California co-working licenses could help further equity in cannabis.

Small-scale caterers and boutique bakers sometimes share the amenities—and costs—of a commercial kitchen to help keep overhead manageable. In California, a new type of business license could allow small-scale and startup cannabis companies to do exactly the same thing.

So-called Type S licenses, issued by the California Department of Public Health, allow small cannabis businesses to operate in co-working spaces rather than requiring each business have its own secure premises.

The arrangement can minimize costs on multiple fronts—from rent to equipment and operating expenses—which CDPH says is meant to provide an opportunity for craft manufacturers who may not otherwise have the investment capital to get up and running.

The state opened the application process for Type S licenses on April 13, but for businesses in jurisdictions that don’t offer the associated permit, the opportunity is moot. In Los Angeles, for example, the local Department of Cannabis Regulation doesn’t offer this permit type.

“Shared spaces are particularly important in Los Angeles, where caps, sensitive uses and the withdrawal of available land meant that people would have to share things like commercial kitchens,” Sarah Armstrong, director of industry affairs at Americans For Safe Access, said in an email. Since subleasing is illegal under state and local law, she said, the S license is a “clever way” to allow for flexibility but still maintain regulatory control by the state.

When state regulators released emergency regulations around S licenses in March, Armstrong and other industry advocates took action at the local level, submitting letters to the Los Angeles City Council, the head of the city’s Department of Cannabis Regulation, and others. They asked the city simply to follow the state’s lead.

According to the CDPH, the Type S license category was designed in “response to demand from cities and counties wishing to implement equity programs.” Without S licenses, many in Los Angeles are concerned a key piece of the city’s ambitious social equity program—designed to help make up for the disproportionate consequences of the drug war—will be impossible.

“The way the Social Equity Program is currently structured, established operators are supposed to allocate space in their businesses to social equity applicants,” Armstrong explained. “This requires an S license or something equivalent to it.”

State regulations dictate that there must be a single “primary licensee” who operates the location. That licensee must secure a California cannabis manufacturing license for the entire space, registering it as a shared-use facility. Businesses wishing to use the space can then simply apply for S licenses. There’s no limit to how many operators can use the space, but only a single business is allowed on the premises at a time, a step meant to ensure the separation needed to comply with state track-and-trace rules.

In a recent letter to city officials, Adam Spiker, executive director of the Southern California Coalition, an industry group, warned that without S licenses, the city may not be able to move forward with the city’s social equity mentoring program, designed to take place in a shared facility.

So far, not a single Type S licenses has been issued anywhere in the state. Oakland, which unveiled the first cannabis equity program in the state, only recently approved them, and a handful of California cities, such as Santa Rosa, are considering adopting them into local rules, cannabis attorney Ariel Clark said in an email.

Los Angeles, meanwhile, has yet to move forward with any official consideration of Type S licensing. Multiple city officials contacted by Leafly declined to comment.

But Clark warned that the city should feel compelled to act before the industry becomes dominated solely by “well capitalized” people.

“I meet with women, veterans, young people with brilliant ideas, [and] ‘mom and pop’ type cannapreneurs who are so excited to partake in all the great things this emerging market could offer, but they don’t have access to the market,” she said. “S licenses will afford smaller manufacturers access to the regulated market. L.A. needs it.”

Because the economics of commercial cannabis create a significant barrier to entry, Spiker told Leafly, programs that reduce cost have become a key goal of both LA and Oakland’s equity programs. Assistance might include low-interest loans or reduced fees, but in population-dense cities like LA, property is hot a commodity—and a major obstacle for cannabis businesses.

Zoning restrictions and skyrocketing rents in the city have created a formidable environment for small and startup cannabis businesses, one exacerbated by a “speculative bubble” that’s driven property rates up to triple or quadruple the market rate, Spiker said. That barrier comes on top of the approximately $100,000 businesses can pay in state and local licensing fees, as well as the costs of hiring attorneys and experts to help.

“Los Angeles has greatly restricted the land available for cannabis businesses,” said Spiker in his letter. “Without the issuance of ‘S’ Licenses, scarce land cannot be shared.”

 

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California rules may make weed shippers report themselves to the feds,

Imagine driving through California, your vehicle packed with Mendocino County’s finest kush. That scenario might once have induced a panic attack or—depending on your temperament—an adrenaline spike. Now that medical and adult-use recreational cannabis is legal, it’s a legit way to make a paycheck, and hitting the road with a trunk full of the devil’s lettuce is mostly cool.

Cool, but complicated.

It’s not just that the federal government still considers transporting cannabis very much a crime. It’s not even that California has never finalized rules for moving the leafy greens, even two decades after legalizing medical toking. It was only in January, a year after Californians voted to legalize recreational marijuana, that the state issued temporary regs.

These laid the groundwork for a digital track-and-trace system, which will be outlined in full once the state’s weed agency, the Bureau of Cannabis Control, releases the final regulations in the next month or so. A crucial part of the system will be licensing every vehicle used to traffic transport weed across the state.

This has the weed transport industry equal parts excited and anxious. On one hand, legitimate cannabis capitalists using armored vehicles will no longer have to compete with that shady dude who swears his Honda CRX can outrun any jackers.

On the other hand, California’s pre-existing laws require many commercial vehicles operating within the state register with the federal Department of Transportation—by telling them exactly how the vehicle will be used.

When California first decriminalized marijuana with the 1996 Compassionate Use Act, it simply “encouraged the federal and state governments to implement a plan to provide for the safe and affordable distribution of marijuana to all patients in medical need of marijuana.”

Over two decades, the state built up structure and oversight for the medical cannabis system—except the whole to-and-from thing. “It was really the wild west in terms of transportation because there were zero regulations,” says Alison Malsbury, a cannabis industry lawyer with Harris Bricken in San Francisco.

The sun began to set on California’s cannabis transport free-for-all in November 2016, when voters passed Proposition 64, allowing state-licensed dispensaries to sell cannabis and cannabis-infused products to adults age 21 and up. (It also allows grown ups to grow their own crops, give small amounts of weed as gifts, and carry up to an ounce without worrying about tripping up the law.)

The law also came with a requirement that vehicles used to transport cannabis must be owned, or leased, by someone with a permit issued by the Bureau of Cannabis Control. For now, those permits are temporary, dictated by an emergency set of rules the agency set out in January.

This permitting system is integral to digital track-and-trace, the centerpiece of California’s cannabis regulation that demands every bit grown and sold in the state is accounted for, from seed to smoke.

Each plant gets a serial number, as does the bud that it produces, as do all the oils, tinctures, dabs, cookies, candies, lotions, extracts, and whatever other products the young industry’s mad alchemists create from the raw material.

Anyone transporting the stuff will have to scan an RFID tag upon pickup and delivery. They’ll have to deliver it in a GPS-equipped vehicle and stick to a predetermined route, no unplanned excursions or unscheduled pit stops.

Beyond that, the temporary regulations offer little in the way of specifics. The transport will be commercial but small scale. Big rigs, or any other vehicle over 10,000 pounds, gets regulated by the federal government, so as long as California’s legal cannabis transporters stick to smaller vehicles (think unmarked Sprinter vans or armored cars) the feds should turn a blind eye.

But California’s regulations contain at least one glaring oversight that could force some would-be cannabis couriers to snitch on themselves. Anyone hoping to commercially transport cannabis in California must apply for a Motor Carrier Permit (the only exception is for companies transporting their own goods).

The catch is, beginning in 2016, the state’s Department of Transportation began requiring any commercial vehicle seeking a Motor Carrier permit to obtain a federal DOT number. That involves explaining to the federales—who are not so cool with this marijuana thing—exactly how the vehicle will be used.

“How am I supposed to tell the feds I’m going to starting up a criminal conspiracy to transport cannabis?” says Debby Goldsberry, the CEO of Magnolia Wellness, an Oakland cannabis company, who is hoping to add cannabis transport to her company’s roster of services.

She might be able to get around this requirement, as long as she is only transporting her company’s own products. But Goldsberry wants to be able to transport anyone’s goods, so the state’s limits her potential to grow as a business.

Unless she wants to start another business altogether. There’s another way around the rule: Own a preexisting transport company. Or, in the state’s legal parlance, a licensed motor carrier.

For instance, many cannabis transport companies started out as traditional armored car services. “We currently have four armored vehicles loaded with product at the moment,” says Jeff Breier, COO of HardCar Security. His company offers an elite transport, staffed by combat veterans. This overlap in cash and cannabis transport is actually pretty beneficial—most weed companies deal in cash, because federal rules bar them from having bank accounts.

Technically, motor carrier companies are supposed to report what they are shipping when they apply for their federal DOT number. Existing transport companies don’t have to worry about this, because they are already registered.

However, new transport companies that hope to specialize in cannabis will have to get … creative with their applications. Goldsberry says, she’d prefer if California just update its transportation statute, so it doesn’t require cannabis transport vehicles under 10,000 pounds register with the federal government. “We don’t believe in building a business based on violating federal law,” she says.

For the time being, she is stuck with her dilemma. “We can’t change what’s written in statute with our regulations,” says California Bureau of Cannabis Control spokesperson Aaron Francis.

The state’s DOT and DMV aren’t likely to make an exception without serious political pressure. Until that happens, cannabis transport companies hoping to take the high road better keep things on the low-down.

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