California became the first state to legalize medical marijuana in 1996. For the first 20 years of the legalization era, the state declined to create a normalized industry.
Instead, local governments have been forced to figure out for themselves how to regulate a federally illegal industry. The consequences of this delay have frustrated cannabis activists eager to see California set the tone for legalization. In some cases, entrepreneurs have been convicted and incarcerated for growing or selling a plant that’s ostensibly legal in California.
Sherman Oaks–based cannabis business lawyer Ariel Clark notes that the cannabis industry is a "challenging" field. “It’s a huge thing to put your arms around, and [it’s] well outside local government’s general experience,” Clark said.
The situation has been especially confusing in Los Angeles, which is considered the world’s largest cannabis market. While San Francisco, Oakland and other progressive cities have licensed some cannabis businesses, L.A. has not. The closest it has come is Proposition D, which took effect in early 2013. Proposition D offers “limited immunity” to more than 130 dispensaries.
On Friday, the state government’s Bureau of Medical Cannabis Regulation released its long-awaited proposal for state regulations. While L.A. and other local governments have a fair amount of leeway to enact their own rules, the proposed state guidelines cover a broad swath of territory, including the definition of business ownership, product safety testing requirements, the times a dispensary can be open (between 6 a.m. and 9 p.m., though cities can set shorter hours) and how much THC can go into one package.
For business owners, some of the technical questions have big implications. For example, Clark said, how the state defines “premises” will determine how many separate, licensed businesses can operate under one roof.
In this case, the proposal appears to benefit smaller businesses. A statement from the Southern California cannabis real estate firm CalCann Holdings said the proposed rules for premises are “very liberal. ... This will allow for cannabis campuses where a single landlord can lease space to various cannabis businesses."
Clark, who also founded and chairs the L.A. Cannabis Task Force, said the process “is exciting for us nerds. We are in such an incredibly historic moment in California.”
Ultimately, how this process plays out in California and other states could help determine which businesses, from which states, are best positioned to become national or even global brands.
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But even by cannabis standards, L.A’s situation is complex. There is tension between Proposition D–compliant businesses and the far larger number of dispensaries and delivery services that also operate openly but don’t necessarily pay taxes or other compliance-related fees. In addition, some Proposition D businesses are operating on an unstable foundation, since they don’t have permits or licenses and can’t win land-use approval.
With the legalization of recreational marijuana, however, the situation at both the state and city level is poised for a business-friendly overhaul.
In March, L.A. voters approved Measure M, which gives the City Council authority to regulate the industry. This means it has the opportunity to create guidelines to zone and permit grows, edibles and concentrates factories and dispensaries. In addition, the council will be able to draw up rules for creating a racially diverse industry, an issue that has complicated the process for regulators in Oakland and Maryland.
The challenge, Clark said, is to “take our value systems and put it into good law.”