Cannabis extract is displayed at a medical marijuana dispensary in Orange County. (Photo by Ana Venegas, Orange County Register/SCNG)

Law

State agencies gear up to rein in California’s marijuana industry

California blazed a trail to legalize medical marijuana 20 years ago. But the Golden State is only now confronting the full complexity of regulating consumer safety and business practices in an industry that’s ballooned to an estimated $2.7 billion annually – and is poised to get much larger.

It’s no simple task, requiring startup-like coordination and enforcement across a dozen state agencies looking to rein in a sector of the economy that has thrived in a decidedly spotty patchwork of local oversight.

California’s lack of control over the industry thus far has not gone unnoticed, according to John Hudak, a senior fellow at the Brookings Institution who focuses on marijuana policies.

“The state’s medical marijuana program is in many ways the laughingstock of marijuana policies in the United States,” Hudak said. “It’s a significant example of everything that can go wrong, serving in many ways as a proxy system for recreational marijuana.”

One measure of the challenge ahead? The state is expecting tens of thousands of cannabis businesses – from growers to distributors, testing labs to retail shops – to begin seeking one or more of 17 types of licenses starting Jan. 1, 2018.

And the regulatory challenges for the new system skyrocketed after voters approved the recreational use of pot through Proposition 64 on Nov. 8.

Three agencies will actually issue licenses to both medical and recreational businesses. So far, nine more have been charged with various oversight and review responsibilities.

That includes the Medical Board, which must step up procedures to investigate and discipline doctors who aren’t adhering to ethical standards in recommending marijuana for patients. The Department of Justice will conduct background checks on all licensees. And the Board of Equalization will issue seller permits to all retailers, oversee tax collections and help develop a system to trace the movement of all cannabis products.

The departments that stand to gain the most employees and biggest boost to their budgets in the coming fiscal year are the Department of Fish and Game and the State Water Resources Control Board. Each agency will get more than 30 new positions to help mitigate impacts marijuana cultivation has on the state’s waterways.

All told, the state expects to add 126 jobs and spend $24.6 million on the new regulatory effort in the coming year alone. And that was before Prop. 64 became law.

Overseeing the process is the new Bureau of Cannabis Regulation, created within the Department of Consumer Affairs. The agency will regulate all transportation, distribution and sales under the direction of Lori Ajax.

Lori Ajax is the first chief of the state’s Bureau of Cannabis Regulation. (Courtesy photo)
Lori Ajax is the first chief of the state’s Bureau of Cannabis Regulation. (Courtesy photo)

Ajax said she’s been regularly meeting with other agencies involved in the new regulations. Leaders from each department also have been consulting other states that have more robust policies in place to regulate both medical and recreational marijuana.

There are “nuances” to launching programs involving multiple agencies, Ajax said. But so far, the process has gone smoothly.

“Everyone is just on board to meeting” the 2018 deadline to begin issuing licenses, Ajax said.

Here’s a look at how several key state agencies are gearing up for the task.

CULTIVATING A NEW WAY OF BUSINESS

There are an estimated 50,000 cannabis cultivators in California, and thousands of them are expected to apply for growing licenses under new regulations enforced by the Department of Food and Agriculture, according to agency spokesman Jay Van Rein.

Cultivation licenses for medical marijuana businesses range from allowing outdoor grows under 5,000 square feet up to 20,000-square-foot warehouses. The department is charged with setting limits on the number of grow sites larger than 10,000 square feet.

Amber Morris, who spent the past decade overseeing plant health and pest prevention services, was named chief of the department’s new Cannabis Cultivation Program. Van Rein said officials are in the early stages of drafting rules for cultivators.

Unlike with other types of agriculture his department regulates, Van Rein noted, the cannabis law calls for criminal background checks on applicants. It also requires the department to create a “track and trace” program that allows authorities to follow cannabis plants through the distribution chain, from their growing plots to their purchase by customers.

“Although the ‘track and trace’ requirement is complex, it is helpful that other states have gone before us,” Van Rein said, alluding to enforcement programs in states that have legalized recreational pot, such as Colorado and Washington.

TESTING FOR SAFETY

Businesses producing edibles, concentrates and other marijuana products also will have to answer to the state Department of Public Health.

The department is hiring additional staff to oversee manufacturing and laboratory testing of pot products, according to Miren Klein, assistant deputy director for the department’s Center for Environmental Health.

Under the new system, all marijuana products must be sent to a licensed lab for testing before they can be sold to consumers. Labs will check marijuana flowers for pesticides, mold and other contaminants, along with how potent they are. Extracts will be tested for concentration and purity.

Currently, Klein said medical cannabis testing labs are approved by their local city or county. Under the new law, they’ll have to obtain state licenses. And she expects many more labs to open in anticipation of the spike in demand for testing.

A technician demonstrates how he tests the potency of cannabis. (Stan Lim, The Press-Enterprise/SCNG)
A technician demonstrates how he tests the potency of cannabis. (Stan Lim, The Press-Enterprise/SCNG)

Along with a license for labs, Klein’s department will issue two types of licenses for manufacturers. One will be for companies that use nonvolatile chemicals to extract cannabis from plants in concentrated oils. The other is for companies that use potentially explosive chemicals such as butane in the extraction process.

The regulations call for a limit on the number of licenses for companies using volatile substances. That cap is being worked out, Klein said.

Officials are in the early stages of developing regulations on the methods that labs will be required to use, assessing how much it will cost to license those labs and creating guidelines for regular audits to ensure they’re following protocols.

Cannabis is a new oversight area for her agency, but Klein said her department “is quite knowledgeable regarding the handling and storage of food that dovetails with this new commodity.”

KEEPING PESTICIDES IN CHECK

For now, there are no clear standards for the types and amounts of pesticides that can be present in marijuana.

The Department of Pesticide Regulation expects to begin by hiring three scientists to analyze chemical studies and help determine what levels are safe for the public, according to department spokeswoman Charlotte Fadipe.

The department has shared general rules about pesticide use with growers, she said. But because federal law doesn’t allow for marijuana cultivation, Fadipe pointed out there are no pesticides specifically registered for use on marijuana.

At this point, she said it’s not clear how many cultivators are using pesticides safely or whether major changes in cultivation practices are needed.

“We are relying on anecdotal information and reports from other states at this point,” Fadipe said.

UNANSWERED QUESTIONS

There are a lot of unknowns about how the new state regulations will work. Multiple follow-up bills have been making their way through the Legislature, with many more expected to follow after the passage of Prop. 64.

One ongoing and contentious regulatory issue is whether the cannabis distributor system should be modeled on the state’s system for the alcohol industry, where beverage makers have to turn their products over to a third party to transport and sell them to stores.

Distributors are needed in a state as large as California, said David Weidenbach, who runs the Costa Mesa packaging company Collective Supply and helped draft the new medical oversight laws as a board member with the California Cannabis Industry Association. But he also said many industry insiders are worried the state will be too restrictive when it comes to distributors, making it more difficult and costly to move products to customers.

Further complicating this debate is the fact that Prop. 64 does not call for distributors in the recreational cannabis system – a conflict that will likely need to be resolved through legislation.

Overall, Weidenbach said he considers the new rules “a major victory” for California’s cannabis industry.

It’s a start “that was desperately needed,” he said – especially considering voters approved the sale of medical marijuana in 1996. “There has been virtually zero progression since,” he said.

A version of this article first appeared on OCRegister.com.