUMA program.

6. Priority licensing strikes again. The MMRSA contains standards for the priority licensing of MMJ operations that can show they are in good standing with their local governments and that they’ve been in operation since before January 1, 2016. The AUMA contains a similar priority licensing standard (which we blogged about in more detail here) “to applicants that can demonstrate to the authority’s satisfaction that the applicant operated in compliance with the Compassionate Use Act and its implementing laws before September 1, 2016, or currently operates in compliance with [the MMRSA].” Since we are expecting thousands of entities to apply for a license under the AUMA it makes sense for you to do whatever you can now to secure priority licensing status later.

7. Try to join the “Advisory Committee.” As we wrote in a recent Florida MMJ post, government relations can be key to licensing and rule making. Even if you can’t afford the best lobbyist in Sacramento, you still may be able to get yourself onto the BMC’s marijuana Advisory Committee. The AUMA mandates that the state put together an Advisory Committee to “advise the [BMC] and licensing authorities on the development of standards and regulations . . .” The AUMA requires this Committee be made up of “representatives of the marijuana industry, representatives of labor organizations, appropriate state and local agencies, public health experts, and other subject matter experts, including representatives from the Department of Alcoholic Beverage Control, with expertise in regulating commercial activity for adult-use intoxicating substances.” This Committee will be hugely influential as California regulates and controls its recreational cannabis. So if you want a recreational marijuana license in California and you want to be able to influence the rules on such licenses, you should consider joining the Committee. It also never hurts to start getting involved with the campaign as the campaign will also sway state agencies regarding their implementation of the AUMA. To read more about “Let’s Get it Right, California” and how you can get involved, see here.

8. Cities and counties may allow on-site consumption. Other than Alaska, no recreational marijuana state has seriously contemplated full blown marijuana cafes. Cue now though the AUMA, which will allow on-site cannabis consumption at retailers and microbusinesses. Specifically, cities and counties may authorize “smoking, vaporizing, and ingesting of marijuana or marijuana products on the premises of a retailer or micro business . . . if:

1) Access to the area where marijuana consumption is allowed is restricted to persons 21 years of age and older;

2) Marijuana consumption is not visible from any public place or non-age restricted area; and

3) Sale or consumption of alcohol or tobacco is not allowed on the premises.”

Not only does this create another potential stream of income and business for a licensee, it also creates a social space in which consumers can actually use the product without feeling like criminals or social outcasts. When formulating your business plan, don’t rule out the ability to have a vape lounge on your premises, but first you should be sure to find out whether your city or county plans to allow for this.

9. Watch out for distances and “excessive concentration.” The AUMA mandates a buffer of 600 feet between cannabis businesses and any “school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center that is in existence at the time the license is issued, unless a licensing authority or a local jurisdiction specifies a different radius.” It also calls on the state to deny a retail or microbusiness license if there is an “excessive concentration” of those licenses in a given area. “Excessive concentration” means when the premises is located in an area where either of the following conditions exist:

  1. The ratio of a licensee to population in the census tract or census division in which the applicant premises are located exceeds the ratio of licensees to population in the county in which the applicant premises are located, unless denial of the application would unduly limit the development of the legal market so as to perpetuate the illegal market for marijuana or marijuana products; or
  2. The ratio of retail licenses, micro business licenses to population in the census tract, division or jurisdiction exceeds that allowable by local ordinance.

This means you cannot just locate anywhere, and you should know the property’s limitations in the context of the foregoing before you put money down on it.

10. Local law compliance is still key: In addition to the distance and concentration requirements, you will also still need to comply with local laws for your recreational marijuana business. The AUMA states that:

Nothing in this division shall be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate businesses licensed under this division, including, but not limited to, local zoning and land use requirements, business license requirements, and requirements related to reducing exposure to second hand smoke, or to completely prohibit the establishment or operation of one or more types of businesses licensed under this division within the local jurisdiction.

This essentially means that if a California city or county doesn’t want recreational marijuana, it doesn’t have to have it and if it wants to add on regulations that don’t conflict with the state’s regulations, it’s free to do so. This makes it important for you to study and understand your local laws before you seek a license. Otherwise, you might find yourself wasting massive amounts of time and money to secure a license in a jurisdiction with a ban or a moratorium or even just additional regulations (including health and safety and/or additional local taxes) regarding cannabis businesses that you find unpalatable. As we’ve written before, the majority of cannabis business laws are local, and California is not going to be any different.