California Issues Guidance to Cannabis Distributors

Cannabis Aug 13, 2019 Dublin, CA

The California Bureau of Cannabis Control (“BCC”) continued its practice of periodically releasing facts sheets in response to issues that have arisen in California’s new and burgeoning commercial cannabis market. The recently released Distributor (Type 11) fact sheet addresses important issues faced by cannabis distributors such as transportation, packaging and labeling, testing, transfers and storage of cannabis goods.

California cannabis distributors are responsible for the transportation of cannabis goods between licensees. Due to high startup costs, many distributors explore potential cost-saving measures such as outsourcing drivers and vehicles, as well as alternate modes of transportation, including air, sea and human-powered vehicles. In its recent guidance, the BCC shut the door on these options stating that only employees and security personnel, i.e. not independent contractors, can be inside a vehicle transporting cannabis goods, all vehicles transporting cannabis goods must be owned or leased directly by the distributor, and all vehicles must be land-based motor vehicles; no boats, trains, planes or bicycles!

Many cannabis distributors hoping to expand their operations have considered crafting products as well as offering packaging and labeling services. However, the BCC has made it clear that except for pre-rolls consisting of pre-processed raw materials (raw flower, shake, leaf or keif), a distributor may not engage in processing, manufacturing, packaging or labeling cannabis goods. A distributor may label or re-label manufactured cannabis goods but only for the purpose of properly stating the amount of cannabinoids and terpenoids contained in the cannabis products based on the results of regulatory compliance testing.

Compliance testing has been a controversial topic especially as California has rolled out more stringent and comprehensive testing standards over the first year and a half of regulation. Distributors should be aware that while transporting cannabis goods from one licensee to another does not trigger compliance testing, taking physical possession of cannabis goods into inventory does. Once taking possession, a distributor cannot transfer the cannabis goods to another distributor or retailer without an accompanying certificate of analysis (“COA”). Distributors taking possession of cannabis goods that have passed regulatory testing must keep in mind that a COA is only good for one year; at which time the goods must either be retested or destroyed.

Although the regulations are relatively clear on the topic, many distributors are surprised to learn that the storage services they can offer to other licensees are limited to cannabis goods that are packaged for retail. A distributor can also store and transport cannabis accessories, branded merchandise, and promotional materials, however, production licensees hoping to use distributors to store raw cannabis materials are limited to their own premises or that of another cultivator or manufacturer.

While the BCC’s newest fact sheet seeks to provide clarity for cannabis distributors, its scope is limited to the flow of cannabis through the supply chain. However, distributors are also responsible for calculating, collecting, and paying Statewide cultivation and excise taxes. Guidance for distributors regarding cannabis taxes, and other licensees, can be found at a website maintained by the California Department of Tax and Fee Administration located here.

Issues presented by a newly enacted regulatory framework can be complex and daunting. When in doubt, we recommend seeking advice from experienced professionals.

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