California issues historic medical marijuana rules

Medical pot patients could see their marijuana become cleaner and safer, with the cost jumping about 10 percent, under new draft regulations for California’s multibillion-dollar medical cannabis industry.

Friday afternoon, a trio of state agencies released 114 pages of draft rules for the medical cannabis industry. The rules cover every aspect of growing, processing, distributing and selling medical pot in the state, and kick off a 45-day comment period before they become law. Similar rules are pending for the much larger recreational marijuana market. The medical rules will take effect by the end of the year through 2018.

All medical marijuana would be lab-tested and tracked from seed to sale. Patients would be limited to buying up to 8 ounces of cannabis flowers a day, and dispensaries could no longer give free samples.

“It’s a very big deal. All of the nitty-gritty details about how people will operate and what things they’ll need to do to get compliant or stay compliant — that all comes out in these rules,” said Nicole Howell Neubert, a cannabis industry attorney in San Francisco.

“This is the next step toward having a more regulated marketplace in California, the largest cannabis market in the U.S. It’s super important,” she said.

The regulations are full of details, like limiting dispensaries’ open hours from 6 a.m. to 9 p.m., and a requirement that 42 percent of indoor pot-farm electricity come from renewable sources. They also stipulate that edible marijuana products can contain no more than 10 milligrams of THC per serving, and no more than 100 milligrams per package. THC, or tetrahydrocannabinol, is the psychoactive chemical compound in cannabis.

Medical pot business owners could see compliance costs increase by $524 per pound, according to regulators. Cannabis sells wholesale for from $800 to $2,500 per pound. Overall, medical marijuana businesses could see compliance costs jump by $125,000 per year for a small business and $310,000 per year for an average business, regulators estimated in a financial-impact analysis.

“The reality is that this is the cost of doing business in this state,” said Nate Bradley, director of the California Cannabis Industry Association, a trade group representing dispensaries.

Hezekiah Allen, director of the California Growers Association, said he approved the plan because smaller businesses would face smaller fees and less onerous rules. “So far I think we’re feeling pretty positive about costs and the fees,” Allen said.

Prices for patients may rise in the short term, but promise to fall in the long term due to production efficiencies and the end of prohibition. In Colorado, prices continue to tumble from prelegalization levels.

“The consumer is also getting something for that premium price — mandatory testing, knowledge and confidence the product was grown by folks (who) were following the rules and taxes were being paid,” Allen said.

California was the first state in the nation to legalize medical marijuana in 1996, but lawmakers failed to follow up with comprehensive rules for the booming market. Today, California’s medical pot market generates an estimated $2.4 billion in revenue a year. There are roughly 1,000 medical pot stores in the state, and tens of thousands of growers. About 1 in 20 California adults is estimated to have tried medical marijuana for a serious condition.

In October 2015, the Legislature voted to regulate medical marijuana and divided up licensing authority among a handful of state agencies. Those agencies spent 2016 taking public comment, leading to the rules released Friday.

Californians legalized adult use of cannabis in November. Recreational use and sales aren’t covered by the new rules. State legislators hope to align rules for the medical and recreational markets through cleanup legislation this year.

It’s not clear how successful lawmakers will be in that effort. In April, the governor’s office released recommendations that angered groups, including the Teamsters, the League of California Cities and the Police Chiefs Association. Those organizations have threatened to delay state implementation of rules.

During a call with reporters Friday, Brendan Murphy, an assistant program budget manager with the state Department of Finance, said that a proposed trailer budget bill will eventually meld the regulatory regimens for medical and recreational use and sale “into one unified structure.” The trailer bill is expected to be passed in June, Murphy said.

California has a constitutional mandate to begin issuing recreational pot-shop licenses by Jan. 1.

Colorado and Washington have gone through similar growing pains related to regulating their medical and recreational pot markets.

When fully legalized and regulated, marijuana could be a $10 billion-a-year industry in California, analysts believe, with about 20 percent of that for medical use.

Industry experts applauded the state for the thoroughness of the draft rules.

“The state has completely owned this issue,” said Bradley. “They’re not running away from it.”

“It certainly is going to be a bumpy transition, but I think it’s ultimately worth doing,” said Allen. “Regulating cannabis in California is a tricky, tricky job, and we’re pretty pleased with what we’re seeing so far.”