January 7, 2019

By Omar Figueroa and Lauren Mendelsohn

You have most likely heard that California’s healthcare cannabis collective and cooperative protection will conclude shortly, on January 9, 2019. But what does that basically suggest?

Very first, some heritage. In 1996, the voters of California handed a seminal initiative, Proposition 215, also regarded as the Compassionate Use Act. Proposition 215 gave clinical cannabis people and their designated most important caregivers restricted immunity from prosecution for the possession and cultivation of hashish.  Back in these times, cultivation of a single hashish plant, or the possession with the intent to sell any usable total (even a smidgen), was a felony below California law, punishable by a sentence in the point out prison.

In 2004, the California Legislature enacted the Healthcare Marijuana Plan Act, also regarded as Senate Bill 420, which set up a method for point out-issued professional medical identification playing cards which continues to be with us to this day.  Senate Invoice 420 also expanded protections for clients and designated principal caregivers “who associate within the Point out of California in buy collectively or cooperatively to cultivate cannabis for health care functions.” Here is the critical provision in Senate Monthly bill 420 which gave start to collectives and cooperatives:

Health and fitness & Security Code § 11362.775. Competent individuals, folks with valid identification playing cards, and the selected principal caregivers of competent individuals and people with identification playing cards, who affiliate within the Point out of California in get collectively or cooperatively to cultivate hashish for medicinal reasons, shall not only on the foundation of that truth be matter to point out criminal sanctions beneath Part 11357, 11358, 11359, 11360, 11366, 11366.five, or 11570.

Simply because § 11362.775 is a creature of the Legislature (as opposed to a voter initiative), it can be rewritten by the Legislature without the need of violating the principle enunciated by the California Supreme Courtroom in People today v. Kelly (2010) forty seven Cal.4th 1008, that only the voters, not the Legislature, have the energy less than the California Constitution to amend Proposition 215.  In other words and phrases, any amendment to § 11362.775 would amend Senate Invoice 420, not Proposition 215.

There ended up two “loopholes” to Overall health and Protection Code Part 11362.775.  (For ease of reference, the time period collective is employed hereafter, and denotes both equally collectives and cooperatives.)  First, there was no limitation on how many patients or caregivers could join a collective, which finally led to numerous collectives with 1000’s of members.  Second, there was no limitation on how quite a few collectives a patient or caregiver could join, which led to the very same end result. In excess of the years, this morphed into the “collective / co-op model” where pretty much any individual with a medical cannabis recommendation could indicator up to be a member of a medical cannabis collective and would then present medical hashish in trade for “reimbursement” for fees, ostensibly on a not-for-profit basis.

Under this design, with no regulation in anyway from condition authorities, and negligible, if any, regulation at the neighborhood degree, the health-related cannabis market in California grew, multiplied, and thrived.  Before the existing period of controlled “commercial hashish activity” which formally commenced on January one, 2018, the cannabis business in California was a vivid instance of laissez faire capitalism.

Wellbeing and Security Code § 11362.775 was subsequently amended in 2015 when the Legislature passed the Health care Marijuana Regulation and Security Act, with the regrettable acronym MMRSA, which sounds like the fatal superbug Methicillin-resistant Staphylococcus aureus.   MMRSA introduced a convoluted regulatory framework for health care hashish which did not allow for cultivators direct entry to people all transactions were to be mediated by licensed distributors.  In buy to force health-related cannabis operators into the controlled technique, an expiration day was put on collectives and cooperatives (with a floating date of one particular yr soon after the condition begun issuing state health care cannabis licenses), and as a result a sunset clause was grafted onto § 11362.775.  

In accordance to the Los Angeles Instances, retired alcoholic beverages distribution govt Ted Simpkins “happened to have a distribution organization that was lobbying seriously in Sacramento to craft the regulation the way he needed.”  Indeed, Politico Journal documented in August 2016 in an write-up with the consideration-grabbing headline How Massive Alcoholic beverages is About to Get Prosperous Off California Weed, that, “During the 2015-16 point out legislative session, Simpkins’ organization [River Distribution], compensated out $134,five hundred for lobbying of professional medical marijuana distribution.”

MMRSA was speedily rebranded MCRSA, the Medical Hashish Regulation and Protection Act.  After Proposition 64, acknowledged as the Adult Use of Marijuana Act (AUMA) passed resoundingly in late 2016 and proven a similar, but various regulatory framework,  regulators recognized that they did not want to appear up with two complicated sets of convoluted regulations, just one for health care hashish and one particular for adult-use hashish.  The Legislature ended up repealing the professional medical framework, and combining the two different regulatory frameworks into one particular unitary regulatory framework branded the Medicinal and Grownup-Use Hashish Regulation and Security Act (MAUCRSA) which is at this time in influence.  Despite all of these variations, the sunset clause on collectives and cooperatives remained.

Well being and Safety Code § 11362.775 at present reads, with emphasis additional:

(a) Subject to subdivision (d), capable clients, individuals with valid identification cards, and the specified principal caregivers of qualified patients and individuals with identification cards, who affiliate in just the State of California in get collectively or cooperatively to cultivate hashish for medicinal applications, shall not solely on the basis of that point be subject to condition legal sanctions less than Part 11357, 11358, 11359, 11360, 11366, 11366.5, or 11570.

(b) A collective or cooperative that operates pursuant to this area and manufactures medicinal hashish merchandise shall not, solely on the basis of that fact, be subject matter to point out felony sanctions underneath Section 11379.six if the collective or cooperative abides by all of the pursuing requirements: […]

(c) For reasons of this segment, “manufacturing” usually means compounding, converting, generating, deriving, processing, or preparing, both straight or indirectly by chemical extraction or independently by usually means of chemical synthesis, medicinal cannabis goods.

(d) This portion shall keep on being in impact only until eventually one 12 months after the Bureau of Cannabis Command posts a observe on its Web Web website that the licensing authorities have commenced issuing licenses pursuant to the Medicinal and Grownup-Use Cannabis Regulation and Basic safety Act (Division ten (commencing with Section 26000) of the Company and Professions Code).

(e) This section is repealed a single year right after the day upon which the discover is posted pursuant to subdivision (d).

(Amended by Stats. 2017, Ch. 27, Sec. one hundred forty. (SB ninety four) Efficient June 27, 2017. Repealed as of January nine, 2019, pursuant to its personal provisions.)

The Bureau of Hashish Command (BCC), the guide company in cost of professional cannabis licensing, issued a actuality sheet about collectives and cooperatives in January of 2018 which included the adhering to (with emphasis additional):

MAUCRSA amended Overall health and Protection Code section 11362.775, the provision in SB 420 affording authorized defense to cannabis collectives and cooperatives. This protection will stop one calendar year just after the Bureau of Cannabis Manage (Bureau) posts see on its web-site that the point out commercial hashish licensing authorities have commenced issuing licenses. The moment the a person-calendar year time period tolls, all cannabis collectives and cooperatives that keep on to engage in professional enterprise will will need to be certified, besides for: (a) personal clients and (b) caregiver gardens serving no more than 5 people.

The Bureau posted the discover on its internet site on January nine, 2018. Hence, the defense against criminal sanctions for cannabis collectives and cooperatives finishes January nine, 2019. At that time, cannabis collectives and cooperatives that seek out to continue their functions will need to get hold of a point out license and comply with any nearby prerequisites.

January nine, 2019 is virtually on us, and soon, there will no more time be any healthcare collective or cooperative “defense” (technically a confined immunity from prosecution) to assert in criminal courtroom in response to alleged violations of Health & Safety Code Sections 11357, 11358, 11359, 11360, 11366, 11366.5, or 11570.  (Supplied enforcement developments, there are not quite a few events to assert the protection in the prison courts. Immediately after the passage of Proposition 64, there has been a drastic minimize in the selection of felony marijuana arrests in California, from 13,300 felony arrests for every yr in 2014, to 2,086 in 2017, in accordance to an assessment of the California Attorney General’s once-a-year crime report for 2017 by California NORML.)

In theory, this leaves unlicensed hashish companies at hazard of becoming raided and shut down by law enforcement, who could file felony charges, like felony fees these as 11366.5 (Sustaining a Area) or conspiracy.  Surprisingly, conspiracy to dedicate a misdemeanor can be prosecuted as a felony in accordance to the California Court of Appeal choice in Folks v. Tatman (1993) 20 Cal.App.4th one, a fascinating opinion stemming from an abalone poaching scenario in Mendocino County.  (According to Tatman, this is justified on the principle that collaborative legal actions pose a better prospective menace to the community than person acts. “The division of labor inherent in group association is witnessed to stimulate the choice of far more elaborate and formidable goals and to boost the likelihood that the plan will be effective.”)

Moreover, in addition to criminal expenses, civil penalties could also be imposed. Part 26038 of the Enterprise and Professions Code, which was at first in the Grownup Use of Marijuana Act (AUMA) / Proposition 64 and was amended by MAUCRSA, states (with emphasis added):

(a) A particular person participating in business cannabis activity with out a license expected by this division shall be topic to civil penalties of up to 3 instances the quantity of the license payment for each violation, and the court docket may well get the destruction of hashish involved with that violation in accordance with Segment 11479 of the Wellness and Protection Code. Every working day of operation shall represent a separate violation of this area. All civil penalties imposed and collected pursuant to this segment by a licensing authority shall be deposited into the Common Fund besides as supplied in subdivision (b). A violator shall be dependable for the charge of the destruction of cannabis affiliated with his or her violation.

(b) If an action for civil penalties is brought versus a particular person pursuant to this division by the Lawyer Normal on behalf of the men and women, the penalty gathered shall be deposited into the General Fund. If the motion is brought by a district lawyer or county counsel, the penalty shall first be utilised to reimburse the district legal professional or county counsel for the expenditures of bringing the motion for civil penalties, with the remainder, if any, to be deposited into the Common Fund. If the action is introduced by a metropolis legal professional or metropolis prosecutor, the penalty collected shall very first be utilised to reimburse the metropolis attorney or city prosecutor for the expenditures of bringing the action for civil penalties, with the remainder, if any, to be deposited into the Normal Fund.

(c) Notwithstanding subdivision (a), legal penalties shall keep on to apply to an unlicensed person engaging in professional hashish exercise in violation of this division.

Under MAUCRSA, becoming sanctioned by a hashish licensing company and obtaining a criminal conviction could both equally outcome in not getting able to receive a cannabis license in the long term. Company and Professions Code Section 26057 states, in pertinent element (with emphasis extra):

(b) The licensing authority could deny the application for licensure or renewal of a condition license if any of the adhering to situations use:

(two) Carry out that constitutes grounds for denial of licensure underneath Chapter 2 (commencing with Segment 480) of Division one.5, besides as in any other case specified in this part and Segment 26059.

(4) The applicant, operator, or licensee has been convicted of an offense that is substantially associated to the qualifications, capabilities, or responsibilities of the business enterprise or occupation for which the application is produced, besides that if the licensing authority decides that the applicant, owner, or licensee is usually suitable to be issued a license, and granting the license would not compromise community security, the licensing authority shall perform a complete evaluation of the mother nature of the crime, conviction, conditions, and evidence of rehabilitation of the applicant or operator, and shall appraise the suitability of the applicant, operator, or licensee to be issued a license primarily based on the proof located via the evaluation. In deciding which offenses are considerably relevant to the skills, capabilities, or duties of the business or career for which the application is designed, the licensing authority shall involve, but not be limited to, the next:

(A) A violent felony conviction, as specified in subdivision (c) of Part 667.5 of the Penal Code.

(B) A really serious felony conviction, as specified in subdivision (c) of Segment 1192.seven of the Penal Code.

(C) A felony conviction involving fraud, deceit, or embezzlement.

(D) A felony conviction for using the services of, using, or working with a minor in transporting, carrying, offering, providing away, planning for sale, or peddling, any managed material to a minimal or promoting, presenting to promote, furnishing, providing to furnish, administering, or giving any controlled substance to a minor.

(E) A felony conviction for drug trafficking with enhancements pursuant to Area 11370.4 or 11379.eight of the Well being and Protection Code.

(seven) The applicant, or any of its officers, administrators, or house owners, has been sanctioned by a licensing authority or a town, county, or city and county for unauthorized commercial hashish pursuits, has experienced a license suspended or revoked less than this division in the a few a long time straight away preceding the day the software is filed with the licensing authority.

(Amended by Stats. 2018, Ch. 92, Sec. 23. (SB 1289) Effective January one, 2019. Notice: This portion was additional on Nov. eight, 2016, by initiative Prop. sixty four.) 

Although going in the direction of a state-certified professional current market is a optimistic achievement all round contemplating the drastic decrease in life-altering felony arrests and prosecutions, the regrettable reality for lots of longtime California cannabis operators is that permits are not obtainable in most parts of the point out. Even in people cities or counties where by nearby permits are out there, acceptable places are restricted, and levels of competition is fierce.

Inevitably, several legacy companies who had been able to thrive in an unregulated market place with small boundaries to entry won’t be able to make it by means of the licensing approach simply just thanks to location, economic constraints, and absence of access to money. Nevertheless, these who want to do points lawfully and who really don’t want to hurt their chances of getting a license in the upcoming, which include hashish organizations that beforehand operated as collectives and cooperatives, need to attain the requisite area permits and needed condition licenses.

Does this imply that a crackdown on unlicensed operators could be on its way?  Probably not, at the very least not in accordance to Alex Traverso, spokesperson for the Bureau of Cannabis Command, who stated to Marijuana Company Day-to-day that his company “will carry on to use a carrot-over stick solution and attempt to coax illegally running collectives/co-ops into getting condition licenses, rather of coming down tough on these devoid of permits.”  (Nearby jurisdictions also have enforcement authority and could in principle pick a much far more intense enforcement posture than that reportedly telegraphed by the Bureau of Cannabis Regulate.)  

How will the environment stop for most collectives and cooperatives?  Not with a bang but a whimper.  This was foreseen by immortal activist Mickey Martin, who predicted back in 2015 when the sunset clause was first unveiled that “the cannabis business as you know it” would die a sluggish loss of life.  

As the midnight hour ways, and healthcare cannabis collectives and cooperatives are about to switch from golden carriages into pumpkin coaches, it is really worth recalling the a lot of exhilarating, perilous, and unpredictable journeys travelled all throughout the Golden State by clients and caregivers aboard these before long-to-be-famous transports.


This data is furnished as a public provider and is not supposed as legal guidance. For precise thoughts regarding cannabis licensing and regulatory compliance in California, please contact the Regulation Workplaces of Omar Figueroa at (707) 829-0215 or facts@omarfigueroa.com to agenda a confidential legal session.


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