Cannabis Mid-Summer Update: California

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Summer is usually the slow season for legislation and rulemaking.  This summer is different as demonstrated by the following developments from the Governor’s desk and from the Department of Cannabis Control (DCC).

Governor Newsom’s Budget Bill

Cultivation tax ends

Effective July 1, 2022, the State of California indefinitely suspended the cultivation tax.

Excise tax changes

In 2023, retailers will be responsible for collecting and remitting excise taxes to the State.  The excise tax rate will remain at 15% until at least 2025 with a cap on future increases at 19%.

Interestingly, select social equity retailers will be allowed to keep a to be determined percentage of the excise taxes they collect.

New tax credits created

The State intends to develop new tax credits for social equity licensees and other cannabis business with strong labor standards.

Labor peace agreement requirements expanded

Effective July 1, 2024, all applicants for a state cannabis license with 10 or more employees shall provide a notarized statement that the applicant will or already has entered into a labor peace agreement.

Illegal cannabis business penalties

So far California has been unable to make a dent in the illicit cannabis market. Now the State proposes to make unlicensed illegal cannabis businesses liable for all unpaid taxes.  Individuals can now be prosecuted and held personally liable for the business’ tax evasion.

DCC Regulations

Here are some highlights that the DCC proposed earlier this year in order to continue refining the State’s regulatory regime. If approved, the DCC anticipates that the regulations will take effect in late 2022.

Conforming standards for all cannabis testing labs

In order to discourage “laboratory shopping” and a concerning “potency inflation,” California is recommending standards to cannabis lab testing methods across the state. Without uniformity in cannabis laboratory testing procedures, cannabis operators are able to obtain falsely high and/or inconsistent THC level results due to varying testing methods from lab to lab.

Annual license application requirements

Applicants may now provide an assessor parcel number as opposed to the physical address of the premises as an option for the physical address of the premises.

Premises diagram clarity

The DCC proposed clearer and more concise premises diagram requirements for the dimensions that must be included on a premises diagram upon submission of a State application. The DCC further clarified that designated harvested cannabis storage areas may not be shared among multiple licenses held by one licensee unless a processor license is also held by a licensed cultivator.

Trade samples less waste and more compassion

The DCC is tackling what to do with cannabis trade samples that were once required to be unnecessarily destroyed if not used. The proposal allows for licensees to change the designation of a trade sample to a medicinal donation. By providing an alternative to destroying perfectly acceptable cannabis products, licensees are encouraged to utilize the undistributed goods as way to benefit the public at large.

Definition of “cannabis goods”

The definition of “cannabis goods” has been changed to clarify that cannabis goods are goods that must be packaged and labeled as they will be sold at retail. The proposed changes differentiate between final form cannabis goods and cannabis products which are in the form in which they will be consumed or used but not yet be properly packaged or labeled.

 

If you have questions or would like more information, please contact the following:

  • Kresimir Peharda, Chair of Cannabis Practice
    • kpeharda@yklaw.us
  • Andrew Koussevtizky
    • akoussevitzky@yklaw.us
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