With California’s legalization of recreational cannabis on Jan. 1, 2018, businesses have begun the exciting race to cash in on the expected $7 billion cannabis marketplace. However, since a grey market has been flourishing for over 20 years, it takes time and in-depth knowledge to set up shop in California. Getting your business established, compliant, and operating in California will take time and licenses may be limited depending on the local laws and regulations. There are three major operational considerations if you want to expand into this market with your existing out-of-state cannabis business. Here are the steps you can take to start blazing a trail.
- Keep it on Your Turf
Federal law prohibits people from transporting any federally restricted substance, like cannabis, across state lines. However, what happens when you are transporting cannabis across state lines between two states, like California and Nevada where cannabis is legal? Well, even if cannabis is legal in both states, crossing a border puts you at risk under the individual state jurisdictions along with federal jurisdiction, and you could be liable to all government entities at the same time without the protections of the Double Jeopardy Clause of the Fifth Amendment.
For example, the Drug Enforcement Administration could be waiting at the border to prosecute you and transporting cannabis across a border can be considered an aggravating factor if you end up facing charges in that state for other offenses.
Consider Section 812 of Title 21 of the U.S. Code, the Schedule of Controlled Substances, which makes no distinction between a legal state, a medical state or an illegal state. Violating this section is a federal crime and could earn you a criminal record, even for the lowest tier of cannabis.
Thereunder, possession of:
1 kilogram or less of hash oil
10 kilograms or less of hashish
1 to 49 cannabis plants
Less than 50 kilograms of cannabis flower
Carries penalties of:
First Offense: Up to five years in federal prison and a fine of $250,000 to $1 million
Second Offense: Up to 10 years in federal prison and a fine of $500,000 to $2 million
Moreover, some legalized states have laws on the books carrying penalties for transporting cannabis across state lines.
For example, in Nevada, NRS 453.321 states that it is unlawful for a person to “import, transport, sell, exchange, barter, supply, prescribe, dispense, give away or administer a controlled or counterfeit substance”:
If the substance is considered Schedule I, you could face a Category B felony, punishable by $10,000 fine and 2 to 10 years in prison.
Also in Oregon, House Bill 4014 expressly forbids the import of cannabis from another state, as well as exporting cannabis across state lines. Violating this law happens by importing or exporting:
Up to an ounce of cannabis is punishable by a Class B violation: $260 fine
Over an ounce of cannabis is punishable by a Class A misdemeanor: $6,250 fine
Over 16 ounces of cannabis is punishable by a Class C felony: $125,000 fine and up to 5 years imprisonment
Finally in California Proposition 64, Section 6.1 states:
- (a) This division shall not be construed to authorize or permit a licensee to transport or distribute, or cause to be transported or distributed, cannabis or cannabis products outside the state, unless authorized by federal law. Further, if it is more than an ounce of flower or four grams of concentrates, it can be charged as a felony under Health & Safety Code Section 11360, if you imported or attempted or offered to import into California, or transported or attempted/offered to transport out of California for sale.
- Need to be a Licensed Entity in California
Due to the fact that federal law limits transporting cannabis between state lines, out-of-state cannabis businesses must register as a California entity and must be licensed from the local municipality and the state in order to cultivate, manufacture or conduct any medical or nonmedical commercial cannabis activity in California. To get a license in California you will need to have a compliant location and decide whether you need medical/adult-use licenses, or both.
- Can I License My Current State Operations to a California Entity?
If creating and running a licensed cannabis business in California is not feasible for your circumstances, you can consider partnering with a California cannabis entity. In this case, you can license your intellectual property and partner with a cannabis business. NOTE—some are speculating that mergers and acquisitions will have to be disclosed to the licensing agencies.
Once you license your operations to a California cannabis entity, or partner up (or both), you can obtain a California state trademark registration. To obtain this registration, you must be making lawful use of the mark in California state commerce at the time of your application. This could mean that you must be licensed by the state to provide the goods and services for which you are seeking protection, and you have made your first sale of those goods or services as well. Unlike the United States Patent and Trademark Office and some states that allow for trademark “reservations,” California does not have an intent-to-use trademark application, so you must make use of your mark prior to obtaining protection.
Even though getting your business established, compliant, and operating in California might be time consuming, seeking legal advice from a California licensed cannabis firm can ease the process. Once your cannabis business is on board, you can start taking advantage of all the opportunities the cannabis industry has to offer. “The Green Rush” in California has begun!