California lawmakers have beentasked with the difficult challenge of reconciling the Medical Cannabis Regulation and Safety Act (MCRSA), which legalized commercial medical marijuana activities, with Proposition 64, which legalized recreational marijuana use for all adults and is set to begin licensing commercial recreational businesses by January 1, 2018. Weve previously blogged about this challenge and the states efforts to meet the 2018 deadline here, here and here.
The many conflicts between the MCRSA and Prop 64 include different timelines, license categories, rules on ownership, residency requirements, and tracking systems. Another key difference is that the MCRSA places limits on vertical integration, generally allowing cannabis licensees to hold state licenses in up to two separate categories and only in certain combinations. The MCRSA also does not allow licensed cannabis cultivators and manufacturers to hold a marijuana distribution license. Licensed cannabis cultivators and manufacturers in the State of California instead mustwork with an independent distributor to transport cannabis products to labs for testing and quality assurance before they enter the consumer market.
The California cannabis industry is divided on both vertical integration and distribution issues, and the side you take most likely depends on your views on allowing big business to operate under the new regulated cannabis regime. Growers and dispensaries in California are also divided on the issues. California dispensaries generally believe that the use of independent distributors is unnecessary and will ultimately increase costs for the consumers, small mom-and-pop operations worry that without limits on vertical integration they will be squeezed out by bigger, well-funded investments groups.
In contrast, Prop 64 places no limits on vertical integration, except that all testing labs must be independent and large Type 5 grows will not be able act as their own distributors (but these licenses wont even kick in until 2023). For those hoping to create a vertically integrated cannabis business in California in 2018, Prop 64 offers a nice alternative to avoid the MCRSAs limits and independent distribution requirements altogether.
However, this option could be gone by the time state licenses are issued. As California legislators work to develop regulations for both the MCRSA and Prop 64 that can operate simultaneously and in congruence, special interests are sending their lobbyists to the Capitol to try and influence the upcoming laws. Labor unions, investors, and entrepreneurs are all seeking to ...
