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Grounds for License Denial, Discipline for Cannabis Licenses with Department of Food and Agriculture

The California Department of Food and Agriculture (CDFA) is one of three agencies that will be overseeing California's regulation of medical marijuana and cannabis. CDFA's responsibility is to create the "Medical Cannabis Cultivation Program" (Program) for implementing the commercial medical cultivation regulations and develop and manage a cannabis track-and-trace system. To do so, it has put together a lengthy list of proposed regulations, as mentioned in previous blog entries (e.g. see What Can You Do About New Cannabis Regulations, etc.)

To read the the full text of the proposed regulations, please click here:  https://static.cdfa.ca.gov/MCCP/document/CalCannabis%20Proposed%20Medical%20Regulations_4.28.17.pdf

Grounds for Denial of License, License Discipline

As part of its powers, CDFA will be accepting, reviewing, and rendering decisions on applications for a variety of license types for cultvation. Each license type will have specified requirements that must be met in the application process. In addition, Section 8112 of the new proposed regulations state the grounds for denial of a license as follows:

  1. The applicant’s premises does not fully comply with standards. (See Article 4. Cultivation Sit Requirements.)
  2. The applicant’s premises is substantially different from the diagram submitted to CDFA.  (See also Section 8114.);
  3. The applicant denied the Department access to the premises;
  4.  The applicant made a material misrepresentation on the application;
  5.  The applicant did not renewal their application within in the specified timeframe. (See Section 8115.);
  6. The applicant or licensee was denied a license, permit, or other authorization to engage in commercial cannabis activity by the state or a local agency; or
  7. The applicant or licensee has not paid their fees or they have outstanding fees owed to CDFA.

These grounds for denial are in addition to those specified in section 19323 of the Business & Professions Code, which provides the grounds for license discipline:

  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, which includes: Conviction of a crime; done any act involving dishonesty, fraud, or deceit with the intent to substantially benefit himself or herself or another, or substantially injure another; and done any act that if done by a licentiate of the business or profession in question, would be grounds for suspension or revocation of license.
  3. The applicant or licensee has failed to provide information required by the licensing authority.
  4. 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, which shall include, but not be limited to, the following: (a) A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance; (b)  A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code; (c) A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code; (d) a felony conviction involving fraud, deceit, or embezzlement.
  5. The applicant or licensee, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
  6. The applicant or licensee or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
  7. The applicant or licensee, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
  8. Failure to obtain and maintain a valid seller’s permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
  9. The applicant or licensee or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
  10. Conduct that constitutes grounds for disciplinary action pursuant to this chapter.

As one can see, there is already a conflict in the proposed regulatory framework as subsection (b)(2) seemingly contradicts (b)(4) of section 19323 of the Business & Professions Code. Subsection (b)(2) provides conviction of a crime and applies the substantially related test. Subsection (b)(4) provides conviction of a substantially related crime and then specifies examples, with the caveat that the list, "includes but is not limited to." Statutory contradictions are already being used by licensing agencies to disregard recent amendments to Business & Professions Code, section 480(c). So, it will be interesting to see whether this seeming contradiction is resolved through the regulations.

Enforcement

Administrative Action

The CDFA may take administrative action–e.g. issuance of the equivalent of a citation–to enforce any provision of the law within five years after the CDFA discovers any violation of state law–or local ordinances, pursuant to Section 8600–and take the appropriate administrative actions for each level of violation which may be classed as “Serious,” “Moderate,” or “Minor,” as stated in Section 8601.  Table A on pages 40 through 55 of the proposed text of the regulations list the penalties of the violations and their level of severity.

Sections 8602 through 8606 outlines the Administrative Hearing Process of receipt of a Notice of Violation (“NOV”), informal hearing, and appeal of the NOV which can be submitted within 30 days of receipt of the NOV via written correspondence. Failure to submit a timely written appeal will cause the respondent to waive any right to contest the NOV. If the NOV places an administrative hold on the cannabis or nonmanufactured cannabis products, the hold remains in effect pending the outcome of the informal hearing process.

Formal Action

For violations that call into question the issuance of the license, the CDFA may issue an Accusation seeking to revoke, suspend, issue a probationary license, or order and administrative hold of cannabis or nonmanufactured cannabis products of licensees. Sections 8608 outlines the formal administrative hearing process to be used. It will similarly be used to determine the denial of an application for a license through a Statement of Issues or denial of a license renewal.

These hearings will abide by the same requirements of formal administrative hearings under the Administrative Procedure Act (see Section 11500 of Part 1 of Division 3 of Title 2 of the Government Code).

Conclusion

With no cannabis licensees having gone through this process, and CDFA still figuring out its regulatory scheme, those seeking to enter into the medical cannabis cultivation industry–or maintain their current position in it–have much work to do. For that reason, applicants and all cultivation-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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