Since the state’s voters passed adult-use legalization last November, California lawmakers have been struggling to reconcile the rules in Proposition 64 with the slightly conflicting regulations in the Medical Marijuana Regulation and Safety Act (MMRSA), which was adopted by lawmakers in Sacramento in 2015.
One of the main differences between the two regulatory schemes: Who gets to distribute cannabis in California.
MMRSA includes a requirement that all cannabis and cannabis products must be handled by a third-party distributor. The Teamsters like the third-party rule because that’s how alcohol is distributed in California, and their union members drive a lot of beer trucks. Under similar rules, their members would, presumably, also drive a lot of cannabis delivery trucks.
Several distribution companies, including one set up by an alcohol-industry veteran, have already opened for business in California, in anticipation of millions of dollars of marijuana business steered their way by the MMRSA requirements.
But that distributor requirement was absent from Prop. 64. It’s believed that the Teamsters made a $25,000 contribution to the anti-legalization campaign last spring for this reason. The union was officially “neutral” on the measure.
Gov. Brown offers a single set of rules
On Tuesday, Gov. Brown resolved the conflict and eliminated any chance of a dual-tiered state marijuana industry with a detailed 79-page outline, a “rider bill” attached to his 2017-2018 budget proposal. That outline proposes a single set of rules.
Gone is the mandated independent distributor. Gone is a requirement that a marijuana business must have a local as well as a state permit. If no local permit is available, a state permit will do.
Gone as well is a previous restriction on vertical integration. A single cannabis company can now own all links in the supply chain, from seed to sale—with the exception of testing labs, which must remain independent.
“Allowing for a business to hold multiple licenses including a distribution license will make it easier for businesses to enter the market, encourage innovation, and strengthen compliance with state law,” the governor’s office wrote. “To ensure the integrity of the testing is maintained, all distributors must arrange for an independent licensed testing laboratory to select a random sample, transport it to a laboratory, and test the product.”
Brown’s proposal must be approved by both houses of the state legislature before it can become law. The deadline for that adoption is approaching. Regulated medical and recreational cannabis sales are scheduled to begin on Jan. 1, 2018.
Much still to be done
There’s still a lot to be hammered out.
Nate Bradley, Policy Director, California Cannabis Industry Association
“It’s far from a done deal,” Nate Bradley, policy director at the California Cannabis Industry Association, told Leafly. “But all in all, it’s a huge win for small business—it ensures small startups can go straight to market, without having to fight with other people to get into a distribution company in order to get to market. It allows them to do direct-to-market sales.”
Barry Broad, the Teamsters’ main lobbyist in Sacramento, did not return a message seeking comment from Leafly before this story was published. But in comments to the Sacramento Bee, Broad vowed to fight the removal of third-party distribution “really hard.”
Marijuana industry figures who had long opposed the alcohol-industry model for cannabis were predictably thrilled.
“I’m delighted that after many months of discussion and struggle, the Governor has come down on the side of a free market,” Stephen DeAngelo, founder and CEO of Oakland, Calif.-based dispensary Harborside, told Leafly.
Harborside, with a second location in San Jose, is by repute the largest dispensary in California, with a reported $44 million in annual sales. DeAngelo has long opposed the requirement for its product to go through a distributor.
Gov. Brown created the Teamster clause
The removal of the mandatory distributor is a bit of a flip-flop for Gov. Brown. It was Brown’s office that inserted the distributor requirement into the MMRSA language at the eleventh hour in 2015—at the behest of the Teamsters, observers of the process say.
But in the end, the will of the voters won out. Since MMRSA was created by the legislature, the legislature could amend it. But since Prop. 64 was voter approved, it would require another election—possibly a costly special election—to change it in order to require independent distributors
The state’s independent Legislative Counsel, which advises the governor and lawmakers on the legality and feasibility of changes to state law, received multiple requests asking how to force the distributor model onto recreational marijuana, multiple sources said. Each time, the Counsel said it would require a vote.
Brown also appears to resolve a conflict between the Teamsters and another major California labor union, the United Food and Commercial Workers (UFCW). Both unions would like to represent workers in the legal marijuana industry. UFCW, which has organized several marijuana dispensaries around the state, also opposed the mandatory third-party distributor, favoring a free market model.
Grown your own, distribute your own
If adopted, Brown’s proposed rules will allow some major California marijuana manufacturers to distribute their own product. It’s unclear how Brown’s proposal will affect the distributors already in business—including RVR, a West Sacramento-based distributor that’s already shipping cannabis flower, oil cartridges, edibles, and other products across the state.
Steve DeAngelo considers the conglomerate of liquor-industry insiders and marijuana-grower advocates an ‘unholy alliance.’
One of RVR’s founders is Ted Simpkins, a septuagenarian former liquor executive. Last year, as Politico reported, RVR lobbied state lawmakers heavily, and appeared to wield heavy influence with existing marijuana lobbying groups, including the California Growers Association. A former board member of CGA, Lauren Fraser, became co-founder with Simpkins of RVR.
Critics like DeAngelo called the odd conglomerate of liquor-industry insiders and marijuana-grower advocates an “unholy alliance.”
Fraser did not respond to a request for comment by press deadline.
Fear of mega stores
In a statement released to CGA’s website, founder and executive director Hezekiah Allen praised Brown’s “solid understanding of several key issues” but did not address at length the removal of the distributor requirement. In a statement to the AP, Allen said Brown’s proposal could lead to “mega-manufacturers and mega-chain stores.”
In addition to the Teamsters, other powerful, more-conservative lobbies like the California Police Chiefs Association have promised to fight Brown’s proposal because they believe it favors “big marijuana,” as the Associated Press reported. The police chiefs also opposed Prop. 64.
But the Governor wields significant power. In the past, when Brown has involved himself in cannabis—as with MMRSA—his proposals have largely remained intact. And the depth and breadth of his outline released last week demonstrates how serious Brown is about regulating marijuana in this way—which includes removing the distributor requirement.
“It is very seldom that a governor puts out an 80-page fact sheet,” one lobbyist close to the process said. “This is tighter than when he introduced his cap-and-trade program.”