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Assembly Bill 266 provides long-awaited medical marijuana regulatory framework in California

July 9, 2015

In 1996, California voters passed Proposition 215 and California became the first state to legalize medical marijuana. Now, 20 years later, AB 266 looks like the state’s best chance at regulating the cultivation and distribution of medical marijuana as called for by Proposition 215. As it stands today, medical marijuana is legal and is being distributed in California, but the state lacks the necessary regulations that provide the standards and criteria for becoming a licensed marijuana patient, dispensary or cultivator. Encouraged by the probability of a proposition that would legalize recreational marijuana being placed on the ballot in 2016, California lawmakers and law enforcement groups are eager to compromise over issues that have prevented comprehensive statewide regulation of the industry for the last two decades.

Brief history of AB266

AB266 is a merger of two competing measures, AB266 and AB34. The California Police Chiefs Association and the League of California Cities on one hand, and the California Cannabis Industry Association on the other, backed the two competing measures. While the two measures were both in support of stronger regulations for the cannabis industry, Assembly leadership indicated that only one bill would be heard on the Assembly floor, prompting the bill authors to compromise and co-author the new AB266. On June 4, the Assembly passed the bill with a resounding 62-8 yes on the measure.

Overview of AB266

The bill provides a unique dual-licensure system allowing local governments to retain significant control. Marijuana businesses will first need to obtain a conditional license from the state and then a permit to operate from the local government. At the state level, a new Office of Medical Marijuana Regulation within Gov. Jerry Brown’s office will have overall authority over cannabis regulation.

The Office of Medical Marijuana Regulation will work with several state agencies to monitor and enforce the regulations.  The California Department of Public Health will be responsible for promulgating standards for the certification of testing laboratories and will oversee sample testing and laboratory certification. The California Department of Food and Agriculture would be responsible for cultivation standards and oversight. The California Board of Equalization would oversee sales and transportation, including a full-time taskforce for cannabis taxation. Other state agencies will also be utilized under the bill.

State licenses will be conditioned on a background check, residency requirement, and payment of a state fee. It is estimated that regulation of medical marijuana will cost $10 million, however, these license fees are expected to finance the cost.

The two-tiered license system gives local governments a check on any unwanted marijuana-related activity, including the ability to ban marijuana businesses from operating altogether within a municipal jurisdiction. Compliance with local ordinances will be crucial to obtaining and maintaining a local permit. Both a state license and local permit are required to operate and a revocation of either would automatically terminate a marijuana business’s ability to operate in California. In addition to being able to grant the permits, local governments retain control over revocation and suspension of permits.  Further, certain services, such as delivery of medical marijuana, will only be available if authorized by local ordinance. The bill specifically states that it will not interfere with Los Angeles’ Measure D, which capped the amount of medical marijuana dispensaries to 135 in the city and provided a tax on revenues.

New items in the bill include a labor peace agreement sought by the United Food and Commercial Workers and a Special Fund for Environmental Enforcement. Under the labor peace agreement, employers in the cannabis industry will agree to allow employees to organize and represent employees without interference. Organized laborers will agree not to strike or cause work stoppages. Finally, an apprenticeship program for employees in the marijuana industry would be established by the union. A portion of the state licensing fees would go to the Special Fund for Environmental Enforcement. Such funds would be appropriated to state and local agencies to assist with administration and enforcement of environmental regulations.

AB266, if successful in the Senate and signed into law by the governor, would take effect Jan. 1, 2016. The implementation of patient licenses will be on a staggered schedule and patients certified to purchase medical marijuana under the current law would not be affected until licensed under the new law. By January 1, 2017, all medical marijuana patients would be required to be licensed under the new law and will be required to obtain medical marijuana from licensed dispensaries that, in turn, will be required to obtain medical marijuana from licensed cultivation centers via licensed transporters.

Support and next steps

The bill is co-authored by Assembly Members Ken Cooley, Rob Bonta, and Reggie Jones-Sawyer. The bill is sponsored by the League of California Cities and the California Police Chiefs Association with support from the California Cannabis Industry Association. The 62-8 vote demonstrated unprecedented bipartisan support going in the Senate and indicates the measure may make it to the governor’s desk for signature.

On July 7, the bill began the Senate process with a health-committee hearing. Opposition to the bill is largely coming from marijuana activists who want less regulation and law enforcement groups who still desire to make marijuana illegal both for medical purposes and otherwise. The Department of Justice has maintained that states with strong and effective regulatory and enforcement systems to control cultivation, distribution, sale and possession of marijuana are less likely to threaten federal priorities and be subject to federal scrutiny. Many in the industry are hopeful that the implementation of strong state control could alleviate federal interference with marijuana businesses in California as such state control would be directly responsive to guidance provided by the Department of Justice. Many also believe AB266 could provide the necessary structure for voters to legalize recreational marijuana in 2016.

Thompson Coburn advises clients on state laws governing the business of cannabis to facilitate compliance with those state laws. Federal laws concerning cannabis currently conflict with state laws in states that have legalized cannabis or possession of cannabis. Although federal enforcement policy may at times defer to these states’ laws and not enforce conflicting federal laws, interested businesses and individuals should be aware that compliance with state law in no way assures compliance with federal law, and there is a risk that conflicting federal laws may be enforced in the future. In addition to this Cannabis-specific note, readers should review Thompson Coburn’s Conditions of Use / Disclaimers page containing other important information.