California’s permanent cannabis regulations were reportedly finalized on Monday, December 3, although operators may not be privy to the new regulations until January 2019. State officials have decided not to make the rules public until the Office of Administrative Law (OAL) has finished conducting its review.
The news is frustrating, but it also makes it hard to prepare your business for the potential impact of the permanent cannabis regulations. Here’s what we know about the most recent draft of California’s permanent marijuana business regulations – and how you can prepare for 2019.
What are California’s permanent cannabis business regulations?
The permanent business regulations related to the cannabis industry are joint effort of California’s Bureau of Cannabis Control, Department of Food and Agriculture, and Department of Public Health. The regulations cover a variety of issues related to cannabis, including delivery, packaging, and events.
Experts who have studied the proposed regulations warn that these rules will hurt current operators. Here are a few of the key changes that may affect your business.
End to Contract Manufacturing
All licensed companies could be barred from doing business with a commercial cannabis company lacking a license.
Contract manufacturing, commonly known as white labeling or co-packaging, is a way for licensed manufacturers to produce and package products for those businesses that are still unlicensed. We see this partnership commonly with celebrity-endorsed brands or an established cannabis company that has a production facility located in a municipality which does not allow for commercial cannabis. This is simply the best way to do business for many operators who are hamstrung by the varied cannabis allowances from county to county. If this rule ends up as part of the final regulations, it could put many contract manufacturers out of business.
New Delivery Regulations
The proposed rules reduce the amount of cannabis product a single delivery vehicle can transport from $10,000 to $5,000.
The economics of this rule change could have big implications for licensed cannabis operators. Currently, the $10,000 limit allows for drivers to leave for their delivery window with one order for $100 and $9,900 in additional product to fulfill orders as they come in. However, the rule change forces drivers to leave with at least $2,000 in product designated for orders already placed. This leaves just $3,000 available for fulfilling orders while on the go.
Obviously, this severely restricts the sales opportunities for delivery operators and damages the customer experience. Slower service is bad for business, and the higher overhead of making more trips to and from the delivery hub could put some companies in the red.
New Disclosures for Business Owners
If you have a cannabis business license or own a financial stake in a cannabis venture in California, you will be reclassified as a “salesperson” or “consultant” under the proposed California cannabis business regulations. Why is this important?
The key to this rule is the part where any employee who has a say in what the business should sell, manufacture, or cultivate will be considered an owner. More individuals will therefore have to file state disclosure paperwork. Logistically, this becomes a bureaucratic nightmare. What’s even more concerning is this provision could amount to a ban on silent partners, with big implications for those ventures still seeking funding.
How to Prepare for California’s New Regulations
Until January, we won’t know which of these proposed regulatory changes made it into the permanent bill. However, it’s prudent to start preparing your business now. Talk to your silent investors to make sure they’re aware of the changes in disclosures. If you need to find a new investor for your cannabis business, it’s better to start now.
If you run a delivery service, take a look at your operating budget to see if you have space to hire extra vehicles and drivers. You can also prepare your customers by asking for minimum orders or changing up the checkout process in incremental changes. Minimize the disruption to the user experience by making small adjustments to your delivery service ahead of time.
Finally, if you’re working with a contract manufacturer, protect your business by seeking a plan B partner. Lock up relationships with other licensed operators now, as competition is only going to get steep.
For more on the proposed regulations, get in touch with our experts today.