As most of you know by now, California voters yesterday passed Proposition 64, legalizing recreational cannabis in the state.As a California cannabis lawyer based in San Francisco, I could not be happier and I want to extend my heartfelt congratulations to my state for finally saying yes to a comprehensive recreational cannabis program that should provide more and better access tocannabis for adults in California. I also believe this vote will be the tipping point that will set in play the forces that will relatively soon lead to nationwide legalization.
Nice goingCalifornia!
Under the ballot measure, the Californiastate agenciesresponsible for issuing licenses have until January 1, 2018 to create regulations for the nineteen different license types available for cultivation, manufacturers, testing, retailers, distributors, and microbusinesses. UnderCalifornias Constitution, the ballot measure takes effect the day after the election unless the measure specifies otherwise, which means as of today Prop 64 is up and running.
Leading up to this vote, I and the other California cannabis business lawyers in my firm have been getting a slew of phone calls and emails from peopleasking what they can do now to get ready for state licensing applicationsin the future. Given the timeline above, my response was and is, a lot actually. I tell them that they can and should be doing the following, starting now:
- Read Proposition 64 and then read it again.The Proposition is everything at this point and its imperative all prospective California cannabisoperators read and thoroughly understand it because it provides the baselines for whats going to be allowed and not allowed in the future.
- Figure out where you might want to operate and learn about the local government there.The initiative specifically states that local jurisdictions retain the authority to adopt and enforce local ordinances to regulate cannabis businesses, includingbanningone or more business types from operating in their jurisdiction. SeveralCalifornia cities and counties already have bans in place and are expected toremain opposed to both recreational cannabis businesses under Prop 64 and medical cannabis businessesunder the Medical Cannabis Regulation and Safety Act. Still, others have been preparing for changing state marijuana laws by enactingmunicipal zoning and permitting laws. For more on local cannabis ordinances, check out our California Cannabis Countdown series, which most recently featured the City of Lynwood.Instead of spending dollars and time planning for a marijuana business in a California city that will never allow one, you should instead get a handle on friendly versus non-friendly local governments, especially sincethe statewill ask local jurisdictions to identify potential license applicants. As for those local governments without a clearidea on what to do about cannabis, this is your chance to step up and help educate the local authorities about what their local industry should look like. Our cannabis lawyers have done this in countless cities and counties in multiple states and believe me when I tell you that this can profoundly impact which way a city or county will go on cannabis commerce.I cannot stress enough the importance of your understanding the local situation where you will be locating.
- Study other state regulatory models,including the super strict ones. You can learn a lot about what to expect from California by looking at other states regulatory models. Lookat states like New York, Illinois, Nevada, and Minnesota, all of which have fairlylimited and heavily controlled cannabis regimes. Californiascannabis regime is going to be more like these states than, lets say, Oregon, where even out-of-staters can get a cannabis license and where there is no statewide limit on the number of cannabis licenses. Our cannabis licensing lawyers are constantly comparing laws in the older legalized states to get a better feel for what is likely to go down in the newer legalized states. If State A interprets X provision a certain way, there is a good chance State B will do the same. Note that California will have its own somewhat peculiar residency requirements for owning a cannabis business.
- Review the California corporate structures available and figure out now which makes sense for you.Applicants under Prop 64 include individuals, corporations, limited liability companies, joint ventures, and several other entity types and structures, includingpublicly traded companies andnonprofit entities. Since most cannabis businesses currently operating in California are formed as nonprofit collectives, these businesses will have to decide whether they want to convert to a for-profit entity or form a completely new entity.This means you should learn about the various corporate structures available to you, how they operate, and what youll need when youre ready to file for your entity. Check out Californias AUMA: What You Need to Know NOW to Have a Recreational Marijuana Business Later.
- Start figuring out yourbudget and pace yourself. In anticipation of a fee-laden, probably very expensive application process to obtain a California cannabis license, you need to start thinking now about your budget and from where you are going to get your funding. In all of the states in which our cannabis business lawyers have operated, one thing always holds true: those with secure funding before the application process starts have always had a huge advantage in competing for a cannabis business license over those still patching together their funding when the application window opens. You should plan for more than just start-up costs such as inventory, employees, operational costs, etc. You should also have a good idea of the funding you will need for the application process itself, which will require legal oversight, expert advisory input, contracting with architects for floor plans, and all sorts of other expert assistance. And again, speaking from experience, those with the best and most experienced team in place are the ones that get the licenses. And speaking just for lawyers, the best lawyers will charge a lot but not take on many clients. All of this means that you must budget accordingly and pace yourself. We still have over a year before California agencies are required to issue state licenses, and during that time a lot could change through the rule making process. Get your budget in sufficient shape to weather these inevitable changes.
- Choose your partners wisely. Consultants and so-called cannabis experts area dime a dozen. Take your time in choosing who you will be using tohelp you navigate what is sure to be a complicated application process. Ask lots of questions, especially about whether they will require you to give them equity in your companyand whether their relationship with you will be exclusive ...
