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California’s Cannabis Czar Lori Ajax

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industry-insiderIf you had to sum up 20 years of medical cannabis regulation in California in a word, that word would be “chaos.”

Regulation is a patchwork of local rules varying from town to town, with patients, growers and collectives subject to the whims of mayors, city councils, district attorneys and sheriffs. What’s legal in one county can get you thrown in jail in another.

Meet the woman in charge of finding some method to the madness in California; California’s first “cannabis czar.” Lori Ajax was appointed this year to oversee implementation of the Medical Marijuana Regulation and Safety Act, a job that involves creating a state agency from scratch and helping to draw up and implement new regulations.

And then there’s the elephant in the room. If Californians approve legalizing recreational cannabis November 8, her job could become infinitely more complex. And time is not really on her side, with a mandate to begin accepting license applications for medical-cannabis businesses on January 1, 2018.

She may be a Republican who’s never touched the stuff, but she welcomes the challenge.

“That is an aggressive timeline and it’s a lot of work but we’re committed to getting it done. We’re confident we can do it, and there are a lot of moving parts,” said Ajax, 50.

“There are a lot of pieces to it but we’re confident we’re going to get it done and get it done right.”

Before being appointed by Governor Jerry Brown to run the Bureau of Medical Marijuana Regulation, Ajax worked for years in the state’s Department of Alcohol and Beverage Control, rising through the ranks to chief deputy director.

While she touted her experience enforcing alcohol laws, Ajax knows cannabis is a very different ball game, emerging from decades of prohibition and 20 years of little state oversight.

“Alcohol laws and regulations have been around 80 years or so. There’s a difference with cannabis. There’s a lot of stuff going on in a very quick timeframe, a lot of changes, a lot of things on the horizon,” she said.

But she likes a challenge and thought her skills would translate well to the new role, so she accepted the appointment. When Ajax took the reins earlier this year, she was literally a department of one.

She has since hired 11 people, with plans to expand to 15 or so next year. One of the first challenges has been to build an information technology department. Since three separate state agencies will oversee different aspects of cannabis production, distribution and sale, setting up the shared infrastructure is no small task.

Number two on the list of no small tasks is bringing the many different interests and stakeholders to the table for what promises to be the thorny process of drafting regulations to implement the Medical Marijuana Regulation and Safety Act. That legislation created 17 different types of licenses for cannabis businesses, as well as rules about the size of grow operations, vertical integration, deliveries and testing.

Ajax has been traveling the state and hosting public “pre-regulatory meetings” to get input from the industry and the public on how all this will be implemented. She has sensed some trepidation among the industry but also excitement about finally being legitimized.

“They’ve been doing it for the last 20 years without much regulation, and some at the local level. They’re concerned about us over-regulating them. They’re concerned about how our licensing fees will be. They want to make sure they’re not getting taxed too high,” she said.

“At the same time, there’s a real positive response. They’re looking forward to it. They want to make sure they’re being heard.”

Another group she’s been listening to intently is local officials and law enforcement, who have been the sole regulators of an industry the federal government still considers illegal.

She assures them that under the Act’s dual licensing scheme—one from the local government, one from the stat— local rules will remain in force, even when they are stricter than state regulations.

The laborious process of drawing up the regulations will take place over the course of 2017. Until then, all businesses operating under local licenses may proceed with business as usual.

And what does Ajax think about the fact that if the voters approve recreational cannabis, it will vastly change her and the Bureau’s responsibilities?

One job at a time, she said.

“We’ll just wait and see what happens and what the voters decide,” she said. “It does expand the scope of the Bureau. At the same time, our priorities are still there with both medicinal and recreational, with the eye of making sure we have safe cannabis, that we preserve public safety.”

For her part, Ajax has said publicly many times that she’s never tried cannabis. Combined with the fact that she is a Republican, a party not known to be friendly to cannabis, should the industry be concerned?

“I don’t think it should have any bearing. I think there are plenty of regulated industries, from alcohol to pharmaceuticals, where people don’t necessary use the product to regulate it. My job is to keep an open mind on everything and be flexible and listen to people and do my job.”

So is she excited or nervous about the major changes coming to California and the big job ahead of her?

“I’m probably a little bit of both. I’m excited and at the same time, I keep telling myself, ‘One day at a time.’ When you think too far ahead it gets a little overwhelming, but of course I’m looking ahead and we have our own the goals but at the same time it’s one day at a time and I’m confident we’ll get it done.”

“Being nervous is not a bad thing.”

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By the Numbers

By The Numbers – December 2019

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Bay Area

The number of years that the Emerald Cup has held its cannabis event and competition in Santa Rosa: 16 (Source: The Bay Area Reporter)

 

The number of Contra Costa County Board of Supervisors, out of 5, who cast their votes in favor of approving a new ordinance in the city that prohibits the sale of flavored tobacco and cannabis vaping products: 5 (Source: NBC Bay Area)

The number of signatures that are required in order to place the “California Psilocybin Decriminalization Initiative 2020” on the ballot: 623,212 (Source: Decriminalize California)

The number of legal cannabis businesses in California that had permits suspended in early November: 394 (Source: Los Angeles Times)

Colorado

The percentage of 25 Denver-based dispensaries’ cannabis products that contained mold in a random recent test: 80 (Source: Westword)

The amount of money, in millions of dollars, that a Colorado-based cannabis chain was purchased for in early November: 140 (Source: The Denver Post)

The approximate number of industrial hemp registrations that the Colorado Department of Agriculture has processed across the state: 2,600 (Source: CBS Local)

The number of outdoor cannabis cultivation facilities operating in Pueblo County: 66 (Source: The Pueblo Chieftain)

Los Angeles

The number of applicants being considered for social equity cannabis licenses in Los Angeles through Phase 3 Retail Round 1: 100 (Source: NBC Los Angeles)

The new percentage of a tax markup rate that is being implemented in the California cannabis industry starting on Jan. 1, 2020: 80 (Source: Forbes)

The number of signatures that are required in order to place the “California Psilocybin Decriminalization Initiative 2020” on the ballot: 623,212 (Source: Decriminalize California)

The number of legal cannabis businesses in California that had permits suspended in early November: 394 (Source: Los Angeles Times)

Michigan

The amount of money, in millions of dollars, that Ann Arbor-based C3 Industries raised during its latest funding round: 25 (Source: Crain’s Detroit Business)

The updated amount of money, in dollars, that it costs to purchase a two-year medical cannabis registration card in the state of Michigan: 40 (Source: WXYZ)

The number of recreational cannabis business license applications that were submitted on the first day of the application period for Michigan, which began on Nov. 1: 52 (Source: Crain’s Detroit Business)

The number of communities in Michigan that voted to allow cannabis businesses in the November election: 3 (Source: Mlive.com)

Washington

The amount of money, in thousands of dollars, that one Washington-based cultivator said he will lose in the value of his cannabis crops, which were cross pollinated with hemp plants: 40 (Source: The News Tribune)

The numeral rank of where Oregon lies on a list of states with the highest cannabis consumption by minors: 2 (Source: Statesman Journal)

The amount of money, in thousands of dollars, that was approved by the Portland City Council in Oregon to be used for the 2019 Cannabis Social Equity Grant Program: 631 (Source: KATU2)

The number of Washington-based census tracts that were used in a recent Washington State University study analyzing the prevalence of cannabis businesses in various socioeconomic areas: 1,446 (Source: WSU)

National

The estimated amount of money, in dollars, that Florida’s agriculture commissioner believes hemp crops will be worth per acre: 25,000 (Source: Fox Business)

The estimated percentage of Americans who support legalizing recreational cannabis nationwide: 66 (Source: Gallup)

The number of British patients who will be among the first to participate in a major medical cannabis trial: 20,000 (Source: Daily Mail UK)

The amount of money, in millions of dollars, that consumers have spent on medical cannabis in Arkansas over the past six months: 18 (Source: KARK)

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News Nuggets

News Nuggets – December 2019

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Bay Area

Cannabis Store Becomes Certified Green Business

One of the largest cannabis retailers in Santa Cruz County, KindPeoples, recently announced that it has been named a Certified Green Business for its commitment to helping to save the environment. The achievement fulfills the goals of the company’s founders. “We knew when we opened KindPeoples on Ocean Street in April it had to be a flagship for our values,” said Khalil Moutawakkil, founder and CEO of KindPeoples. “Becoming a Green Certified Business is the first step in implementing green practices that make a lasting impact on our community, our staff and business partners and our planet. This is just the beginning.” KindPeoples worked with theCertified Green Business Program in the City of Santa Cruz to install energy-efficient lighting, use paper products, minimize waste, promote alternative transportation and establish a company-wide Environmental Policy in order to meet the standards required for certification.

Contra Costa County Bans Vape Product Sales

On Nov. 12, the Contra Costa County Board of Supervisors unanimously voted to ban the sale of cannabis vape products and flavored tobacco products. At the meeting, students and local residents flooded the building to participate and testify against the dangers of vaping. “This is a health crisis; there are potentially fatal consequences,” said  Supervisor Candace Andersen. “We are seeing people die, and I would much prefer to have us err on the side of protecting the public.” The ban comes amid reports of around 40 deaths and hundreds of cases of lung illnesses linked to vaping. The ban on sales of flavored tobacco and cannabis vaping products took effect on Nov. 18 for unincorporated areas of Contra Costa County. Incorporated areas of the county, including about 20 cities that are not under the county’s jurisdiction, will not be affected.

Colorado

Cannabis Edible Sales Increase Following Vape Scare

The recent vaping health scare has shifted cannabis industry trends, causing some areas to plummet in sales and others to rise. According to Headset, a Seattle-based cannabis data intelligence company, edible sales are up 15 percent in Colorado and in four other recreational-friendly states, as a result of the decline of vape sales due the recent health crisis. According to a Headset report from Oct. 2, before the “Vapor Crisis” commenced earlier this year, vape pens totaled 15 to 30 percent of all cannabis sales. Every state where cannabis is legal saw an increase in vapor pen usage from January to June 2019, and vapes have been the fastest growing category of cannabis products. However, since the vape scare began with the first death on Aug. 23, vape sales are rapidly declining and have been banned in some areas. Headset reports that Colorado’s edible sales are up 15 percent from 12.7 percent, from Aug. 23 to Oct. 6 respectively. Nevada, California and Washington edible sales are also up a considerable amount. Dr. Anne Schuchat, head deputy director of the Centers for Disease Control and Prevention, said that the issue is “continuing at a brisk pace.”

Pueblo County Uses Cannabis Taxes to Fund Jail

Pueblo County is setting another example of how cannabis tax dollars can benefit residents in Colorado. In November, voters said yes to 1B, which will raise retail cannabis tax to from 3.5 percent to six percent in order to raise funds to start construction for the new county jail. The proposal came from the Board of Pueblo County Commissioners on Sept. 3 and was made official by voters during the recent election. The new jail construction will cost an estimated $140 million, which includes demolishing the old jail. According to the county commission, while much of the money will go to the capital infrastructure of the new jail, 50 percent of the tax funds will go toward funding college scholarships. This was proposed to voters last year but was rejected. Now that it has passed, the restructured tax will go into effect Jan. 1, 2020. “Other jurisdictions in the state impose a special sales tax on retail marijuana at a higher rate, and this Board believes moving to six percent of the sales price would better align Pueblo County’s tax with other similar taxes in Colorado,” reads the resolution statement from the Board of Pueblo County Commissioners.

Los Angeles

Los Angeles County Sheriff’s Deputy Charged with Lying about Cannabis

Los Angeles County Sheriff’s Department Deputy Bradley Scott Dietze allegedly lied to the Los Angeles Police Department about a cannabis heist that took place last fall. Dietz was accused of posing as a narcotics officer with a search warrant, along with two other men, and carrying out a bogus raid. At the crime scene, 1,200 pounds of cannabis and $645,000 in cash and money orders were stolen. “The case was filed for warrant on Oct. 25,” a press release reads. “Dietze is expected to be arraigned on Dec. 23 in Los Angeles County Superior Court, Alhambra Branch. Deputy District Attorney Deann Rivard of the Justice System Integrity Division is prosecuting the case. On Oct. 29, 2018, Dietze allegedly lied to a Los Angeles Police Department officer who was investigating whether a marijuana distribution warehouse was being robbed in downtown Los Angeles. If convicted as charged, Dietze faces a possible maximum sentence of one year in county jail.”

Michigan

LARA Announces Cannabis License Rule Changes

The Michigan Department of Licensing and Regulatory Affairs (LARA) released an advisory bulletin on Nov. 13, clarifying transfer rules for equivalent license holders who hold medical and recreational licenses of the same type. Growers, processors and provisioning centers may transfer up to 50 percent of their batch or product from their facility to their establishment if they hold equivalent licenses. Specifically, provisioning centers may transfer 50 percent of each product type such as concentrates or flower. “Under Rule 40 of the Adult-Use Marihuana Establishments Emergency rules, the agency may authorize licensees who hold equivalent licenses to transfer marihuana product from the inventory of their marihuana facility to the inventory of their marihuana establishment,” the bulletin states. “This applies if they hold marihuana grower/grower, marihuana processor/processor, or marihuana retailer/provisioning center equivalent licenses.” The bulletin also announced the updated allowed THC amounts in milligrams for cannabis products.

Portage Begins Accepting Medical Cannabis Permit Applications

Portage city leaders began accepting medical cannabis permit applications for provisioning centers, secure transporters, safety compliance facilities, grower facilities and processor facilities on Nov. 18. The window to apply for a permit ends on Dec. 13 and that date will not be extended. “All applicants must have received pre-qualification from the Michigan Medical Marihuana Licensing Board in order to have their application considered,” a news release states. “There are no exceptions. Applications will not be considered on a first-come-first-served basis. All applications will be reviewed once the application period is closed. The city of Portage reserves the right to alter the application deadline.” According to the news release, a $5,000 permit fee applies, in addition to necessary paperwork. Applicants should keep in mind that 1,000-foot buffers apply to neighboring provisioning centers and sensitive areas.

Oregon

Minors Consume Cannabis at Nation’s Second Highest Rate

A recent study by Las Vegas, Nevada-based US Drug Testing Centers showed that 10.35 percent of Oregonians aged 12 to 17 consumed cannabis during 2017. That makes Oregon the state with the second highest prevalence of youth cannabis consumption in the nation during that time period. Vermont topped the list, where 10.75 percent of children and teens had consumed cannabis during the same time period. Oregon was followed by Maine, New Mexico and Rhode Island for the top youth cannabis consumption rates. The study relied on data gathered in 2017 from the Substance Abuse and Mental Health Services Administration, under the U.S. Department of Health and Human Services. Experts speculated that easy access to cannabis was a factor in the high rates of cannabis consumption, although rates have fallen in Oregon since 2002. The report arrives amid a nationwide teen vaping crisis, usually involving youth of the same age groups.

Oregon Court of Appeals Blocks Flavored Vape Ban

On Nov. 14, the Oregon Court of Appeals placed a hold on Gov. Kate Brown’s six-month vape ban that was recently implemented. Just one month ago, the court placed a hold the ban on flavored nicotine products, but the new hold also applies to THC vape products. The court was  “ . . . unable to tie lung injury cases to the type of flavored vape cartridges at issue,” a news release stated. “The court is not convinced that there is a risk of harm to the public if the enforcement of the rule is stayed.” The court went on to say that the details of vaping illness remain unknown, so that a ban cannot be made based on speculation of what is causing the outbreak of pulmonary lung issues. As of mid-November, 17 Oregonians have fallen ill from vaping, including six who used only nicotine products and five who used only THC products, according to the Oregon Health Authority.

San Diego

Oceanside Planning Commission Approves Recreational Cannabis Cultivation

On Nov. 4, with three members absent, the Oceanside Planning Commission unanimously voted to recommend that the Oceanside City Council add recreational cannabis cultivation to its 2018 ordinance that currently allows only medical cannabis cultivation. It would modify Articles 4, 14 and 36 of the City of Oceanside Comprehensive Zoning Ordinance and Chapter 7, Article XIII of the Oceanside City Code. “By limiting cultivation to medical-only, licensed cultivators were restricted to conduct business with a small percentage of the available market in California,” the city’s staff report reads. “Expanding cultivation to include adult-use gives licensed cultivators the ability to sell product to the entire California cannabis market, increasing the product viability and profits.” Oceanside’s latest effort would only remove the medical-only restriction for cultivation from its city code, and storefronts would remain banned in the city.

California Raises Cannabis Tax Rate

On Nov. 22, the California Department of Tax and Fee Administration (CDTFA) issued a media alert announcing that higher tax rates will apply to cannabis products beginning on Jan. 1, 2020. The markup rate will be raised to 80 percent, or 30 percent higher than its current mark. The markup rate is used to calculate tax on cannabis products. “After analyzing thousands of transactions in the state’s Track and Trace system, CDTFA analysts have determined that the required markup rate for the period beginning Jan. 1, 2020, is 80 percent,” said CDTFA Spokesperson Casey Wells. In the news release, the CDTFA provided an example, indicating that a product with a wholesale cost of $50 would generate a mark-up of $40 and $13.50 in excise tax. California cannabis industry trade groups were seeking the exact opposite, or lower tax rates, and said they were “stunned and outraged” by the tax increase.

Washington

U.S. Customs Agents Seize Packaging from Cannabis Businesses

Several Washington-based cannabis businesses recently complained that U.S. Customs and Border Protection agents seized all types of items including spice jars, vials and packaging materials. The materials were seized at a port of entry located in Tacoma, and were defined as “paraphernalia,” which angered business owners. The confiscated products were worth more than $8,000. “The seized property, including appraised domestic value (ADV) described as follows: 1,080 85x120mm glass jars with wooden lids, ADV: $1,620.00; 5,303 50x70mm glass jars with wooden lids, ADV: $6,628/75,” customs agents indicated in a Sept. 30 letter. “This merchandise from entry BUU-1311428 was seized as an unlawful importation of drug paraphernalia.” Shipment owners may petition to retrieve their property, but only if they post a bond of $5,000 or 10 percent of the shipment’s assessed value.

Study Links Rising Cannabis Consumption Rates with Legalization

A new study published on Nov. 13 in the journal JAMA Psychiatry suggests an association between legalization in states including Washington and rising cannabis consumption rates. The study defined any kind of problematic use of the plant as cannabis use disorder (CUD). “This study’s findings suggest that although marijuana legalization advanced social justice goals, the small post-RML increase in risk for CUD among respondents aged 12 to 17 years and increased frequent use and CUD among adults 26 years or older in this study are a potential public health concern,” researchers reported. “To undertake prevention efforts, further studies are warranted to assess how these increases occur and to identify subpopulations that may be especially vulnerable.” The study’s lead author, Magdalena Cerdá, said that heavy cannabis consumption is linked to psychological and physical health concerns such as lower educational attainment and decline in social class.

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Legal Corner

Embracing Change

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It seems like there isn’t a month that goes by in California when 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). As of Oct. 13, California has some new cannabis laws on the books (thanks to Gov. Gavin Newsom). This article is dedicated to the highlights of some of those laws and how they’ll affect cannabis businesses in 2020 and beyond.

 

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, Assembly Bill 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

Senate Bill 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 necessary criteria is met. This includes rules regarding caregivers, physician’s recommendations and much more.

Testing

Assembly Bill 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 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.”

 

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 Senate Bill 595, “on or before Jan. 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 percent 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 percent of the total dollar amount of waivers of fees to be allocated to the waiver of fees for local equity applicants and licensees.

 

Research

Assembly Bill 420 expands existing University of California (UC) 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 will allow researchers to be able to conduct studies regarding the efficacy of cannabis and provide medical guidelines based on their findings. Where the center has had issues with acquiring enough cannabis for its research purposes, 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

Assembly Bill 1259 took 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 an 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.”

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