Governor Newsom Approved the Following Bills 

On Tuesday, September 29th, Governor Newsom provided his final decision on several cannabis-related State Bills and Assembly Bills. Amongst the approved bills are: 

AB 1525 which provides that financial institutions do not commit a crime under California law for providing financial services to licensed commercial cannabis businesses, and therefore shall no longer be subject to state penalties as such. Newsom supported this bill because he believes it “has the potential to increase the provision of financial services to the legal cannabis industry.” 

SB 67 establishes the California Department of Food and Agriculture’s (“CDFA”) creation of an appellations of origin program. Cultivators may now establish appellations of origin for cannabis produced in certain geographical regions of California, instead of by county. An appellation of origin will be approved only if “it requires the practice of planting in the ground in the canopy area and excludes the practices of using structures, including a greenhouse, hoop house, glasshouse, conservatory, hothouse, and any similar structure, and any artificial light in the canopy area.” 

Establishment of the appellations program changes how cannabis may be marketed to consumers. The bill provides (1) that cannabis shall not be advertised, marketed, labeled, or sold as produced in a California county, city, or city and county, including any similar name that is likely to mislead consumers as to the kind of cannabis, when the cannabis was not produced in that county, city, or city and county; and (2) that cannabis shall not be advertised, marketed, labeled or sold using an established appellation of origin, including any similar name that is likely to mislead consumers as to the kind of cannabis, unless the cannabis meets the appellation of origin requirements for, and was produced in, the geographical area. 

SB 1244 authorizes licensed testing laboratories to receive and test samples of cannabis or cannabis products from (1) a state or local law enforcement, or a prosecuting or regulatory agency in order to test the cannabis or cannabis products; (2) a qualified patient or primary caregiver with a valid physician’s recommendation; and (3) a person over 21 years of age when the cannabis has been grown by that person and will be used solely for that person’s use. 

The bill further clarifies that testing conducted for state or local law enforcement, a prosecuting agency, or a regulatory agency, is not commercial cannabis activity and prohibits that testing from being arranged or overseen by the Bureau of Cannabis Control (“BCC”). Additionally, testing laboratories shall not certify samples from a qualified patient, primary caregiver, or person over 21 years of age for resale or transfer to another person or licensee. 

AB 1458 increases the margin of error for THC concentration of edible cannabis products until December 31, 2021. Prior to the approval of this bill, Section 5307.1 of the BCC Regulations provided that any cannabinoid, THC, and/or CBD concentration on a cannabis product label is not considered inaccurate if the difference in percentage on the Certificate of Analysis is plus or minus 10%. Following the approval of this bill, the margin of error for cannabinoid, THC, and/or CBD concentration in edible cannabis products has been increased to plus or minus 12% until December 31, 2021. Beginning on January 1, 2022, the margin of error will be scaled back to the original margin of plus or minus 10%. 

This bill may be considered a win for licensed manufacturers of edible cannabis products because the 10% variance meant that manufacturers were burdened with providing a near-perfect sample to licensed testing laboratories. A margin of error of 10% meant that with a 10-milligram, single-serving edible, manufacturers were allowed only a slim 1-milligram variance. If testing of a cannabis product fails for potency outside of the allowable margin of error, the products must be returned to the distributor to relabel thereby resulting in additional fees and costs to the manufacturer and a delay in releasing the product to the retail market. With the increased margin of error of 12%, licensed manufacturers of edible cannabis products are allowed a variance of 1.2 milligrams per 10-milligram single-serving edible. 

Lastly, AB 1872 prohibits the California Department of Tax and Fee Administration (“CDTFA”) from (1) increasing the mark-up on cannabis excise taxes until July 1, 2021 and (2) adjusting the cultivation tax rate for inflation during the entirety of 2021 year. Despite having the largest legal cannabis market in the world, the California legal cannabis industry is burdened with the highest tax rates in the nation, thus the Governor’s approval of this bill is highly (no pun intended) supported.

Governor Newsom Vetoed the Following Bills 

AB 1470 proposed an amendment to the definition of final form” to mean “the unpackaged product as it will be consumed” such that cannabis goods would no longer have to be in final retail packaging when being tested by licensed testing laboratories for regulatory compliance. This change is most impactful for licensees because it would reduce packaging waste as well as needless spending on remediation, additional packaging materials, and the labor to remediate and repackage. 

Governor Newsom’s reason for vetoing this bill is that it “conflicts with current regulations promulgated by cannabis licensing authorities that prevent contaminated and unsafe products from entering the retail market.” He further stated, “While I support reducing packaging waste, allowing products to be tested not in their final retail form could result in consumer harm and have a disproportionate impact on small operators.”  The Governor’s rationale is flawed: small operators are the ones hurt most by costly packaging and repackaging requirements post-remediation. Although the Governor vetoed this bill, there is still hope that the bill will become law. In order to override the Governor’s veto, the bill needs a two-thirds vote in both houses to pass. 

AB 545 proposed the dissolution of the BCC, which oversees retail, distribution, and microbusiness licensees. Given the Governor’s plan to consolidate the three regulatory agencies into one single department by next year, Governor Newsom vetoed this bill because dissolution of the BCC at this time is “premature.” 

If you have any questions about the newly approved laws or any cannabis-related laws and regulations, please do not hesitate to contact one of the attorneys at Katcho, Vitiello & Karikomi, PC.

By Nellie Niakossary, October 2, 2020

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