Starting a Cannabis Growing Operation

This article is intended for informational purposes only. It does not constitute legal advice. Federal and state governments have opposing legislation which has created a minefield of caution that operators must step closely through before a seed is even planted.

Before legalization, underground growing operations were the heart of the cannabis industry. Now that California has adopted recreational marijuana use legislation, large scale growing operations are already underway. Whether growing 20,000 plants or 20, the legal requirements remain the same. This guide is intended to walk through the legislation to help a grower of any size operation start their business with as much legal consideration as possible.

One of the major components within the new California Cannabis legislation is the requirement for seed-to-sale tracking. At first glance, one might consider that this applies more to dispensaries and distributors than growers. However, this is not the case.

There are several layers of legislation that apply to a growing operation; federal, state, county, city, zoning, land use, contracts, agreements, etc., etc..

Federal Marijuana Law

First and most important, possession of cannabis in any form is against federal law. It is currently listed as a Schedule I drug because it is deemed to possess the following characteristics [21 U.S. Code § 812]:

(A) The drug or other substance has a high potential for abuse.
(B) The drug or other substance has no currently accepted medical use in treatment in the United States.
(C) There is a lack of accepted safety for use of the drug or other substance under medical supervision.

Regardless of your opinion of whether or not marijuana belongs on the Schedule I list, nevertheless, it is and it is a punishable felony to cultivate any amount. At the time of writing this, the Department of Justice is not pursuing the arrest or prosecution of marijuana offenses within the states that have adopted the legal use, whether medical or recreational. The Rohrabacher-Farr Amendment was added to the Omnibus Appropriations Bill and defunds the federal government from pursuing prosecution for cannabis offenses in the states that have legalized its use. As a result, the DOJ may pursue cannabis arrests and prosecution, but there is no funding to pay for it. This amendment  is set to expire on December 22, 2017, which means that federal budget may again be used for the prosecution of marijuana offenses, even in the states that have passed cannabis use laws.

Where farmers once operated under a law that prevented federal prosecutors from pursuing them, that time may be at an end. At this point, Congress has not introduced legislation that would either extend or replace the policy, and with the current Attorney General, Jeff Sessions, we may begin to see an uptick in marijuana offense prosecution.

California State Legislation

In 1996, the Compassionate Use Act (Proposition 215) was passed by 55% of California voters, despite the federal status of marijuana as a schedule 1 narcotic. Prop 215 allowed the use, possession and cultivation of marijuana by individuals obtaining a valid medical recommendation. It also expanded the framework for the cultivation and distribution of cannabis through a cooperative, which allows a licensed grower to cultivate marijuana on behalf of a patient with a valid recommendation.

The Adult Use Marijuana Act (Proposition 64) was passed in 2016, allowing the use, possession and cultivation of cannabis for adults over the age of 21 without a doctor recommendation. However, the passage didn’t allow for the immediate use, possession and cultivation. Instead, Governor Brown issued an emergency stay of implementation until legislation could be enacted to control, track and regulate the sale of cannabis which is in place until January 1, 2018.

Assembly Bill No. 133 was approved on September 16, 2017, and outlines the entire framework for which the industry must operate. Everything from licensing, regulation, administration, taxes and fees are all detailed out in the massive Chapter. It is here that this post will focus its content.

Before applying for a state issued license, ensure the following:

  1. Ensure compliancy with local legislation, including city and county ordinances (more on this later). If your license or permit has been revoked for any reason at the city or county level, your state license application will be denied before being reviewed further.
  2. The applicant must identify a source of water, including 1) the purchase of water from a retail water supplier, whether delivered or purchased from the county or city, 2) the use of surface ground water (i.e. from a stream or lake), and/or 3) extracting ground water from beneath the surface (i.e. a well).  Depending on your water supply, you will have to file an application for a usage permit with the State Water Resources Control Board. Water will be one of the greatest hurdles and cost factors when growing marijuana. Make sure you understand the number of plants you plan to cultivate over the next year and how much water each plant will require, then add an additional buffer for any changes (for example, 20%). 3000 pounds of marijuana plants were seized in government raids citing two prominent violations: 1) no valid permit issued by the county and 2) misuse, unauthorized diversion, and pollution of state waterways. Each operation will have different water requirements based on indoor, outdoor, sun, harvest cycle, etc. Know your water requirements!
  3. You may not begin cultivation operations without first obtaining a state issued license. The state has implemented a unique tracking system where each plant must be registered and issued a unique identifier that is attached to the base of the plant throughout the entire growth cycle. Failure to attach a tag identifying the plant may result in its seizure and revocation of your license.

Licenses for growing operations are issued by the California Department of Food and Agriculture. Although other licensing authorities have released online application services, the CDFA (CalCannabis) has not released their own online service. However, the CDFA has indicated that it will start issuing 120-day temporary licenses with two 90-day extensions for those licensees that have applied for the annual license.

  1. CalCannabis will NOT issue licenses for operators in local jurisdictions that have issued a ban (sorry Fresno!)
  2. If no local ban is present, the applicant should provide a valid business permit along with their application. If a business permit is provided, CalCannabis will validate the business permit with the local agency (10 days). If no business permit is provided, CalCannabis will contact the local agency to determine if the business violates any local ordinances (up to 60 days).
  3. The following documents must be included in your application:
    1. Lease agreement, title or or deed indicating your right to occupy the property
    2. Business formation documents filed with the California Secretary of State
    3. California State Water Resources Control Board permits and verification of the applicant’s water source
    4. California Department of Fish and Wildlife’s 1602 Lake or Streambed permit or waiver of needed permit
    5. California Department of Toxic Substances Control’s hazardous-materials record search via the EnviroStor data-management system
    6. California Department of Tax and Fee Administration seller’s permit
    7. Labor Peace Agreement if there are more than 20 employees
    8. Surety bond valued at $5,000
    9. California Department of Justice fingerprinting via its Live Scan service for each owner
    10. Proof of local jurisdiction CEQA compliance or additional CEQA site-specific analysis
  4. A property diagram including details related to roads, waterways, cultivation areas, etc.
  5. A cultivation plan of operations, including a pest management plan, canopy size, square footage, number of plants, etc.

Once you have the above documentation, you may submit your application. Most of these are relatively easy to obtain, however, they cannot be overlooked. If you do not include one of these documents, your application will be denied and you will have to start the process over again.

Assuming you file for a temporary license on January 1, 2018, you will have until July 1, 2018 to file for an annual license, which means that within that 120-day period, you must have the above documentation included with your application. If you do not, you will have to resubmit your annual application and you may be granted a 90-day extension on your temporary license. CalCannabis will allow two 90-day extensions, but I wouldn’t gamble on the certainty of whether or not they will be granted.

Licensees are subject to inspection at any time and without any reason to ensure that the operation is in compliance with state licensing requirements. Once issued, inspectors will visit a site and validate whether a licensee has performed within their license. In other words, if a grower defines their operation; size of operation, water source, track-and-trace, waste management, etc. and is issued a license based on those ‘declarations’, the inspector will look to ensure that the grower is operating within those boundaries, or at least an acceptable tolerance beyond them. If you declare that you are purchasing 100% of your water from a retail water supplier and the inspectors finds a well on your property, this would be a violation of the license.

Beyond the above requirements, additional considerations to ensure your operation is ready for inspection include:

  1. Document your entire operation and train your employees on that process. The more you can demonstrate that you have established a process and are sticking with that process, the easier it will be to demonstrate compliance.
  2. Have a documented Waste Management process.
  3. There is an entire section requiring the use of renewable energy. If you have indoor operations of any kind, you need to make sure that you have gone through this section of the legislature.
  4. 15 of the 95 page legislation are devoted to fines. Make sure you understand your liability in the event that you deviate from this legislation. You could be subject to fines and the temporary or permanent loss of your license.
  5. Have a documented disaster relief plan. In the event of a catastrophe; flood, fire, earthquake, etc., complying with regulatory requirements may not be possible. You may also qualify for disaster relief.

County and City Legislation

Counties and cities have enacted bans by their city councils on different aspects of the cannabis industry. What may be acceptable in one county, may not in their neighboring county. As a result, you must ensure that your county has not banned the type of operation that you intend to engage upon. For example, in my county (Fresno), there is a ban on indoor and outdoor cultivation of any type — medicinal and adult-use — and is punishable by a fine of up to $1000 per plant and may include sentencing.

Review your county and city ordinances and determine whether or not bans or other restrictions exist. If you need assistance, feel free to contact my office and I will review the regulations against your operations and give you a report of my findings.

Summary

The intent of this post is to be sure that you pursue a cultivator’s license with an understanding of the upfront and ongoing work that will be required to ensure that you are compliant with federal, state, and local laws and regulations. If you intend to start a new growing operation, before planting your first seed, please be sure that you have a plan in place and are seeking licensing. I believe that unlicensed growing operations will be an immediate target after the new year.

Consider the following with respect to a timeline. These are VERY rough estimates that should be used for informational references only.

  • Local business permit (1-5 days)
  • Business Formation document preparation (15 days)
  • Business Formation filing (15 days)
  • Property Diagram (1-5 days)
  • Water Permit (depends, but can be 15-60 days)
  • Labor and Peace Agreement preparation (5-10 days)
  • Surety Bond (online, immediate)
  • Live Scan Fingerprints (1 day)
  • etc.

The key takeaway is that each of these requirements takes different amounts of time and you should not wait until June 15, 2018 to start your annual application filing. You need to start planning for the annual license the day that you issued your temporary license. especially if you are a grower! We are currently in your slow time, as opposed to the peak of summer, so take advantage of your free time to prepare the documentation for your annual license now.