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On September 11, 2015, California state lawmakers approved a final three bill package that is intended to serve as a comprehensive plan to regulate and license the growth, distribution, and sale of medical marijuana within the state.

The bills roll out many categories of licensing, most of which pertain to various sizes of cultivation from small to massive. Additionally, the bill includes the regulation of manufacturing, dispensary sales, transportation of product, and quality assurance. Quality control will now be a mandatory component of the supply chain, with official “distributors” and “transporters” being charged with the task and responsibility of ensuring the product is appropriately tested and transported from manufacturer to vendor in order to provide greater consumer safety within the industry. So far, this is seen as a positive step for the industry, although we have yet to see how this will all play out in San Diego. A new statewide Bureau of Medical Marijuana Regulation (BMMR) within the Department of Consumer Affairs would oversee a multi-agency licensing and regulatory effort, but it is not clear as to who will make up this Bureau and what standards they will have for regulation.

One major point of concern for those working in the San Diego cannabis industry is the fact that the State licensing requires local licensing first. With San Diego’s tumultuous history of fighting statewide medical marijuana laws, many industry members are questioning to what extent, if any, the city will go to continue building the framework necessary for local cannabis businesses to move forward with state licensing. Only within the last year has the San Diego City Council approved zoning ordinances to allow for a maximum of 30 medical marijuana dispensaries within very specific commercial zones throughout the jurisdiction. These zoning ordinances do nothing to address the very specific categories of cultivation, manufacturing, testing, distribution, and transportation, which will all be available for state licensing.

Another interesting point to address is that the law tries very hard to prevent vertical integration and thus a monopolization of the industry by those with the greatest funding. A company can only hold state licensing in 2 of the 12 categories of licensing that are up for grabs, which means no single company will be able to dominate in all sectors at once.  Many believe that this will lead to higher quality services in specialized niches of the market. At the same time, it could also result in increased prices for products that are already in circulation. For instance, a vaporizer cartridge company that cultivates flowers, extracts the oils, and then distributes the final product will no longer be able to do all three. The legislation requires these companies to choose which categories are most important to their business model. As a result, if such a company were forced to stop cultivation and purchase their buds from an alternative supplier for more money, this would result in increased prices to the consumer. If that same company continued to cultivate their flowers, they would need a licensed distributor and transporter to get the product to the consumer. In either case, an additional layer is placed between manufacturer and consumer, which will inevitably result in increased product pricing statewide.

This landmark legislation has many positive benefits of bringing the California medical cannabis industry out of the grey market, as it has been for nearly 20 years. It is exciting to see our state progressing forward with orchestrating a framework for the medical cannabis industry, but many industry participants remain hesitant as to how this framework will continue to develop over the next few years. Those in the industry must work locally in order to ensure that their city and/or county is ready when the state regulations start trickling down. We will provide more updates on the progress as we learn more!

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