Proposition 64: The Control, Regulate and Tax Adult Use of Marijuana Act (“AUMA”)

While cannabis remains classified as an illegal substance under federal law, as of mid-2016, 25 states and D.C. have enacted laws recognizing an exemption for the medical use of cannabis by qualified patients.

Four states (Alaska, Oregon, Colorado and Washington) and D.C. have legalized cannabis for adult recreational use and several others have proposals addressing legalization on their November 2016 ballots. If all such proposals were to pass in 2016, the list of states where recreational use is legal would more than double.

California’s initiative, Proposition 64 (the AUMA), has been heavily anticipated and polling favorably since its qualification for the ballot. According to recent polling the AUMA is expected to pass, with wide-reaching implications for California’s cannabis industry, including the medical cannabis industry.

If the AUMA Passes . . .

The AUMA would primarily legalize recreational use by adults 21 and older; regulate and tax the production, manufacture and sale of cannabis; and amend the state’s criminal penalties, reducing many of the most common felonies associated with cannabis to misdemeanors. Some of the measure’s highlights are discussed below.

Adults would be able to legally possess up to one ounce (28.5 grams) of cannabis and up to eight grams of concentrate (e.g. hasish, wax), and grow up to six plants for personal use.

Six categories of state licenses would become available in January 2018: cultivation, manufacturing, testing, retail, distribution and microbusiness. Though largely patterned on 1 http://www.latimes.com/politics/la-pol- ca-pot- survey-20160913- snap-story.html the Medical Cannabis Regulation and Safety Act of 2015 (“MCRSA”), which also goes into effect in 2018, the AUMA licenses will be distinct from the MCRSA’s.

The AUMA would impose a 15% excise tax on both medical and recreational sales of cannabis, although medical marijuana patients would be exempt from the sales and use taxes currently levied (7.5 – 10%) by the Board of Equalization. Moreover, it imposes a cultivation tax on all commercial medical and recreational cannabis, calculated by dry- weight ounces, as follows: $9.25/oz. of flower; $2.75/oz. of leaf. Local control also remains intact in the AUMA, as municipalities are free to impose additional taxes as they see fit.

The microbusiness license, unique to the AUMA, would allow small operators (with a cultivation area under 10,000 sq. ft., to cultivate, distribute, manufacture (limited) and sell at retail their cannabis crop, all under the one license.

As compared to the MCRSA, the AUMA would have fewer restrictions on a licensee’s ability to hold multiple licenses. Where the MCRSA has very specific controls on combination of particular licenses one may hold, the AUMA only disallows large cultivators from holding distribution, testing and microbusiness licenses.

Also, both medical and recreational cannabis may be sold from a single location, as the AUMA specifically addresses and assents to this scenario.

The AUMA would also impose buffer zones (geographical restrictions) in which licensees are prohibited from operating. All licensees must operate more than 600 ft. from schools, day care centers and youth centers that are in existence when the license is granted. An exemption to the buffer zone requirement would be available only if a municipality specifically authorizes it.

Stay Tuned: November 8, 2016

With the largest cannabis industry in the world, California is expected to become a hotbed of activity as businesses and investors will be aggressively jockeying for their share of the lucrative, multi-billion- dollar industry.

Understanding the laws as they develop and learning how to navigate the regulatory maze will be critical to those seeking to get and stay ahead of the competition in a highly competitive industry.

Election day is just around the corner — stay tuned to the M.J. Legal Blog where you can find updates on all relevant industry developments.

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