New Cannabis Testing And Packaging Rules Now In Effect – How Does This Impact The California Market?

The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) creates the general framework for the regulation of commercial medicinal and adult-use cannabis in California which involves 15 different State agencies in California.  The primary agency is the Bureau Of Cannabis Control (“BCC”).

The BCC established strict requirements for the testing and packaging of cannabis goods but allowed a transition period until July 1, 2018 before the new requirements would come into effect.  Beginning July 1, 2018, cannabis goods must meet all statutory and regulatory requirements. Cannabis goods that do not meet all statutory and regulatory requirements must be destroyed in accordance with the rules pertaining to destruction. Here is the summary of the key provisions of the BCC Regulations that cover the packaging, labeling and testing requirements.

Laboratory Testing Requirements:

A licensee may only sell cannabis goods that have been tested and passed all testing requirements in effect at the time of testing.

  • Untested cannabis goods cannot be sold by a retailer and must be destroyed. A retailer may not send cannabis goods to a distributor for testing.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in possession of a distributor that are owned by the distributor must be destroyed.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in the possession of a distributor owned by a manufacturer or cultivator may be returned to the licensee who owns the cannabis goods. If a cultivator or manufacturer chooses to sell the returned cannabis goods, the cannabis goods must be sent to a distributor for testing and must meet all of the testing requirements in effect at the time of testing before transported to a retailer for sale.

Packaging And Labeling Requirements:

All packaging and labeling must be performed prior to cannabis goods being transported to a retailer.

  • A retailer shall not accept cannabis goods that are not properly packaged and labeled. A retailer shall not package or label cannabis goods, even if the cannabis goods were in inventory before July 1, 2018. However, for medicinal sales, retailers will place a sticker on cannabis goods stating, “FOR MEDICAL USE ONLY” upon sale to a qualified medicinal consumer, unless the statement is already printed on the package.
  • A retailer may not send unpackaged cannabis goods to another licensee for packaging or labeling. Cannabis goods in possession of a retailer that do not meet packaging and labeling requirements must be destroyed.
  • Exit packaging is not required to be child-resistant and can no longer be used to satisfy the child-resistant packaging requirements. All cannabis goods must be in child-resistant packaging prior to delivery to a retailer.

THC Limits For Edible Cannabis Products:

Edible cannabis goods may not exceed 10 milligrams of THC per serving and may not exceed 100 milligrams of THC per package.

THC Limits For Non-Edible Cannabis Products:

Non-edible cannabis goods must meet package THC restrictions.

  • Non-edible cannabis goods shall not contain more than 1,000 milligrams of THC per package if intended for sale only in the adult-use market.
  • Non-edible cannabis goods shall not contain more than 2,000 milligrams of THC per package if intended for sale only in the medicinal market.

Ingredients And Appearance Of Cannabis Products:

A retailer may only sell cannabis goods that meet the requirements set by the California Department of Public Health for ingredients or appearance.

Destruction Of Defective Cannabis

Now that June 30th has passed, any cannabis inventory remaining that does not meet the new regulations is defective and must be disposed either by returning the cannabis goods to the selling licensee only in exchange for a non-defective version of the same type of cannabis goo or in exchange for a cannabis good of equal value. BCC Regulations Section 5053.

Alternatively, a licensee could deem that the defective cannabis constitutes “waste” and dispose of the cannabis waste in a secured waste receptacle or secured area.  BCC Regulations Section 5055(c).

Short-term challenges

As now the supply of sellable cannabis has decreased because not as much inventory may meet the State’s new rules and there would be an additional cost for the testing, labeling and packaging under the new rules, prices of cannabis will likely increase.  This may in turn fuel the illegal market for cannabis.  You can be sure that the State will having a greater interest and play a bigger enforcing role to make sure that defective or non-compliant cannabis goods do not make it to the marketplace.

What Should You Do?

It’s not enough that any cannabis entrepreneurs must deal with the fact that cannabis is the Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision.  You need to also protect yourself and comply with State laws and regulations.  Be proactive and engage an experienced attorney-CPA in your area.  Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.