NEWS & ARTICLES

The Divine Irony of CA Regulations

Destruction of the Sacred Plant

The CA Regulations Requiring Destruction of the Sacred Plant on July 1, 2018

Provides an Opportunity for Extraordinary Acts of Compassion 

Before July 1, 2018 

Silvia San Nicolas, Esq.    June 14, 2018

New Game Compliance, LLC

The State of California, Bureau of Cannabis Control (BCC) Emergency Regulations Requires the Destruction of Cannabis effective July 1, 2018.[1]  That means we have about 16 days left before California’s six-month transition period allowing exceptions from specific regulatory provisions of the BCC’s Emergency Regulations ends.  The last day in which licensees may sell cannabis products that do not meet the BCC’s requirements is June 30, 2018. Effective July 1, 2018, cannabis goods must meet certain testing, packaging, labeling, THC count, ingredients and appearance requirements or the non-conforming cannabis goods must be destroyed according to regulations and the Bureau of Cannabis Control.  http://www.bcc.ca.gov/about_us/documents/transition_period_fact_sheet.pdf

How Much Cannabis is at Risk of Destruction?  Well it’s hard to say, but in speaking with some licensees about how much non-conforming product is out there, a common response was “all of it” – Others estimate the percentage of estimated failed lab test results (80% range) represents the percentage of non-confirming product on the market.  Regardless of how much there really is, for many retail operations the non-conforming cannabis goods will remain on shelves, be filtered into the black market or blown out in steep discount sales because the average retail operator is running on fumes financially, compliant or not and needs every last penny.  

Before January 1, 2018, numerous retailers stocked up on 2017 cannabis product to avoid certain compliance requirements and taxes imposed on cannabis grown or manufactured after January 1, 2018. Additionally, Retailers have acquired plenty of post January 2018 product that remains on their shelves that also doesn’t comply with the new mandates – like testing and packaging.  Why? Because the product and packaging didn’t technically have to comply, that is until July 1, 2018.  California gave licensees six months to sell non- conforming product commencing January 1, 2018.  Many retailers over estimated how much inventory they would need, leaving them nearing the deadline with potentially enough surplus inventory to help thousands in need of compassionate care.  What do we know? It’s a lot of good weed and in all forms, oils, raw flower, pre-rolls, edibles, tinctures …. What else do we know? Few may admit it, some don’t really understand it and many are unprepared for the impact of the deadline.  

The CA Regulatory Provision that Can Save the Weed for Those in Need.  While the emergency regulations and the BCC make no bones about the impending doom of the July 1, 2018 death sentence date for non-conforming cannabis and there are really no bones to make – the regulations are clear on this, CCR 5411 provides an opportunity for a symbiotic and compassionate reprieve for doomed cannabis goods, but there is only a narrow window in which to escape the BCC death sentence for the sacred plant. 

16 CCR 5411- Free Cannabis Goods. This glorious provision could provide the equivalent of a presidential pardon for cannabis goods on death row, that if exercised by licensees in time could become one of the greatest collective acts of compassion our industry has ever seen.  While subsection (a) prohibits a retailer from giving away cannabis, the prohibition on giving away free cannabis is limited only to doing so as a promotion or other commercial activity.[2] However, the clear intent of the law is to permit retailers to continue to provide cannabis products to persons in need under MAUCRSA, and not to apply a blanket prohibition on donating small amounts of medicine to persons like our vets, elderly and other qualified patients.

The balance of the provision actually authorizes the act of giving away or donating cannabis goods for medicinal and compassionate use purposes under certain parameters. 

Retailer Licensees - Authorizations and Conditions for Providing Free Cannabis Goods

CCR 5411 (b) authorizes retailer licensees to give away cannabis goods to medicinal cannabis to patients and their care giverssubject to certain conditions (addressed below).  

Subsection (b) provides in relevant part:

“….in order to provide access to medicinal cannabis patients who have difficulty accessing medicinal cannabis goods, a licensee who holds a Type 10-Retailer M license, a Type 9-Retailer Non-storefront-M license, or a Type 12-Microbusiness M-license that allows for retail sales may provide free medicinal cannabis goods if all of the following criteria are met.”

  5411 (b)(1) specifically authorizes a retailer to give away cannabis goods to a medicinal cannabis patient or the primary caregiver for the patient. [3]  

 5411 (b)(2) requires the cannabis goods to comply with all applicable lab testing.  Keep in mind that cannabis products that have not been lab tested are still lawful to sell (and donate) until July 1, 2018.  Additionally, until June 30, 2018 all cannabis goods may be sold or donated if they have not been tested, as there are NO current testing requirements for cannabis goods cultivated or manufactured prior to January 1, 2018. (Note: A Retailer is still prohibited from donating product that has been tested but failed for containing a prohibited pesticide or other dangerous substance) Absent that, the cannabis on death row shelves conforms to current regulatory requirements until June 30, 2018 when the transition period ends.  

5411 (b)(3) requires recording in the track and trace program. (even if it is on paper receipts and handwritten logs)[4]

5411 (b)(4) requires cannabis products be placed in opaque packaging upon exit of the licensed premises, which is required for all exit packaging currently. 

5411 (b)(5) limits patients to the daily purchase limit allowances,[5]and 

5411 (b)(6) requires that the donation be recorded in the retailer’s inventory and track and trace records;[6]

CCR 5411 (b), a defined Licensed Retailer may provide any medical patient or caregiver free of charge cannabis goods up to allowed daily purchase limits. Nothing appears to prevent the donation of post July 1, 2018 non-confirming cannabis through June 30, 2018 midnight.  The only additional qualifier is that the person receiving the gift has difficulty accessing medicinal cannabis and that the retailer meet the above simple requirements in the compassionate act of giving away cannabis goods that are destined for destruction. 

All Licensees -  Authorizations and Conditions for Donating Free Cannabis Goods and Equipment 

In addition to subsection CCR 5411(b) allowing donations for medicinal patients and their care givers, subsection (c)additionallyauthorizes any licensee to make donations for ‘any’ compassionate use, equality or other similar program administered by a local jurisdiction.

CCR 5411 (c) provides in its entirety:

In addition to the provision of free cannabis goods in subsection (b) of this section, a licensee may donate cannabis goods and the use of equipment in compliance with any compassionate use, equality or other similar program administered by a local jurisdiction. 

CCR 5411 (c) appears to act as a ‘catch all’ that authorizes any licensee to donate cannabis goods for the very broad purposes of compassionate use, equality or any ‘similar’ program.  Additionally, unlike subsection (b) that specifically defined its applicability to particular retail license types, subsection (c) does not have any such qualifier, rendering it applicable to all license types.  the legislature gave all licensees the broad authority to donate under any compassionate use, equality or other similar program administered by a local jurisdiction.  

Therefore, subject to the daily purchase limitations for adult use and requisite licensure, it appears that subsection (c) authorizes donations to those in need over the age of 21 in the absence of a medical card or doctor recommendation. This further opens up the ability for licensees to consider donating cannabis goods that would otherwise be slotted for destruction to a potential myriad of persons including our veterans, the poor, the oppressed, the discriminated and the elderly.  

It appears that under CCR 5411 (c) a logical and compassionate reading of the intent of this provision would mean that any city or county that currently authorizes retail sales or other commercial cannabis activity may be squarely in a position to allow (or not object) to operators seeking to donate soon to be doomed cannabis product to persons, or subsets of persons in need as described above under its current cannabis programs.   Instead of this otherwise safe cannabis through June 30, 2018 going to waste after July 1, 2018, Californians who could benefit from but can’t afford cannabis medicine should be allowed access to otherwise safe cannabis instead of it being destroyed consistent with the purposes set forth in Prop 215, specifically H&SC Sections 11362.5 (b)(1)(A) and (C).  

The Time for Extraordinary Acts of Compassion is Running Out 

 There are roughly 16 days left to get the sacred plant in the hands of those that are in need.  The California regulatory universe has given the sacred soon to be non-conforming plant a chanceto serve its rightful compassionate purpose and help those so desperately in need, provided such acts occur prior to June 30, 2018. After that, all requirements of CCR 5411(b) for donating cannabis will be place, rendering most of the non-confirming cannabis not qualified to donate.

This means we don’t have a lot of time for analysis paralysis, political debate, or ignoring the inevitable hoping this problem goes away.  July 1, 2018 is coming.  Our vets are here now struggling for access to cannabis, our elderly and our poor.  An Extraordinary Acts of Compassion doesn’t have to be complicated.   Let’s not make it so, and maybe we might not only save the sacred plant but also save some lives in the process.  Isn’t that what this is all about and why are really here?  

Just a thought.   

 


[1]Bureau of Cannabis Control, Text of Regulations, CCR Title 16, Division 42 

(Emergency regulations, Readopted Text – Readopt 2018)

[2]Business and Professions Code 26153, “No licensee shall give away any amount of marijuana or marijuana products, or any marijuana accessories, as part of a business promotion or other commercial activity.

[3]H&SC 11362.71; 

[4]Business and Professions Code 26160 (records requirements)

[5]Section 5409 (8 oz of medicinal cannabis as defined in section 11362.77 of the Health and Safety Code; 12 immature cannabis plants, unless a different amount is other than the limits is prescribed by a valid physicians’ recommendation.  5409 (c). )

[6]Business and Professions Code 26160 (records requirements)

The Devil in the Details:

Silvia San Nicolas Esq. on Cannabis Compliance

When it comes to the cannabis commercial industry, the devil is in the details; and nothing is more devilish, or more onerous, than complying with the intricate rules and regulations imposed upon the industry. On March 6, 2017, at the California Cannabis Business Expo, entrepreneurs and investors were given a firsthand lesson on the ins and outs of cannabis compliance and enforcement from Silvia San Nicolas, formerly the Chief Strategy Officer of Compliance for MJIC Compliance. 


In her session, San Nicolas stressed the importance of businesses keeping detailed records of their actions to prove that they are being compliant with the law. Citing a recent audit of 300 dispensaries in Colorado, San Nicolas reported that 90% of compliance violations were for failure to keep seed-to-sale tracking up to date. 


“It doesn’t matter if you were compliant or not, it’s about what you can prove,” San Nicolas said. “You have to be able to demonstrate that you have complied with all the different regulations that are imposed on our industry.” 


Calling compliance a spectrum, with the black market one end and a 100% compliant business on the other, San Nicolas explained that most businesses fall somewhere between those two extremes.


Because there are things outside of an entrepreneur’s control, according to San Nicolas, sometimes it is beyond challenging to be completely compliant with regulations all the time. 


San Nicolas went on to say that despite the burdens imposed on the commercial cannabis industry, it is important to strive for complete compliance because working outside of the law puts everyone in danger. 


“Not complying is a risk to the industry. Everything that will move us forward is going to be consistent with being a regulated and tax paying participant.” 

Emphasizing that appearances matter, San Nicolas predicts that the public’s perception of the commercial cannabis industry will become increasingly determined by how regulatory compliant the industry is as a whole. 


“I think what we’re going to see moving forward is a stratification of the way that cannabis enterprises are looked at. You’re either licensed and you’re a documented entrepreneur under a regulatory scheme or you’re not.”


Closing out her informative session, San Nicolas reassured attendees that tackling cannabis regulation is no different from eating an elephant — you just eat it one bite at a time.

Standards Go Global: ASTM Forming Cannabis Committee

 By Silvia San Nicolas Esq.


On April 25, 2017, ASTM International, an international voluntary consensus standards organization, announced that its board of directors had approved the formation of a cannabis committee, signaling the professional development of global standards for the legal cannabis industry.


“With decades of experience working with industries such as agriculture, packaging, pesticides, and pharmaceuticals, ASTM International and its members are uniquely qualified to develop standards for the cannabis industry,” said Dr. Ralph Paroli, who will serve as the committee’s first chairman and was previously the National Research Council of Canada’s chairman of the board and director of R&D in measurement science and standards.


ASTM announced the potential formation of a cannabis committee back on Feb. 28, 2017, but it was still pending the approval of ASTM’s board of directors. Now that the board has given its approval, the cannabis committee can move forward in crafting technical standards in the following areas, each of which will have its own subcommittee: quality management systems; indoor and outdoor horticulture and agriculture; processing and handling; laboratory; security and transportation; and personnel training, assessment and credentialing.


“The industry needs more certainty, and having reliable and practical standards that regulators can use to assess an operator’s compliance is critical to the success of the industry,” San Nicolas said. “Including and following accepted technical standards in an operation’s Standard Operating Procedures is like having a compliance insurance policy when the standards used in the SOPs are consistent with state and local requirements.”


The cannabis committee’s first meeting is June 11-12 at the Sheraton Centre Toronto. 

Proposed Prop 64 Trailer Bill Reflects Some Interesting Turns

By Silvia San Nicholas Esq.


Some big proposed changes came down on April 4, 2017, in the California Bureau of Cannabis Control’s Proposed Trailer Bill Legislation. As the industry digests and considers the implications of these proposed changes, some of the more notable changes seem to reflect a friendlier approach to cannabis regulation in some key areas.


For starters, the trailer bill replaces the word marijuana with cannabis and would create two separate categories of license types, M for Medical and A for Adult Use, each having the same regulatory requirements.


The trailer bill also proposes to allow vertical integration, enabling licensees to hold multiple licenses, including distribution. A big 180 from previously disallowing anyone holding a distribution license from also holding any other type of cannabis license. While a licensee could hold both an M license and an A license, the operations would be required to be at different locations and it would be no different for distributors. A distributor with an M license could only distribute cannabis to M-type licensees. A distributor with an A license could only distribute cannabis to A-type licensees; however, a distributor could have both license types and be vertically integrated with other license types in the same A or M category.


A new cultivator license has been proposed: a Type 1C, or “specialty cottage,” for cultivation using a combination of natural and supplemental artificial lighting at a maximum threshold to be determined by the licensing authority, of 2,500 square feet or less of total canopy size for mixed-light cultivation, up to 25 mature plants for outdoor cultivation, or 500 square feet or less of total canopy size for indoor cultivation, on one premise.


There is a new yet specific laundry list of unique identifiers for track-and-trace requirements and requirements added to the license application concerning water use that would require the identification of the water source, including thresholds and conditions concerning diversion and documentation requirements.


An area of surprise is that beginning on Jan. 1, 2018, a licensee could sell cannabis or cannabis products that have not been tested for a limited and finite time as determined by the bureau.


The cannabis and cannabis products would be required to have a label affixed to each package containing cannabis or cannabis products that clearly states, “The product has not been tested as required by the Adult Use of Cannabis Act and must comply with any other requirement as determined by the bureau.”


Other states have experienced issues when implementing new regulations with hefty testing requirements, such as steep shifts in the supply of legal cannabis due to failed test results which increases the illegal “untested” or “failed test” supply of cannabis, as operators get up to par with regulations in their processes. This proposed regulation is clearly learning from the experiences of its sister jurisdictions with this interim fix.


The trailer bill would also unexpectedly remove the restriction prohibiting a retailer of alcoholic beverages from holding a cannabis license, and the new proposed provision states that a licensee could not sell alcoholic beverages or tobacco products on or at any premises licensed under this division. Should this proposed language be adopted, it will open up previously prohibited licensing opportunities to those in the retail alcohol industry.

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