Come January 1, 2018, recreational cannabis sales will be legal in California.
There is a “Green Rush” on and California has tried to prepare for it. It has adopted laws to manage and regulate investment, production, distribution, sales and use. It also wants to cash in on the Green Rush so it has gathered information on cannabis-related business filings with the Secretary of State at a new website portal. Thus, if you are interested in getting involved in the cannabis industry in California click on over to cannabizfile. According to Secretary of State Alex Padilla’s December 11, 2017 press release:
Our new cannabizfile portal makes the process for starting a cannabis business easier to navigate for entrepreneurs. The new site also includes information about registering a business, trademark, or service mark. Our new ‘Starting a Cannabis Business’ brochure can provide a starting point for new entrepreneurs seeking to quickly get their business up and running.
The new portal, however, is not exhaustive of all of the filings and regulations attendant operating in the cannabis industry. As the portal cautions:
The information provided on the cannabizfile online portal is meant to act as a guide relating to requirements with other local or state agencies and is not exhaustive. The licensing authorities for the State of California are the Bureau of Cannabis Control within the Department of Consumer Affairs, the Manufactured Cannabis Safety Branch with the California Department of Public Health and CalCannabis within the California Department of Food & Agriculture. Filing organizational documents with the California Secretary of State alone does not provide a business with the necessary licenses to conduct commercial cannabis-related activities.
The California Legislature has also passed an entirely new division of the California Business and Professions Code entitled “Medicinal and Adult-Use Cannabis Regulation and Safety Act”, colloquially known as “MAUCRSA.” Among the multitude of new regulations, it creates a new type of corporation formally defined as an “association” but also referred to as a “Cannabis cooperative.” These associations are statutorily exempt from the California Corporate Securities Law. Business and Professions Code section 26228. The statute not only exempts such associations from the qualification requirements of the Corporate Securities Law, it also exempts them from the antifraud provisions of the law. Also, the exemption is not limited to the offer and sale of association stock or memberships. The law, as written, appears to open the door for a cannabis association to sell an unlimited number of promissory notes to the public without qualification under the Corporate Securities Law!
The California statute does not exempt such associations from federal securities laws or the securities laws of other states. It also does not provide an exemption from other California laws, including anti-fraud statutes outside of the Corporate Securities Law. We also believe the Courts will attempt to plug this loophole through strict construction of the statute. Finally, cannabis sales, manufacture, distribution and use are still federal offenses for which California law cannot provide safe harbor.
There is no doubt about it The California “Green Rush” is on. How else do you explain this public service announcement from the California Secretary of State featuring Cheech Marin? If you are in this business, want to get into this business or merely want to invest in the cannabis business, you will need competent, knowledgeable legal counsel. You do not want to roll alone into this joint enterprise.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.