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California Cannabis Industry Bracing for July 1st Compliance Regulations

Stricter rules on testing, packaging and labeling of products loom large for the state’s pot industry, possibly weeding out smaller players.

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As she checked ID cards at the front counter of MedMen on Broadway in downtown Los Angeles the other night, the woman at the front desk nodded toward the back of the store.

“We’re having a sale,” she said.  “Seventy percent off.”

Closing time was just fifteen minutes away, but the place was packed, as customers sifted through bins of discounted products, then lined up to pay before the cash registers shut for the night promptly at 7:45 pm.

Someone asked, “Is there anything wrong with this stuff?”

“Nothing,” said a clerk, shaking his head.  “July 1st is coming.”

The First of July

For anyone in the business of cannabis in California, July 1st means a new era of regulations is dawning. When the veil was lifted allowing legalized recreational marijuana in California six months ago, it came with a price: Strict rules governing the testing, packaging, and labeling of products. The grace period to comply runs out on June 30th.

According to Aaron Francis of the state’s Bureau of Cannabis Control, licensed retailers will no longer be able to sell untested cannabis goods, nor will they be able to package and label cannabis goods.  In addition, “Non-edible cannabis goods cannot contain more than 1,000 milligrams of THC per package if intended for the adult-use market and 2,000 milligrams of THC per package if intended for the medicinal market,” he said.

Tamper-proof packaging and more prominent wording on the labels will also be required.

Navigating a murky matrix of regulations that vary county to county, while also adhering to state rules, makes it complicated for those navigating the industry — most of whom are smaller businesses.  So said Karin Clarke, who leads compliance training through Cannabis Trainers and consults with startups in the field.  She said she’s already seen some consolidation among the smallest industry players who needed to pool resources in order to come into compliance.  “The landscape is lunacy,” she said of the complex and inconsistent municipal restrictions.

A weeding out of the smallest industry players means it’s likely there will be fewer products on the shelves after July 1st, said attorney and Canna Law Blog author Habib Bentaleb.

“The people who have been on the forefront, who have risked the most, are not the ones equipped in the new marketplace,” he said.

Branding and Packaging

While some businesses will take a hit, others, like packagers, are seeing business boom as a result of the compliance rules.  Manufacturer Marijuana Packaging in Vernon, California has grown five-fold over the last several years, as it sells custom packaging to thousands of dispensaries all over the country.  At first, they were deluged with questions about the new rules, said salesman Robert Duarte. But by now, he said, people have ordered what they need. One big change he and his colleagues have seen is that customized branding, while once a luxury, is now seen as a necessity.  Many customers have been taking the July 1st deadline as a chance to upgrade.

The rules may be a predictable shock, said Kenny Morrison, founder and CEO of The Venice Cookie Co, but it’s what he and anyone serious about the business signed up for:  “The irony is that overregulation is more anxiety-inducing than the drug war ever was. And that’s coming from a 10-year-old Industry veteran who was raided by law enforcement twice.”

Following the rules is just part of the cannabis industry, said Ed Breslin, founder of Making You Better Brands, which makes a variety of topical cannabinoid creams, rubs and tinctures.  He called the eight years he’s been in business an “odyssey.” While compliance will be costly for him, he said, it’s a necessary step in the growth of the industry.

“This is what happened at the end of prohibition for alcohol,” he said. “The state has just given us a roadmap to work from.”

That roadmap is one businesses licensed in the state of California must now begin to follow.  In these last few days before July 1st, it’s meant a bonanza of sales for buyers in the state. What’s not clear is whether these stricter rules will lead to an increase in the black market and unlicensed shops that still proliferate.

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