Posted on: Aug 25, 2017By Michael Cindrich

The green rush is on in California. The State already holds the lion’s share of the $5.7 billion cannabis industry, and the market is primed for unprecedented growth with the recent legalization of recreational adult use. Cannabis law has come a long way since California became the first state to legalize medical cannabis use over 20 years ago. However, there is still a long road ahead to create a fully operational and legitimate market.

Industry participants and law enforcement have faced an uphill battle attempting to navigate the ever-changing landscape of cannabis laws. Since the Compassionate Use Act (“CUA”) broadly established an affirmative defense for the medical use of cannabis in 1996, and then the Medical Marijuana Program Act (“MMPA”) established an affirmative defense for collectively and cooperatively producing and distributing medical cannabis in 2003, the industry has largely operated in a legal grey area. Poorly drafted legislation provided little guidance on the breadth and depth of legalization, and the case law developed slowly over the years. Judges and prosecutors in many jurisdictions throughout California strictly interpreted cannabis laws, which led to unnecessary arrests, wasted resources, and, in some cases, wrongful convictions. In San Diego alone, we saw three landmark cannabis decisions that began as erroneous rulings summarily denying patient-defendants their right to present an affirmative defense and were ultimately overturned on appeal. See People v. Konow, 102 Cal. App. 4th 1020 (2002), as modified (Nov. 6, 2002), review granted and opinion superseded, 63 P.3d 212 (Cal. 2003), and rev’d, 88 P.3d 36 (2004); People v. Jackson, 210 Cal.App.4th 525 (2013), as modified on denial of reh’g (Nov. 20, 2012); People v. Orlosky, 233 Cal. App. 4th 257 (2015). Importantly, the liberal MMPA allows a defendant to present a defense to cannabis-related offenses under a variety of circumstances. A written doctor’s recommendation is not required; oral approval is enough. People v Jones, 113 Cal. App. 4th 341 (2003). A written agreement is not required to form a collective or cooperative; the act of informally associating is enough. People v. Orlosky, 233 Cal. App. 4th at 573. Business formalities such as accounting records and nonprofit formation are merely elements for a jury to consider in determining whether a collective or cooperative is operating lawfully. As previously stated, these principles have in large part been developed through caselaw at the expense of unlucky judges and prosecutors. What this means for criminal defense attorneys and for our clients is that under the MMPA, we can use the “grey area” to our advantage. However, law enforcement can use that same “grey area” to arrest our clients, seize their assets, and initiate criminal and/or civil action.

In order to eliminate these uncertainties, decriminalization must go hand-in-hand with regulation. The changing legal landscape has been driven by changing perceptions. For the first time in our nation’s history, the majority of the public is in favor of cannabis legalization. People now view cannabis offenses as less serious than they would other criminal offenses. However, mere decriminalization does not guarantee the safety and efficacy of cannabis and cannabis-related activities. The experiences of states like California, who have boldly legalized cannabis in spite of the continued federal prohibition, have taught lawmakers about how and why to regulate cannabis. The California Legislature recognized that, in order to move into a legitimate industry, regulations needed to be enacted, restrictions put in place, and taxes imposed. With the Medical Cannabis Regulation and Safety Act (MCRSA), the state of California attempted to comprehensively govern the cultivation, manufacturing, and sale of medical cannabis and medical cannabis products. The Legislature adopted important elements from the measures that passed in Colorado, Washington, and Oregon, while avoiding some of the mistakes initially seen with the regulatory frameworks in those states. A centralized Bureau was established within the Department of Consumer Affairs to create all of the detailed regulations that would control and govern how cannabis businesses would operate.

While the state was figuring out how to control the medical cannabis industry, several different interest groups began organizing recreational cannabis initiatives in order to alter the regulatory landscape. The initiative that ultimately made it to the ballot and gained enough votes to pass was Proposition 64. A citizen’s initiative, Proposition 64 was much more business-friendly than the MCRSA. There were some key differences between the two pieces of legislation. For example, Proposition 64 did away with restrictions on vertical integration and cultivation limits, and created an open distribution model. The Brown Administration and the State Legislature realized that they would have to reconcile the differences between MRCSA and Proposition 64. The result was a budget trailer bill, known as Senate Bill 94, which was signed into law on June 27, 2017 to create a unified regulatory framework. Senate Bill 94 repeals and replaces much of MCRSA, and regulatory agencies will now have to quickly adapt the proposed medical regulations in order to begin licensing by the statutorily imposed deadline of January 1, 2018.

What does SB 94 mean for existing cannabis businesses? Within twelve months from the date the state begins issuing licenses, collectives and cooperatives will have to submit an application and gain state approval. If businesses do not receive a state license within that twelve-month period, they must cease operating. The grey area that collectives and cooperatives have been relying on for years just turned very black and white. By early 2019, if you have a state license you are legal; if not, you are illegal. In order to obtain a state license, there are many hoops to jump through. For example, you must establish that you are in full compliance with local laws and regulations before the state will issue a license. Over 98% of the industry is currently operating without any local authorization, approval, licenses, or permits. This means that most businesses operating today will either close their doors, or be forced entirely into the black market. On the other hand, people who have hidden in the shadows for years will have an avenue to come forward and join the tightly regulated marketplace. Investors from out of state will also be coming to California to capitalize on this emerging industry. These people will try to find partners in California’s close-knit cannabis community, but in many cases will fail. For the small percentage of groups that can bring the right team with the right attitude, there are endless opportunities.

For attorneys who are practicing in this field, we have to be prepared to evolve. The fun days of arguing affirmative defenses in court are slowly fading away. Criminal defense cannabis practices will be left with low level misdemeanors, felony extraction cases, local municipal code violations, and the occasional cannabis DUI. Fairly dry corporate and regulatory work will fill the void. Attorneys interested in practicing cannabis law should focus on areas related to the new regulated market. There are great opportunities for employment attorneys, in-house counsel, real estate attorneys, land-use attorneys, securities attorneys, and attorneys practicing in so many other crossover areas.  Just as the industry is adapting to a regulated market, we too must be prepared to move into the future.

By Michael E. Cindrich

This article originally appeared in the July/August 2017 issue of San Diego Lawyer Magazine:

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