California Department of Cannabis Control Files Emergency Rules

By Cassia Furman, Andrea Golan, Genevieve Meehan

Oct 7, 2021

On September 27, 2021, the California Department of Cannabis Control (DCC) approved the consolidated emergency regulations. These adopted emergency regulations are now in effect. The regulations create consistent standards for cannabis licensees across all license types by aligning application requirements, unifying terminology, and clarifying ownership and financial interest requirements.

Approved regulation documents can be found below: 

*The linked text of regulations only includes sections that changed during this emergency rulemaking. Sections that are not included in the document were not changed and remain in effect. 

The newly adopted regulations include some additional noteworthy changes from the proposed emergency version, published on September 8, 2021, and first summarized by Vicente Sederberg on September 17, 2021. The Addendum to the Finding of Emergency provides an explanation of changes between the proposed and final versions, and the Vicente Sederberg summary below is updated to include these highlights.  

Please contact our California team or call 310-684-2016 if you have questions on how these changes may impact your business. 

 


 
Notable Ownership and Financial Interest Changes

4 CCR § 15003. Owners of Commercial Cannabis Businesses

  • 4 CCR § 15003 strikes previous language related to “owners” and provides clarity on the role of non-equity owners. Subsection (E) has been revised to state, “An individual with the authority to provide strategic direction and oversight for the overall operations of the commercial cannabis business, such as the chief executive officer, president or their equivalent, or an officer, director, vice president, general manager or their equivalent.

  • The section also clarifies the meaning of an “aggregate” ownership interest in a licensed entity as “the total ownership interest held by a single person through any combination of individually held ownership interests in a commercial cannabis business and ownership interests in an entity that has an ownership interest in the same commercial cannabis business. For example, a person who owns 10 percent of the stock in a commercial cannabis business as an individual shareholder and 100 percent of the stock in an entity that owns 10 percent of the stock in the same commercial cannabis business has a 20 percent aggregate ownership interest in the commercial cannabis business.

  • The final emergency regulations revised earlier references to an individual “strategic direction and oversight,” which many commenters pointed out was vague and broadly stated.

4 CCR § 15004. Financial Interest in a Commercial Cannabis Businesses

  • 4 CCR § 15004 confirms that FIH individuals will stop at 10% interest of total shares in a private company in addition to a public company.

    • The language could be better stated to apply to equity interest (LLCs) in addition to shares, but the comments and agency comments seem to confirm the 10% “floor” applies to all private and public companies.

    • FIH for profit sharing also stops at 10%.

  • Related—and notably—the emergency regulations language eliminate former section § 5032(b) prohibiting licensees from conducting commercial cannabis activities on behalf of, or pursuant to a contract with any unlicensed person. The original version of the emergency regulations required brands to be disclosed as FIH regardless of financial relationship with a licensed partner:

    • “A person that contracts with the cannabis business to cultivate, manufacture, package, or label cannabis or cannabis products under that person’s brand name.”

    • However, the final version of the emergency regulations removed the above provision stating that “The Department determined that this example created confusion rather than providing clarity and the other provisions provide sufficient guidance as to who qualifies as a financial interest holder.”

    • This change puts brands licensing their IP to producers in the same position as previously—the brand is clearly an FIH of the licensee if the IP license has a profit or revenue sharing component, but less certainly an FIH if the financial arrangement is a flat fee or other model.

    • We further note that the requirement “commercial cannabis activity shall only be conducted between licensees” remains in the regulations.

CEQA and Provisional Licenses

A provisional licensee must actively and diligently pursue requirements for an annual license to continue to hold a provisional license, including providing evidence that CEQA compliance is secured or underway.

4 CCR § 15001.1. Issuance of Provisional License

  • Non-cultivation provisional licenses may be issued until June 30, 2022, provided the application fee is paid on or before March 31, 2022. Cultivation provisional licenses may be issued until September 30, 2022. Local equity license applicant provisional licenses may be issued until June 30, 2023, provided they submit an application on or before March 31, 2023. The state has issued attendant application deadlines; please speak to your VS licensing lead for more detail.

  • Prospective provisional cultivation licensees cannot hold multiple cultivation licenses on contiguous, connecting premises to exceed one acre of total canopy for outdoor cultivation, or 22,000 square feet for mixed-light or indoor cultivation, if the application is received on or after January 1, 2022.

4 CCR § 15001. Renewal of Provisional License

  • For provisional license renewals from between July 1, 2022, through June 30, 2023, evidence of meeting CEQA requirements must be shown. This includes requiring documentation demonstrating that the local jurisdiction or the provisional licensee is making progress towards completing the environmental review in satisfaction of CEQA.

    • Provisional cultivation licensees will also provide documentation demonstrating progress with securing the streambed alteration agreement.

  • For provisional license renewals on or after July 1, 2023, additional CEQA documentation, like showing of a negative declaration or mitigated negative declaration, will be required.

    • Provisional cultivation licensees will also provide additional documentation for the streambed alteration agreement, like a final or draft streambed alteration agreement.

4 CCR § 15002. Annual License Application Requirements

  • Removal of the following: “whether the owner is serving or has previously served in the military” (although disclosure of this has always been voluntary), disclosing a list of other licenses held, and "whether the applicant has been denied a license or has had a license suspended or revoked.”

  • Business formation documents are required now upon request, and only if they are not available online through the California Secretary of State.

Common Application Requirements

The three previous regulatory agencies have consolidated and resolved issues on the new DCC forms.

  • Procedure Forms – the look and layout is slightly different but no major changes except to change “cannabis goods” to “cannabis or cannabis products.

  • CEQA Forms – REPEALED! Applicants throughout the state have spent many hours completing the BCC-LIC 025 & 026. These forms are no longer required. Instead, applicants without annual licenses must follow the requirements of § 15001.2 regarding CEQA compliance.

  • Financial Information Form – REPEALED! The requirement to list funds, loans and gifts has been removed in §15002.

  • NOTABLY, HOWEVER, the DCC still reserves the right to require submittal of the above information as part of the application process

Notable Operational Compliance Changes

The overview below touches on highlights that all licensees should be cognizant of. This summary does not include all applicable regulations and does not detail unique requirements for each license type. Please reach out to our California team if you have additional inquiries about the changes reflected in the emergency regulations.  

New Product Definitions

“Tincture” is added as a new product category and the laboratory testing rules were updated to clarify that the limit of ethanol does not apply to products that meet the definition of tincture. Prior to the change, “tinctures” did not have a stand-alone definition and were referenced only as a type of concentrate. “Tincture” is defined as a “solution of cannabis extract, derived either directly from the cannabis plant or from a manufactured cannabis extract, dissolved in alcohol, glycerin, or vegetable oils.” See 4 CCR § 15000(qqq) and § 15718(c)(1).

Advertising

4 CCR § 15040. Advertising Placement

  • 4 CCR § 15040(a)(3) has been amended to clarify that advertising or marketing must not contain the use of images that are attractive to children and removes the list of items it deems attractive to children (toys, inflatables, movie characters, etc.).

  • 4 CCR § 15040(a)(4) has been modified to remove the prohibition against giveaways of non-cannabis products but makes clear that giveaways of cannabis and cannabis accessories are not permitted.

4 CCR § 15041.1. Branded Merchandise

  • DCC pre-approval is no longer required for any type of branded merchandise.

  • The definition of branded merchandise is revised to make clear that branded merchandise means a non-consumable consumer good.

  • All branded merchandise must include the license number of the licensee responsible for the merchandise. The license number must be permanently affixed to the merchandise, legible, and clearly visible from the outside of the merchandise.

  • Retailers are no longer limited to selling their own branded merchandise. Retailers can sell any licensee’s branded merchandise.

4 CCR § 15041.2. Trade Samples.

The adopted regulations create a new definition of “trade sample” to mean a limited amount of cannabis goods that have been designated by a licensee to be provided to other licensees for the purposes of targeted advertising. Live plants and seeds cannot be designated or provided to licensees as trade samples. The key provisions include:

  • Trade samples must have passed regulatory testing and be packaged in their final form as they would be sold at retail. Trade samples must be marked “TRADE SAMPLE. NOT FOR RESALE OR DONATION.”

  • Transfer of trade samples must be recorded Metrc. Trade samples provided to employees must also be recorded in Metrc as a package adjustment with the employee name or employee number. 

  • Trade samples can be provided to any licensee type except cannabis event organizers, distributor transport only licensees, and laboratories.

  • Trade samples must be provided at no cost to the recipient licensee. Employees are prohibited from giving, selling, or transferring trade samples to any person.

  • Transport: Any distributor license type may transport trade samples and employees of distribution licensees may transport trade samples in non-official vehicles (not registered to the licensee). The amount transported cannot exceed the daily possession limits set forth in section 11357 of the Health and Safety Code.

  • Trade Sample Limits:

    • A licensee can designate the following amounts as samples in a calendar month: (1) a total of two pounds of dried flower; and (2) for manufactured and non-manufactured cannabis products, a total of 900 individual units.

    • Trade sample limits to each recipient: (1) for cannabis in the form of dried flower, 5 grams per strain and no more than six strains to each recipient licensee; and (2) for manufactured and non-manufactured cannabis products, five individual units, as packaged for retail sale, per cannabis product line and no more than six individual cannabis product lines to each recipient licensee. No live seeds or plants.

Security

4 CCR § 15042. Premises Access Requirements

  • Establishes that for a premises that is not open to the public, clear sign in/sign out procedures must be established. 

4 CCR § 15043. Licensee Employee Badge Requirement

  • Clarifies that employee badges are only required for the employees of licensees who are engaged in retail sales or participating in a temporary cannabis event.

4 CCR § 15044, § 15046, § 15047.  Video Surveillance System, Locks, Alarm Systems

  • Clarifies that these requirements are applicable to manufacturing licensees just as they have been to distribution and retail licensees.

  • Clarifies that these requirements do not apply to licensed premises utilized exclusively for cultivation and do not apply to transport-only licenses used by cultivators. 

Track and Trace Requirements

4 CCR § 15049. Track and Trace Reporting

  • 4 CCR § 15049 expands upon the types of activities that must be entered into Metrc, adding the packaging and repackaging of cannabis products and the donation of cannabis goods.  § 15047.1. Adds definitions for “plant tag” and “package tag.” 

  • This section has added a requirement that all cannabis and cannabis products on the licensed premises be assigned a plant or package tag but exempts harvested plants that are being processed.

  • This section now clarifies that if a licensee rejects a partial shipment pursuant to 4 CCR § 15052.1(b), then the licensee must record the partial rejection in the track and trace system. 

Returns and Destruction

4 CCR § 15053. Returns Between Licensees

  • REPEALED! The DCC has determined that the prohibition on returns between licensees is no longer necessary because Metrc adequately prevents diversion. Returns between licensees are now permissible. 

4 CCR § 15054. Destruction of Cannabis Goods Prior to Disposal

  • REPEALED! Licensees no longer have to render waste “unusable and unrecognizable” prior to disposal. Because of the revised waste management requirements, this section has been repealed.  However, products that fail testing must still be rendered unusable under camera.

Waste

4 CCR § 17223. Waste Management

  • Requires licensees to establish and implement a waste management plan. This requirement is not new for cultivator licensees but the inclusion ensures consistency of terms throughout the DCC’s regulations. Revisions to this section clarify that licensees can share waste receptacles.

  • The section later clarifies responsibilities for both self-hauling of waste, as well as disposing waste through a local agency or waste hauler. 

Labeling and Packaging Requirements

In addition to clarifying edits to Article 3. Labeling Requirements, the following updates were included in the DCC emergency regulations to account for packaging of bulk product between licensees and to make minor modifications to the packaging and labeling requirements. Please reach out to Vicente Sederberg directly if you have a specific question regarding packaging and labeling provisions. 

  • Packaging need only be resealable if the package contains more than one serving.

  • If your manufactured product has two layers of packaging, the immediate container that holds the product must be labeled only with the universal symbol. The requirement that the immediate container also include the product identity and net weight or volume has been removed.

  • Labeling of cannabinoid content after regulatory testing must reflect the amount indicated on the Certificate of Analysis. The amount may be rounded to the nearest whole number, except that packages cannot be labeled with an amount greater than the allowable THC limits. If the THC or CBD content of a manufactured cannabis product is indicated on the Certificate of Analysis as “Not Detected” or “Below LOQ,” the cannabinoid content shall be labeled as “0 mg” or “<2 mg.”

  • For edible products, bottles of various colors can be used to satisfy the opacity requirement, not just amber bottles.

  • After December 31, 2021, the name of the licensed manufacturer and its website or contact number must be placed directly on the packaging and can no longer be put on a hang tag, package insert, or fold-out label. 

4 CCR § 17398. Bulk Cannabis and Cannabis Products

  • Provides packaging and labeling requirements for transferring bulk cannabis or cannabis products between licensees for the purpose of further processing and/or packaging. 

4 CCR § 17399. Immature Plants

  • Includes requirements for labeling of immature plants that will be sold at retail. 

4 CCR § 17400. Seeds

  • This section is modified to clarify requirements for the packaging and labeling of seeds that will be sold at retail. 

Please contact our California team or call 310-684-2016 if you have questions about the emergency regulations or would like strategic guidance or drafting support for your public comment.

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