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Proposed Rule Changes Threaten California’s Cannabis Industry

If passed, new regulations set to govern California’s marijuana industry could have a major impact on everyone involved. Everyone from the makers of edibles and concentrates to dispensary owners to the growers themselves, and even those delivering marijuana could be profoundly affected if the rule changes regulations are adopted.

The proposed new rules emanate from three bodies involved in regulating the marijuana industry in the state. These are California’s Department of Public Health, the Department of Food and Agriculture, and the Bureau of Cannabis Control.

The draft regulations issued by the agencies cover areas such as marijuana events, packaging, and delivery in the world’s largest marijuana. They are the result of efforts towards a final regulatory framework for the multi-billion dollar industry.   

What effects could the new rules have?

Decreased income for companies who make concentrates and infused products. A decrease in the amount that delivery companies can transport at any one time, causing slowed delivery rates and lower income.

Slower licensing by the government of all companies involved in marijuana sales, from the growers to the sellers to the labs that test it.

The nitty gritty

If the regulations are adopted, problems will arise concerning the delivery of Cannabis products. The new rules will reduce the amount of product a delivery vehicle can carry from $10,000 to $5,000.

Also, at least two-fifths of that amount, i.e., $2,000, would need to be on its way to customers who have already placed orders with a retailer.

That means that delivery operators would have just $3,000 of product available for orders that they receive while out on deliveries. Currently, with $10,000 of the product allowed to be transported by a single driver at one time means that even if the driver only had a confirmed order for $200 of product, he or she could transport a further $9,800 with them to complete orders taken while out on delivery.

Delivery operators wouldn’t be able to get as many orders out or cover the same amount of territory as they do now. This would limit the reach of the business, and probably means that customers have to wait longer for their product.

This, according to experts, might lead to consumers opting for illegal delivery services over licensed retailers, and more people breaking the law. The rules effectively mean that double the number of journeys would have to be undertaken for the same income.

This would probably result in companies having to take on more drivers who would have to keep returning to restock. Some businesses might not be able to withstand the financial blow.

  • All licensed Cannabis businesses would have to disclose a lot more information about the people and companies who own them. In other words, the days of being a ‘silent partner’ would effectively be over.

According to the draft rules, any one employee or executive who has any decision-making power within a company that sells manufactures or cultivates Cannabis products will be considered to be an owner of the business, and thus legally responsible.

And the proposed rules go even further. Landlords, consultants, lawyers, and others who share in a company’s profits will be considered to have a financial stake in the company, and with that comes legal responsibility.

It would also have a huge logistical impact on the industry because more people would have to fill in forms to disclose ownership or financial interests in a licensed business.

This effect would be felt by businesses immediately should the draft regulations be adopted, and there’s a chance that all these forms that need to be completed will end up delaying the application process for licensees.

Unlicensed third-party companies would be prohibited from making cannabis deliveries. However, tech platforms would be allowed to facilitate deliveries because they are not directly profiting from sales. This could have a major impact on companies like Weedmaps and Eaze.

  • In terms of labeling and packaging, the draft rules propose major changes. Manufacturers would be allowed not to disclose the THC and CBD levels in their products before they have been tested by labs and distributors.
  • This would allow distributors to add information about cannabinoid content, and the levels of other compounds, to the product’s label before being sent to retailers.
  • Manufacturing or growing Cannabis products without a state permit would be illegal. This would likely affect those marijuana companies that have been in business for a long time and failed to get the requisite permits to operate in a now-regulated marketplace.
  • In respect of licensed marijuana events, these would no longer be restricted to county fairgrounds. This would probably give rise to a plethora of various kinds of Cannabis-related events.
  • The draft rules stipulate a modification of testing requirements. This would likely reduce the number of product recalls and failures because of currently strict mandates.

According to some company owners, the proposed new rules spell the end of what is known as contract manufacturing. Also known as co-packaging or white labeling, it allows a licensed manufacturer to produce concentrates or edibles for a company that is not licensed.

If the new rules go through, no such arrangement would be possible, and unlicensed companies would probably go out of business.

The practice of contract manufacturing has proved profitable for licensed businesses manufacturing and selling marijuana products to unlicensed businesses. That income will disappear if the draft regulations get passed.

What’s next?

After a 15-day public comment period that ran until November 5, the three state agencies responsible for California’s Cannabis industry are supposed to complete any changes they want to make to the regulations by December 3.

The BCC has said that it might release another draft of the rules before the deadline, but this would depend on the feedback obtained during the public comment period.

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