Existing law, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), approved by the voters at the November 8, 2016, statewide general election, regulates the cultivation, distribution, transport, storage, manufacturing, testing, processing, sale, and use of cannabis for nonmedical purposes by people 21 years of age and older. The existing an initiative measure, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. AUMA authorizes legislative amendment of its provisions with a ²/₃ vote of both houses, without submission to the voters, to further its purposes and intent, except as provided.

Existing law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities. activities, and requires the Department of Cannabis Control to administer its provisions. MAUCRSA grants to the department the sole authority to create, issue, deny, renew, discipline, condition, suspend, or revoke licenses for commercial cannabis activity.

This bill would state the intent of the Legislature to enact legislation that would authorize the Department of Cannabis Control to transfer licenses for commercial cannabis activity from a licensee to another person, subject to the requirements of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). also grant to the department the sole authority to transfer, assign, or reassign those licenses. The bill would declare that its provisions further the purpose and intent of AUMA.

Existing law, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), approved by the voters at the November 8, 2016, statewide general election, regulates the cultivation, distribution, transport, storage, manufacturing, testing, processing, sale, and use of cannabis for nonmedical purposes by people 21 years of age and older. The existing Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities.

This bill would state the intent of the Legislature to enact legislation that would authorize the Department of Cannabis Control to transfer licenses for commercial cannabis activity from a licensee to another person, subject to the requirements of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).

Date of Hearing: May 3, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 351

Author:(Chen) – As Amended Ver:March 23, 2023

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

SUMMARY:

This bill authorizes the Department of Cannabis Control (DCC) to transfer, assign, or reassign licenses for commercial cannabis activity.

FISCAL EFFECT:

DCC estimates it would need $150,000 in one-time costs to update its licensing and track and trace systems to allow for the transfer, assignment, or reassignment of licenses.

COMMENTS:

1. Purpose. This bill is sponsored by the California Cannabis Manufacturers Association and Kiva Confections. According to the author:

AB 351 is a critical step forward in regulation of the legal cannabis industry, keeping consumer safety in the forefront while ensuring the industry operates as efficiently as possible. In this way, the DCC will be explicitly authorized to create a simplified process to transfer and reassign licenses. This bill is another important step to ensure fairness and efficiency in an industry that is still taking shape here in California. Current regulations simply do not reflect optimal conditions for the cannabis industry, it is critical that the Legislature rewards those who play by the rules within the legal cannabis market.

1. Background. To apply for a commercial cannabis license, applicants must complete a local permitting process, including a California Environmental Quality Act (CEQA) review; complete an application; submit required documents, including diagrams of the proposed licensed premises; be fingerprinted and undergo a background check; and pay an application fee. When DCC approves an application, the applicant must pay a license fee. Licenses are good for one year, but may be renewed.

In fiscal year 2021-22, average times for processing state license applications, by category, were as follows:

• Cultivation: 221 days.
• Manufacturing: 180 days.
• Distribution: 287 days.
• Testing Laboratory: 851 days.
• Retailer: 183 days.
• Microbusiness Licenses: 244 days.
• Event Organizer: 153 days.
• Temporary Cannabis Event: 59 days.

Under existing law, to acquire a license, one would need to acquire the entire company that holds the license and assume all of its liability. The owner of the company being bought would have to add the purchaser to the license. Once approved and added to the license, the purchaser could then remove the seller from the license.

1. Policy Concerns. The Assembly Business and Professions Committee analysis raises two concerns:
   
   1. This bill has the potential to create a marketplace for licenses whereby large businesses are able to consolidate the market by outbidding smaller businesses. The author may wish to consider how to narrowly tailor the bill so as to provide expediency for licensees without creating a marketplace that could result in inequitable bidding wars for licenses.
      
   2. Authorizing DCC to transfer licenses might allow licensees who have violated the law to skirt disciplinary action by DCC.
      
2. Related Legislation.
   
   1. AB 471 (Kalra) authorizes DCC to issue a state caterer license that authorizes the licensee to serve cannabis at a private event approved by a local jurisdiction. AB 471 is pending in the Assembly Governmental Organization Committee.
      
   2. AB 1111 (Pellerin) requires DCC to issue a small producer event sales license, authorizing onsite cannabis sales at state temporary events, to a licensed cultivator who meets specified requirements. AB 1111 is pending in this committee.
3. Prior Legislation.
   1. AB 2210 (Quirk), Chapter 391, Statutes of 2022, prohibited DCC from denying an application for a state temporary event license solely because there is an alcohol license for the proposed premises of the event.
   2. AB 2020 (Quirk), Chapter 749, Statutes of 2018, authorized the Bureau of Cannabis Control to issue a temporary state license to provide on-site sales and consumption of cannabis at a temporary event located at a fairground, district agricultural association event, or other venue expressly approved by a local jurisdiction.
   3. AB 2844 (Kalra), of the 2021-22 Legislative Session, was substantially similar to AB 471 (Kalra) of the current legislative session. AB 2844 was held on the suspense file in this committee.
   4. AB 2691 (Wood), of the 2021-22 Legislative Session, was substantially similar to AB 1111 (Pellerin) of the current legislative session. AB 2691 died on the Assembly inactive file.
   5. AB 2312 (Quirk), of the 2019-20 Legislative Session, was substantially similar to AB 2210 (Quirk), Chapter 391, Statutes of 2022. AB 2310 died pending a hearing in Assembly Business and Professions Committee.
   6. AB 2641 (Wood), of the 2017-18 Legislative Session, was substantially similar to AB 2691 (Wood), of the 2021-22 Legislative Session, and AB 1111 (Pellerin) of the current legislative session. AB 2641 was held on the Senate Appropriations Committee suspense file.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 18, 2023

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Marc Berman, Chair

ABPCA Bill Id:AB 351

Author:(Chen) – As Amended Ver:March 23, 2023

SUBJECT: Cannabis: license transfers.

SUMMARY: Authorizes the Department of Cannabis Control (DCC or department) to transfer, assign, or reassign licenses for commercial cannabis activity.

EXISTING LAW:

1. Enacts the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to provide 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) §§ 26000-26325)
2. Establishes the DCC within the Business, Consumer Services, and Housing Agency (previously established as the Bureau of Cannabis Control, the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation), for purposes of administering and enforcing MAUCRSA. (BPC § 26010)
3. 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)
4. Establishes grounds for disciplinary action against cannabis licensees, including failure to comply with state licensing requirements as well as local laws and ordinances. (BPC § 26030)
5. 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))
6. Grants the department the sole authority to create, issue, deny, renew, discipline, condition, suspend, or revoke licenses for commercial cannabis activity. (BPC § 26012(a)).
7. Authorizes the department to collect fees in connection with activities it regulates concerning cannabis. The department may create licenses in addition to those identified in this division that the department deems necessary to effectuate its duties under this division. (BPC § 26012(b)).

THIS BILL:

1. Authorizes DCC to transfer, assign, or reassign licenses for commercial cannabis activity.
2. Specifies that the Legislature finds and declares that the bill furthers the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act.

FISCAL EFFECT: Unknown. This bill is keyed fiscal by Legislative Counsel.

COMMENTS:

Purpose.

This bill is sponsored by the California Cannabis Manufacturers Association and Kiva Confections. According to the author:

[This bill] is a critical step forward in regulation of the legal cannabis industry, keeping consumer safety in the forefront while ensuring the industry operates as efficiently as possible. In this way, the DCC will be explicitly authorized to create a simplified process to transfer and reassign licenses. This bill is another important step to ensure fairness and efficiency in an industry that is still taking shape here in California. Current regulations simply do not reflect optimal conditions for the cannabis industry, it is critical that the Legislature rewards those who play by the rules within the legal cannabis market.

Background.

Department of Cannabis Control. Since July 1, 2021, DCC has been the single entity responsible for administering and enforcing the majority of California’s cannabis laws, collectively known as MAUCRSA. DCC is additionally responsible for licensing and regulating cannabis businesses, including the cultivation, manufacture, testing, transportation, labeling, and sale of cannabis and cannabis products in this state.^[1]

In order to apply for a license, applicants must complete the local permitting process, including a California Environmental Quality Act (CEQA) review; fill out an application; submit required documents, including diagrams of what would be the licensed premises; be fingerprinted and undergo a background check; and pay an application fee.^[2] When applications are approved, applicants must pay a license fee.^[3] Licenses are good for one year, but may be renewed.^[4]

In Fiscal Year 2021-2022, the average time for processing state license applications, by state license category, was:

• Cultivation Licenses: 221 days
• Manufacturing Licenses: 180 days
• Distribution Licenses: 287 days
• Testing Laboratory Licenses: 851 days
• Retailer Licenses: 183 days Microbusiness Licenses: 244 days
• Event Organizer Licenses: 153 days
• Temporary Cannabis Event Licenses: 59 days^[5]

Under existing law, DCC does not have explicit authorization to transfer, assign, or reassign a state-issued license. Currently, in order to acquire a license, one would have to acquire the entire company that holds the license (e.g., an LLC) and assume all of its liability. Subsequently, the owner of the company being bought would have to add the purchaser to the license. Once approved and added to the license, the purchaser could then offload the seller from the license. The author and sponsor contend that this process is overly burdensome and having the ability to transfer a license would improve continuity of operations.

Current Related Legislation.

AB 471 (Kalra) would authorize DCC to issue a state caterer license that authorizes the licensee to serve cannabis at a private event approved by a local jurisdiction for the purpose of allowing event attendees to consume the cannabis. Pending in the Assembly Governmental Organization Committee.

AB 1111 (Pellerin) requires DCC to issue a small producer event sales license, authorizing onsite cannabis sales at state temporary events, to a licensed cultivator who meets specified requirements. Pending in the Assembly Appropriations Committee.

Prior Related Legislation.

AB 2844 (Kalra) of 2022 was substantially similar to AB 471 (Kalra) of 2023. Held in the Assembly Appropriations Committee.

AB 2691 (Wood) of 2022 was substantially similar to AB 1111 (Pellerin). Died on the Assembly Inactive File.

AB 2210 (Quirk) Chapter 391, Statutes of 2022, prohibited DCC from denying an application for a state temporary event license solely on the basis that there is a license issued pursuant to the Alcoholic Beverage Control Act for the proposed premises of the event.

AB 2312 (Quirk) of 2020 was substantially similar to AB 2210 (Quirk) of 2022. Died pending a hearing in this committee.

AB 2020 (Quirk), Chapter 749, Statutes of 2018, authorized the Bureau of Cannabis Control to issue a temporary state license to provide on-site sales and consumption of cannabis at a temporary event located at a fairground, district agricultural association event, or at another venue expressly approved by a local jurisdiction.

AB 2641 (Wood) of 2018 was substantially similar to AB 2691 (Wood) of 2022 and AB 1111 (Pellerin) of 2023. Held on the Senate Appropriations Committee Suspense File.

ARGUMENTS IN SUPPORT:

In support, the sponsors of this bill, California Cannabis Manufacturers Association
and Kiva Confections write, “This legislation would positively impact the growing legal market and cannabis-friendly culture; there is a growing recognition for the need of transferable licenses; current statute dictates that licenses are not transferable.”

The California Cannabis Industry Association writes in support:

Much of a licensed cannabis business’ value is tied up in its licenses, and when a business is purchased it can be an unnecessarily cumbersome process to ensure the business is able to continue operations through the transfer of ownership due to a lack of statutory clarity. [This bill] resolves this issue by clearly allowing the DCC to authorize the transfer of licenses for commercial cannabis activity from a licensee to another person, subject to the requirements of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).

ARGUMENTS IN OPPOSITION:

None on file.

POLICY ISSUE(S) FOR CONSIDERATION:

Marketplace for licenses. This bill has the potential to create a marketplace for licenses whereby large businesses are able to consolidate the market by outbidding smaller businesses. At a time when market consolidation is occurring rapidly, the author may wish to consider how to narrowly tailor the bill so as to provide expediency for licensees without creating a marketplace that could result in inequitable bidding wars for licenses.

Enforcement. The author may wish to consider whether authorizing DCC to transfer licenses could unintentionally allow licensees who have violated the law to skirt disciplinary action by DCC.

REGISTERED SUPPORT:

California Cannabis Manufacturers Association (co-sponsor)
Kiva Confections (co-sponsor)

California Cannabis Industry Association

REGISTERED OPPOSITION:

None on file.

Analysis Prepared by: Kaitlin Curry / B. & P. / (916) 319-3301

1. Department of Cannabis Control. (n.d.). About the Department of Cannabis Control. Department of Cannabis Control. Retrieved April 6, 2023, from https://cannabis.ca.gov/about-us/about-dcc/ ↑

2. Department of Cannabis Control. (2021, October 22). Annual License Application Checklist. ↑

3. Department of Cannabis Control. (n.d.). How to apply for or renew a license. Department of Cannabis Control. Retrieved April 14, 2023, from https://cannabis.ca.gov/applicants/how-to-apply-renew/ ↑

4. Ibid. ↑

5. Department of Cannabis Control. (2023, March). Department of Cannabis Control Annual Report 2023. ↑