Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1465

Author:(Bloom) – As Amended Ver:May 1, 2019

Urgency: Yes State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill creates a new cannabis license type for a “consumption cafe/lounge,” in which customers may consume cannabis and cannabis products onsite within an establishment that may also prepare and sell noncannabis products. It allows smoking, vaping or ingestion of cannabis or cannabis products as long as they are not visible from a public place or non-age-restricted area.

It specifies, prior to the adoption of regulations consumption cafe/lounge licenses, an applicant may apply for a retail license with a consumption cafe/lounge designation.

FISCAL EFFECT:

1. Creation and regulation of a new license type will impose unknown, significant additional ongoing costs to the Bureau of Cannabis Control for licensure and enforcement, depending upon the number of applicants (Cannabis Control Fund).
2. One-time information technology cost of $280,000 to add the new license type (Cannabis Control Fund).

COMMENTS:

1. Purpose. According to the author, this bill is necessary to allow consumption lounges. The City of West Hollywood is the sponsor of this bill and seeks a state licensure category that would allow businesses that have been proposed locally to operate with a state license.

For instance, one applicant for a consumption license described itself as a full service restaurant offering meals featuring local, organic ingredients with “farm-to-table preparation,” including optional enhancement with CBD and THC-infused dressings and sauces, natural agave sweeteners and wellness shots.

1. Background. The Bureau of Cannabis Control licenses most cannabis businesses. This bill would add a new licensure type distinct from a retailer that allows both cannabis and non-cannabis products, such as food and beverages. Proposition 64 authorized local jurisdictions to allow for the smoking, vaporizing and ingesting of cannabis or cannabis products on the premises of a retailer or microbusiness licensed under certain conditions. This language gave cities and counties the option of locally authorizing the establishment of settings like lounges where cannabis use can occur socially. Recent amendments specify the California Retail Food Code, which is comprised of locally enforced food safety rules, also applies to establishments that serve food and beverages and are licensed under this bill.
2. Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing:

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Evan Low, Chair

ABPCA Bill Id:AB 1465

Author:(Bloom) – As Amended Ver:March 28, 2019

SUBJECT: Cannabis: consumption cafe/lounge license.

SUMMARY: Creates a new cannabis license type for a “consumption cafe/lounge,” in which customers may consume cannabis and cannabis products onsite within an establishment that may also prepare and sell noncannabis products.

EXISTING LAW:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act to provide for a comprehensive regulatory framework for the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis. (Business and Professions Code (BPC) §§ 26000 et al.)
2. Provides for twenty total types of cannabis licenses including subtypes for cultivation, manufacturing, testing, retail, distribution, and microbusiness; requires each licensee except for testing laboratories to clearly designate whether their license is for adult-use or medicinal cannabis. (BPC § 26050)
3. Establishes the Bureau of Cannabis Control (BCC) within the Department of Consumer Affairs, previously named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation, for purposes of regulating microbusinesses, transportation, storage, distribution, testing, and sale of cannabis and cannabis products within the state. (BPC § 26010)
4. Requires the BCC to convene an advisory committee to advise state licensing authorities on the development of standards and regulations for legal cannabis, including best practices and guidelines that protect public health and safety while ensuring a regulated environment for commercial cannabis activity that does not impose such barriers so as to perpetuate, rather than reduce and eliminate, the illicit market for cannabis. (BPC § 26014)
5. Provides the Department of Food and Agriculture (CDFA) with responsibility for regulating cannabis cultivators. (BPC § 26060)
6. Provides the Department of Public Health (CDPH) with responsibility for regulating cannabis manufacturers. (BPC § 26130)
7. Establishes grounds for disciplinary action against cannabis licensees, including failures to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
8. Subjects cannabis businesses operating without a license to civil penalties of up to three times the amount of the license fee for each violation in addition to any criminal penalties. (BPC § 26038)
9. Expresses that state cannabis laws shall not be interpreted to supersede or limit the authority of a local jurisdiction to adopt and enforce local ordinances to regulate cannabis businesses. (BPC § 26200(a))
10. Authorizes a local jurisdiction to allow for the smoking, vaporizing, and ingesting of cannabis or cannabis products on the premises of a licensed retailer or microbusiness if all of the following are met:
    1. Access to the area where cannabis consumption is allowed is restricted to persons 21 years of age or older.
    2. Cannabis consumption is not visible from any public place or nonage-restricted area.
    3. Sale or consumption of alcohol or tobacco is not allowed on the premises.

(BPC § 26200(g))

1. Authorizes the Legislature to enact laws to implement the state’s regulatory scheme for cannabis, provided those laws are consistent with the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act (Proposition 64). (BPC § 26000)
2. Prohibits the sale, gift, delivery, or purchase of alcoholic between the hours of 2 o’clock a.m. and 6 o’clock a.m. of the same day. (BPC § 25631)
3. Prohibits the smoking or ingesting of cannabis or cannabis products in a public place, with the exception of a licensed retailer or microbusiness if authorized under local law. (Health and Safety Code (HSC) § 11362.3)
4. Enacts the California Retail Food Code, intended to safeguard public health and provide to consumers food that is safe, unadulterated, and honestly presented through adoption of science-based standards. (HSC §§ 113700 et al.)

THIS BILL:

1. Creates a new cannabis license classification titled “Type 13—Consumption cafe/lounge.”
2. Requires a consumption cafe/lounge to have a licensed premises that is a physical location from which commercial cannabis activities are conducted.
3. Limits the sale of cannabis or cannabis products by a consumption cafe/lounge to adults 21 years of age or older for onsite consumption, either through smoking, vaping, or ingestion of edible or topical products.
4. Until the BCC adopts regulations implementing the new consumption cafe/lounge license type, states that an applicant shall be allowed to apply for a Type 10-Retailer license with a specified consumption cafe/lounge designation.
5. Establishes various additional limitations and privileges for holders of a retailer license that includes the consumption cafe/lounge designation, which would also presumably be included in any regulations subsequently adopted by the BCC for the consumption cafe/lounge license classification.
6. Allows noncannabis products, such as food and beverages, to be prepared and sold onsite at a consumption cafe/lounge.
7. Authorizes a consumption cafe/lounge to operate and sell cannabis, cannabis products, and noncannabis products only between the hours of 6:00 a.m. and 2:00 a.m.
8. Limits the sale of cannabis by a consumption cafe/lounge to an individual to an amount reasonable for onsite consumption.
9. Allows cannabis and cannabis products purchased onsite at a consumption cafe/lounge to be removed from their packaging and consumed onsite.
10. Permits any cannabis or cannabis products not fully consumed onsite to be resealed in their original packaging, placed in opaque packaging, and taken off site by the consumer.
11. Prohibits a consumption cafe/lounge from selling live plants or seeds.
12. Prohibits a consumption cafe/lounge from allowing the sale or consumption of alcohol or tobacco on the premises.
13. Reiterates that the smoking, vaping, or ingestion of cannabis or cannabis products at a consumption cafe/lounge shall not be visible from any public place or nonage-restricted area.

FISCAL EFFECT: Unknown; this bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the City of West Hollywood. According to the author:

When Californians voted to legalize recreational marijuana in 2016 under Proposition 64, they allowed cities the ability to license businesses for the consumption of cannabis, such as lounges or cafes. Lounges are cannabis retail businesses that also allow for the on-site consumption of cannabis. While there is a great deal of interest in these businesses across the state, there is no cannabis consumption license at the state level, businesses that receive local consumption licenses must obtain a state-adult use retail cannabis license and conform to those regulations.

AB 1465 leaves it up to local jurisdictions to decide whether to allow cannabis consumption lounges in their city. Consumption café/lounges may soon become an important part of the nightlife, hospitality, and tourism economies in the State. Thus, creating a separate license at the state level for consumption café/lounges, with accompanying rules and regulations aligned with those businesses, is necessary so that the businesses can operate effectively.

Background.

Early History of Cannabis Regulation in California. Consumption of cannabis was first made lawful in California in 1996 when voters approved Proposition 215, or the Compassionate Use Act. Proposition 215 protected qualified patients and caregivers from prosecution relating to the possession and cultivation of cannabis for medicinal purposes, if recommended by a physician. The initiative prohibited physicians from being punished or denied any right or privilege for making a medicinal cannabis recommendation to a patient. Proposition 215 also included findings and declarations encouraging the federal and state governments to implement a plan to provide for the safe and affordable distribution of cannabis to patients with medical needs.

The regulatory scheme for medicinal cannabis was further refined by SB 420 (Vasconcellos) in 2003, which established the state’s Medical Marijuana Program (MMP.) Under the MMP, qualified patients were eligible to obtain a voluntary medical marijuana patient card, which could be used to verify that the patient or a caregiver had authorization to cultivate, possess, transport, or use medicinal cannabis. The MPP’s identification cards were intended to help law enforcement officers identify and verify that cardholders were allowed to cultivate, possess, or transport limited amounts of cannabis without being subject to arrest. The MMP also created protections for qualified patients and primary caregivers from prosecution for the formation of collectives and cooperatives for medicinal cannabis cultivation.

Without the adoption of a formal framework to provide for state licensure and regulation of medicinal cannabis, a proliferation of informally regulated cannabis collectives and cooperatives were largely left to the enforcement of local governments. As a result, a patchwork of local regulations was created with little statewide involvement. More restrictive laws and ordinances by cities and counties were ultimately upheld by the California Supreme Court in City of Riverside v. Inland Empire Patients (2013) 56 Cal. 4^th 729, which held that state law did not expressly or implicitly limit the inherent authority of a local jurisdiction, by its own ordinances, to regulate the use of its land, including the authority to provide that facilities for the distribution of medicinal cannabis be prohibited from operating within its borders.

Even after several years of allowable cannabis cultivation and consumption under state law, a lack of a uniform regulatory framework led to persistent problems across the state. Cannabis’s continued illegality under the federal Controlled Substances Act, which classifies cannabis as a Schedule I drug ineligible for prescription, generated periodic enforcement activities by the United States Department of Justice. The constant threat of action by the federal government created apprehension among California’s cannabis community.

A document issued by the United States Attorney General in 2013 known as the “Cole memorandum” indicated that the existence of a strong and effective state regulatory system, and a cannabis operation’s compliance with such a system, could allay the threat of federal enforcement interests. Federal prosecutors were urged under the memo to review cannabis cases on a case-by-case basis and consider whether a cannabis operation was in compliance with a strong and effective state regulatory system prior to prosecution. The memo was followed by Congress’s passage of the Rohrabacher-Farr amendment, which prohibits the United States Department of Justice from interceding in state efforts to implement medicinal cannabis.

MCRSA. After several attempts to improve the state’s regulation of cannabis, the Legislature passed the Medical Marijuana Regulation and Safety Act—subsequently retitled the Medical Cannabis Regulation and Safety Act (MCRSA)—in 2015. MCRSA consisted of a package of legislation: AB 243 (Wood); AB 266 (Bonta, Cooley, Jones-Sawyer, Lackey, and Wood); and SB 643 (McGuire). MCRSA established, for the first time, a comprehensive statewide licensing and regulatory framework for the cultivation, manufacture, transportation, testing, distribution, and sale of medicinal cannabis to be administered by the newly established BCC within the Department of Consumer Affairs, the CDPH, and the CDFA, with implementation relying on each agency’s area of expertise.

MCRSA vested authority for:

• The BCC to license and regulate dispensaries, distributors, transporters, and (subsequently) testing laboratories, and to provide oversight for the state’s regulatory framework;
• The CDPH to license and regulate manufacturers; and
  
• The CDFA to license and regulate cultivators.

While entrusting state agencies to promulgate extensive regulations governing the implementation of the state’s cannabis laws, MCRSA fully preserved local control. Under MCRSA, local governments may establish their own ordinances to regulate medicinal cannabis activity. Local jurisdictions may also choose to ban cannabis establishments altogether.

AUMA. Not long after the Legislature enacted MCRSA, California voters passed Proposition 64, the Adult Use of Marijuana Act (AUMA). The passage of the AUMA legalized cannabis for non-medicinal adult use in a private home or licensed business; allowed adults 21 and over to possess and give away up to approximately one ounce of cannabis and up to eight grams of concentrate; and permitted the personal cultivation of up to six plants. The law retained prohibitions against smoking in or operating a vehicle while under the effects of cannabis, possessing cannabis at a school or other child oriented facility while kids are present, growing in an unlocked or public place, and providing cannabis to minors.

The proponents of the AUMA sought to make use of much of the regulatory framework and authorities set out by MCRSA while making a few notable changes to the structure still being implemented. In addition, the AUMA approved by the voters adopted the January 1, 2018 deadline for state implementation of non-medicinal cannabis in addition to the regulations required in MCRSA that were scheduled to take effect on the same date. The same agencies given authority under MCRSA remained responsible for implementing regulations for adult use.

Under the AUMA, the BCC within the Department of Consumer Affairs continues to serve as the lead regulatory agency for all cannabis, both medicinal and non-medicinal. The AUMA includes 19 different license types compared to the original 17 in MCRSA, and provides the Department of Consumer Affairs (and the BCC) with exclusive authority to license and regulate the transportation of cannabis. The AUMA also authorizes vertical integration models which allows for the holding of multiple license types, as previously prohibited under MCRSA. Additionally, while MCRSA required both a state and local license to operate, the AUMA only stipulated a state license; however, the state is also directed not to issue a license to an applicant if it would “violate the provisions of any local ordinance or regulation.”

The language of the AUMA allows for legislative modifications that “implement” or “give practical effect” to the law by a majority vote. However, what constitutes “implementing” has been interpreted to be limited. Consequently, proposed changes to the voters’ intent in the AUMA require a two-thirds vote and of those, some may be deemed to require voter approval.

MAUCRSA. In the spring of 2017, SB 94 (Committee on Budget and Fiscal Review) was introduced to reconcile the distinct systems for the regulation, licensing, and enforcement of legal cannabis that had been established under the respective authorities of MCRSA and the AUMA. The single consolidated system established by the bill—known as the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA)—created a unified series of cannabis laws and deleted redundant code sections no longer necessary due to the combination of the two systems. MAUCRSA also clarified a number of components, including but not limited to licensing, local control, taxation, testing, and edibles.

Regulations. On January 16, 2019, the state’s three cannabis licensing authorities—the BCC, the CDPH, and the CDFA—officially announced that the Office of Administrative Law had approved final cannabis regulations promulgated by the three agencies respectively. These final regulations replaced emergency regulations that had previously been in place, and made various changes to earlier requirements following the public rulemaking process. The adoption of final rules provided a sense of finality to the state’s long history in providing for the regulation of lawful cannabis sale and use.

Cannabis Consumption. MAUCRSA generally prohibits smoking or ingesting cannabis or cannabis products in any public place. However, Proposition 64 authorized local jurisdictions to allow for the smoking, vaporizing, and ingesting of cannabis or cannabis products on the premises of a retailer or microbusiness licensed under certain conditions. This language gave cities and counties the option of locally authorizing the establishment of settings like lounges where cannabis use can occur socially.

On November 20, 2017, the West Hollywood City Council adopted a Cannabis Ordinance providing local authorization for a variety of different licensed cannabis businesses. This included two types of consumption lounges: one featuring only edible cannabis products, and the other allowing smoking, vaping, and edibles. Applications for these license types presented the city with hospitality-focused business models, where customers would be able to consume cannabis and cannabis products in a “social lounge” setting.

A recurring element in the proposed consumption lounges under consideration in the City of West Hollywood was that cannabis and cannabis products could be consumed alongside non-cannabis products. One proposal described itself as a “full service restaurant” offering meals “featuring local, organic ingredients with farm-to-table preparation.” Under the proposal as a consumption lounge, these meals could be optionally enhanced “with CBD and THC infused dressings and sauces, natural agave sweeteners, and wellness shots.”

While this locally authorized business model would potentially have been lawful under the BCC’s emergency regulations, its final regulations appear to expressly prohibit it. Under § 5407 in the BCC’s final rules, “in addition to cannabis goods, a licensed retailer may sell only cannabis accessories and licensee’s branded merchandise.” In other words, even if a jurisdiction authorized businesses in possession of a state-issued retail license to sell and provide non-cannabis products (potentially featuring local, organic ingredients with farm-to-table preparation), if those products did not contain cannabis, those businesses would be unlawful at the state level.

Rather than advocating for the BCC to reopen its regulations and allow for locally authorized consumption lounges to offer non-cannabis products, the City of West Hollywood is sponsoring this bill to create a new license type specifically designed to accommodate what that jurisdiction is doing through its ordinances. The bill would create a specific license category for a consumption cafe/lounge where adults could consume cannabis and cannabis products, in addition to the existing authorization for consumption in licensed retail settings. While it is anticipated that the BCC would have to promulgate additional regulations to accommodate the new license type, the author’s intent is that in the short term, businesses like those authorized in West Hollywood could operate lawfully through a temporary enhancement to their retail licenses.

Current Related Legislation. AB 228 (Aguiar-Curry) would authorize cannabis businesses to sell products containing CBD derived from hemp. This bill is pending in the Assembly Appropriations Committee.

AB 286 (Bonta) would reduce the excise tax rate on cannabis and suspend the cannabis cultivation tax until June 1, 2022. This bill is pending in the Assembly Business and Professions Committee.

AB 545 (Low) would require the Bureau of Cannabis Control to undergo sunset review. This bill is pending in the Assembly Appropriations Committee.

AB 1288 (Cooley) would require cannabis delivery to be included in track and trace. This bill is pending in the Assembly Appropriations Committee.

AB 1530 (Cooley) would have authorized local governments to ban the delivery of cannabis to addresses within its jurisdiction. This bill failed passage in the Assembly Business and Professions Committee.

Prior Related Legislation. SB 94 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2017) combined AUMA and MCRSA into one system for the regulation of cannabis, resulting in MAUCRSA.

POLICY ISSUE(S) FOR CONSIDERATION:

The intent of the author appears to be to confirm the legality of the City of West Hollywood’s local licensure of cannabis cafes and lounges that offer combinations of edible cannabis products with non-cannabis food products. However, the bill as drafted appears to go beyond that goal. Because the bill very broadly allows a licensed consumption cafe/lounge to prepare and sell “noncannabis products”—with “food and beverages” included as an example but in no way limiting sales to those products—the vertical integration of a consumption cafe/lounge with a retail license would appear to effectively allow both cannabis and non-cannabis products to be sold on the same premises, which would have extensive implications beyond the intent of this bill.

The author should consider narrowing the bill to avoid unintended consequences while still achieving the objective of providing state-level legality of West Hollywood’s local license type. This could be achieved by clarifying what kinds of non-cannabis products may be sold. Further safeguards could be implemented by preventing retail sales of cannabis and cannabis products from being either directly or indirectly sold within a consumption cafe/lounge, where non-cannabis products are additionally being offered.

Amendments should also be considered to clarify that if a cannabis consumption cafe/lounge is preparing and selling noncannabis food products for onsite consumption, those businesses will have to comply with other laws generally governing the preparation and sale of food.

IMPLEMENTATION ISSUES:

While statute only provides for 12 cannabis license types, the BCC’s regulations provide for a Type 13 license already (Distributor Transport Only). The license type created under this bill should be renumbered to Type 14 and the Type 13 license may simply be codified.

AMENDMENTS:

1. To codify the existing Type 13 license created through regulations and renumber the consumption cafe/lounge license type appropriately:

Amend Section 1 of the bill to insert “(21) Type 13—Distributor Transport Only” and renumber the license created through this bill by inserting “(22) Type 14—Consumption Cafe/Lounge.”

Further amend additional references to “Type 13-Consumption cafe/lounge” to reflect the renumbering to a Type 14 license.

1. To provide for limited colocation of a licensed retailer and a vertically integrated licensed consumption cafe/lounge to prevent non-cannabis products from being prepared and sold on what is effectively still retail premises:

Amend paragraph (4) of subdivision (a) of Section 4 to read:

(4) “Consumption cafe/lounge,” for the onsite retail sale and consumption of cannabis or cannabis products. A consumption cafe/lounge shall have a licensed premises that is a physical location from which commercial cannabis activities are conducted. The consumption cafe/lounge shall only sell cannabis or cannabis products to adults 21 years of age or older for onsite consumption, either through smoking, vaping, or ingestion of edible or topical products. The space occupied by a consumption cafe/lounge shall be definite and distinct from space where other activities licensed under this division are exercised, and shall be accessed through a separate entrance.

1. To ensure that any regulations promulgated by the BCC to implement this bill are in effect as quickly as possible:

Insert paragraph (3) in subdivision (m) of Section 4 to read:

(3) The bureau may adopt emergency regulations in accordance with the Administrative Procedure Act to implement this section. The adoption of the regulations shall be considered by the Office of Administrative Law to be necessary for the immediate preservation of the public peace, health and safety, or general welfare.

1. To allow local governments to restrict the hours during which a cannabis consumption cafe/lounge may operate and sell products to a shorter window of time than between 6:00 a.m. and 2:00 a.m.:

Amend (m)(1)(A) in Section 4 to read:

A consumption cafe/lounge shall not be allowed to operate and sell cannabis, cannabis products, and noncannabis food and beverage products between the hours of 2:00 6:00 a.m. and 2:00 a.m. and 6:00 a.m.

1. To prevent a consumption cafe/lounge from inadvertently becoming a de facto retailer through a consumer’s ability to take home substantial quantities of cannabis or cannabis products purchased to be consumed onsite:

Strike (m)(1)(D) in Section 4 and renumber remaining provisions accordingly.

1. To clarify that the non-cannabis products that may be prepared and sold within a cannabis consumption cafe/lounge are food and beverage products:

Amend (m)(1)(E) in Section 4 to read:

(E) Noncannabis food and beverage products, such as food and beverages, may be prepared and sold onsite.

1. To ensure that all food products prepared and sold by a consumption cafe/lounge comply generally with state law governing the preparation and sale of food:

Insert a new subparagraph in (m)(1) in Section 4 to read:

A consumption cafe/lounge shall comply with all applicable provisions within the California Retail Food Code, beginning with Section 113700 et seq. of the Health and Safety Code, when preparing and selling food and beverage products.

1. To allow the bill to immediately validate any local licenses authorizing the type of cannabis consumption cafe/lounge permitted under this legislation upon its enactment:

Add an urgency clause.

REGISTERED SUPPORT:

The City of West Hollywood (Sponsor)

Southern California Coalition

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Robert Sumner / B. & P. / (916) 319-3301