California marijuana business owners in legal fog as they await statewide rules

By Bart Schaneman

The absence of statewide medical marijuana regulationsfollowing passage of Californias recreationalcannabis ballot measure has put existing MJ business owners in legal limbo, making it tougher for them to operate their companies and plan for the future.

Some of these businesses, for example, are finding it difficult todetermine whats legal and whats not.

Entrepreneurs also are unsure how to properly structure their businesses to comply with Proposition 64 (the measure that legalized recreational cannabis) and how to label and package their products correctly. At the same time, theyre waiting for California officials to finalize medical marijuana rules, adding to the uncertainty.

Before the legal fog can clear, California must draft statewide rules governing boththe new adult-use industryand the existing MMJ sector as well.

The new regulatory scheme for both recreational and medical cannabis isnt expected to be implemented until January 2018, at the earliest. Last week, twotop state cannabis regulators promised to have a formal state permitting system up and running by that time.

Its not a lot of fun right now, said Greta Carter, a cannabis business owner who is launching cultivation operations in California.

Before the November election, she noted, many marijuana business owners in California worked in a so-called gray market that she defined as operating in adefendable position amid limited laws and regulatory support.

I dont do anything illegal and Ive never done anything in the black market. I have operated quite a bit of my time in the gray market, Carter said. But, as the gray market is now gone, youre either in the black market or in the legitimate market. So its pretty scary right now for the industry.

Carter said thatwithout a viable gray market shes had trouble sourcing plants for her grow operation in the southern California town of Desert Hot Springs, which hopes to become a major cultivation hub. The problem: Carter finds plants from a legal source, and she wont buy them from an illegal business.

What Ive found in California is that the gray market has almost been completely eliminated, she said. So where does that put the transition?

Carter worries that this period is exposing marijuana business owners to legal liability. While many had felt comfortable with the gray market, theyre now unsure whether theyre operating according to the law.

Im trying to figure it out, she admitted.

Uncertainty abounds

Amanda Conley, an Oakland-based cannabis attorney, said some of her business clients also are struggling. In the absence of statewide regulations for the next year or more, theyre unclear how to structure their companies from a legal standpoint.

According to Conley, these MJ industry officials are wondering: Am I complying with basic operational structure?

Packaging and labeling is another area where the regulatory uncertainty has created problems.

Conley is a co-founder of the National Cannabis Bar Association, and members of that group have been putting their heads together to decide what advice to give their clients in the absence of legal clarity.

While businesses dont yet have licenses under the 2015 Medical Cannabis Regulation and Safety Act (MCRSA), which will govern Californias medical cannabis industry, its her groups understanding that parts of the law covering packaging and labeling are already being enforced and companies must comply.

But we dont have the detailed regulations that will provide really helpful guidance about what the packaging needs to say, Conley said.

Her group does its best to help clients comply with MCRSA labeling requirements regarding dosage, warnings, serving sizes, etc.

The problem is, we dont have the regulations yet, Conley said. And the MCRSA isnt very clear, and in some cases its almost internally contradictory. When you start to apply it, you realize: Gosh, we really need some more guidance on this.'

For now, she and her legal colleagues are advocating a best practices approach in the hope their clients are in compliance ...