California regulation required the state Division of Hashish Management to start accepting giant license functions on January 1, 2023. Earlier this yr, DCC Up to date proposed giant licensing laws (which I described right here). As normally occurs, on December 5, 2022, DCC dropped its second set of modifications to the proposed laws. When DCC’s guidelines take impact, they are going to make it very troublesome for folks to get giant licenses.
The brand new DCC guidelines and enormous licensing
To summarize my earlier submit, the state will permit cultivators to use for bigger licenses than have been beforehand accessible. Up till now, bigger farms needed to mixture small licenses, which they’ll now convert into giant ones. One of many key points right here although – which state regulation mandated years in the past – was that giant license holders couldn’t personal testing labs, microbusinesses, and distributors. Extra on that under.
The large change although issues prohibitions on license possession. Once I wrote my authentic submit, the original proposed regulations stated that “holders” of huge licenses have been ineligible to carry the opposite license sorts referred to above. This was an extremely imprecise time period. Did it imply {that a} enterprise that holds a big license couldn’t maintain the opposite sorts? Did it prolong to house owners of a enterprise that had a license? It wasn’t clear in any respect.
On August 30, 2022, DCC did its first set of modifications to the proposed laws. It expanded the definitions right here by saying that any person who holds an possession or monetary curiosity in a big license can not maintain a prohibited license kind. Whereas this definition can be a bit imprecise, it’s now extremely expansive because of the inclusion of economic curiosity holders.
For reference, DCC defines monetary curiosity holders as:
(1) An individual with an mixture possession curiosity of lower than 20 %.
(2) An individual offering a mortgage to the business hashish enterprise.
(3) An individual entitled to obtain 10 % or extra of the earnings of the business hashish enterprise . . . .
The ultimate class is just too lengthy to repeat however can embody issues like staff with profit-share plans, lenders, brokers, and many others. These modifications should not precisely in keeping with state law, which says solely “A Kind 5, Kind 5A, or Kind 5B licensee shall not be eligible to use for or maintain a Kind 8, Kind 11, or Kind 12 license.” The enlargement to past the licensee will likely be an enormous difficulty for giant and small companies alike.
For the reason that DCC’s guidelines will forbid monetary curiosity holding in each giant licenses and distribution licenses, they are going to probably make life troublesome for giant hashish firms rolling up small licenses into cultivation licenses. It’s because giant firms are likely to have distribution licenses inside their chain. Even when they don’t, they have a tendency to have bigger lists of stockholders or members, and if even a kind of members holds a small monetary curiosity in a distribution licensee, that may forestall a big license for cultivation.
The brand new DCC guidelines have an effect on gamers giant and small
These modifications gained’t simply have an effect on giant hashish companies and MSOs. Smaller hashish firms that want loans, wish to enter into IP license agreements, wish to have interaction with impartial contractor brokers or salespeople, and many others., will have to be very cautious earlier than making use of for giant licenses.
On account of these guidelines, hashish firms that don’t have monetary curiosity limitations once they apply for giant licensing might want to vet new stockholders/members in addition to third-party contract relationships to find out whether or not they maintain monetary pursuits in prohibited license sorts. This may be an extremely troublesome course of, which is more likely to impose a higher burden on smaller companies with out strong compliance applications.
Get your feedback in
DCC famous in its e mail asserting these new modifications that:
The DCC is presently accepting feedback on the additional modifications to the proposed textual content of laws. Any particular person, or the particular person’s licensed consultant, could submit written feedback related to the proposed regulatory motion to the DCC. Please restrict your feedback to the modifications to the textual content.
All feedback should be acquired by 5:00 p.m. on December 21, 2022.
In all chance, this will likely be DCC’s ultimate spherical of modifications and it gained’t change them once more. Sadly, the broadening of state regulation right here will make life tougher for giant and small cultivators alike. Keep tuned for extra updates on California hashish licensing.