Regulatory Attorneys – Ready Yourself for California’s “Track and Trace” Product Supply Chain Regulatory Regime: First product up, Marijuana Cannabis

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As close and jaded observers of the colliding worlds of environmental regulation, consumer product and global supply chain regulation sitting and toiling daily in the center of the world’s most talented, creative and aggressive government regulators (i.e., Sacramento, not DC) for the past 25 years, even we are in awe of what is proposed to regulate the newest legalized product in California – marijuana.

Proposition 64 passed by in a voter initiative on November 8, 2016 and establishes a licensing and regulatory framework for legalized cultivation, manufacturing, distribution and sales.

Last week, lost among the hullabaloo of the new $52 billion gas tax, Governor Brown’s budget trailer bill dropped a 79 page explanation of how it intends to develop this brand new regulatory regime. Among its changes, not sure why, but this seems to be important to someone, every mention of the word “marijuana” throughout the California code is being stricken and replaced with the word “cannabis.”

No less than 6 regulatory agencies are gearing up to regulate the newly legal sales of recreational marijuana – which will include a first of its kind track and trace regulatory regime tracking cannabis from seed to sale. The procurement process to retain a vendor to design and operate this seed to sale tracking system is underway. Each plant will have a unique identifier number that will be traceable to all products sold emanating from each plant and track all movement and transactions.

Governor Brown’s budget trailer bill explains that “[o]ne of the largest impacts of unregulated cannabis cultivation has been serious adverse impacts to the environment. The California Department of Fish and Wildlife has documented a dramatic increase in the number of cannabis cultivation sites and their corresponding discharge of sediments, pesticides, fertilizers, petroleum hydrocarbons, trash, and human waste. Unregulated cultivators impact land grading, road development, vegetation removal, timber clearance, stream bank erosion, and stream diversion. The combination of these activities and the lack of regulatory guidance threaten endangered fish and wildlife species, as well as public safety.”

So while three state agencies will license the newly legalized sales (Bureau of Cannabis Control (overarching license authority), the California Department of Food and Agriculture (to license and regulate marijuana cultivation); the California Department of Public Health (to license and monitor manufacturing of marijuana edibles); three other state agencies will regulate the environmental impacts of legalized marijuana cultivation and sales: the California State Water Resources Control Board (to “regulate the environmental impacts of marijuana growing on water quality”); the California Department of Fish and Wildlife (to regulate cultivation-related impacts on local environments); and the California Department of Pesticide Regulation (to regulate nutrients and pesticides utilized for marijuana cultivation).

All six agencies are expected to release proposed regulations for their portion of this extensive program in the next few months. While many details are not yet known, some are becoming clear. For instance any cultivator currently diverting surface water must file an Initial Statement of Diversion and Use, Registration and or application for an Appropriate Permit with the Water Board prior to July 1, 2017 in order to obtain a business license. Also, they may need a Streambed Alteration Agreement from the Department of Fish and Wildlife. In all six regulatory programs, extensive recordkeeping will be required and penalties for recordkeeping failures may be steep, up to $30,000 per violation. Depending on the local permitting ordinances, applicants for state licenses may also have to perform their own environmental impact report (EIR) under CEQA. It is not yet clear whether EIRs for marijuana licenses will be treated like new housing developments or new football stadiums in California but this could dramatically impact the actual realization of a legal industry.

If you have any questions regarding these newly emerging regulatory requirements or the procurement of the track and trace system, feel free to contact Maureen Gorsen or Chris Roux at Alston and Bird.