The birthplace of social cannabis lounges in the U.S., California, is expected to open many more in the next couple of years. San Francisco leads the way with the most cannabis lounges, but recent legislation coming out of Los Angeles County will make municipalities like Los Angeles and West Hollywood the next leaders. LA county has been fielding social cannabis business applications since January of 2018, and West Hollywood changed codes and zoning regulations to allow public consumption in certain cafes and smoking lounges, and recently Assembly Bill 1465 was introduced that will allow smoking, vaping, and eating edibles.
“Another big move: West Hollywood will allow chefs to infuse cannabis into pre-planned and on-demand menus for onsite customers at new restaurants,” according to Forbes. “As the cafes come online over the next 12 months, West Hollywood will have more than double the number of cafes and lounges of any other city.”
Alaska Lt. Gov. Kevin Meyer (R) signed new regulations into law in March of 2019, issuing permits to businesses authorizing onsite consumption. The so-called “special onsite use endorsement” stipulates that consumption areas need to be physically separated from retail spaces, either by a wall and a secure door or an outdoor patio. The onus is on business owners to provide security plans and adequate ventilation. As is the case with most public consumption programs, local governments in Alaska will have the authority to prohibit onsite use outright or to tighten restrictions, including limiting consumption to vaping only.
Nevada’s recreational cannabis programs began in 2016, and now public consumption licenses will be granted. The Las Vegas City Council in May 2019 voted to allow existing cannabis businesses to apply for permits to open consumption lounges. Clark County Commissioner and former state senator Tick Segerblom, who is also considered Nevada’s cannabis ambassador, told the USA Today Network, “We’re the new Amsterdam. That should be a concern to gaming companies. They’re concerned about (lounges) making money outside the hotels. They’re worried the longer this goes outside hotels, the more established they’ll get. As a business person, I would be concerned too.”
While Las Vegas cannabis businesses hope to cash in on weed tourism, the gaming community wants to wall off its hotels and casinos. The Nevada Gaming Control Board, which has taken a conservative stance on cannabis, brokered a compromise with the city to create a 1,000 foot buffer between gaming establishments and cannabis lounges.
According to msn.com, “After the city builds an application, 20 dispensaries – already open or forthcoming in Las Vegas this year – can apply for licenses to open lounges prohibited from selling alcohol. The ordinance excludes dispensaries on The Strip, which is controlled by Clark County, not the city of Las Vegas, as well as Henderson and North Las Vegas.”
Colorado is the latest state to pass public consumption. House Bill 1230, set to take effect at the start of 2020, establishes regulations for retail stores to set up social consumption lounges, as well as allowing for mobile and temporary licenses. This means that businesses like music venues, art galleries, yoga studios, restaurants, and hotels can obtain public consumption permits and licenses for limited cannabis sales. There’s also a pathway for awarding temporary licenses for special events.
Colorado’s Marijuana Enforcement Division will process licence applications and serve as the state’s regulatory board. Per High Times “Like any industry’s regulatory requirements, businesses will still have to clear a few hurdles before they can let customers light up. First, business owners and cannabis advocates will have to convince local governments to opt in to the new law. Otherwise, the state won’t award a public consumption license. House Bill 1230 also gives local governments the authority to tweak the rules for public consumption. Towns could, for example, only approve certain forms of consumption.”
The new trend of public consumption is expected to expand, especially with new states like Illinois passing adult use programs. Oregon, currently a medical and recreational use state, appears next on the horizon. If passed, Senate Bill 639 would require the Oregon Liquor Control Commission to regulate social consumption businesses and event spaces, allow for the sale of cannabis in these clubs, tasting tours on farms and expanded legal cannabis delivery into private and temporary residences.
“In the interest of equity and criminal justice reform, I look forward to signing this monumental legislation,” said Illinois Governor, J.B. Pritzker, following the passage of House Bill 1438 on Friday, May 31, 2019. The 66-47 vote made Illinois the 11th state to legalize adult-use cannabis and the first to do so through the state legislature. Vermont’s program was approved through its legislature but does not permit commercial sales. Approval in other states occurred via referendum.
The bill, which passed 38-17 in the state Senate two days earlier, focuses on social equity and addressing Illinois’ financial deficit. Chicago Crain’s Business reports that, “Illinois expects sales to eventually reach $1.5 billion to $2 billion a year, producing $500 million in revenue for the cash-strapped state.”
Following the November, 2018 midterm elections, we commented on what Governor Pritzker’s election victory would portend for the future of cannabis in Illinois. Once he signs the bill, it will be the law of the land.
Here’s what you need to know about the new law:
Growing and Selling
Recreational sales will begin on January 1, 2020, with priority given to businesses with current medical licenses. They will be eligible to start cultivating, producing, and selling cannabis for retail use.
According to the Chicago Tribune, “Only the 20 existing licensed medical marijuana cultivation facilities will be licensed to grow it initially. Next year, craft growers may apply for licenses to cultivate up to 5,000 square feet, with preference given to applicants from minority areas disproportionately affected by the war on drugs, such as the South and West sides of Chicago. Medical marijuana dispensaries and new retail stores will be licensed to sell it.”
The bill allows for Illinois residents 21 and older to possess up to 30 grams or roughly one ounce of cannabis flower or bud. They are also allowed five grams of cannabis concentrate or 500 milligrams of THC in a cannabis-infused product. Adults visiting the state can possess up to 15 grams of cannabis. Growing plants at home will remain illegal except for certified medical patients.
Impact on Convictions
Central to the bill was the expungement of cannabis convictions.
“While the usage of cannabis has been the same across all racial groups, the actual incarceration charges have been shown to be seven times more likely for people of color than Caucasians,” said Illinois State Senator. Heather Steans (D-Chicago), the Senate bill’s main sponsor. “This bill is going to set the model, I believe, the gold standard, for how to approach social equity issues related to cannabis legalization.”
Here’s what’s at stake for convicted felons, according to the Chicago Tribune: “The governor will pardon past convictions for possession of up to 30 grams, with the attorney general going to court to expunge or delete public records of a conviction or arrest. For possession of 30 to 500 grams, an individual or a state’s attorney may petition the court to vacate and expunge the conviction, but prosecutors may object, with a judge to make the decision.”
Per ABC News and the Chicago Tribune, consumers will be taxed in the following way:
- A 10% tax will be levied on cannabis products containing less than 35% THC
- 20% for cannabis-infused products like edibles
- 25% for THC concentrations of more than 35%
Additional state and local taxes apply and can be as high as 9.75%, including:
- 3% municipality
- 3.75% county in unincorporated areas
- 3% in Cook County (Chicago)
Opting In or Out
Similar to other adult use programs, local governments may opt in or out. According the Chicago Tribune, “Municipalities and counties may ban cannabis businesses within their boundaries, but may not ban individual possession. Any person, business or landlord may prohibit use on private property. Colleges and universities may continue to prohibit marijuana use.”
Cannabis remains a Schedule 1 illegal drug by the federal government; however, federal law enforcement tends not to prosecute possession of small amounts or businesses complying with state programs.
Medical cannabis was also a winner at the eleventh hour of the legislative session. The House passed the bipartisan SB 2023, which will make the Compassionate Use of Medical Cannabis Pilot Program Act permanent while broadening its scope. Illinois State Representative Bob Morgan’s (D) reauthorization bill removes the program’s July, 2020 sunset and adds more patient qualifying conditions, including chronic pain and autism.
The bill also permits advanced practice nurses and physician assistants to recommend medical cannabis in addition to physicians and increases the number of caregivers that patients can use to access the program. Similar to the adult-use program, the reauthorization bill emphasizes equity standards and will award five dispensary licenses to ensure equal opportunity.
“It is critical for the state that the pilot program be reauthorized and revised,” said Morgan in a press release. “The initial program placed a significant regulatory burden on patients. With the passage of SB2023, the new program will streamline the process and help patients suffering from debilitating medical conditions.”
Earlier this year, Politico published a story on the outbreak of fires and explosions at Cannabis extraction facilities. It documented 10 incidents over the last five years where hash oil was being extracted. The reporting shed light on the risks involved in the process: “Extracting hash oil from cannabis is dangerous because typically it requires pouring highly-flammable butane or some other volatile solvent into a cannabis-filled pipe,” according to the story.
These accidents, sometimes deadly, serve as a cautionary tale for one of the fastest growing industries in the country. As Politico notes, “…labor unions complain that state governments are moving too swiftly to license producers, outpacing the states’ ability to inspect production facilities for potential safety violations.”
In the rush to keep up with the demands of growing markets, cannabis facility owners need to take a step back and ensure they have safety protocols in place. This is especially challenging for two reasons: 1) safety compliance is determined at the state level since cannabis remains federally illegal, and 2) “Most of the states where marijuana is legal offer no safety and health guidance for the new industry,” according to Politico. “The National Institute for Occupational Safety and Health, which researches work-related injury and illness, has conducted only two hazard evaluations of legal marijuana facilities, neither of which focused on the extraction of hash oil.”
“Even in those states that do offer safety and health
guidance — Colorado, California, Michigan, Oregon,
and Washington — fire safety officials complain that
worker safety protections are often inadequate.”
Still, business owners can educate themselves and their employees by engaging with their local fire department so that they are in step with fire code, permitting, and inspections.
Speaking of which…
Seek Permits and Inspections
Mark de Souza, CEO of Chicago-based Revolution Enterprises, recently warned of the pitfalls of the cannabis industry’s growth outpacing regulation. “I have long thought the best way to help Illinois citizens deal with this change is to ensure the industry grows in tandem with the state’s ability to regulate it,” he wrote in Crain’s Chicago Business. “And by ‘regulate it,’ I mean ensure that its use remains safe…Creating a new and unregulated market overnight—in a business that some citizens find unusual and scary—seems the easiest way to ensure its failure.”
An area related to this concern is acquiring the requisite permits and scheduling routine inspections to protect facilities. In the last year, the National Fire Protection Association (NFPA) updated its fire code to address these issues. Per Politico “The revised code requires any hazardous hash-oil extraction process to be performed in a non-combustible room, in a building that contains no child or health care facilities. Staff must be trained on safe operation of the extraction equipment, and the extraction room must be equipped with a gas detection system and multiple fire extinguishing systems.”
Utilize a Closed Loop System
Cannabis or hash oil extraction via a closed loop system is the safest method. Compared to open blasting, which uses flammable solvents, closed loop systems contain these in extraction cylinders. Open blasting, dangerous as it is, is not uncommon and has resulted in devastating accidents. In June of last year, an extraction facility in Millcreek, Utah exploded, and two people experienced severe burn injuries in Sonoma County, California while extracting hash oil by open-blasting. Closed loop is only safe if strictly adhered to. Marijuana Venture advises following the manufactures’ instructions for equipment to a T and being vigilant about every detail, like routinely tightening bolts on extraction cylinders.
Don’t Do it Yourself
Some cannabis facility owners and operators skirt safety and compliance checks to be operational faster. In addition to obviously violating the law, this can create hazardous conditions, especially where electrical systems are concerned.
“Where necessary, hire a professional,” advises Marijuana Venture. “Building, fire and electrical codes must be followed. Don’t overload the electrical panel. Don’t steal power from a nearby building. Be careful with wall construction. Pay attention to door sizes. And perhaps most importantly, everything should be properly permitted.”
Cannabis businesses are on notice and have suffered financial and legal consequences. California and New Mexico’s occupational safety and health agencies issued fines of $50,470 and $13,500, respectively, against a cannabis manufacturer and processor for explosions that occurred at their facilities. Felony charges were brought against an Oregon business owner whose employees sustained burn injuries following an incident.
In addition to NFPA’s increased efforts, labor groups in states considering cannabis legalization are advocating that labor peace provisions requiring marijuana processors to ease the path to unionization be incorporated into legislation. Other states like Rhode Island and Arizona are weighing making extraction against the law altogether. Either way, there are enough resources and education to mitigate the risks of fire at your cannabis facility.
The cannabis industry had a banner year in 2018, highlighted by Canada becoming the second country to pass national legalization, the Farm Bill lifting restrictions on the commercial farming of hemp, and more states expanding their recreational and medical cannabis programs. Unfortunately, the intersection of innovation and growth has been tainted by cyber attacks. Notably, the Ontario Cannabis Store, an online retailer and wholesaler, and Denver-based software firm, MJ Freeway, experienced major data breaches. We’ve discussed security best practices for your dispensary, and now we examine how to safeguard your cannabis business from cyber threats.
Have an Airtight Point of Sale System
The hardware and software combination that centralizes your business operations makes POS systems prime targets for hackers. The data stored in POS systems contain valuable and sensitive customer, employee, inventory, and operational information. Invest the time with your POS vendor to fully understand security coverage used to protect your data, their servers, and the privacy of your patients.
“There is an enormous incentive for hackers to target our young and immature industry…”
Ensure all Integrated Systems are Secure
While POS systems are one entry point for hackers and ransomware, so are the openings created by integrated systems. Cannabis businesses often use POS, Business Management, and Enterprise Resource Planning (ERP) systems together. It’s a best practice, but it also provides hackers with a low barrier of entry into your data. Protect vulnerable business data by sealing any security gaps during the integration process.
Hire an Independent Cyber Security Expert
Go all in by hiring a third party to ensure security across the board. If recent history is any indication, cannabis businesses will continue to be vulnerable to data breaches–leaking tax records, social security numbers and citizenship information–that can have devastating bottomline and reputational impacts. The right cyber security provider will not only ensure compliance, but also proactively protect your customers and investment.
Burgeoning cannabis businesses recognize that with great success comes great risk. In the race to ensure regulatory compliance and business growth and sustainability, protecting your operational data must be a top priority. Dr. Moe Afaneh, COO of BioTrackTHC, sums it up nicely: “Cannabis businesses are literally gold miners [sic] in the sense that their software data will define the future of this industry and their success. There is an enormous incentive for hackers to target our young and immature industry, which is why the last thing you want to do is make it easy for them.”
While Democrats won back the House of Representatives and Republicans retained control of the Senate, there was a third winner that emerged from the midterm elections: cannabis. Four states voted on legalization and medical marijuana, and cannabis appeared on ballots in 22 cities and counties. Here are the results:
Voters approved Proposal 1 by 56 – 44 percent to legalize, regulate, and tax cannabis for adult use. Michigan is now the 10th state to legalize cannabis for adults 21 and over, and it is the ninth state to establish a system for regulating commercial cultivation and sales for adult use. The new law, expected to be enacted this month, permits adults to possess, grow, and use small amounts of cannabis. Over the course of the next year, licensed businesses will be allowed to cultivate, process, and sell cannabis to consumers.
Amendment 2 passed by a margin of 66 – 34 percent, making Missouri the 31st state to legalize medical cannabis. The new law allows physicians to approve patients to receive ID cards from the state, permitting them and their registered caregivers to grow up to six marijuana plants and purchase at least four ounces of cannabis from dispensaries on a monthly basis. Qualified patients and caregivers will have to until late 2019 or early 2020 before they can enter a dispensary and buy medical cannabis.
Two other measures failed: Amendment 3, which would have authorized doctors to recommend medical marijuana for a specific list of conditions, and would not have allowed home cultivation. Proposition C did not pass and would have taxed medical cannabis sales at two percent and allow recommendations for a specific list of conditions.
Proposition 2 passed by a margin of 53 – 47 percent and will go into effect on December 1, making Utah the 32nd state (after Missouri) to legalize cannabis for medicinal use. In its current form, the ballot measure allows qualified patients to purchase two ounces of medical cannabis or products containing 10 grams of cannabidiol or tetrahydrocannabinol from a dispensary during any two-week period. Patients who don’t live within 100 miles of a dispensary would be able to cultivate six cannabis plants at home and could designate caregivers to assist with the growing, obtaining and administration cannabis. Additionally, the state can issue licenses for cultivation, processing, testing, and dispensing businesses
There is a caveat: The Utah State Legislature plans to approve a compromise bill by sponsors of Proposition 2, opponents of the citizen ballot initiative, and political leaders.
Cannabis lost in North Dakota. Though a medical cannabis state, full legalization failed by a margin of 41 – 59 percent. One could point to the very loose restrictions included in the measure. For example, no set limit was proposed on the amount of cannabis that people could possess or cultivate. The state would permit production and sales but would have to create its own rules and regulations for the industry a legislative session down the road. The measure also called for automatically expunging convictions for marijuana offenses.
Cannabis saw gains on the local level. In Ohio, voters passed local decriminalization initiatives in five of six cities. Voters in 16 counties and two cities in Wisconsin were asked non-binding, cannabis advisory questions. The results: At least 14 counties have approved cannabis advisory referendums in support of various legalization and decriminalization policies.
Check out our other 2018 election post New Governors See a Bright Future for Cannabis.