California Cannabis Business Regulations: The Ultimate Guide to Avoid Legal Pitfalls

California has the largest cannabis industry in the United States. The state led the way, making waves nearly 20 years ago in 1996 with the first medicinal cannabis market in the country. It wasn’t the first to legalize recreational cannabis, but it was early and today California is regarded by many as the modern mecca of cannabis. From the famous Emerald Triangle and the growers who bred strains that we know and love today to social equity programs, the California cannabis market has always been a place of movement, and often, turbulence.

The market is governed by several regulatory bodies in the state, all of which set forth regulations that cannabis businesses must comply with. These include:

• Bureau of Cannabis Control (BCC)
• California Department of Public Health (CDPH)
• California Department of Food and Agriculture (CDFA)

There are also cannabis regulations on the local level – even today nearly half of California counties do not allow for retail sales of cannabis, highlighting how localized many governing regulations are. Always check with your city council or applicable regulatory body to ensure you know your responsibilities.

The state has several types of licenses, all of which also have their own requirements to obtain and maintain. These include but are not limited to:

• Cultivation
• Manufacturing
• Distribution
• Testing
• Retail
• Event organization (also known as temporary cannabis events)

It is not easy to obtain any of these license types: each has its own set of requirements, costs, and timeline, which can be found on the Bureau of Cannabis Control website. Once obtained, it is the responsibility of each licensee to maintain accurate and up-to-date information on the business holding the cannabis business permits. Not doing so may threaten the ability to renew the license type. These license types apply to recreational cannabis businesses and commercial cannabis activity – medicinal cannabis has its own license types.

There are many areas of business governed by regulations in California, all of which are important. A few specific areas of compliance for commercial cannabis activity are:

Cultivation Regulations

Despite being an agricultural crop, the cannabis plant is highly regulated and growers are required to maintain meticulous records on each round of plants put in the ground (or soil or water.) From tracking light cycles and water usage to pesticide use and waste disposal, there is no detail of the plant life cycle that is not required to be tracked. If that weren’t enough, cannabis plants also have a high street value (no pun intended) and growers must take security precautions to ensure their grows are protected, both from curious eyes and potential theft.

Manufacturing Regulations

The cannabis industry has a heavy responsibility during manufacturing, from following Good Manufacturing Practices during the processes and packaging stages to adhering to strict product safety standards, including testing requirements and labeling regulations.

Labeling regulations often make headlines when cannabis companies are found to be out of compliance and forced to recall an otherwise perfectly safe product for a mistake on the package – not good for reputation or profits.

Distribution Regulations

Transporting a controlled substance is no small task, from the chain of custody requirements to the safety features that delivery vehicles must have. Cannabis businesses also face the task of keeping staff safe during transportation and deciding how many security measures to employ to ensure products and people are protected.

Retail Regulations

Running a dispensary is often a glamorous idea for people entering the cannabis industry, but as operators know, keeping up with cannabis regulations to sell cannabis is anything but. From point-of-sale systems and the tracking requirements put on cannabis products to budtender training, security, and age verification for customers, the regulatory hoops that dispensaries must jump through can seem endless – even before you start to wade through the marketing and advertising restrictions in California.

Seed to Sale Compliance

California is one of 21 states that makes it mandatory to use Metrc (Marijuana Enforcement Tracking Reporting & Compliance), the track and trace software. In theory, using this software should simplify the track and trace requirements on cannabis products from the time seeds are planted to when bags of products are sold. But all software can run into issues, and ensuring that Metrc integrates with your POS system, keeping up with data entry, and potential outages are all issues cannabis business owners have to navigate.

One of the best ways to avoid legal pitfalls in cannabis is through a robust and comprehensive risk management plan. A risk management plan is a necessary document for businesses in all sectors, but especially so for cannabis businesses where state and federal law are at odds.

Compliance Programs

A risk management plan outlines all of the potential risks and exposures your business may encounter in the course of doing business, from the most likely to least likely scenarios. This document also dives into how each problem would be addressed, should it arise. For cannabis businesses, a risk management plan needs a robust compliance program.

A compliance program outlines the ways in which your business will actively ensure regulatory compliance. It starts with developing written policies and procedures to govern daily business and ensure compliance is always top of mind. This program also explores how regularly employees will be trained on these procedures and regulations, as well as how often leadership will conduct internal audits and assessments to identify how procedures are being followed and what, if anything, needs to be updated. Documentation of this is also important, as compliance data can be used to your advantage with insurance coverage.

Insurance Coverage

Insurance coverage is another important risk management strategy – and this coverage cannot come from just anyone. Cannabis businesses need to seek out insurance agents or brokers who have experience in the cannabis industry to gain competitive market access and find the best coverage and prices.

Cannabis businesses need an umbrella of coverage, with typical business policies like worker’s comp, cyber liability, property insurance, and general liability as well as industry-specific policies like crop coverage, crime insurance, and D&O insurance. Working with someone who specializes in cannabis insurance ensures your business is protected from every angle.

Legal Counsel

At times, California can be a challenging state to operate a cannabis business in. When you have questions about compliance or need legal advice for your business, don’t turn to a free service like Legal Zoom. Instead, seek out a consultation with experienced cannabis attorneys who understand cannabis regulations, the operational challenges of being in California, and the cannabis industry as a whole.

Cannabis regulations can change quickly and sometimes unexpectedly. The nature of these changes does not exempt businesses from compliance, even when new regulations go against previous ones. One of the most important tasks for California cannabis operators is to stay on top of these changing regulations. There are many ways one can do this, including by subscribing to industry publications that track regulations, attending industry events where regulations are being discussed, talking with other members of the cannabis industry and consulting with legal and regulatory experts.

Resources for California Cannabis Regulations

California-Specific Resources

• California Bureau of Cannabis Control (BCC): As the official government website for the cannabis regulatory office in California, the BCC is one of the first places you should be looking for crucial information on laws, compliance, regulations, licensing, and changes to cannabis business permits.
• California Growers Association (CGA): The CGA looks out for California growers, keeping a close eye on any regulatory changes. Their website is a fantastic resource for news and articles about the California cannabis market and commercial cannabis activity.

Newsletters

There are many newsletters that cover the cannabis industry and regulational changes. Aside from our own newsletter, which features industry trends, upcoming events, and even an FAQ hub, a few of our other favorites include:

• MJBizDaily: MJ Biz is a leading industry publication that keeps an eye on the cannabis industry in every legal state, covering regulations, business impact, and guest posts from experts. This outlet is highly respected and a great place for in-depth analysis of the California cannabis market.
• Green Market Report: The Green Market Report is all about cannabis business (and regulations are a huge part of that.) Their newsletters provide news, data, and analysis on cannabis markets, including California.

California has long been regarded as a leader in the medical and recreational cannabis markets, but operating a cannabis business in this space comes with particular challenges. The Golden State has complex cannabis regulations and avoiding legal pitfalls is an important yet time-consuming task for plant-touching and ancillary business owners. But you don’t have to embark on a journey of protecting your cannabis business permits alone — AlphaRoot is here to help.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.