California Cannabis Bill Roundup for October 2019

Seems like not a month goes by in California where the Assembly isn’t trying to pass a slew of cannabis bills to help regulate the state’s industry under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). And October was no different. As of October 13, 2019, California has some new cannabis laws on the books (thanks to the Governor). This post is dedicated to the highlights of some of those new laws and how they’ll affect cannabis businesses.
State tax deductions.
There’s no real gold standard for state cannabis taxation. And at the federal level, cannabis businesses suffer constantly under the heavy weight of I.R.C. 280E. However, AB 37 will provide at least some tax relief to California cannabis businesses (from 2020-2024). AB 37 is a departure from California’s otherwise standard mandate that income taxation be treated the same as on the federal level, which, for cannabis businesses, formerly meant no state deductions for business expenses related to trafficking in cannabis because of I.R.C. 280E. Now though, California cannabis business owners licensed under MAUCRSA will be able to lawfully take ordinary personal, business deductions under California law.
Charitable donations.
SB 34 creates better breaks for low-income medical patients that have a physician’s recommendation but that may not have an ID card from the Department of Public Health pursuant to the 2004 Medical Marijuana Program Act. Via tax-free “compassionate care donations” by licensed retailers and/or retailer microbusinesses, before providing any medical cannabis to any qualified patient or their caregiver, those licensees have to ensure that all of the following criteria are met: only qualified patients or caregivers may have access to free medical cannabis, the retail licensee has to verify that the patient has a valid physician’s recommendation and that the physician is in good standing, keep a copy of the patient’s driver’s license or government issued ID, and ensure that the donated cannabis complies with MAUCRSA in all capacities. In addition, a retailer “may contract with an individual or organization to coordinate the provision of free medicinal cannabis or medicinal cannabis products on the retailer’s premises. Licensed retailers that are solely authorized to engage in retail sales by means of delivery may provide free medicinal cannabis or medicinal cannabis products by means of delivery.
Testing.
AB 404 represents a much needed, practical change to current cannabis testing laws. If a cannabis batch sample failed testing, a cannabis company only had two choices: remediate (which can only be done under certain circumstances) or destroy the batch. Now, with the passage of AB 404, a testing laboratory is authorized to amend a certificate of analysis “to correct minor errors, as defined by the Bureau of Cannabis Control. ” In addition, labs can now retest a failed batch sample “if the test result falls outside the specifications authorized by law or regulation, when the testing laboratory notifies the bureau, in writing, that the test was compromised due to equipment malfunction, staff error, or other circumstances allowed by the bureau and the bureau authorizes the retest.” Undoubtedly, the Bureau of Cannabis Control (BCC) may have some tough rulemaking ahead of it to meet the mandates of AB 404 where cannabis companies and testing labs constantly battle about the use of “dirty” equipment in testing, but AB 404 is a step in the right direction for better protection of the bottom line for cannabis businesses.
Social equity support.
California has made great strides in supporting local social equity programs–the California Cannabis Equity Act of 2018,authorizes the Bureau of Cannabis Control, upon request by a local jurisdiction, to provide technical assistance to a local equity program that helps local equity applicants or local equity licensees. With the passage of SB 595, “on or before January 1, 2021, [the state licensing agencies will have] to develop and implement a program to provide a deferral or waiver for an application fee, a licensing fee, or a renewal fee for a needs-based applicant or needs-based licensee.” At least 60% of the total dollar amount of deferrals of fees pursuant to this new program will be allocated to the deferral of fees for local equity applicants and licensees, and SB 595 also requires at least 60% of the total dollar amount of waivers of fees to be allocated to the waiver of fees for local equity applicants and licensees. This is important where, previously, the only “technical assistance” help social equity applicants received with licensing was at the local level, and not at the state licensing level, which are two very different processes.
Research.
AB 420 expands existing University of California research mandates with the authorization of the California Cannabis Research Program, hosted by the existing Center for Medicinal Cannabis Research at UC San Diego. “The program shall develop and conduct studies intended to ascertain the general medical safety and efficacy of cannabis and, if found valuable, shall develop medical guidelines for the appropriate administration and use of cannabis. The studies may examine the effect of cannabis on motor skills, the health and safety effects of cannabis, cannabinoids, and other related constituents, and other behavioral and health outcomes.” Where the Center has had issues with acquiring enough cannabis for its research purposes (because of stringent federal research laws and prohibitions around cannabis), AB 420 allows the Center, via the Program, “to cultivate cannabis for its use in research, pursuant to applicable federal and state laws and regulations.”
Vape Cartridges and Pens.
AB 1259 takes effect immediately, and it will change up the packaging/labeling requirements for vape cartridges and pen makers by making life a little bit easier. Specifically, a cannabis cartridge or a integrated cannabis vaporizer that contains cannabis or a cannabis product “shall bear the universal symbol . . . [t]he universal symbol shall be visible on the cannabis cartridge or integrated cannabis vaporizer and shall not be smaller than one-quarter inch wide by one-quarter inch high. The universal symbol shall be engraved, affixed with a sticker, or printed in black or white.” The universal symbol was already required to go onto pens and carts, but it was too big under law to feasibly be engraved on that hardware. In turn, the state, thankfully, decreased the size of the symbol via AB 1259 so that compliance with labeling will be easier for manufacturers. What we don’t know though is if the California Department of Public Health will create any kind of grace period for the sale of now non-compliant vapes and carts.
Hemp.
In case you missed it, our hemp laws also got a tiny facelift. While Governor Newsom ushered in some much needed technical-fix legislation of MAUCRSA this October, he didn’t support every single cannabis initiative. For instance, the cannabis tourism industry lost out with Newsom’s signing of AB 1810, which preserves the current prohibition on cannabis consumption in party busses and limousines. Newsom also vetoed SB 305, which would have allowed terminally ill patients to consume medical cannabis on-site at their care facilities due to “federal conflicts”.
In the wake of the foregoing legislation, we may see the BCC and other state agencies take to rulemaking to accomplish the intent of these new statutes. So be sure to stay tuned as we approach 2020!

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