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Bureau of Medical Cannabis Regulation’s (BMC) Grounds for License Denial or Discipline

This blog is to discuss the grounds for license denial or discipline under the new Bureau of Medical Cannabis (“BMC”) draft regulations enacted pursuant to the Medical Cannabis Regulation and Safety Act (MCRSA).

Purpose of Regulations

Under MCRSA, the BMC (http://bmcr.ca.gov/) was created to license and regulate dispensaries, distributors, transporters, and testing laboratories. Medical Cannabis Regulations are part of the California Code of Regulations Title 16, Division 42. Article 1, Chapter 3.5. MCRSA, Business and Professions Code Section 19304, states in part: BCM “shall make and prescribe reasonable rules… to carry out the purposes and intent of this chapter, …”

See the link to the BCM’s Initial Statement of Reasons for additional proposed regulations:  http://www.bmcr.ca.gov/laws_regs/mcrsa_isor.pdf.

Proposed Regulations for License Application

As of April 28, 2017, the BCM has proposed regulations implementing portions of the MCRSA. These proposed regulations the proposed rules for applicants seeking to obtain one of several types of medical marijuana licenses involving distribution, transportation, laboratory testing, and dispensary (sale) licenses, and establish the grounds for discipline of their licenses once they get them.

The summaries of these key components are found in the link here: http://bmcr.ca.gov/laws_regs/index.shtml.)

License Application Scheme

Like many licensing schemes under the purview of the Department of Consumer Affairs, licensees have to demonstrate an overall fitness for licensure, including regarding criminal conviction history.

MCRSA sets forth who may engage in the medical cannabis trade and BMC’s recent draft regulations further explain the requirements.

Business and Professions Code section 19320 provides that licenses are granted to only qualified applicants “engaging in commercial cannabis activity . . . .” When these proposed changes become effective:

  • Only those persons who possess both a state license and a local permit, license, or other authorization may engage in commercial cannabis activity.
  • A medical cannabis business must terminate operations if a local license, permit, or other authorization is revoked. All local authorities must notify the BCM who then informs all other licensing authorities.
  • A licensee must obtain a separate license for each location where they plan to engage in commercial medical cannabis activity.
  • A transporter only needs a license for each physical location where they conduct business, not while transporting.

Application Information

The draft regulations, Title 16, section 5006 requires the following of applicants:

  1. Disclose “financial interest” or investment in any other medical cannabis licensee.
  2. Provide copies of the owner’s identification, including name, date of birth, physical description, photograph (e.g. driver’s license).
  3. Provide a detailed descriptions of owner’s convictions (pleas of guilt, nolo contendere, those dismissed under Penal Code section 1230.4), including:

    1. date(s) of conviction(s);
    2. date(s) of incarceration(s) ;
    3. date(s) of probation;
    4. date(s) of parole;
    5. a detailed description of the offense;
    6. a statement of rehabilitation for each conviction to include evidence showing fitness for licensure (i.e. certificate of rehabilitation pursuant to Penal Code section 4852.01);
    7. dated letters of reference from employers, instructors, or professional counselors with valid contact information for each individual providing the reference;
    8. a completed application for electronic fingerprints images submitted to the Department of Justice; and
    9. Attestation statement under penalty of perjury declaring the submitted information is true and accurate

Unlike most other licensing schemes under the Department of Consumer affairs, BMC has undertaken in its regulations to identify disqualifying offenses and those that are not disqualifying, including prior cannabis-related offenses.

Substantially Related Offenses Leading to Denial of License

MCRSA, Business and Professions Code section 19323, generally sets forth the grounds for license denial as follows:

  1. Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
  2. Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
  3. A local agency has notified the licensing authority that a licensee or applicant within its jurisdiction is in violation of state rules and regulation relating to commercial cannabis activities, and the licensing authority, through an investigation, has determined that the violation is grounds for termination or revocation of the license. The licensing authority shall have the authority to collect reasonable costs, as determined by the licensing authority, for investigation from the licensee or applicant.
  4. The applicant has failed to provide information required by the licensing authority.
  5. The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review.

In addition, this section directs the BCM to include certain types of felonies and other offenses in its regulation setting for disqualifying crimes.

BCM has outlined the criminal offenses it deems to be substantially related to the practice of selling medical cannabis. Regulations Section 5032 provides that the following are grounds for denial of a license application:

  1. A violent felony conviction. (See Penal Code section 667.05(c).)
  2. A serious felony conviction. (See Penal Code section 1192.7(c).)
  3. A felony conviction involving fraud, deceit or embezzlement.
  4. A felony conviction for hiring, employing, or using a minor in any activities involving any controlled substance to a minor.
  5. A felony conviction for drug trafficking with enhancements pursuant to Health and Safety Code sections 11370.4 or 11379.8.
  6. Conviction for any controlled substance felony after licensure is grounds for revocation of a license or denial of the renewal of a license.

A license may also be denied under 5036 and Business and Professions Code Section 19323 when:

  1. The applicant’s premises does not fully comply with standards set in regulation.
  2. The applicant’s premises is substantially different from the diagram of the premises submitted by the applicant, in that the size, layout, location of a common entryways, doorways, or passage ways, means of public entry or exit, or limited-access areas within the licensed premises are not the same.
  3. The applicant denied the bureau access to the premises.
  4. The applicant made a material misrepresentation on the application.
  5. The applicant failed to correct the deficiencies within the application in accordance with section 5028 of this division.
  6. The applicant has been denied a license, permit, or other authorization to engage in commercial cannabis activity by a state or local licensing authority.

As these regulations make quite clear, an applicant will not get a state license as a dispensary, distributor, transporter, or testing laboratory without compliance with the local government requirements.

License Discipline

Beginning with Business and Professions Code Section 19311, the proposed grounds for disciplinary action include:

  • Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter.
  • Conduct that constitutes grounds for denial of licensure pursuant to Chapter 3 (commencing with Section 490) of Division 1.5.
  • Any other grounds contained in regulations adopted by a licensing authority pursuant to this chapter.
  • Failure to comply with any state law, except as provided for in this chapter or other California law.

As is the case in most licensing schemes, any grounds for denial of a license is also grounds for discipline after it is issued.

MCRSA sets forth the disciplinary requirements starting with Business and Professions Code Section 19311 through Section 19319:

  1. Licensing authorities must file all accusations against a licensee within 5 years after the violation or act of omission.
  2. The disciplinary proceedings will be conducted in accordance with the Administrative Law Act contained in Chapter 5 of the Government Code, Part 1 of Division 3 of Title 2, commencing with Section 11500, Part 1.
  3. The licensing authorities do not have the authority to supersede or limit local law enforcement activity nor take on law enforcement responsibilities, zoning requirements, local ordinances or enforcement of local permit or licensing requirements.

One of the significant changes to the MCRSA is the addition of proposed Code Section 19313 which states that disciplinary action may be taken against the licensee if the licensee’s agent or employee commits acts of violation “while acting on behalf of the licensee or engaged in commercial cannabis activity.” This eliminates the temptation for a licensee to allow their agents or employees to engage in diversion of cannabis product that fails compliance standards to an illegal market whether or not it occurs with or without the licensee’s knowledge.

Regulations Section 5054 provides for additional grounds for discipline when:

  1. A licensee’s property is substantially different than the diagram was submitted to the BCM for approval of licensure;
  2. A licensee denied the BCM access to the property during an inspection; or
  3. A licensee impeded an investigation by any licensing authority or law enforcement.

Conclusion

With no cannabis licensees having gone through this process, and BCM still figuring out its regulatory scheme, those seeking to enter into the medical cannabis industry or maintain their current position in it, have much work to do. BMC has great discretion regarding which convictions will disqualify applicant, and until applicants appeal and litigate these issues in court, BCM’s authority will be nearly unfettered.

Unlike other licensing schemes, local governments maintain their authority, even as disparate as their requirements me be form one another. Without local government approval, there will be no state license.

For these reasons, applicants and all dispensary-related business and personnel are encouraged to seek legal counsel and advice. 

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Wit of Mandate - the official blog of Simas & Associates, Ltd., is made available by Simas & Associates, Ltd. to the general public for educational purposes only.  Specifically, the entries contained within Wit of Mandate are designed to provide the general public with general information concerning California and Federal law.  Wit of Mandate does not provide specific legal advice and does not create an attorney-client relationship between the reader and Simas & Associates, Ltd.  Wit of Mandate is not an effective or appropriate substitute for obtaining legal advice from a qualified attorney licensed in your state with experience in your practice area or forum of law.

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