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California laws for owning and operating a cannabis business

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The Bureau of Cannabis Control is a new division within the Department of Consumer Affairs that regulates cannabis businesses in California. (Jessica Christian/S.F. Examiner)
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This week’s question comes from Robin D. in San Francisco, who asks:

Q: “I understand that marijuana (cannabis) will be come legal in 2018. Some friends and I are thinking of starting a retail cannabis store. We currently own a liquor store and want to know about the new laws, so we don’t get busted for illegal distribution.”

A: Robin, I am not a cannabis attorney, and we do not represent people who sell or buy marijuana in either criminal or civil proceedings (except for suing distributors for mislabeling, defective products and those who cause injury under the influence). Here is a very general analysis of the new laws relating to the ownership and operation of cannabis businesses, but if you wish to pursue this line of business, contact a lawyer with specific knowledge in this area for guidance.

Cannabis is about to be legal (and heavily regulated). To deal with the myriad issues related to legalized marijuana, California has charged some existing regulatory bodies -— the Department of Food and Agriculture (for cultivators), the Department of Public Health (for manufacturers) and the Department of Consumer Affair’s Bureau of Cannabis Control (for retailers, distributors and testers) — with developing regulations to implement the new cannabis laws. The Departments of Agriculture and Public Health have long been established; the Bureau of Cannabis Control (BCC) is a new division within the Department of Consumer Affairs.

The new regulations set forth by the BCC are designed to regulate cannabis business operations. Some of the regulations are designed to identify and restrict any criminal enterprises from engaging in cannabis sales. For example, Title 16 of the California Code of Regulations (when laws are passed, the agencies are tasked with drafting regulations for their implementation, which are published in the CCR) Section 5002 requires those who want to sell cannabis to obtain a license  and renew it annually and, in doing so, to identify not only who will own and operate the business but also who the investors are and where the funds for the operation come from, as well as where the funds for the enterprise are kept, such as bank accounts.

An applicant for a license must disclose whether they have an interest in any other cannabis operations, as well as any prior criminal convictions, a detailed description of the offenses leading to convictions, dates of incarceration, probation, parole and other criminal history. According to the regulations, a prior conviction, in which the sentence, including any term of probation, incarceration or supervised release, is completed for possession of, possession for sale, sale, manufacture, transportation or cultivation of a controlled substance shall not be the sole ground for denial of a license. Conviction for any controlled substance felony after licensure shall be grounds for revocation of a license or denial of the renewal of a license.

When considering prior criminal offense, the BCC will consider the nature of the offense, including the severity of the offense, whether the offense would be a felony under current law at the time of the application (many drug crimes that were felonies at the time of their occurrence have now been decriminalized), the applicant’s criminal record, the time since the offense occurred and any evidence of rehabilitation in determining whether a permit should be issued.

The regulations state that a criminal conviction of any person holding a license to sell marijuana, which occurs after the license has been issued, must notify the BCC within 48 hours of such a conviction and the conviction may be the basis of revocation of the license or refusal to reissue the license.

Regulations prohibit any individual holding office in any state agency that regulates marijuana, as well as any persons employed by the state’s Department of Justice or any district attorney’s office, city attorney’s office, sheriff’s office or local police department, from holding a license to sell marijuana.

If you or any of your partners work in such a capacity, you cannot be owners of the business.

You should also be aware that a landlord may refuse to rent to you, and an applicant must demonstrate that a landlord has provided written approval for their premises to be used as a marijuana business.

If you decide to go forward with your plan, you will need to provide evidence of $2 million in liability insurance and post a $5,000 bond to ensure payment of the cost incurred for the destruction of cannabis goods necessitated by any violation of the regulations.

Be aware that cannabis, like alcohol, may be sold only to people ages 21 or over. However, unlike alcohol, cannabis may be sold to an individual 18 or older who has a valid physician recommendation.

Lastly, while a retailer may sell noncannabis products in their shop, cannabis can not be sold where alcohol, alcohol products, tobacco and tobacco products are sold.

Christopher B. Dolan is owner of the Dolan Law Firm. Email questions to help@dolanlawfirm.com.

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