Local & State Licensing

Cannabis applicants must obtain both local and state licensing before they can open up a cannabis business in California. However, not all local jurisdictions allow commercial cannabis activity within their borders. Prop. 64 grants broad authority to local government to regulate cannabis within its jurisdiction, including the discretion to prohibit commercial cannabis activity altogether or to only allow certain license types.

A local jurisdiction may not allow commercial cannabis activity at all or may only allow certain types of businesses to operate. Do not invest time and/or money into obtaining a cannabis license until you confirm that the specific license type sought after is offered by your local jurisdiction. Cannabis applications in California require that you provide evidence showing that your local jurisdiction has approved your cannabis business, so you will not get very far in the licensing process is you skip this step.

While a consolidation is planned for July 2021, three separate state agencies currently regulate and license cannabis companies in California:

  1. Bureau of Cannabis Control (“BCC”)
  2. Department of Food and Agriculture (“CDFA”)
  3. Department of Public Health (“CDPH”)

Broadly speaking, the CDFA regulates cultivation and the CDPH regulates manufacturing in California. How- ever, the focus of this guide will be on BCC license types. The BCC’s website can be found at https://bcc.ca.gov/. The BCC Regulations can be found at https://bcc.ca.gov/law_regs/cannabis_order_of_adoption.pdf.

License Types

The BCC regulates the following license type(s) at the State level:

Type 8 – Testing Laboratory
Type 9 – Non-Storefront Retail (Delivery)

Type 10 – Storefront Retail

Type 11 –  Distributor
Type 12 – Microbusiness
Type 13 – Self-Distribution
Cannabis Event Organizer

As discussed above, local jurisdictions allow all, some, or none of the above cannabis license types. Once an applicant confirms that a desired license type is offered by a local licensing regime, the applicant should further verify that the local jurisdiction’s definition of a desired license type is consistent with the State’s definition.

Fees

Cannabis applicants must pay application and license fees at both the local and state levels. Local application- and license fees vary by jurisdiction. Most state application fees cost $1,000/application, and state license fees are based on projected gross revenue and outlined in CCR, Title 16, Division 42, § 5015 as follows:

Type 8 Testing Laboratory

Projected Gross RevenueFee
Less than or equal to $160,000$3,000
More than $160,000 and less than or equal to $320,000$6,000
More than $320k and less or equal to $480,000$8,000
More than $480,000 and less or equal to $800,000$13,000
More than $800,000 and less or equal to $1.2 million$20,000
More than $1.2 million and less or equal to $2.0 million$32,000
More than $2.0 million and less or equal to $2.8 million$48,000
More than $2.8 million and less or equal to $4.4 million$72,000
More than $4.4 million$112,000

Type 11 & 13 Distributor

Projected Gross RevenueFee
Less than or equal to $1 million$1,500
More than $1 million and less or equal to $2.5 million$6,000
More than $2.5 million and less or equal to $5 million$11,250
More than $5 million and less or equal to $10 million$22,500
More than $10 million and less or equal to $20 million$45,000
More than $20 million and less or equal to $30 million$75,000
More than $30 million and less or equal to $50 million$120,000
More than $50 million and less or equal to $70 million$120,000
More than $70 million$180,000

Type 9 & 10 Retailer

Projected Gross RevenueFee
Less than or equal to $500,000$2,500
More than $500,000 and less or equal to $750,000 million$5,500
More than $750,000 million and less or equal to $1 million$7,500
More than $1 million and less or equal to $1.5 million$11,000
More than $1.5 million and less or equal to $2 million$14,500
More than $2 million and less or equal to $3 million$22,500
More than $3 million and less or equal to $4 million$30,500
More than $4 million and less or equal to $5 million$38,500
More than $5 million and less or equal to $6 million$46,500
More than $6 million and less or equal to $7.5 million$57,000
More than $7.5 million$96,000

Type 12 Microbusiness

Projected Gross RevenueFee
Less than or equal to $1 million$5,000
More than $1 million and less or equal to $2 million$12,000
More than $2 million and less or equal to $3 million$20,000
More than $3 million and less or equal to $4 million$32,000
More than $4 million and less or equal to $6 million$45,000
More than $6 million and less or equal to $7 million$60,000
More than $7 million and less or equal to $10 million$80,000
More than $10 million and less or equal to $20 million$100,000
More than $20 million and less or equal to $30 million$120,000
More than $30 million and less or equal to $40 million$140,000
More than $40 million and less or equal to $50 million$160,000
More than $50 million and less or equal to $60 million$180,000
More than $60 million and less or equal to $80 million$220,000
More than $80 million$300,000

Instead of projected gross revenue, cannabis event organizer license fees are based upon the number of planned events:

Cannabis Event Organizer
Number of Planned EventsFee
0-5 Events Annually$3,000
6-10 Events Annually$5,000
11-20 Events Annually$9,000
More than 20 Events Annually$20,000
More than $4 million and less or equal to $6 million$45,000

Applicants should not arbitrarily estimate gross revenue. License fees are nonrefundable and licensees are not entitled to any sort of reimbursement if gross revenue projections far exceed actual revenue. While it may be safer to take a conservative approach in estimating revenue, a licensee may face a penalty fee if the BCC determines that licensee underpaid in light of actual revenue.

Background Checks & Criminal History

Anyone that qualifies as an owner of a cannabis business in California must complete a background check referred to as an “Owner Submittal” at the state level, and will have to submit similar information as part of a local application. In short, the current definition of an “owner” at the state level is broad and includes anyone with an ownership interest of 20% or more, as well as anyone who participates in the “direction, control, or management” of the business. Applicants should not assume that their local regulations define an “owner” the same as the state and should consult relevant local regulations. Applicants should also consult both sets of regulations as this is a high-level overview of the definition of an “Owner.”

The Owner Submittal at the State level is relatively painless and typically completed within the online licensing portal, but a hardcopy can be found at https://bcc.ca.gov/clear/owner_submittal.pdf. It consists of answering questions about previous licenses held or applied for, as well as existing interest in other cannabis businesses. Applicants must also submit digital fingerprints referred to as a “Live Scan.” Live Scan locations can be found at https://oag.ca.gov/fingerprints/locations. Simply Googling “Live scan locations in X city/town” should also help locate additional locations.

The next question that usually comes up is whether a past criminal conviction will prevent an applicant from receiving a cannabis license. Unfortunately, the answer is: “it depends.” Applicants with prior convictions should consult the State regulations at CCR, Title 16, Division 42, § 5017 as well as any relevant local regula- tions. From a high level, the following prior convictions may cause issues:

  • Serious and/or Violent Felonies
    • Convictions involving Fraud and/or Deceit
    • Convictions involving Minors

However, even if an applicant has been convicted of one of the above crimes, they may still be able to get licensed depending on the circumstances (nature and severity of crime, age of conviction, etc.) of the con- viction. If an applicant has a prior criminal conviction, they should consider the following prior to or while applying for a cannabis license:

  • If an applicant has a past cannabis conviction, check to if the local jurisdiction has automatically re- designated or expunged the conviction.
    • If the conviction is a prior felony, consult with a local attorney to see if the prior conviction is eligible to be reduced. Some felonies are “wobblers,” meaning that they can be charged as either as a felony or misdemeanor. A petition to reduce and maybe and expunge your conviction may be an option.
    • If an applicant has a prior felony that can be reduced to a misdemeanor, file a petition in the court

where you received the conviction to both reduce the conviction and have it expunged simultaneously.

  • If an applicant has a prior felony that cannot be reduced, look to see if it can be expunged or if other relief is available.
    • If an applicant has a prior misdemeanor, petition the court to have it expunged.

Filing reductions and/or expungements is a straightforward process which consists of filing paperwork and paying a filing fee with jurisdictional quirks here and there. A copy of the form used to file for reductions/expungements can be found in at https://www.courts.ca.gov/documents/cr180.pdf. Also include reference letters and/or a statement explaining what was going on in the applicant’s life at the time of the conviction as well as what an applicant has been up to since.

Cannabis applicants must also consult their local regulations to verify their jurisdiction’s approach to past convictions, and may want to consult with a local attorney about their obligation to report a reduced and/or expunged criminal conviction. Whether a reduced/expunged conviction must be reported on a state or local cannabis application will be determined by the specific information requested within an application as well as state law. Even if a conviction must be reported, the applicant puts themselves in a better position to not have their application denied if it is reduced and/or expunged.

Local Permitting & Licensing

Permitting and licensing at the local level can be an expensive and time-consuming project. While similar themes are seen jurisdiction to jurisdiction, local processes tend to have their own quirks. The goal of this section is to give an overview of the permitting and licensing process often seen at the local level to save time and money down the road.

Zoning

Local jurisdictions designate certain “zones” where commercial cannabis activity is permitted. Moreover, certain zones may only allow certain license types. For example, manufacturing and cultivation licensees may only be allowed to open up in industrial areas. Prior to signing a lease or purchase contract, make sure a potential property is zoned properly for the intended license type.

Most local jurisdictions allow cannabis businesses to operate in commercial and industrial zones, but prohib- it cannabis businesses in or near residential zones. State regulations prohibit a licensed premise from being within a 600-foot radius of “a school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center that is in existence at the time the license is issued.”6 However, exceptions can be made under certain circumstances. Check the local ordinance as it may have a more restrictive buffer in place.

Even if a potential property falls outside buffers, it may be a good idea to contact nearby schools, park admin- istrators, and churches depending on the circumstances.  The last thing you want is for one of these entities to oppose your project after you have already signed a lease or purchase contract.

Local regulations should specify which zones a cannabis business may open in, but they rarely identify where cannabis-friendly zones are located within a jurisdiction. To bridge this gap, go to your jurisdiction’s local website. Localities often publish maps showing cannabis-friendly zones on their website, and some even offer searchable databases that allow a cannabis applicant to type in a property address to confirm the zone it sits in. For example, the City of Sacramento published the following zoning information in a helpful flyer for applicants:

  • CCR, Title 16, Division 42, § 5026

Once it is confirmed that a property falls in a cannabis friendly zone, be sure to call or email the local jurisdic- tion to confirm your findings. Cannabis regulations change frequently, and information of local websites can be outdated.

Land Use Entitlements

After confirming that a property is in the proper zone, cannabis applicants should vet timelines, costs, and potential issues associated with obtaining any necessary land use entitlement before signing a lease or purchase contract. The most common type of land use entitlement encountered by cannabis entrepreneurs is a Conditional Use Permit or “CUP.” In the cannabis context, a CUP is an approval to conduct a specific type of commercial cannabis activity in a specific property by local government. A CUP application, therefore, is an evaluation of the suitability of the applicant’s property as it relates to the applicant’s intended cannabis use rather than evaluation of the applicant’s business plan.

Before committing to a property that will require the submission of a CUP application, applicants should

look into whether there are properties available for rent or purchase that already hold a CUP for the intended cannabis use. Hiring a real estate agent and/or broker that has worked with previous cannabis clients can be invaluable.

Obtaining a CUP can take anywhere from 3 to 9 months, and can cost tens of thousands of dollars. It is

non-transferable and stays with the property. The extent of necessary interior and exterior modifications to a property directly impacts both the completion timeline and estimated cost to complete. CUP applications require the submission of site, floor, electrical, plumbing, etc. drawings which often necessitates hiring an architect and/or engineer. Before spending money on drawings, be sure to ask the landlord or seller if they have any drawings from past projects as this can save time and money.

Here is an illustration of materials that may be required and associated fees as part of a CUP process provided by the City of Sacramento:

Local Cannabis License or Permit

Whereas land use entitlement applications verify that a property is suitable for commercial cannabis activity, local cannabis license (“cannabis permit” is used interchangeably) application evaluates a business. Each local jurisdiction will have its own quirks and unique requirements, but local applications often mirror the State application process. However, you will find that local applications for focus more heavily on the impact a business will have on the community by requiring neighborhood responsibility plans, community benefit plans, odor plans, etc. that may not be required by the State.

As you can see, the “Business Operations Plan” in Sacramento requires an applicant to submit a plan that describes how the business will comply with state law and must include plans which cover the following:

  • Cash Handling
  • Transport Procedures
  • Inventory Controls
  • Financial Management
  • Point of Sale Systems
  • Track-and-Trace Software

Microbusiness Application

A microbusiness license allows a licensee to conduct multiple types of commercial cannabis activity under one license. To qualify for a microbusiness license, an applicant must intend to engage in at least three of the following commercial cannabis activities:

  • Retail
  • Non-Storefront Retail (Delivery)
  • Distributor
  • Distributor-Transport Only
  • Cultivation (Less than 10,000 sq. ft.)
  • Manufacturer (Level 1, Type 6).7

Testing laboratories cannot be included within a microbusiness as testing laboratory owners are prohibited from owning any other license type. The BCC also provides a helpful guidance document that describes the microbusiness application process that can be found at https://bcc.ca.gov/clear/microbusi- ness_instructions.pdf .

BCC applications can be submitted online at https://online.bcc.ca.gov/bcc/Welcome.aspx . However, it is  useful to print out a hardcopy of the application which can be found at https://bcc.ca.gov/ clear/microbusiness_application.pdf to understand what information will be required and to organize said information. Page 3 of the hardcopy outlines the documents that need to be uploaded as attachments in “SECTION I – REQUIRED ATTACHMENTS/DOCUMENTS.” The microbusiness application guidance document referenced above provides some context to the requirement attachments, but let’s discuss the key attachments one by one:

Evidence of legal right to occupy and use the proposed premises location

This requirement is straightforward and met by uploading either of the following:

  • A fully executed lease along with a statement from the property owner stating that the applicant has the right to occupy the property and conduct commercial cannabis activities.
  • Title or deed showing that the applicant owns the property

If an applicant is renting a property, make sure the lease is in the name of the entity the applicant intends to apply under. This rule of thumb generally goes for every commercial document executed by an applicant that must be submitted as part of the licensing process

Premises Diagram Form(s)

The premises diagram is a floor plan that identifies property boundaries, key operational areas such as where cannabis and cannabis products will be stored, as well as the location of security cameras. Page 2 of the prem- ises diagram instruction form found in Appendix E or at https://bcc.ca.gov/clear/premises_diagram.pdf out- lines the areas that need to be labeled in detail. Details can also be found in CCR, Title 16, Division 42, § 5006.

Any local cannabis application will require some sort of property diagram. However, local labeling require- ments may not match up with state requirements. Make sure to label any missing areas not required during the local licensing process.

A premises diagram will also serve as the base of any standard operating procedure. The layout of a cannabis business is also critical to maximizing operational efficiency. Premises diagrams can also expose potential workflow hiccups that might not be apparent while physically walking your property. It’s important, therefore, to put time and effort into a premises diagram and make sure operational components are strategically placed.

To save money, contact your landlord or the entity the property was purchased from to see if there are any pre-existing floorplans that reflect the property’s current layout. While it may be advisable to consult with a security professional about the placement of security cameras and other operational considerations, the actual premises diagram itself does not need to be any fancy.

Business formation documents, including all documents filed with the CA Secretary of State (SOS).

The business formation documents requirement may feel a bit over-the-top. But, if there is any silver lining, it at least is an indirect reminder to an applicant of the corporate documents a business ought to have in place, as well as the corporate formalities that ought to be observed. Applicants may apply other business structures, but this explanation will focus on the two most common structures: corporations and limited liability companies (“LLC”).

If an applicant is applying as a corporation, the following documents are required:

Articles of Incorporation

Filing Articles of Incorporation is generally the first step in forming a corporation. They identify the name of

your corporation, type of corporation, corporate address, as well as the number of shares/shareholders.

Statement of Information

Statements of Information identify the corporation’s corporate officers and directors, corporate address, as well as the agent for service of process. They are filed annually.

Certificate of Stock

Stock certificates are issued to shareholders and list the amount of stock owned, date of purchase or grant, shareholder signature, etc. In all likelihood, the BCC uses this information to verify that all owners have been disclosed.

Stock Ledger

A stock ledger is a list of stockholder information that compiles the name of shareholders and amount of stock owned.

Organizational Charts

If an applicant owns multiple corporate entities related to cannabis, it is generally a good idea to provide a diagram showing those entities and the relationship between them. Applicants should also include charts that outlines the positions that make up their company and their overall internal hierarchy.

Bylaws

Bylaws are the rules that govern the way in which a corporation operates. It is an internal document.

List of Board Members

A simply excel spread sheet or bulleted list should suffice here.

If you are having trouble locating your corporation’s articles of incorporation or statement of information, the State has a helpful search tool located at https://businesssearch.sos.ca.gov/ . Simply search by your corpo- ration’s name or entity number and the search tool will provide downloadable PDFs of documents that have been filed with the state.

The documents required by an applicant applying as an LLC are similar to the documents required applicants applying with a corporation:

LLC Articles of Organization

Articles of Organization are the functional equivalent of Articles of Incorporation. They are the first step in

forming an LLC and identify baseline information about the identity.

LLC Statement of Information

Statements of Information identify an LLC’s managers/members, address, as well as the agent for service of process. They are filed annually.

LLC Operating Agreement

An operating agreement is similar to a set of corporate bylaws: it lays out the rules that an LLC is to abide by.

If you are having trouble locating your LLC’s articles of organization or statement of information, the State has a helpful search tool located at https://businesssearch.sos.ca.gov/ . Simply search by your corporation’s name or entity number and the search tool will provide downloadable PDFs of documents that have been filed with the state.

Evidence of exemption from, or compliance with, the California Environmental Quality Act.

Consult with your local jurisdiction here. Documentation tends to vary from jurisdiction to jurisdiction, but the BCC does provide forms found at https://bcc.ca.gov/clear/bcc_lic_025.pdf and https:// bcc.ca.gov/clear/bcc_lic_026.pdf

Labor peace agreement documentation

California cannabis regulations require employers with twenty or more “non-supervisory” employees to enter into a labor peace agreement.9 A labor peace agreement is a contract between an employer and a labor union. Applicants must document executed labor peace agreements, or their intent to enter into one as follows:

  • If the applicant has 20 or more non-supervisory employees and has entered into a labor peace agree- ment, it must provide a notarized statement indicating that it has entered into and will abide by the terms of a labor peace agreement along with a copy of the signature page of the agreement.
    • If the applicant has 20 or more non-supervisory employees and has not yet entered into a labor peace agreement, it must provide a notarized statement indicating that it will enter into and abide by the terms of a labor peace agreement as soon as reasonably practicable.
    • If the applicant does not have 20 or more non-supervisory employees, it must provide a notarized statement indicating that it will enter into and abide by the terms of a labor peace agreement within 60 days of employing its 20th non-supervisory employee.10
  • Financial Information Form

Individuals and entities that hold a financial interest in the applicant entity must be disclosed using the form found at https://bcc.ca.gov/clear/financial_information_form.pdf . While applicants should consult relevant state and local regulations, “Financial interest” is in part defined as “an agreement to receive a portion of the profits of a commercial cannabis business, an investment into a commercial cannabis business, a loan provided to a commercial cannabis business…”

Proof of surety bond in the amount of $5,000, payable to the State of California

The BCC’s surety bond form can be found at https://bcc.ca.gov/clear/licensee_bond.pdf . Make sure that the entity that the applicant intends on applying with is listed on the bond.

Transportation procedures

The transportation procedures form is required by all license types. It is worth repeating, however, that cannabis goods must be transported between licensees by a licensed distributor, including between licenses owned by the applicant. Therefore, if an applicant intends to transport cannabis goods, they must include the distributor license type within their microbusiness application.

The Transportation Procedures Form can be found at https://bcc.ca.gov/clear/bcc_lic_015. pdf and is a high level overview of how an applicant intends to transport cannabis goods from point A to point B. Here are some things to consider:

Information about Motor Carrier Permits can be found at https://www.dmv.ca.gov/portal/vehicle-industry-services/motor-carrier-services-mcs/motor-carrier-permits/ . The Motor Carrier Permit application can be found at https://www.dmv.ca.gov/portal/uploads/2020/04/mcp706app.pdf .

  • If cannabis goods need to be transferred between licensees within the same building or parcel, they may be transported by foot, hand truck, fork lift or other similar means.
  • In terms of storing cannabis goods in the vehicle, current regulations mandate: “Cannabis goods shall be locked in a fully enclosed box, container, or cage that is secured to the inside of the vehicle or trail- er. No portion of the enclosed box, container, or cage shall be comprised of any part of the body of the vehicle or trailer. For the purposes of this section, the inside of the vehicle includes the trunk.”
  • All transport vehicles should be completely unmarked and cannabis goods should not be visible from outside of the vehicle (no windows etc.).

Non-laboratory quality control procedures

The Non-Laboratory Quality Control Procedures form can be found at https://bcc. ca.gov/clear/bcc_lic_017.pdf . This form focuses on an applicant’s procedures for verifying packaging and labeling, as well standard operating procedures (“SOP”) for testing if the applicant intends to operate as a distributor.

CDPH has released the following packaging and labeling checklists that should be consulted when drafting packaging and labeling SOPs:

  • Packaging Checklist for both Flower and Manufactured Products can be found at https://www.cdph. ca.gov/Programs/CEH/DFDCS/MCSB/CDPH%20Document%20Library/Packaging_Checklist.pdf
    • Labeling Checklist for Flower and Flower-Only Pre-Rolls found at https://www.cdph.ca.gov/Pro- grams/CEH/DFDCS/MCSB/CDPH%20Document%20Library/LabelingChecklist-Flower.pdf
    • Labeling Checklist for Manufactured Products can be found at https://www.cdph.ca.gov/Programs/ CEH/DFDCS/MCSB/CDPH%20Document%20Library/LabelingChecklist-Products.pdf .

Make sure products are properly categorized (Flower vs. Manufactured Products) to ensure that the correct regulations are being followed. Pay particular attention to making sure the labeling requirements are place in the correct location (Primary vs. Informational Panel) as well. This is a common basis for distributor and retailers to reject product.

You may be scratching your head right now wondering why the CDPH released packaging and labeling check- lists rather than the BCC. The short answer is that the BCC defers (in part) to the CDPH regulations in Section 5307(d) of the BCC regulations.

Security procedures

As mentioned above in the discussion of the Premises Diagram, it may be advisable to consult with a security professional to put together a comprehensive security plan. The cannabis industry is an all-cash industry, and there are any number of security concerns that arise from that reality. A security consultant will not only ad- vise to what equipment (video, alarm system, etc.) to use; they will also be able to determine that best location for security-sensitive aspects (i.e. areas where cannabis good are stored or cash is handled) of an applicant’s operation. Further, they will be able to advise as to camera placement to ensure complete coverage of the premises.

The Security Procedures Form can be found at https://bcc.ca.gov/clear/bcc_lic_018.pdf . In short, hiring an outside security consultant is a worthwhile investment.

Delivery Procedures

If a microbusiness application includes Storefront Retail with a delivery or Non-Storefront Retail (Delivery), the delivery procedures must be submitted. The Delivery Procedures Form can be found at https://bcc.ca.gov/clear/bcc_lic_020.pdf .

Similar to the transport procedures:

  • In terms of storing cannabis goods in the vehicle, current regulations mandate: “Cannabis goods shall be locked in a fully enclosed box, container, or cage that is secured to the inside of the vehicle or trailer. No portion of the enclosed box, container, or cage shall be comprised of any part of the body of the vehicle or trailer. For the purposes of this section, the inside of the vehicle includes the trunk.”
  • All transport vehicles should be completely unmarked and cannabis goods should not be visible from outside of the vehicle (no windows etc.).

However, delivery vehicles must also be equipped with GPS tracking technology that logs a history of a driver’s geographic location.

Inventory Procedures

Inventory procedures describe dictate how cannabis goods move in and out of a business’s inventory. Inventory procedures ensure that cannabis is delivered to consumers safely, and aim to prevent the illegal diversion of cannabis into the illicit market.

Most state and local regulations also address inventory procedures. These regulations should form the base of a business’s inventory procedures. For example, regulations often dictate that limited access areas be clearly designated throughout a facility. Access to safety and security-sensitive areas, such as where cannabis goods are stored or cash is handled, should be limited to essential employees.

Operators should also familiarize themselves with the track-and-trace system utilized by their jurisdiction and incorporate the system’s step-by-step functionality into their SOP, as well as the step-by-step functionality of any third-party technology solution a client chooses to use. Many third-party technology providers offer help- ful inventory how-to guides and training which can be invaluable when putting SOPs together.

METRC is a popular track-and-trace system used across the United States. METRC recently started a YouTube channel with training videos at https://www.youtube.com/channel/UCcasu4orIpyqqEmQWWOkW0w. Their website, https://www.metrc.com/, also has helpful information for licensees.

The Inventory Procedures form can found at https://bcc.ca.gov/clear/bcc_lic_016.pdf

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