Cannabis Archives - THC Legal Group

California’s Proposition 64: What It Means for Advertising & Marketing Marijuana

California’s transition to a fully recreational state in the fourth quarter of 2016 was not without controversy and it would not be an exaggeration to suggest that Proposition 64 had any army of individuals/groups which did not support its passage. Opponents of Prop 64 continuously raised the belabored point that legalizing marijuana for commercial use would ultimately lead to greater public consumption. The idea was that as marijuana became available, people would have greater access to it and would not feel the same burden of social stigma which otherwise prevented many people from consuming the herb.

Defenders of Proposition 64, conversely, marshaled a different albeit connected argument and asserted that only through the legalization of cannabis can the dangerous and unregulated marijuana black market be crushed. This debate is as much focused on policy as it is perhaps on the social sciences but implicates many different issues law makers needed to consider before pushing Prop 64.

Regulating Marijuana Advertisements

Prop 64 includes a variety of subtypes of “advertising” including billboards, publications, television and radio ads, and graphic(s). Marketing, however, has been defined much more broadly and includes any promotion or selling of cannabis or cannabis-related products. This includes sponsorship at events or developing products to appeal specific types of demographics.

The use of digital adds is particularly interesting and limits ads in cable, radio, print, digital, and broadcast mediums to areas where a significant majority of the audience can be reasonably expected to fall into the 21 years and over category based on recent and reliable audience data.

Marijuana Advertising in California

Our marijuana lawyers are quick to note that that Prop 64 also necessitates that any marketing or advertisements by State-authored cannabis licensees:

- Accurately identify the licensee responsible for the content;

- Employ a method to confirm the age of any individual with which a licensee enters into a direct communication exchange;

- Be truthful regarding the verification process

The Fundamentals

The following include several of the more prominent restrictions on marketing or advertising cannabis in California:

1) No cannabis billboard ads are permitted on a highway or interstate that crosses the border into a neighboring State.

2) No cannabis promotion targeting the sale of marijuana to anyone under the age of 21 is permitted.

3) No promotional material with language, gestures, music, graphics, symbols, characters, or other content known for attracting mostly those under 21 years of age is permitted.

4) No advertising on a sign within 1,000 feet of a youth center, day care, or elementary, middle, junior, or high school.

5) Use free giveaways of cannabis marijuana or related accessories as a business promotional tactic.

Marijuana Marketing Compliance

Despite the Prop’s approval in November 2016, marijuana ads won’t be hitting the California airwaves immediately. Indeed, marijuana is still illegal under Schedule one of the Controlled Substance Act (CSA) and that has undoubtedly put a hamper on this effort. While independently-owned broadcast stations are more amenable to the advertisement of cannabis related goods on their channels, the State’s broadcasting stations are far more reserved.

Of course, in any business, sales is the name of the game and marketing/advertising is often the backbone of a company’s sales strategy. Please be sure to contact our marijuana law firm to ensure your marketing program is compliant with the law.

Weed Companies: Keep Your Friends Close And Your Enemies Closer

Weed companies, like all other businesses, are only as strong as the people who comprise them. The founder’s dream is to find like-minded colleagues who are equally committed and passionate about building the business. Unfortunately, what often begins as a promising and exciting partnership between two (or more) founders may very well end in acrimony and litigation. If you are considering taking on co-founders as you launch your weed company, here are some ways to mitigate the potential fall out.

Just Because He’s Your Friend Doesn’t Mean He Should Be Your Partner

We have all had the experience of shaking our heads in disappointment upon learning that another professional athlete has lost his fortune because of the poor advice and direction he received from his childhood friend turned financial advisor. We are disappointed, albeit, unsurprised, because we can very easily imagine why a good-hearted athlete would want to give his friend a job and income to be proud of. Unfortunately, the friend is often unqualified and ill equipped to serve as the athlete’s counsel. Similarly, you must resist the temptation to partner with a friend of yours, just because he’s a friend of yours. Do not allow childhood memories to be the currency with which you gamble away your marijuana business. It is essential that your founder/s bring real value and advantage to your company and are only part of your team because they deserve to be a part of your team.

Clarity Is King

“Contracts Shmontracts”, says Founder Bill, to newly appointed co-founder Sara. “I know that you will be an excellent addition to my company and we can worry about the official agreement and signing papers later. We’ll figure out exactly what your role is sometime down the line.”

Hopefully, the absurdity of this statement is self-evident and does not need too much explanation. It is absolutely critical that you delineate the parameters of your Co-Founders role within your marijuana company BEFORE they begin. Setting expectations in writing that are satisfactory to both you and your new co-founder will prevent a lot of heartache in the future. Many of the more contentious issues surrounding decision-making and equity distribution should be clearly laid out in the operating agreement and company by-laws. When your Grandmother told you that an ounce of prevention is worth a pound of medicine, she was right.

Like Religion and Government, Establish A Separation Between Business And Friendship

Assuming that you have successfully managed to find a friend who is qualified to be your co-founder, you must now bifurcate your relationship as a friend from your new relationship as a business partner. You will often have difficult decisions and disagreements to work through with your co-founder. Your marijuana business is too important to let emotions disrupt clear thinking. When you’re in your office, your partner is just that; your partner. Worry about being his/her “friend” when your having a drink at the bar later that night.

Weed Companies: The Fundamental Imperative

Remember that your primary responsibility and allegiance must be to the unequivocal success of your business. That is not to say that you should disregard your friendship but rather recognize its importance within the confines of your marijuana company. Remaining cognizant of this ultimate duty will allow you to have those awkward but important conversations that you would otherwise like to avoid.

Medical Marijuana License: Criminal Preclusions and Financial Constraints

Marijuana businesses, like all other businesses, must carefully structure both their internal-operating agreements and external-corporate governance documents to ensure they are in compliance with the law and best corporate practices. Depending on the goals and objectives of the forming marijuana company, different legal documents will need to be drafted and issued. However, before getting to deep into the muddy waters of contract drafting, it is important to recognize that not everyone can actually own these much coveted businesses. Indeed, what is unique to the marijuana industry is the nuanced rules, regulations, and medical marijuana licensing requirements that are particular to the given State. For many states, there are a limited number of licenses that will be issued and the regulatory bodies, which grant the licenses, have very strict standards as to who is or is not eligible to receive the permits.

Marijuana Preliminaries: Felony Ineligibility

Opening a dispensary and/or cultivation center requires licenses and permits from the State; the requirements to secure these licenses are both onerous and exclusionary. Most contentiously, individuals convicted of having committed a serious crime (the threshold for “serious” varies by state) are not permitted to apply for licenses and may very well be precluded from owning even a small amount of equity in the company. The point of contention is the belief that people of color have historically been targeted by law enforcement officers at rates disproportionate to their demographics. This heightened targeting has resulted in very serious felony convictions. The argument is that to now again penalize these individuals by preventing them from applying for the designated licenses (because of their convictions) is unfair and undemocratic. Marijuana attorneys should be consulted and worked with to identify whether or not the applicant does in fact meet the legal requirements to (at least in theory) acquire a marijuana license.

Can You Prove That You Have The Cash?

States recognize how much money is actually involved in running a successful dispensary or cultivation center and want to make sure that the applicant/s can afford it. While the specific amount of money is State dependent, applicants in all States must demonstrate that they have a certain amount of money available for the business. In Massachusetts, applicants must show a minimum of $500,000 in liquid capital to even apply for the license. This number is of course scary but the truth is that it should be - Do not be tempted to start a business that you are not actually equipped to run.

Marijuana Investments in 2017: Key Fundraising Tips for Approaching Investors

Marijuana investments are immensely exciting and risky for both the investor and the company receiving the investment. Undoubtedly, the cannabis industry is presently seeing an increased amount of interest and willingness from the otherwise conservative venture capitalist community to extend cash to businesses in this space. To a large extent, this is a reflection of the collective belief that nation-wide legalization is inevitable and therefore an intriguing niche to at least investigate.

Companies interested in acquiring marijuana investments must recognize the risk inherent to the industry (given its federal illegality) and as a corollary, the greater amount of equity and voting rights investors will demand. Precisely how to pitch a particular investor will be case dependent and should be treated on an individual basis. Each investor has his/her own peculiarities and it is important for the cannabis entrepreneur seeking the marijuana investment to tailor the request specific to the investor. Still, while each investor is certainly unique, there are nevertheless strategic guidelines that can and should be considered when approaching any investor.

Establish Your Marijuana Business Entity

Before anything else, make sure you are operating under the protection of a business entity and not as an individual. John Smith should never make a deal with an investor – John Smith Corporation, however, may very well enter into a business relationship with an investor. Indeed, if you do plan on raising money from investors, you will likely need to register your company as a C-Corp. This is for a variety of reasons although most importantly because serious investors will almost universally demand that you are a C-Corp before they are willing to invest. C-Corps limit the liability of the individual and allow for the issuance of both common and preferred stock.

Don’t Go in Blind – Demonstrate Your Expertise

Marijuana investors want to know that you know what you are doing. Have your business plan and needs clearly delineated on paper but more importantly, in your own mind. Do not try to memorize what you require, know what you require. Have all of the numbers worked out with a clear projection of when your investors can expect to see a return on their investment.

Marijuana investments are particularly tricky in that certain businesses require specific licenses from the states. For example, if you plan on opening a dispensary or cultivation center, you will need to be licensed and investors will want to see a robust business plan demonstrating how you plan on running one of these complex operations. Be prepared to explain your manufacturing, operations, and sales processes and how your business model differs from your competition.

Approach More Than One Marijuana Investor

While it would be wonderful to strike a deal with the very first investor you speak to, it is more likely that you will be rebuffed on your first, second, third and perhaps even fourth pitch. Recognize that finding the right investor will take time and just because an investor wants to work with your marijuana business does not mean they are a good fit. Many investors will try to take advantage of the legal precariousness of the industry and ask for huge equity and control over key decisions. Make sure you have a well-equipped and advised marijuana attorney present to negotiate on your behalf and strike the best deal possible. Remember, they may have the capital but your idea limitless.

How to Get Involved in the Marijuana Industry

The legalization of cannabis has opened the door to some truly incredible financial opportunities. With the steadily increasing number of states leaning towards legalization, the marijuana industry has become a game changer in modern American business. How can a current or aspiring business professional get involved in this booming industry?

Don’t Forget the Basics of Cannabis Industry

Cannabis businesses, like all other businesses, need departments and resources, such as human resources, marketing, information technology, construction, etc. These services are important for developing a structure within a new company.

Invest in an Existing Marijuana Company

Another way to get involved is to invest in a company through an angel investment network or private equity firm. Some of the most popular areas that investors are financing include dispensaries, production or operations, edibles, and ancillary service firms, such as advertising, marketing, or consultation. Other popular products and services include inventory tracking software and marijuana production technology. Consumption devices (i.e. vaporizers and pipes) are less popular to invest in due to paraphernalia businesses flooding the market.

Start Your Own Marijuana Business

Critically, strive to do more than merely work in the industry; create your own marijuana brand and company. Of course, before investing too many financial and material resources in your idea, in it is essential to do sufficient research and understand what factors may or may not affect your particular sector of the industry. Networking is the best way to get started. Meeting entrepreneurs at business industry events can lead to finding new resources, as well as discovering what consumers want and you can provide. Work to develop a solid consumer base, build connections, and eventually you will have developed something robust and meaningful.

How to Collect on Your Cannabis Investment

Cannabis Companies and the Need For Investors

With more cannabis retailers and dispensaries entering the market, a competitive challenge is presented and it becomes more difficult for business owners or producers to stand out. While it is generally wise to avoid starting a business solely on a loan, new cannabis businesses are subject to the limitations on out-of-state equity ownership, leaving some to starting their business in major debt. Financers or creditors are looking to take advantage of this popular and growing industry. Thus, they lend money to marijuana business owners, expecting to acquire up to 20% interest annually.

Unfortunately, many investors who are new to investing in small business, don’t know how to protect themselves. What happens when the cannabis company whom you have put your money into defaults on your loan? There are two options:

(1) Renegotiate the Marijuana Startup’s Debt

Promissory notes that are well drafted typically contain a statement regarding an uncured event of default, which causes the debt to accelerate. Thus, if the cannabis business you have invested in misses a payment and does not make a late payment by a cure date, that company’s entire debt is due. When this happens, partners tend to negotiate an extension, and you as the financer can extract concessions from your borrower (i.e. security interests, personal guarantees, or pledges of ownership in the company). This generally happens so that your borrower can avoid you obtaining a judgment against them.

(2) Get A Judgment Against Your Cannabis Borrower

If you have the money to obtain a judgment against your borrower, you can use that judgment to levy on the borrower’s business assets. In a majority of states, as soon as you get a judgment, some of what you spend collecting on it (e.g. fees from an attorney) will also be collectable.

Sometimes, companies in debt attempt to avoid paying it off. To prevent this from happening to you as an investor, it is important to discuss or inform your borrower of fraudulent transfers. A fraudulent transfer occurs when a debtor transfers property without receiving something back of equal value. For instance, if a company in debt transfers its materials to the company owner’s uncle, this can potentially be a fraudulent transfer and the materials can be brought to the financers.

Ultimately, if you are planning to finance or lend to a cannabis company, it is important to develop a plan in case your borrower’s business starts to go down. Remember, the legalization of cannabis does not guarantee businesses financial success.

Cannabis Business Licensing & Multiple Condition Contracts

Our cannabis attorneys are often asked to provide guidance in balancing and prioritizing cannabis agreements that are mutually dependent – if the execution of one contract is contingent on the execution of a contract with a third party, which to enter into first? For example, a cannabis company interested in opening a dispensary will likely need to raise capital from an investor, rent property from a landlord, and obtain a license from the State. However, in order to proceed with one contract, the other contracts must first be satisfied and agreed upon. One can imagine why this is a challenging situation - Let’s explore it further.

A Circle of Contractual Contingencies

The nature of these contingent agreements is such that States will often only approve the location when the applicant has first secured a signed lease. In Parallel, landlords may only grant a lease if the State has approved a license and the business has the proper financial backing. Finally, investors may only agree to fund the business if a lease and legal license are in place.

In this circle of contingencies, each component is dependent on its parallel part. In order to solve this problem, cannabis business owners should utilize standard conditional agreements with agreed-upon closing periods.

Using Conditional Agreements

Cannabis business owners should draft commercial leases with contingencies that allow for cancellation if either:

- the State rejects the license application, or

- the tenant determines that the business model is simply untenable during the first few months of the lease term.

Investment contracts in the marijuana industry may be structured under a similar set of conditions. An equity purchase or loan agreement between a marijuana business and an investor may be contingent on their licenses’ approval by the State and procurement of a lease agreement. If both of these conditions are not met, the equity and/or loan agreement need not become binding. Speak to a competent Cannabis attorney to learn more about this process and the legal mechanisms available to assist a marijuana business in navigating through this tricky terrain.

Does Cannabis Legalization Have an Effect on Real Estate Trends?

Real Estate and Cannabis

Today, more than half of U.S. states have legalized cannabis, with states like California, Nevada, and Maine joining the growing number of states legalizing recreational marijuana. Over 20 states, like New Hampshire, New Jersey, Pennsylvania, and Vermont, have already legalized medical marijuana. An increasing number of states are likely to legalize medical or recreational cannabis in the coming years and with this increase, we will see an increase in real estate prices. In addition, properties entering the market are being purchased sooner, as individuals move to states that have legalized cannabis.

Interestingly, real estate professionals are taking advantage of these housing market effects. For instance, 420MLS and PotProp.com are websites that offer people services in finding commercial spaces and posting cannabis business opportunities. PotProp.com also offers free consultation from locally licensed real estate agents and business brokers with experience in the cannabis industry.

Ordinary websites that have serviced the housing and renting market for several years, such as Apartment Guide, have seen an influx of new residents in Colorado and Washington after the legalization of cannabis. According to ApartmentGuide.com, both states saw an almost 25 percent increase in unique visits after legalization. In addition, in the biggest cities in Colorado and Washington–Denver and Seattle, respectively–apartment construction is expected to increase by 2 to 3 percent over the previous year. Although this affects the job market positively, middle class families may no longer be able to afford living in these cities.

Cannabis Real Estate Risks and Challenges

The real estate industry faces some challenges as a result of marijuana legalization. For instance, individuals looking to rent their property to cultivators should be extra cautious about renting to manufacturers of hash oil. Hash oil is a more concentrated form of THC that is consumed by smoking, ingestion, or vaporization. Since the production of the oil requires butane, explosions can occur. This is problematic for both the renter and the tenant. Other risks include physical damage to the property itself; for instance, growing marijuana requires a lot of water and that can lead to mold issues if a space is not properly cleaned and taken care of. Landlords run the risk of having their property seized by the federal government for various reasons, such as renting an apartment to a cannabis cultivator. It is important for landlords to determine whether or not their property accommodates marijuana growth and use. Further, there exists a negative stigma on properties used for cultivating and selling cannabis despite it being legal in some states. Thus, houses that have been used to produce marijuana are difficult to sell once they are brought back to the market.

How to Build a Profitable Cannabis Grow Room

Cannabis and Grow Rooms: The Basics

Starting a profitable cannabis grow room is the holy grail of the industry. Critically, the increasing supply of legal cannabis is presenting a financial challenge for producers as prices drop, while a chance for companies to decrease production costs has risen. As supply is surging, growers are taking advantage of the latest agricultural technology and investing millions of dollars in colossal marijuana factories or farms. Simultaneously, the average price sought by wholesalers has decreased.

Companies that originally developed fertilizers and high-efficiency agricultural systems for ordinary crops have begun investing in the cannabis industry, now working on improving irrigation systems and lighting conditions for indoor growing. It is estimated that the regulated market in North America could increase to over $20 billion in five years as a result of recreational cannabis legalization in California, Nevada, Massachusetts, and Maine. Although over half of the states in the U.S. have legalized medical cannabis use, transporting cannabis across state lines is still considered a federal crime. Thus, each state is its own cannabis market, and in states like Maine and Massachusetts, the warm, tropical-like weather conditions favored by cannabis plants are absolutely necessary to generate for the success of growers in those states.

Purchase the Proper Cannabis Equipment

Producing cannabis in basements and warehouses was popular due to prohibition, but with legalization, there exists a competition on cost and it is expected that the cannabis industry will shift to more efficient greenhouse production methods. An example of this is a hybrid greenhouse that captures light from the sun, with insulted walls, climate control, and a ceiling composed of glass; this ensures that less energy is consumed. Supplemental lighting and light-deprivation methods can be used in greenhouses to further minimize energy consumption. For instance, LED lights and induction work best for vegetative growth, while compact fluorescents are best for cloning purposes. In addition, incorporating lean processes through mechanized technologies can help create an efficient workflow. For instance, producers can implement mechanized potting machines and conveyor belts to transfer plants to particular areas of the facility.

Avoid Waste

To avoid wasting time walking around and looking for employees, information, or tools, walkie-talkies can be used. To prevent constantly having to restock an item once an it is out, growers should implement inventory tracking so that items going out of stock can be anticipated. Lastly, as trivial as it sounds, small details, such as lunch times and decontamination times, must be considered. It may be ideal to provide employees with a lunchroom, to minimize the number of employees having to leave and be decontaminated every time they maneuver in and out of the facility. Alternatively, producers may go the extra step and provide lunch for their employees.

The famous saying, time is money, applies to all businesses, and with decreasing product prices in the cannabis industry, reducing production costs and moving to more efficient measures is essential.

How to Get a Cannabis Trademark

Successful businesses are built on the foundation of brand loyalty and the backing of a federal trademark. Thus, it is essential for marijuana businesses to obtain federal trademark protection for their brand or products. However, due to federal laws regarding marijuana and related items or services, cannabis producers and distributors have a more challenging time finding brand protection than companies selling vanilla, non-federally illegal goods and services. Nevertheless, there still remain legal strategies available to cannabis companies interested in acquiring federal trademark protection.

The Importance of Trademarks

Trademarks identify the source of products and services, including words, logos, slogans, sounds, colors, symbols, and product designs. Unregistered trademark rights are obtained by simply using the trademark, but the trademark rights are geographically limited to the area where the marks are used. Thus, a company that uses a trademark only in California will only have rights in that state and that same company will be unable to enforce its right in other states. Federal trademark registration is ideal. It provides many benefits, such as nationwide protection and ownership of the trademark, but it is more difficult to obtain than a state registration. Conversely, a state trademark registration, although easier to obtain, does not does not provide the same robust benefits.

Federal Trademark Protection Qualifications

The U.S. Trademark and Patent Office (USTPO) is responsible for processing trademark applications and registrations. The USTPO may reject registration of a trademark if it is attached to product or service that is illegal under federal law and as a corollary, unlawful to use and sell in commerce. Typically, the USTPO assumes that the use of a trademark in commerce is lawful, unless there is evidence that shows its use in violation of the law (e.g. the sale or transportation of a controlled substance).

Currently, the Controlled Substances Act (CSA) prohibits the manufacture, distribution, or possession of particular controlled substances, including cannabis and cannabis-based preparations. Further, under the CSA, it is illegal to sell, offer for sale, or operate any facility of instate commerce to transport drug paraphernalia. Thus, it is impossible to obtain a federal trademark for those varieties of goods and services. One cannot acquire federal trademark registration for a mark related to pipes and bongs for marijuana or the name of a cannabis strain.

For products and services that do not violate the CSA, federal registration is possible. For instance, a medical cannabis business may register its strain name for lollypops or other food products that are not infused with cannabis. Other products, such as apparel and educational services are eligible.

State Trademark Registrations

In states where medical marijuana is legal, cannabis companies are less likely to face challenges when applying for a state trademark registration. State trademark registrations are typically inexpensive and easier to obtain than federal trademark registrations. However, discussed earlier, they do not offer the same benefits and protections. This is because each state trademark registration protects a trademark only in that specific state. This means that business owners must obtain multiple state trademark registrations to provide security for their trademark.

Things to Think About

It is important to distinguish between distinctive, descriptive, and generic trademarks. Distinctive trademarks typically receive broader protection, while descriptive trademarks are only protectable after having been recognized by consumers and used extensively. Generic names are not protectable.

Further, trademark searches should be conducted to ensure that there are no conflicting trademarks and that consumers will not get confused as to whether a good or service is somehow associated with another party. Lastly, it is essential that a mark is not used in any way that would support a claim that protectable rights have been acquired, especially when it isn’t federally registered.

Cannabis Investments: Scam Me Once, Shame on Me

Cannabis investments are both awesomely exciting and if mismanaged, ripe for fraud. An ongoing cannabis fraud investigation in Oregon is showing us how a new and exciting growth industry can present issues for investors and entrepreneurs, who unknowingly become involved with scammers and con artists. The current investigation centers on an entrepreneur named Trish Siler, a consultant named David Jacobs, and several investors. Siler, upon wanting to start a marijuana dispensary, gathered the help of Jacobs, a cannabis business consultant. Working together, they found several investors, eventually securing the required investment. Then, Siler and Jacobs claimed to receive a letter alleging to be from the state of Oregon permitting Siler to open his dispensary.

The investigation has discovered that Siler’s claims to her investors regarding her education and reputation in the Oregon cannabis community are questionable or proven false. Also, it was revealed that Jacobs was convicted of aggravated identity theft and fraud back in 2005. The investment documents that investors received from Siler and Jacobs appear to be false. Although Siler and Jacobs agree that the authorization letter from the state of Oregon they supposedly received was a fake, neither have admitted to writing it or knowing who wrote it.

With more states moving to legalize cannabis, how can future investors and business owners avoid this potential issue?

(1) Always Do Your Homework and Double Check

The cannabis industry is new and thus, subject to a lot of change and uncertainty. Investors and entrepreneurs should learn all pertinent information about a cannabis investment before committing to partner. For investors, they should research information about business fundamentals, other funding sources, backgrounds (e.g. criminal, financial, and educational) of the key players, and relevant laws. Business owners should know where their investors obtain their money from and what their investors expect to control in the business. Of course, this research should be double-checked.

(2) Allow Trusted Advisors to Check Your Work

It is essential that investors and entrepreneurs enlist the help of well-qualified accountants and attorneys to review contracts before signing off on them. These professionals can help ensure that no information is being overlooked and mistakes are appropriately fixed. Further, to ensure security, attorneys can draft agreements and review the proposals of other parties.

(3) Make the Rules and Enforce Them

In a new and sometimes tricky industry, where few standard operating procedures exist, it is important that the parties involved avoid handshake deals. Carefully crafted agreements and contracts, protecting the interests of those involved and clearly demonstrating the priorities of the investment, are absolutely necessary.

Although marijuana legalization has resulted in positive trends, such as economic growth and increased state and local tax revenues, like any business, there will be scammers and con artists. Thus, it is crucial that investors and entrepreneurs take the time to research their partners, enlist the help of trusted attorneys, and make clear, enforceable agreements.

How to Get a Cannabis Dispensary License in California

Cannabis Dispensaries in California

Although the passage of Proposition 64 and the Medical Cannabis Regulation and Safety Act (MCRSA) legalized marijuana in California, many questions now arise from the unknowns of the new law in regards to opening a business. Below are brief explanations of some of the questions that individuals may have when attempting to start a cannabis business in California.

1.) What are the residency requirements for California cannabis licensees?

In Chapter 5, Section 26054.1(a) of the proposition, there is a statement that, “No licensing authority shall issue or renew a license to any person that cannot demonstrate continuous California residency from or before Janurary 1, 2015.” This appears to provide a residency requirement, but the proposition states that this only applies to “controlling persons” and interestingly, “controlling” is not defined in the initiative.

2.) Who can finance California’s marijuana businesses?

Proposition 64 does not discuss financing for business owners interested in the cannabis industry. In Washington state, residency requirements have led licensees to rely on money borrowed from friends and family. In states, like Nevada, Illinois, and Oregon, which do not hold residency requirements for cannabis business owners, the same problem does not typically exist. Thus, if California follows in the same footsteps as the three states mentioned before, investments in the marijuana industry are likely to increase exponentially.

3.) What about for-profit cannabis entities?

The MCRSA states that a licensee is an “[o]wner or owners of proposed facility, including all persons or entities having ownership interest other than a security interest, lien, or encumbrance on property that will be used by the facility.” Attorneys who have followed this initiative believe that for-profit companies will be allowed under this new law, but the question that still remains is whether current non-profit medical marijuana facilities are allowed to convert to for-profit companies.

4.) What is priority licensing?

In Article 4, Section 19321 of the MCRSA, there is a statement regarding issuing licenses – “the licensing authority shall prioritize any facility or entity that can demonstrate to the authority’s satisfaction that it was in operation and in good standing with the local jurisdiction by Janurary 1, 2016.” In Chapter 5, Section 26054.2(a) of Proposition 64, it states that, “A licensing authority shall give priority in issuing licenses under this division 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 MCRSA].” Interestingly, there is no definition for what this priority status is or what it allows applicants seeking a cannabis license to have or do.

5.) How many licenses can one obtain?

Although the MCRSA asks that the number of licenses given be limited, there is no specific number for that limitation.

6.) What are the licensing fees?

These new laws have not defined or revealed license fee amounts. In states where recreational marijuana is legal, the license application fee is $250 or less. However, in medical marijuana states, license application fees can range from $5,000 (Nevada) to $60,000 (Florida). In Florida, this fee is non-refundable.

7.) What are the requirements for completing a license application?

Neither the MCRSA nor Proposition 64 reveal what information California will require in its licensing applications. Some of the information that is expected are (a) detailed background checks and disclosures for every financer and owner of the business, (b) start-up costs and an annual budget, (c) proof of security measures, (d) proof of insurance, (e) list of products to be produced and/or sold, etc.