Fayne, Kaila@DCA

Subject: RE: Please forward this to the cannabis advisory committee

From: deb tharp <votedebbietharp@gmail.com> Sent: Wednesday, March 27, 2019 11:44 AM To: DCA, BCC@DCA <BCC@dca.ca.gov> Subject: Please forward this to the cannabis advisory committee

[EXTERNAL]: votedebbietharp@gmail.com

You could solve the whole meeting notification problem by scheduling informal meetings 3 days in advance, providing online notification, and then having the conversations online with interactive communications that allow comments from the public. This can even be done for free in real time on YouTube.

Thank you

Sent from Mail for Windows 10 

1

mammothDISTRIBUTION

Counterfeit Cannabis Product Fact Sheet

Large volumes of counterfeit branded cannabis products are being sold openly to patients and consumers in California. These products bear false testing labels indicating they are clean when actual test results show these cannabis products to be highly contaminated with pesticides. Because of the significant threat to public health, there is a legal and moral imperative for law enforcement, regulators and cannabis industry participants to address this issue as quickly and comprehensively as possible.

Public safety: Products being sold are falsely labeled and unfit for consumption. Lost tax revenues: Hundreds of millions of dollars of state, local and sales taxes are not being remitted by illicit operators.

Feeds illicit market: Counterfeit products bolster illegal dispensaries and delivery services that would otherwise not have branded products to attract consumers.

Size of the Problem:

There are over 6,000 Illicit shops / delivery services in California that are currently advertising on Weedmaps.

Analysts estimate that California's illicit pot market is valued at an estimated $3.7 billion, more than four times the size of the legal market. We estimate that over 1,000 of these illicit outlets carry counterfeit products.

Marketing Channels:

. Weedmaps: This popular website is the number one marketing resource for unlicensed cannabis dispensaries and delivery services likely making it the world's largest source of contaminated cannabis products.

Instagram: Literally hundreds of accounts offering counterfeit products and as quickly as one is taken down several more pop up in its place.

Offerup / Craigslist / etc.: Counterfeit drugs are brazenly offered on direct to consumer sites. In just one week, we served over 135 takedown notices on OfferUp of user accounts offering counterfeit cannabis products.

Counterfeit Product Purchased at Illicit Los Angeles Dispensary R&D Testing

QA SAMPLE - INFORMATIONAL ONLYCertificate of Analysis 3 of 3

CAL ID: 20190118-013 Mammoth Distribution Batch#: ample: 1901/CA0238.0739 Lic. # Primary Size: Weed Mates OGK 1806ICA12474046 11933 Vose St Total/Batch Size:

Strain: Weed Mates OGK 1806|CA12474046 North Hollywood, CA 91605 Collected: 01/19/2019; Received: 01/19/2019 Category: Concentrates & Extracts Completed: 01/19/2019

Lic. #

Chemical Residue Screening

Category 1 LOO LOD Status Mycotoxins LOQ LOD Limit Status ug/g

Aldicarb ND 0.050 0.030 Pass

Carbofuran ND 0.050 0.030 Pass

Chlordane ND 0.100 0.050 Chlorfenapyr ND 0.100 0.050 Chlorpyrifos ND 0.050 0.030 Pass

Coumaphos ND 0.050 0.030 Pass Daminozide ND 0.050 0.030 DDVP ND 0.050 0.030 Pass

Dimethoate ND 0.030 Pass

Ethoprophos ND 0.050 0.030 Pass

Etofenprox ND 0.050 Pass

Fenoxycarb ND 0.050 Pass PassFipronil 1,297% ND 0.050

Imazalil ND 0.050 0.030of LimitMethiocarb ND 0.050 Pass

Methyl Parathion ND 0.100 Pass

Mevinphos ND Pass

Paclobutrazol 1.297 0.050 Fail Propoxur Pass

Spiroxamine ND 0.050 0.030 Pass 0.050Thiacloprid ND Pass

Category 2 Limit Status Category 2 LOQ LOD Limit Status ug/g ug/8

Abamectin ND 0.050 0.030 0.100 Pass Kresoxim Methyl 91,965% ND 0.050 0.030 0.100 Pass Acephate ND 0.050 0.030 0.100 Pass Malathion of Limit ND 0.050 0.030 0.500Acequinocyl ND0.050 0.030 Pass Metalaxy ND 0.050 0.030 2.000 Pass Acetamiprid ND 0.050 0.030 Pass Methomyl ND 1 060 Pass

PassAzoxystrobin ND 0.050 0.030 Myclobutanil \91.165 0.050 0.030 0.100 Fail Bifenazate ND 0.050 0,030 0.100 Naled PassND Bifenthrin 0.420 0.250 0.100 Oxamyl 0.200 0.100 0.500 Pass Boscalid ND 0.050 0.030 0.100 Pentachloronitrobenzene 0.100 0.050 0.100 Pass Captan ND 0.350 0.200 0.700 Pass Permethrin $7,083% ND 0.250 0.100 0.500 Pass

Carbaryl ND 0.050 0.030 0.500 Pass Phosmet PassND 0.050 0.030 0.100 Chlorantraniliprole ND 0.050 0.030 10.000 Pass Piperonyl Butoxide Of LIMIT1.505 0.250 0.100 3.000 Pass

Clofentezine ND 0.050 0.030 0.100 Pass Prallethrin ND 2ace

Cyfluthrin ND 0.250 0.250 2.000 Pass Propiconazole `67.083 0.050 0.100 Fail Cypermethrin ND 0.350' 0.200 Pass Pyrethrins ND Pass

Diazinon ND 0.050 0.030 0.100 Pass Pyridaben ND 0.050 0.030 0.100 Pass PassDimethomorph ND 0.050 0.030 Spinetoram ND 0.050 0.030 0.100 Pass

Etoxazole 0.464 0.050 0.030 0.100 Fail Spinosad ND 0.050 0.030 0.100 Pass Fenhexamid ND 0.050 0.030 0.100 Pass Spiromesifen ND 0.050 0.030 0.100 Pass Fenpyroximate ND 0.050 0.030 0 100 Pass Spirotetramat ND 0.050 0.030 0.100 Pass

Flonicamid ND 0.050 0.030 0.100 Pass Tebuconazole 0.269 0.050 0.030 0.100 Fail

Fludioxonil ND 0.050 0.030 0.100 Pass Thiamethoxam ND 0.250 0.100 5.000 Pass Hexythiazox ND 0.050 0.030 0.100 Pass Trifloxystrobin ND 0.050 0.100 Pass Imidacloprid ND 0.350 Pass

Unknown Analyte(s):

NR- Not Reported thus no analysis was performed, ND- Not Detected thus the concentration is less then the Limit of Quantification (LOQ) "Action Levels Set By State of CA"

Infinite Chemical Analysis Labs Confident Cannabis 8380 Miramar Mall #102 All Rights ReservedJosh m SwiderSan Diego, CA

support@confidentcannabis.com[858) 623-2740 Josh Swider www.infiniteCAL.com Lab Director, Managing Partner (866) 506-5866 Lic# C8-18-0000019-TEMP 01/19/2019 www.confidentcannabis.com

This product has been tested by Infinite Chemical Analysis, LLC using valid testing methodologies and a quality system as required by state law. Values reported relate only to the product tested. Infinite Chemical Analysis, LLC makes no claims as to the efficacy, safety or other risks associated with any detected or non-detected levels of any compounds reported herein. This Certificate shall not be reproduced except in full, without the written approval of Infinite Chemical Analysis, LLC.

CannaSafe . LA (818) 922-2416 R&D Testing 7027 Hayvenhurst Avenue http://www.csalabs.comCannaSafe

Counterfeit Product Purchased at Illicit Los Angeles DispensaryTMC-HH-Sour Diesel Sample ID: 1902CSALA1059.3800 Produced: N/A Strain: Sour Diesel Collected: 02/15/2019 Mammoth Distribution

Received: 02/15/2019 Type: Other Completed: 02/19/2019 160 Commerce Dr.

Batch#: 2/15Sample Size: 1 units; Batch: 0 units Mammoth, CA 92546

Pesticides Fail Test Method: LCMS & GCMS-SOP 301

MassAnalyte LOQ Mass Status ug/8P8/8 PE/B

Abamectin 0.0590 Pass Fludioxonil 0.0070 0.0240 0.1000 ND Pass Acephate 0.0090 0.0290 0.1000 ND Pass Hexythiazox 0.0070 0.0240 0.1000 Pass

Acequinocy! 0.0050 0.0180 0.1000 ND Pass Imazalil 0.0040 0.0120 0.1000 ND Pass

Acetamiprid Pass Imidacloprid 0.0390 0.1290 5.0000 Pass190% of Limit ND ND

Aldicarb ND Pass Kresaxim Methyl 0.0050 0.0170 0.1000 ND Pass Azoxystrobin 0.0060 ND Malathion 0.0100 0.0320 0.5000 ND Pass

0.0140Bifenazate ND Pass Metalaxyl 0.0030 0.0100 2.0000 ND Pass

Bifenthrin 0.0080 0.0270 5.6953 Fail Methiocarb ND Pass Boscalid 0.0060 0.0190 0.1000 ND Pass Methomyl 65,690% of Limit ND Pass

Captan 0.0789 0.2631 0.7000 ND Park Methyl Parathion 0.0070 0.0233 0.1000 PasND Carbaryl 0.5000 ND Pass Mevinphos 0.0030 0.0110 0.003 Pass

0.0050 0.0180 0.1000 Pass Myclobutanil 0.0170 0.0580 0.10Carbofuran ND 65.6900 Fail Chlorantraniliprole 0.0240 10.0000 ND Pass 0.0070 0.0240 0.100 ND Pass Chlordane 0.1062 0.1000 ND Pass Oxamyl 0.0030 0.0090 0.5000 Pass Chlorfenapyr 0.01000.0330 0.0100 ND Pass Paclobutrazol 0.0130 0.0440 0.1000 ND Pass Chlorpyrifos 0.0050 0.0170 0.1000 ND Pass Pentachloronitrobenzene 5 600% of Limit Pass Clofentezine 0.0060 0.0190 ND Pass Permethrin ND Pas Coumaphos ND Pass ND

0.0080 0.0260 ND Pass Piperonyl Butoxide 0.0050 0.0180 3.00 168.0629 Fail Cypermethrin 0.0130 ND Pass Prallethrin 0.0070 0.0240 0.100 ND Pass Daminozide 0.0210 0.0700 0.1000 ND Pass Propiconazole 0.0080 0.0260 0.1000 Pass DDVP 0.0040 0.0120 0.1000 ND Pass Propoxur 0.0040 0.0130 0.1000 ND Pass Diazinon 0.0050 0.0170 0.1000 ND Pass Pyrethrins 0.0030 0.0100 0.5000 ND Pass

Pass Pyridaben 0.0080 0.0270 0.1000 ND Pass0.0030 5,980% of Limit NDDimethomorph 0.0070 Pass Spinetoram 0.0070 0.0220 0.1000 ND Pass Ethoprophos 0.0130 0.1000 ND Pas Spinosad 0.0050 0.0160 0.1000 ND Pass

Etofenprox 0.0050 0.0170 0.1000 Pass 0.0070 0.0230 0.1000 ND Pass Etoxazole 0.0060 0.0180 0.1000 5.9771 Fail Spirotetramat 0.0090 0.0300 0.1000 ND Pass

Fenhexamic ND Pass Spiroxamine 0.0060 0.0190 0.1000 ND Pass

0.0070 0.0220 0.1000 Pass Tebuconazole 0.0130 0.0420 0.1000 ND Pass Fenpyroximate 0.0090 0.0300 0.1000 ND Pass Thiacloprid 0.0070 0.0230 0.1000 ND Pass

Fipronil 0.0170 0.1000 ND Pass Thiamethoxam 0.0040 0.0130 5.0000 ND Pass Flonicamid 0.0890 0.2970 0.1000 ND Pass Trifloxystrobin 0.0040 0.0140 0.1000 ND Pass

LOQ = Limit of Quantitativet of Detection; NT = Not Tested; ND = Not Detected.

ilac MRA

Iniobong Afia Anya Engen ISO/ IEC 17025:2017 ACCREDITED LABORATORY Quality Manager Accreditation No. 73453 02/19/2019 02/19/2019

The values reported pertain only to the product tested. R&D sample only. Tested as-is/received from client. Unless otherwise stated all quality control samples performed within specificationsestablished by the Laboratory. Sample tested per CALIFORNIA CODE OF REGULATIONS, TITLE 16, DIVISION 42. BUREAU OF CANNABIS CONTROL

Counterfeit Product Purchased at Illicit Los Angeles Dispensary R&D Testing

QA SAMPLE - INFORMATIONAL ONLYCertificate of Analysis 3 of 3

ICAL ID: 20190118-014 Mammoth Distribution Batch#: Sample: 1901ICA0238.0740 Lic. # Primary Size:

Broadway LA Pharmacy 18061CA12474046 11933 Vose St Strain: Broadway LA Pharmacy 1806ICA12474046 North Hollywood, CA 91605 Collected: 01/19/2019; Received: 01/19/2019Category: Concentrates & Extracts Completed: 01/19/2019

Lic. #

Chemical Residue Screening

Category 1 LOD Status Mycotoxins Status ug/g

Aldicarb ND 0.050 0.030 Pass

Carbofuran ND 0.050 0.030 Pass Chlordane PassND Chlorfenapyr ND 0.100 0.050 Pass

Chlorpyrifos 0.050 0.030 Pass

Coumaphos ND O.OSC 0.030 Pass Daminozide Pass0.050 0.030 DDVP ND 0.050 Pass Dimethoate 0.050 0.030 Pass

Ethoprophos 0.050 Pass

Etofenprox Pass

Fenoxycarb ND 0.050 Pass

1,249% ND 0.050 0.030 Pass Imazali ND 0.030 Passof LimitMethiocarb NO 0.030 Pass

Methyl Parathion ND 0.050 Pass

Mevinphos ND Dace

Paclobutrazol 0.030 Fall Propoxur ND Pass Spiroxamine ND 0.050 0.030 Pass

0.050Thiacloprid ND Pass

Category 2 LOO LOD Limit Status Category 2 LOQ LOD Limit Status Hg/8 HE/B

Abamectin 6,692% Pass ND 0.050 0.030 0.100 PassKresoxim Methyl 1,836%Acephate ND 0.050 0.030 0.100 Pass Malathion of Limit ND 0.050 0.030 0.500 Passof Limit

Acequinocyl ND 0.050 0.030 0.100 Pass Metalaxyl ND 0.050 0.030 2.000 Pass

Acetamiprid ND 0.050 0.030 Pass Methomy! ND Dace

Azoxystrobin ND Pace Myclobutanil Fail Bifenazate `6.692 0.050 0.030 0.100 Pass Bifenthrin Pass Oxamyl ND 0.200 0.100 Pass Boscalid ND 0.050 0.030 Pass Pentachloronitrobenzene ND 0.100 0.050 0.100 Pass Captan ND 0.350 0.200 Pass Permethrin ND 0.250 0.100 0.500 Pass Carbaryl ND 0.050 0.030 0.500 Pass Phosmet Doce

Chlorantraniliprole ND 0.050 0.030 10.000 Pass Piperony! Butoxide 6.637 0.250 0.100 Fail Clofentezine ND 0.050 0.030 Pass Prallethrin ND Pass Cyfluthrin ND 0.250 0.250 2.000 Pass Propiconazole ND 0.050 .0.030 0.100 Pass

Cypermethrin ND 0.350 0.200 1.000 Pass Pyrethrins ND 0.250 0.100 0.500 Pass Diazinon ND 0.050 0.030 0.100 Pass Pyridaben ND 0.050 0.030 0.100 Pass221%Dimethomorph 2.000 Pass Spinetoram ND 0.050 0.030 0.100 Pass

SpinosadEtoxazole 0.062 0.050 0.030 0.100 Pass of Limit ND 0.050 0.030 0.100 Pass Fenhexamid 0.719 0.050 0.030 0.100 Fall Spiromesifen ND 0.050 0.030 0.100 Pass

Fenpyroximate 0.100 Pass Spirotetramat ND 0.050 0.030 0.100 Pass Flonicamid ND 0.050 0.030 0.100 Pass Tebuconazole 0.378 0.050 0.030 0.100 Fail Fludioxonil ND 0.050 0.030 0.100 Thiamethoxam ND 0.250 0.100 5 5.000 Pass Hexythiazox ND 0.050 0.030 0.100 Pass Trifloxystrobin ND Pass midacloprid 5.000 Pass

Unknown Analyte(s):

NR= Not Reported thus no analysis was performed, ND= Not Detected thus the concentration is less then the Limit of Quantification (LOQ) "Action Levels Set By State of CA*

LITE CHESLIC Infinite Chemical Analysis Labs Confident Cannabis 1380 Miramar Mall #102

All Rights ReservedSan Diego, CA Josh m Swider

(858) 623-2740 support@confidentcannabis.comJosh Swider

www.infiniteCAL.com (866) 506-5866Lab Director, Managing PartnerLic# CB-18-0000019-TEMP 01/19/2019 www.confidentcannabis.com

This product has been tested by Infinite Chemical Analysis, LLC using valid testing methodologies and a quality system as required by state law. Values reported relate only to the product tested. Infinite Chemical Analysis, LLC makes no claims as to the efficacy, safety or other risks associated with any detected or non-detected levels of any compounds reported herein. This Certificate shall not be reproduced except in full, without the written approval of Infinite Chemical Analysis, LLC.

Lovingly.Legally@Gmail.com 9/20/18

Cottage Microbusiness License Presentation

Introduction

It has been stated several times by this committee and by the public that the cannabis industry is not "New". It is newly legalized and regulated. It has (legally) been around since 1996. It has been around for many years before that. With the passage of the MAUCRSA, the Bureau was established to create a comprehensive and coherent regulatory framework for an established industry that had not been comprehensively regulated by the state." (bolded for emphasis)

While the industry will, obviously, grow and change, and there needs to be regulations to control this; the framework should also be for the established industry (as stated) not (the other way around) establishing an entire new industry with the framework. (see page 10)

The industry's operations, until recently, have almost always been performed as a Home Business.

Proposition 64 has paved the way for much larger "legitimate" operations and (unfortunately) the regulatory agencies have devoted most of their regulatory attention to this future aspect of the industry leaving the pioneers of the industry, and those who choose to continue their legacy, to suffer the rigors of the playing field that the regulators chose to impose.

It is a well-known fact that the "Small Farmer" has been responsible for the base of most of the research that has been done to date regarding the Cannabis plant and has typically worked out of their home. The "Small Farmer" is best suited for developing the industry's future because they have the experience and desire to further the research, because it is being done on a smaller scale, and, therefore there's less financial risk compared to large, corporate operations. While large Cannabis operations may have R&D departments, this license would allow the "Small Farmer" to continue or establish a Home-Based operation to document their efforts, contribute to the industry and the community, and further the intent of the statute. This will further the industry.

Whether it is the current adult use trend or the latest medical breakthrough, the "Small Farmer" has consistently produced the genetics and/or products for the body of evidence to bear out the resulting recreational trend or medical study.

In an effort to further the intent of the statute, reduce diversion, and in recognition of the facts stated above, the Bureau has the authority to adopt a new license that encourages the contributions of the small operator and/ or the legacy farmer as the Cottage Microbusiness License.

While the Cottage Microbusiness License holder would realize substantial reductions in current taxes, regulations, and fees; the contributions by these licensees are expected to enhance current fiscal expectations to the State by increased adoption (more legitimate licensees), competition (more choices for the consumer), less onerous regulations due to the scale of the operation, and a sense of community for other small farmers, ensuring a smoother transition to the regulated

marketplace.

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Lovingly.Legally@Gmail.com 9/20/18

We have tried to keep this proposal within the regulatory authority and we have redefined (in some instances) the regulatory agency's interpretation of the statute. Should legislation be required for some of the items; steps will be taken to develop the legislation as these items are identified.

Basic Concepts for the License

It is the intent of the Cottage Microbusiness License to provide for limited agricultural, commercial and industrial activities in conjunction with a dwelling that do not alter or disturb the residential or rural nature of the premises or its surroundings. Such limited commercial and industrial activities are commonly known as cottage industries and are defined as follows: (A) The particular activities conducted by the Cottage Microbusiness, and their operation and appearance, shall not change or disturb the residential or rural character of the premises or its surrounding. (B) The activities are environmentally sound regarding the project site and region. (C) No additional service demands will be created by the activities. (D) Limit, one Cottage Microbusiness license per owner, regardless of how many residences they may own. (E) The Cottage Microbusiness License applicant must choose at least three of the four activities.

CULTIVATION o Outdoor and Mixed Light Cultivation- < 5,000 sq. ft. of actual

canopy. If the cultivation has more than one cycle it shall be

compensated for by the size of the canopy. For example: . If the cultivation has two cycles it would be limited to

2,5000 sq. ft. of canopy. If the cultivation has four cycles it would be limited to

1,250 sq. ft. of canopy. o Indoor Cultivation- < 2,500 sq. ft. of canopy.

. If the cultivation has more than one cycle it shall be compensated for by the size of the canopy. For example:

If the cultivation has two cycles it would be limited to 1,250 sq. ft. of canopy.

. If the cultivation has four cycles it would be limited to 625 sq. ft. of canopy.

o Mixed styles of cultivation may be permitted at a single premises. The business plan shall declare the sq. ft. of each style so long as the calculations show the total canopy does not exceed the limiting volumes.

. MANUFACTURING- Non-Volatile. Limited to allowable volumes of cannabis. DISTRIBUTION- Limited to allowable volumes of cannabis and cannabis products.

. RETAIL- Delivery and Events only. Limited to allowable volumes of cannabis and cannabis products produced by the licensee.

9/20/18Lovingly.Legally@Gmail.com

Cottage Microbusinesses - Shall conform to the following requirements: (A) Not more than three (3) employees working on the premises in addition to the members of the household residing on the premises or family members; (B) The Cottage Microbusiness shall be clearly incidental and subordinate to the use of the premises for residential purposes; (C) Cottage Microbusiness residences and accessory buildings shall be code compliant to residential building and occupancy standards including Limited Density Rural Dwellings (Class K) if applicable. Additional commercial space may be used at a different location under an accessory license to the Cottage Microbusiness however the volume of cannabis restrictions set forth by the Cottage Microbusiness License and local zoning compliance for the commercial facility shall apply. (E) Cottage Microbusinesses shall not be required to meet the ADA requirements for a commercial building, since the residential occupancy is preserved, but rather to suit the reasonable needs of their employees (if any). If the public is allowed on the premises, the ADA requirements shall be met with a minimum of compliance as prescribed by a Certified Accessibility Specialist (CASp) (D) Multiple activities may be permitted within the Cottage Microbusiness. The total area occupied by all cannabis activities within the Cottage Microbusiness, including storage, shall not exceed three thousand (3,000) square feet with the exception that the total canopy of the cultivation is excluded.

1. Additional square footage of commercial space may be used, if required, at a different location, under an accessory license to the Cottage Microbusiness or an S license however the volume of cannabis restrictions set forth by the Cottage Microbusiness License and local zoning compliance for the commercial facility shall apply.

(E) With the exception of subsection 1 above, it is the intention of this license that all aspects of the Cottage Microbusiness shall be located and conducted within a dwelling unit or enclosed accessory building(s) and defined areas of the premises, with the exception of outdoor storage of materials, products or vehicles as specifically provided by the use permit when completely screened from the street and adjoining properties. There shall be no other change in the outside appearance of the building or premises, except one (1) non-illuminated sign not exceeding four (4) square feet. (F) The sale of merchandise not produced on the premises shall be incidental and accessory to the merchandise or service produced by the Cottage Microbusiness and shall not be advertised in any manner; (G) Not more than three (3) supplier delivery vehicles shall access the premises each day; (H) Large vehicles or construction equipment (such as trucks of over one (1) ton rating) shall not be operated, maintained, or parked in public view in connection with a Cottage Microbusiness, except to the extent customarily used by residents in the surrounding neighborhood on their own property. Not more than one (1) vehicle for servicing may be parked in public view; (I) No equipment or process used in the Cottage Microbusiness shall create noise, vibration, glare, fumes, dust, odors, smoke, electrical interference or other impacts in

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Lovingly.Legally@Gmail.com 9/20/18

excess of those customarily generated by single-family residential uses in the neighborhood. (J) The licensee shall sign a document indemnifying both the State of California and its branches as well as the local jurisdiction and its staff from any and all damages due to its approval of the license and/or security measures.

PREMISES OF A COTTAGE MICROBUSINESS 1. The overall premises of a Cottage Microbusiness need not be restricted to a single

parcel but rather may include another parcel or parcels, under the ownership or control of the Cottage Microbusiness licensee. An accessory license may be granted for accessory location for an activity on separate parcel limited to one accessory license per activity.

VOLUME OF CANNABIS THAT MAY BE USED BY A COTTAGE MICROBUSINESS NOTE: These permissible volumes are maximum volumes. It is expected that most Cottage Microbusinesses will produce less than the maximum for any number of reasons. Exceeding these maximums would require the licensee to obtain a different license or licenses. Justification for these maximums was drawn from the SRIA for the CDFA as well as the CDPH. (Attachment A)

1. ALL Cottage Microbusiness licensees may only outsource material from other licensed cultivators or manufacturers as described below.

a. For Outdoor or Mixed Light: 1. From one licensee that cultivates 5,000 square feet of canopy

or less. 2. From two licensees that cultivate 2,500 square feet of canopy

or less.

3. From multiple licensees not to exceed 1,250 lbs.b. For Indoor:

1. From one licensee that cultivates 2,500 square feet of canopy or less.

2. From multiple licensees not to exceed 1,250 lbs. c. For Mixed styles:

1. The business plan shall declare the sq. ft. of each style so long as the calculations show the total canopy does not exceed the limiting volumes. Outdoor and Mixed Light is calculated at 5,000 sq. ft. while the addition of indoor would be divided in half and subtracted from the 5,000 sq. ft. total.

d. All Cottage Microbusinesses that include Manufacturing may outsource pre-manufactured concentrate in lieu of cannabis flowers not to exceed 77-5 lbs. annually.

e. Cottage Microbusiness licensees who include cultivation as an activity may also outsource additional material as described above.

f. Notwithstanding, Cottage Microbusiness licensees who include manufacturing, and can demonstrate the capability to do so, may outsource additional cannabis flowers, from any licensee, that has been tested and found unsuitable due to natural pathogens (not pesticides) for

Lovingly.Legally@Gmail.com 9/20/18

remediation (not to exceed 50 1bs. annually, per Cottage Microbusiness Licensee).

MANUFACTURING 1. Equipment

a. Cottage Microbusiness manufacturers may only use: i. Non-volatile Solvents (including Coz and ethanol).

ii. Equipment intended for Home or Hobby use. iii. Commercial grade equipment if available for private consumers. iv. Homemade or Custom-built equipment if it meets safety

requirements and is approved by the local jurisdiction.2. Facilities

a. Areas for Cottage Microbusiness Manufacturers shall: i. Be kept clean and well lit. ii. Have appropriate fire suppression measures (e.g. Fire

extinguisher). iii. Have a barrier (permanent or temporary) to adequately separate

the area from the rest of the residence from non-authorized persons, children, and/or animals while the cannabis activity is being performed.

iv. Include "S" license facilities. v. Be prohibited from performing any other activity in the area while

the cannabis activity is performed. vi. Be inspected by the local authority for compliance. vii. Maintain clearly defined and lockable areas for storage of raw

cannabis material or ingredients and finished cannabis products. viii. Be entitled to relaxed security measures at the discretion of the

local jurisdiction.

DISTRIBUTION 1. A licensed Cottage Microbusiness shall:

a. Perform all of the duties of a licensed Distributor within the limitations that are allowed regarding volume of a Cottage Microbusiness.

b. Be entitled to relaxed security measures at the discretion of the local jurisdiction.

SECURITY The bureau shall establish minimum security and transportation safety requirements for the commercial distribution and delivery of marijuana and marijuana products. The transportation safety standards established by the bureau shall include, but not be limited to, minimum standards governing the types of vehicles in which marijuana and marijuana products may be distributed and delivered and minimum qualifications for persons eligible to operate such vehicles. (c) Licensed retailers and microbusinesses, and licensed nonprofits under Section 26070.5, shall implement security measures reasonably designed to prevent unauthorized entrance into areas containing marijuana or marijuana products and theft of marijuana or marijuana products from the premises. These security measures shall include, but not be limited to, all of the following:

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Lovingly.LegallyCimail.com 9/20/18

(1) Prohibiting individuals from remaining on the licensee's premises if they are not engaging in activity expressly related to the operations of the dispensary. (2) Establishing limited access areas accessible only to authorized personnel. (3) Other than limited amounts of marijuana used for display purposes, samples, or immediate sale, storing all finished marijuana and marijuana products in a secured and locked room, safe, or vault, and in a manner reasonably designed to prevent diversion, theft, and loss.

1. The Bureau shall authorize the local jurisdiction to use its discretion and be responsible for the review and approval of the Cottage Microbusiness License Applicant's Business/Security Plan.

a. This plan shall be "Site Specific" based on circumstances and conditions pertaining to the premises and for the activities of the licensee.

b. The approved Security Plan shall be reasonable and shall not create an undue burden or hardship to the applicant/licensee.

C. The Security Plan shall include language pertaining to the treatment of cannabis waste and destruction.

CULTIVATION 1. For the purpose of clarification, Canopy for outdoor cultivation shall mean the

dripline of the mature cannabis plant (A = mr?). This shall be calculated for each plant by the licensee and added together to arrive at the total plant canopy.

INSURANCE 1. Insurance limits shall be determined in direct relationship to the gross

receipts of the Cottage Microbusiness as well as its risks as determined by the insurer.

SPECIALTY MEDICINES 1. Medical Cottage Microbusinesses may produce small quantities of specialized

medicine with specific potency and/or cannabinoid ratio and/or delivery methods (e.g. suppositories) from batches of medicines/extracts that have been previously tested for compliance without having the additional expense of compliance testing for the finished product

a. These specialty small quantities may be used for individual patients with specific needs or for research

b. Aggregated quantity of the cannabis products used to formulate these specialty medicines shall not exceed 40 grams of cannabis extract per production run.

c. These specialty cannabis formulas may not contain any other active ingredients and are limited to three (3), commercially available, inactive ingredients.

d. Blending of previously tested batches is permissible for specialty medicines to achieve the desired finished product.

Lovingly.LegallyCimail.com 9/20/18

e. Amounts of previously tested product used for these specialty medicines shall be entered and recorded (with batch numbers) using the track and trace system.

f. These specialty medicines may only be produced by a Cottage Microbusiness that chooses manufacturing and distribution as activities and may only be sold to the end user by a Medical Retail licensee or Medical Cottage Microbusiness that chooses the retail activity as well.

TESTING PROCEEDURES 1. Cottage Microbusinesses may be allowed to bring batches to a third-party testing

facility to reduce costs. a. Batches for Cottage Microbusinesses will, likely, be small. b. Compliance costs per batch will remain the same. C. A Cottage Microbusiness that includes distribution as an activity may be

able to make plausible/reasonable arrangements, with the third-party testing agency, to deliver the cannabis product batch(es) for compliance testing in a lockable trailer (or similar acceptable method) that would have a security seal applied after sample retrieval and until the testing quarantine is complete.

d. Since Cottage Microbusiness batches would, likely, be small, they shall be granted the option to retrieve the samples taken by the testing lab for their destruction, inclusion into the marketplace, or submitted for remediation.

Transportation manifest would be required to be generated and recorded with Track and Trace system with a notation "for testing".

f. Video procedures may be done with a remote camera. g. A small farmer will likely grow various strains of cannabis with varying

cannabinoid profiles. Compliance testing shall be allowable for the entire harvest (within established batch sizes), as a batch, with separate cannabinoid profile testing for individual strains ("lots" within a batch) instead of costly full compliance testing for each strain (lot).

TAXES AND FEES 1. Due to the equal responsibilities with much lower volume and to drive

adoption: a. Cottage Microbusiness Licensees shall receive a 50% reduction to the

current Cultivation Tax if cultivation is included as one of the chosen activities.

b. Cottage Microbusiness License application fees shall be established at 50% of the current Microbusiness fees.

c. Cottage Microbusiness Licensees shall enjoy a 50% reduction of excise tax for all retail sales if retail is included as one of the chosen activities.

2. Cottage Microbusiness Licensees, that act as distributors, are still required to collect and submit the cultivation tax from the cultivators they interact with as well as the excise tax from other retailers including any accrued by the Cottage Microbusiness licensee itself if retail is a chosen activity.

Lovingly.Legally@Gmail.com 9/20/18

ATTACHMENT A

Standardized Regulatory Impact Assessment (SRIA) Prepared by:

ERA Economics, LLC for the CDFA Table 7 Sample Average Production Parameters and Costs for Outdoor, Indoor, and Mixed-Light Cultivation Production Method

Outdoor Indoor Mixed Light Canopy square feet 8132 4869 2058 (sample average Yield Per Plant (Ib) 2.484 0.588 0.875 Price Per pound 1402 2275 1575 ($/lb)

Revenue Flower Revenue $221,860 $574,932 $234,000 Trimmings Revenue $1,757 $3,737 $1,481 Total Revenue $223,617 $578,669 $235,481 Expenses (net of $104,989 $157,438 $122,398 mgmt and risk)

Net return to $118,628 $421,231 $159,658 management and risk

Standardized Regulatory Impact Assessment (SRIA) Proposed Regulations for Manufacturers of Adult-Use and Medicinal Cannabis

Prepared for the California Department of Public Health By the Humboldt Institute for Interdisciplinary Marijuana Research

First, we assume that one pound of trim yields one ounce, or 0.0625 pounds of cannabis oil. Second, one pound of flower yields three ounces, or 0.1875 pounds of cannabis oil. Third, we assume that currently ten percent of cannabis oil production comes from flower and the remaining oil is produced from trim. We also need to know how much dried trim is obtained at harvest for every pound of dried cannabis flower. The range of responses for this estimate was large, with some indicating that for one pound of flower one quarter of a pound of trim is obtained, while some report that one pound of trim or more is obtained. It seems to depend on the amount of leaves and stems packaged with the trim, the strain, and the level of THC obtained. Cannabis plants grown outdoors also have a different trim to flower ratio than plants grown indoors. We assume that at harvest time, for every one pound of dried cannabis cultivated, there is 0.40 pounds of dried trim obtained. This figure is in the middle of our responses and is

8

Lovingly.Legally@Gmail.com 9/20/18

consistent with ten percent of oil extracted from flower in our simulations of the combined medicinal and unlicensed segments.

Outdoor Indoor Mixed Light Plants/1,000Sq. ft. 100 1.000 250 Yield 1b./1,000 sq. ft. 248.4 588 218.75 Oil yield/1,000 sq. ft. 46 lbs. 110.25 Ibs. 41 lbs. Averages of plants /1,000 sq. ft. based on personal investigation.

While some may disagree with the statistics provided by the SRIAs, these are the results provided by the consultants, hired by the State, to inform the agencies while constructing their framework for their regulations. We feel that volume would be the best limiting factor since it would remain constant as opposed to the price (as is evident from the prices quoted by the consultants) Rather than dispute their findings, we felt it best to work with their findings to develop this new license.

9

Lovingly.Legally@Gmail.com 9/20/18 Share of Production Technology by Region Region Indoor Outdoor Mixed Light

Bay Area 61% 26% 13% North Coast 6% 43%51%

Southeast Interior 8% 83% 8% North San Joaquin 17% 74% Central Coast 69% 74%% 20%

Intermountain 63% 27%9%

South San Joaquin 3% 43% 54%

South Coast 30% 48% 22% Sacramento Valley 77% 15%

Total 6% 60% 24%

Intermountain: 3,875,000 lbs.North Coast:

4,150,000 lbs.

North San Joaquin Valley: Sacramento Valley: 275,000 lbs. 1,000,000 lbs.

South San Joaquin Valley: 1,750,000 lbs.

Bay Area:

175,000 lbs.

Southeast Interior: 300,000 lbs.

Central Coast: 1,350,000 lbs.

South Coast: 625,000 lbs.

10

Lovingly.Legally@Gmail.com 9/20/18

11

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 1

An act to amend Sections 26001, 26011.5, 26013, 26050, 26051.5, 26060.1, 26070, 26100, 26104, 261 10, and 26180 of, to add Sections 26054.1, 26070.3, 26070.4, and 26152.5 to, and to repeal Section 26001,1 of, the Business and Professions Code, to amend Sections 34010 and 34012 of the Revenue and Taxation Code, and to amend Sections 1831 and 13149 of the Water Code, relating to cannabis.

190930553114BIL

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 2

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 26001 of the Business and Professions Code is amended to read

26001. For purposes of this division, the following definitions apply: a) "A-license" means a state license issued under this division for cannabis or

cannabis products that are intended for adults who are 21 years of age and older and who do not possess a physician's recommendation.

b) "A-licensee" means any person holding a license under this division for cannabis or cannabis products that are intended for adults who are 21 years of age and older and who do not possess a physician's recommendation.

(c) "Applicant" means an owner applying for a state license pursuant to thisdivision.

1909305533146ILIMA02(d) "Batch" means a specific quantity of homogeneous cannabis or cannabis product that is one of the following types:

(1) Cottage batch. "Cottage batch" means a harvest batch that is not uniform in strain. Each different strain in a cottage batch shall be divided into one separate lot within the batch

2) Harvest batch. "Harvest batch" means a specifically identified quantity of dried flower or trim, leaves, and other cannabis plant matter that is uniform in strain, harvested at the same time, and, if applicable, cultivated using the same pesticides and other agricultural chemicals, and harvested at the same time.

3) Manufactured cannabis batch. "Manufactured cannabis batch" means either of the following:

(A) An amount of cannabis concentrate or extract that is produced in one production cycle using the same extraction methods and standard operating procedures.

(B) An amount of a type of manufactured cannabis produced in one production cycle using the same formulation and standard operating procedures.

(e) "Bureau" means the Bureau of Cannabis Control within the Department of Consumer Affairs, formerly named the Bureau of Marijuana Control, the Bureau of Medical Cannabis Regulation, and the Bureau of Medical Marijuana Regulation.

(f) "Cannabis" means all parts of the plant Cannabis sativa Linnaeus, Cannabis indica, or Cannabis ruderalis, whether growing or not; the seeds thereof; the resin, whether crude or purified, extracted from any part of the plant; and every compound,

manufacture, salt, derivative, mixture, or preparation of the plant, its seeds, or resin. "Cannabis" also means the separated resin, whether crude or purified, obtained from cannabis. "Cannabis" does not include the mature stalks of the plant, fiber produced from the stalks, oil or cake made from the seeds of the plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of the plant which is incapable of germination. For the purpose of this division, "cannabis" does not mean "industrial hemp" as defined by Section 11018.5 of the Health and Safety Code.

(g) "Cannabis accessories" has the same meaning as in Section 11018.2 of the Health and Safety Code.

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 3

(h) "Cannabis concentrate" means cannabis that has undergone a process to concentrate one or more active cannabinoids, thereby increasing the product's potency. Resin from granular trichomes from a cannabis plant is a concentrate for purposes of this division. A cannabis concentrate is not considered food, as defined by Section 109935 of the Health and Safety Code, or a drug, as defined by Section 109925 of the Health and Safety Code.

i) "Cannabis products" has the same meaning as in Section 11018.1 of the Health and Safety Code

() "Child resistant" means designed or constructed to be significantly difficult for children under five years of age to open, and not difficult for normal adults to use properly.

(k) "Commercial cannabis activity" includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling,

1909305531148121MA02transportation, delivery, or safe of cannabis and cannabis products as provided for in this division.

!) "Cultivation" means any activity involving the planting, growing, harvesting, drying, curing, grading, or trimming of cannabis.

m) "Cultivation site" means a location where cannabis is planted, grown, harvested, dried, cured, graded, or trimmed, or a location where any combination of those activities occurs.

(n) "Customer" means a natural person 21 years of age or older or a natural person 18 years of age or older who possesses a physician's recommendation, or a primary caregiver

o) "Day care"Daycare center" has the same meaning as in Section 1596.76 of the Health and Safety Code.

(p) "Delivery" means the commercial transfer of cannabis or cannabis products to a customer. "Delivery" also includes the use by a retailer of any technology platform.

q) "Director" means the Director of Consumer Affairs. () "Distribution" means the procurement, sale, and transport of cannabis and

cannabis products between licensees. s) "Dried flower" means all dead cannabis that has been harvested, dried, cured,

or otherwise processed, excluding leaves and stems. (t) "Edible cannabis product" means cannabis product that is intended to be used,

in whole or in part, for human consumption, including, but not limited to, chewing gum, but excluding products set forth in Division 15 (commencing with Section 32501) of the Food and Agricultural Code. An edible cannabis product is not considered food, as defined by Section 109935 of the Health and Safety Code, or a drug, as defined by Section 109925 of the Health and Safety Code.

(u) "Fund" means the Cannabis Control Fund established pursuant to Section 26210.

(v) "Growing cycle" means growth of a crop from planting to harvest.

(w) "Kind" means applicable type or designation regarding a particular cannabis variant or cannabis product type, including, but not limited to, strain name or other grower trademark, or growing area designation.

( w )

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 4

(x) "Labeling" means any label or other written, printed, or graphic matter upon a cannabis product, upon its container or wrapper, or that accompanies any cannabis product.

Ly) "Labor peace agreement" means an agreement between a licensee and any bona fide labor organization that, at a minimum, protects the state's proprietary interests by prohibiting labor organizations and members from engaging in picketing, work stoppages, boycotts, and any other economic interference with the applicant's business. This agreement means that the applicant has agreed not to disrupt efforts by the bona fide labor organization to communicate with, and attempt to organize and represent, the applicant's employees. The agreement shall provide a bona fide labor organization access at reasonable times to areas in which the applicant's employees work, for the purpose of meeting with employees to discuss their right to representation, employment rights under state law, and terms and conditions of employment. This type of agreement 190930553

shall not mandate a particular method of election or certification of the bona fide labor organization.

2) "License" means a state license issued under this division, and includes both an A-license and an M-license, as well as a testing laboratory license. Except when the context otherwise requires, references in this division to a cultivation, manufacturer, retailer, or distributor license shall be treated as including a microbusiness license that authorizes the same activity.

aa) "Licensee" means any person holding a license under this division, regardless of whether the license held is an A-license or an M-license, and includes the holder of a testing laboratory license. Except when the context otherwise requires, references in this division to a licensee holding a cultivation, manufacturer, retailer, or distributor license shall be treated as including a licensee holding a microbusiness license that authorizes the same activity.

(aa) ab) "Licensing authority" means the state agency responsible for the issuance,

renewal, or reinstatement of the license, or the state agency authorized to take disciplinary action against the licensee.

ab Lac) "Live plants" means living cannabis flowers and plants, including seeds,

immature plants, and vegetative stage plants. (ac (ad) "Local jurisdiction" means a city, county, or city and county. fad (ae) "Lot" means a batch or a specifically identified portion of a batch. ae af) "M-license" means a state license issued under this division for commercial

cannabis activity involving medicinal cannabis. af) ag) "M-licensee" means any person holding a license under this division for

commercial cannabis activity involving medicinal cannabis. (ag)

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 5

(ab) "Manufacture" means to compound, blend, extract, infuse, or otherwise make or prepare a cannabis product.

fah) (ai) "Manufacturer" means a licensee that conducts the production, preparation,

propagation, or compounding of cannabis or cannabis products either directly or indirectly or by extraction methods, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis at a fixed location that packages or repackages cannabis or cannabis products or labels or relabels its container.

fai) aj) "Medicinal cannabis" or "medicinal cannabis product" means cannabis or

a cannabis product, respectively, intended to be sold for use pursuant to the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code, by a medicinal cannabis patient in California who possesses

190930353114BILEMG2a physician's recommendation. (ak) "Microbusiness" means a person holding a license issued under paragraph

(3) of subdivision (b) of Section 26070.

al) "Nursery" means a licensee that produces only clones, immature plants, seeds, and other agricultural products used specifically for the propagation and cultivation of cannabis.

ak (am) "Operation" means any act for which licensure is required under the

provisions of this division, or any commercial transfer of cannabis or cannabis products. al) an) "Owner" means any of the following: 1) A person with an aggregate ownership interest of 20 percent or more in the

person applying for a license or a licensce, unless the interest is solely a security, lien, or encumbrance.

(2) The chief executive officer of a nonprofit or other entity. (3) A member of the board of directors of a nonprofit. (4) An individual who will be participating in the direction, control, or

management of the person applying for a license. am)

(ao) "Package" means any container or receptacle used for holding cannabis or cannabis products.

an (ap) "Person" includes any individual, firm, partnership, joint venture, association,

corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit, and the plural as well as the singular.

(ao)

aq) "Physician's recommendation" means a recommendation by a physician and surgeon that a patient use cannabis provided in accordance with the Compassionate Use Act of 1996 (Proposition 215), found at Section 11362.5 of the Health and Safety Code.

(apt(ar) "Premises" means the designated structure or structures and land specified

in the application that is owned, leased, or otherwise held under the control of the

02/19/19 11:30 AM RN 19 09305 PAGE 653114

applicant or licensee where the commercial cannabis activity will be or is conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.

aq as) "Primary caregiver" has the same meaning as in Section 11362.7 of the

Health and Safety Code. ar) at) "Purchaser" means the customer who is engaged in a transaction with a

licensee for purposes of obtaining cannabis or cannabis products. (as) au) "Sell," "sale," and "to sell" include any transaction whereby, for any

consideration, title to cannabis or cannabis products is transferred from one person to another, and includes the delivery of cannabis or cannabis products pursuant to an order placed for the purchase of the same and soliciting or receiving an order for the

190930553114BILLX202same, but does not include the return of cannabis or cannabis products by a licensee to the licensee from whom the cannabis or cannabis product was purchased.

at) (av) "Testing laboratory" means a laboratory, facility, or entity in the state that

offers or performs tests of cannabis or cannabis products and that is both of thefollowing:

(1) Accredited by an accrediting body that is independent from all other persons involved in commercial cannabis activity in the state.

2) Licensed by the bureau. (at) (aw) "Unique identifier" means an alphanumeric code or designation used for

reference to a specific plant on a licensed premises and any cannabis or cannabis product derived or manufactured from that plant.

av ax) "Youth center" has the same meaning as in Section 11353.1 of the Health

and Safety Code. SEC. 2. Section 26001.1 of the Business and Professions Code is repealed.

26001.1. In addition to the definitions listed in Section 26001, for purposes of this division, "microbusiness" means a person holding a license issued under paragraph (3) of subdivision (a) of Section 26070;

SEC. 3. Section 2601 1.5 of the Business and Professions Code is amended to read:

26011.5. The protection of the public shall be the highest priority for all licensing authorities in exercising licensing, regulatory, and disciplinary functions under this division. In order to protect the public from unregulated, illicit cannabis activity. licensing authorities shall exercise these functions to enable cannabis operations of all sizes to enter the regulated and legitimate market, taking into account the considerations in subdivision (c) of Section 26013. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount.

SEC. 4. Section 26013 of the Business and Professions Code is amended to read:

26013. (a) Licensing authorities shall make and prescribe reasonable rules and regulations as may be necessary to implement, administer, and enforce their respective

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 7

duties under this division in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. Those rules and regulations shall be consistent with the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act.

(b) (1) Each licensing authority may adopt emergency regulations to implementthis division.

(2) Each licensing authority may readopt any emergency regulation authorized by this section that is the same as, or substantially equivalent to, an emergency regulation previously adopted as authorized by this section. Any such readoption shall be limited to one time for each regulation.

(3) Notwithstanding any other law, the initial adoption of emergency regulations and the readoption of emergency regulations authorized by this section shall be deemed an emergency and necessary for the immediate preservation of the public peace, health,

1909305531168:LEX802safety, or general welfare. The initial emergency regulations and the readopted emergency regulations authorized by this section shall be each submitted to the Office of Administrative Law for filing with the Secretary of State and shall remain in effect for no more than 180 days, by which time final regulations may be adopted.

c) Regulations issued under this division shall be necessary to achieve the purposes of this division, based on best available evidence, and shall mandate only commercially and practically feasible procedures, technology, or other requirements, and requirements. with sensitivity. in the case of a cottage microbusiness, to their effect on any concurrent residential uses. Regulations shall not unreasonably restrain or inhibit the development of alternative procedures or technology to achieve the same substantive requirements, nor shall the regulations make compliance so onerous that the operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent-businessperson. businessperson who is subject to comparable limitations on volume and scale of commercial cannabis activity.

SEC. 5. Section 26050 of the Business and Professions Code is amended to read:

26050. (a) The license classification pursuant to this division shall, at a minimum, be as follows:

(1) Type 1-Cultivation; Specialty outdoor; Small. (2) Type 1A-Cultivation; Specialty indoor; Small. (3) Type 1B-Cultivation; Specialty mixed-light; Small. (4) Type IC-Cultivation; Specialty cottage; Small. (5) Type 2-Cultivation; Outdoor; Small. (6) Type 2A-Cultivation; Indoor; Small. (7) Type 2B-Cultivation; Mixed-light; Small. (8) Type 3-Cultivation; Outdoor; Medium. (9) Type 3A-Cultivation; Indoor; Medium. (10) Type 3B-Cultivation; Mixed-light; Medium. (11) Type 4-Cultivation; Nursery. (12) Type 5-Cultivation; Outdoor; Large. (13) Type 5A-Cultivation; Indoor; Large. (14) Type 5B-Cultivation; Mixed-light; Large. (15) Type 6-Manufacturer 1. (16) Type 7-Manufacturer 2.

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 8

(17) Type 8-Testing laboratory. (18) Type 10-Retailer. (19) Type 11-Distributor. (20) Type 12-Microbusiness-Type 12-_Microbusiness; General. (21) Type 12A-Microbusiness: Cottage. (22) Type 12A-1-Microbusiness; Cottage accessory. (b) With the exception of testing laboratory licenses, which may be used to test

cannabis and cannabis products regardless of whether they are intended for use by individuals who possesses a physician's recommendation, all licenses issued under this division shall bear a clear designation indicating whether the license is for commercial adult-use cannabis activity as distinct from commercial medicinal cannabis activity by prominently affixing an "A" or "M," respectively, Examples of such a designation include, but are not limited to, "A-Type 1" or "M-Type 1." Except as

190530553specifically specified in this division, the requirements for A-licenses and M-licenses shall be the same. For testing laboratories, the bureau shall create a license that indicates a testing laboratory may test both adult-use and medicinal cannabis.

(c) A license issued pursuant to this division shall be valid for 12 months from the date of issuance. The license may be renewed annually.

(d) Each licensing authority shall establish procedures for the issuance and renewal of licenses

SEC. 6. Section 26051.5 of the Business and Professions Code is amended to read:

26051.5. (a) An applicant for any type of state license issued pursuant to this division shall do all of the following:

1) Require that each owner electronically submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all applicants for any type of state license issued pursuant to this division, for the purpose of obtaining information as to the existence and content of a record of state or federal convictions and state and federal arrests, and also information as to the existence and content of a record of state or federal convictions and arrests for which the Department of Justice establishes that the person is free on bail or on his or her their recognizance pending trial or appeal.

(A) Notwithstanding any other law, the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health may obtain and receive, at their discretion, criminal history information from the Department of Justice and the Federal Bureau of Investigation for an applicant for any state license under this division, including any license established by a licensing authority by regulation pursuant to subdivision (b) of Section 26012.

(B) When received, the Department of Justice shall transmit fingerprint images and related information received pursuant to this section to the Federal Bureau of Investigation for the purpose of obtaining a federal criminal history records check. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the licensing authority.

C) The Department of Justice shall provide a response to the licensing authority pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 9

(D) The licensing authority shall request from the Department of Justice subsequent notification service, as provided pursuant to Section 11105.2 of the Penal Code, for applicants

E) The Department of Justice shall charge the applicant a fee sufficient to cover the reasonable cost of processing the requests described in this paragraph.

(2) Provide evidence of the legal right to occupy and use the proposed location and provide a statement from the landowner of real property or that landowner's agent where the commercial cannabis activity will occur, as proof to demonstrate the landowner has acknowledged and consented to permit commercial cannabis activities to be conducted on the property by the tenant applicant.

(3) Provide evidence that the proposed location is in compliance with subdivision (b) of Section 26054.

(4) Provide a statement, signed by the applicant under penalty of perjury, that 190930553114BILEMAOZthe information provided is complete, true, and accurate.

5) (A) For an applicant with 20 or more employees, provide a statement that the applicant will enter into, or demonstrate that it has already entered into, and abide by the terms of a labor peace agreement.

B) For the purposes of this paragraph, "employee" does not include a supervisor. C) For the purposes of this paragraph, "supervisor" means an individual having

authority, in the interest of the applicant, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibility to direct them or to adjust their grievances, or effectively to recommend such action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

(6) Provide the applicant's valid seller's permit number issued pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code or indicate that the applicant is currently applying for a seller's permit.

7) Provide any other information required by the licensing authority. (8) For an applicant seeking a cultivation license, provide a statement declaring

the applicant is an "agricultural employer," as defined in the Alatorre-Zenovich-Dunlap-Berman Agricultural Labor Relations Act of 1975 (Part 3.5 (commencing with Section 1 140) of Division 2 of the Labor Code), to the extent not prohibited by law.

9) Pay all applicable fees required for licensure by the licensing authority. 10) Provide proof of a bond to cover the costs of destruction of cannabis or

cannabis products if necessitated by a violation of licensing requirements. 11) (A) Provide a statement, upon initial application and application for renewal,

that the applicant employs, or will employ within one year of receiving or renewing a license, one supervisor and one employee who have successfully completed a Cal-OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course. This paragraph shall not be construed to alter or amend existing requirements for employers to provide occupational safety and health training to employees.

(B) An applicant with only one employee shall not be subject to subparagraph (A).

02/19/19 11:30 AM 531 14 RN 19 09305 PAGE 10

(C) For purposes of this paragraph "employee" has the same meaning as provided in subparagraph (B) of paragraph (5) and "supervisor" has the same meaning as provided in subparagraph (C) of paragraph (5).

(12) For an applicant seeking a cottage microbusiness license, enter into an agreement with the licensing authority to indemnify and hold harmless the state, the licensing authority. the local jurisdiction, and their officers, agents, and employees. from any claim, liability, loss. or damage resulting or accruing from approval of the applicant's license or licensed activity, including approval of the applicant's security measures,

b) An applicant shall also include in the application a detailed description of the applicant's operating procedures for all of the following, as required by the licensing authority:

(1) Cultivation. 1509(2) Extraction and infusion methods.

(3) The transportation process. (4) Inventory procedures. (5) Quality control procedures. (6) Security protocols. 7) For applicants seeking licensure to cultivate, the source or sources of water

the applicant will use for cultivation, as provided in subdivisions (a) to (c), inclusive, of Section 26060.1. For purposes of this paragraph, "cultivation" as used in Section 26060.1 shall have the same meaning as defined in Section 26001. The Department of Food and Agriculture shall consult with the State Water Resources Control Board and the Department of Fish and Wildlife in the implementation of this paragraph.

(c) (1) The applicant shall also provide a complete detailed diagram of the proposed premises wherein the license privileges will be exercised, with sufficient particularity to enable ready determination of the bounds of the premises, showing all boundaries, dimensions, entrances and exits, interior partitions, walls, rooms, and common or shared entryways, and include a brief statement or description of the principal activity to be conducted therein, and, for licenses permitting cultivation, measurements of the planned canopy, including aggregate square footage and individual square footage of separate cultivation areas, if any, roads, water crossings, points of diversion, water storage, and all other facilities and infrastructure related to the cultivation.

(2) For a cottage microbusiness license, the applicant shall provide the information described in paragraph (1) for all proposed premises, including primary and accessory premises. An applicant for a cottage microbusiness license shall also identify areas of the primary premises, if any, to be designated for multiple uses, including a brief statement or description of all intended uses for each area; shall classify planned canopy as outdoor, mixed-light, or indoor, and by number of growing cycles; and shall identify amounts of cannabis planned to be obtained from outside suppliers, with information, if applicable, showing an outside supplier's conformance with the criteria specified in subclause (II) of clause (ii) of subparagraph (A) of paragraph (3) of subdivision (b) of Section 26070.

(d) Provide a complete list of every person with a financial interest in the person applying for the license as required by the licensing authority. For purposes of this subdivision, "persons with a financial interest" does not include persons whose only

02/19/19 1.1:30 AM 53114 RN 19 09305 PAGE 11

interest in a licensee is an interest in a diversified mutual fund, blind trust, or similar instrument.

SEC. 7. Section 26054.1 is added to the Business and Professions Code, to read:

26054.1. If the primary premises of a cottage microbusiness is a private residence, or located within a residential or rural area, the premises shall meet all of the following requirements, except that the requirements in subdivisions (e) to (j), inclusive, may be waived by the local jurisdiction:

(a) in a private residence, licensed activity shall be clearly incidental and subordinate to use of the premises for residential purposes.

(b) The operations and appearance of the cottage microbusiness shall not change or disturb the residential or rural character of the premises or its surroundings.

c) Licensed activity shall not change the outside appearance of the premises, except for, at most, one nonilluminated sign of up to four square feet in size, subject to Chapter 15 (commencing with Section 26150).

(d) Licensed activity shall be environmentally sound, using practices designed to avoid negative impacts on natural surroundings.

e) Except for cultivation activity and outdoor storage pursuant to subdivision (f), licensed activity shall occur within the dwelling unit or enclosed and locked structures on the premises.

f) Cultivation activity and outdoor storage of materials, products, and vehicles shall be in a locked space, and shall not be visible by normal unaided vision from a

public place, including the street and adjoining properties, in the immediate surroundings.

(g) In a residential area, no use of equipment or implementation of any process under the cottage microbusiness license shall create a greater disruptive impact on the surrounding neighborhood than is customarily caused in the neighborhood by single-family residential uses. Disruptive impacts that are subject to this limitation shall include, but are not limited to, noise, vibration, glare, emission of fumes, dust, odors, or smoke, and electrical interference.

(h) In a residential area, large vehicles or construction equipment, such as trucks with a greater-than-one-ton rating, shall not be operated, maintained, or parked in public view, except as customarily done by residents in the surrounding neighborhood.

(i) No more than three employees, excluding residents and family members, may conduct licensed activity on the premises at any one time.

j) No more than three supplier delivery vehicles shall access the premises per day.

SEC. 8. Section 26060.1 of the Business and Professions Code is amended to read:

26060.1. (a) An application for a license for cultivation issued by the Department of Food and Agriculture shall identify the source of water supply as follows:

(1) (A) If water will be supplied by a retail water supplier, as defined in Section 13575 of the Water Code, the application shall identify the retail water supplier.

(B) Paragraphs (2) and (3) do not apply to any water subject to subparagraph (A) unless the retail water supplier has 10 or fewer customers, the applicant receives 10 percent or more of the water supplied by the retail water supplier, 25 percent or more of the water delivered by the retail water supplier is used for cannabis cultivation,

190930583114

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or the applicant and the retail water supplier are affiliates, as defined in Section 2814.20 of Title 23 of the California Code of Regulations.

(2) If the water supply includes a diversion within the meaning of Section 5100 of the Water Code, the application shall identify the point of diversion and the maximum amount to be diverted as follows:

(A) For an application submitted before January 1, 2019, the application shallinclude a copy of one of the following:

(i) A small irrigation use registration certificate, permit, or license issued pursuant to Part 2 (commencing with Section 1200) of Division 2 of the Water Code that covers the diversion.

(ii) A statement of water diversion and use filed with the State Water Resources Control Board on or before October 31, 2017, that covers the diversion and specifies the amount of water used for cannabis cultivation.

1905305iii) A pending application for a permit to appropriate water, filed with the State Water Resources Control Board on or before October 31, 2017.

(iv) Documentation submitted to the State Water Resources Control Board on or before January 1, 2019, demonstrating that the diversion is subject to subdivision (a), (c), (d), or (e) of Section 5101 of the Water Code.

(v) Documentation submitted to the State Water Resources Control Board on or before October 31, 2017, demonstrating that the diversion is authorized under a riparian right and that no diversion occurred after January 1, 2010, and before January 1, 2017. The documentation shall be submitted on or accompany a form provided by the State Water Resources Control Board and shall include all of the information outlined in subdivisions (a) to (d), inclusive, and (e) of Section 5103 of the Water Code. The documentation shall also include a general description of the area in which the water will be used in accordance with subdivision (g) of Section 5103 of the Water Code and the year in which the diversion is planned to commence.

(B) For an application submitted after December 31, 2018, the application shall include a copy of one of the following:

i) A small irrigation use registration certificate, permit, or license issued pursuant to Part 2 (commencing with Section 1200) of Division 2 of the Water Code that covers the diversion.

(ii) A statement of water diversion and use filed with the State Water Resources Control Board that covers the diversion and specifies the amount of water used for cannabis cultivation.

iii) Documentation submitted to the State Water Resources Control Board demonstrating that the diversion is subject to subdivision (a), (c), (d), or (e) of Section5101 of the Water Code.

(iv) Documentation submitted to the State Water Resources Control Board demonstrating that the diversion is authorized under a riparian right and that no diversion occurred after January 1, 2010, and in the calendar year in which the application is submitted. The documentation shall be submitted on or accompany a form provided by the State Water Resources Control Board and shall include all of the information outlined in subdivisions (a) to (d), inclusive, and (e) of Section 5103 of the Water Code. The documentation shall also include a general description of the area in which the water will be used in accordance with subdivision (g) of Section 5103 of the Water Code and the year in which the diversion is planned to commence.

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(3) If water will be supplied from a groundwater extraction not subject to paragraph (2), the application shall identify the location of the extraction and the maximum amount to be diverted for cannabis cultivation in any year.

(b) The Department of Food and Agriculture shall include in any license forcultivation all of the following:

1) Conditions requested by the Department of Fish and Wildlife and the State Water Resources Control Board to: (A) ensure that individual and cumulative effects of water diversion and discharge associated with cultivation do not affect the instream lows needed for fish spawning, migration, and rearing, and the flows needed to maintain natural flow variability; (B) ensure that cultivation does not negatively impact springs, riparian habitat, wetlands, or aquatic habitat; and (C) otherwise protect fish, wildlife, fish and wildlife habitat, and water quality. The conditions shall include, but not be limited to, the principles, guidelines, and requirements established pursuant to Section

19093955313149 of the Water Code. Code, and shall be consistent with paragraph (4) of subdivision (a) of that section.

(2) Any relevant mitigation requirements the Department of Food and Agriculture identifies as part of its approval of the final environmental documentation for the cannabis cultivation licensing program as requirements that should be included in a

license for cultivation. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to the identification of these mitigation measures. This paragraph does not reduce any requirements established pursuant to Division 13 (commencing with Section 21000) of the Public Resources Code.

3) A condition that the license shall not be effective until the licensee has demonstrated compliance with Section 1602 of the Fish and Game Code or receives written verification from the Department of Fish and Wildlife that a streambed alteration agreement is not required.

c) The Department of Food and Agriculture shall consult with the State Water Resources Control Board and the Department of Fish and Wildlife in the implementation of this section.

(d) Notwithstanding paragraph (1) of subdivision (b), the Department of Food and Agriculture is not responsible for verifying compliance with the conditions requested or imposed by the Department of Fish and Wildlife or the State Water Resources Control Board. The Department of Fish and Wildlife or the State Water Resources Control Board, upon finding and making the final determination of a violation of a condition included pursuant to paragraph (1) of subdivision (b), shall notify the Department of Food and Agriculture, which may take appropriate action with respect to the licensee in accordance with Chapter 3 (commencing with Section 26030).

SEC. 9. Section 26070 of the Business and Professions Code is amended to read:

26070. Retailers, Distributors, and Microbusinesses. a) For purposes of this section, the following terms shall have the following

meanings: (1) "Canopy size" means the area delineated by the following: (A) For outdoor cultivation, the aggregate area of all driplines of all mature

cannabis plants in a canopy.

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(B) For indoor or mixed-light cultivation, the boundaries of the area on which a canopy of mature cannabis plants is grown.

(2) "Consumer equipment" means one of the following: (A) Equipment intended for home or hobby use (B) Commercial-grade equipment, if available to private consumers. C) Homemade or custom-built equipment that meets all applicable safety

requirements, if approved by the local jurisdiction. (3) "Cottage microbusiness canopy size limit" means a total canopy size equal

to the following: (A) For outdoor or mixed-light cultivation, 5.000 square feet, divided by the

number of growing cycles per year. (B) For indoor cultivation, 2,500 square feet, divided by the number of growing

cycles per year 1909395531 1481614803

(C) For mixed styles of cultivation, or canopy containing areas with different growing cycles, 5,000 square feet. as calculated by adding together the following:

(i) For each area of outdoor or mixed-light cultivation, canopy size multiplied by the number of growing cycles per year.

(ii) For each area of indoor cultivation. canopy size multiplied by two, then by the number of growing cycles per year.

4) "Dripline" means a circle around the width of a plant that encompasses its outermost branches

(5) "Offsite retail" means sale at off-premises events or sale by delivery. (6) "Private residence" means a dwelling where individuals reside, the land on

which the dwelling is situated, and accessory buildings or structures on the land. The term shall include, but is not limited to. a Limited Density Rural (Class K) Dwelling.

bi State licenses to be issued by the bureau related to the sale and distribution of cannabis and cannabis products are as follows:

(1) "Retailer," for the retail sale and delivery of cannabis or cannabis products to customers. A retailer shall have a licensed premises-which that is a physical location from which commercial cannabis activities are conducted. A retailer's premises may be closed to the public. A retailer may conduct sales exclusively by delivery.

(2) "Distributor," for the distribution of cannabis and cannabis products. A distributor licensee shall be bonded and insured at a minimum level established by the licensing authority. For a cottage microbusiness, the minimum bond amount and insurance level shall be established in direct relation to the gross receipts of the cottage microbusiness and its insurance risk, as determined by the insurer.

(3) (A) "Microbusiness," for"Microbusiness," The microbusiness license types to be issued by the bureau under this division shall include both of the following:

() Type 12, or "general." for the cultivation of cannabis on an area less than 10,000 square feet and to act as a licensed distributor, Level 1 manufacturer, and retailer

under this-division, provided such licensee can demonstrate division, ii) Type 12A, or "cottage." limited to one license per licensee, to conduct any,

but no fewer than three, of the four activities specified in clause (1, at the election of the licensee, except that cultivation. if authorized by a license. shall not exceed the cottage microbusiness canopy size limit: manufacture, if authorized by a license, shall be limited to manufacture using consumer equipment; and retail sale, if authorized by

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53114 RN 19 09305 PAGE 15

a license. shall be limited to offsite retail. Subject to Sections 26054 and 26054.1, the primary premises of a cottage microbusiness may be a private residence. notwithstanding subdivision (d) of Section 5026 of Title 16 of the California Code of Regulations. or located within a residential area, rural area, or other appropriately zoned area, as designated by the local jurisdiction, On a primary premises, and in one or more areas

of a primary premises that a licensee designates for multiple uses, such as a kitchen or kitchen surface, a licensee may conduct multiple activities or stages of activity authorized by the license. The total area of a primary premises used for licensed activity, excluding cultivation, shall not exceed 3.000 square feet, or a smaller area established by the local jurisdiction. Cannabis or cannabis products distributed, manufactured, or sold by a cottage microbusiness shall exclusively be obtained or derived from the following amounts:

I) Any amount of cannabis that is cultivated by the cottage microbusiness. 190930553114BILLMMO2Ill In addition, any amount of nonmanufactured cannabis that is sourced from

either one licensed cultivator with a total canopy size that does not exceed the cottage microbusiness canopy size limit. or two licensed cultivators, each with a total canopy size that does not exceed one-half of the cottage microbusiness canopy size limit. or not to exceed 1.250 pounds per year, in aggregate, from any number of licensed cultivators.

IID) In addition, up to 50 pounds of nonmanufactured cannabis per year. in aggregate. that has been tested and found unsuitable due to natural pathogens, for remediation purposes, if the licensee can demonstrate adequate remediation capability.

(IV) In addition to cannabis under subclause (1). but in lieu of cannabis under subclause (ID) or (III), up to 77.5 pounds per year, in aggregate, of cannabis concentrate or extract.

(iii) Type 12A-1. or "cottage-accessory." for use of accessory premises to conduct activities under a cottage microbusiness license. A cottage microbusiness shall be limited to one accessory license for each activity conducted by the cottage microbusiness, Issuance of an accessory license to conduct manufacturing at an accessory premises shall not prevent a licensee from also conducting manufacturing at one additional, licensed shared-use facility under a Type S or similar license.

(B)(1) A microbusiness licensee shall be able to demonstrate compliance with all requirements imposed by this division on licensed cultivators, distributors, Level 1 manufacturers, and retailers to the extent the licensee engages in such activities, Microbusiness licenses that authorize cultivation of cannabis shall include the license conditions described in subdivision (b) of Section 26060.1,

(ii) For a cottage microbusiness. the licensing authority shall determine the minimum measures necessary for compliance with the requirements described in clause (i). The minimum measures determined pursuant to this clause shall be in lieu of paragraphs (1) to (4), inclusive, of subdivision (e) of Section 3500 of Title 16 of the California Code of Regulations, and other regulations or guidance that may otherwise apply. The minimum measures shall be all of the following:

(D) Specific to the type of activity authorized by the license, and regional considerations.

(ID) Appropriate to the size of the cottage microbusiness and its volume and scale of commercial activity, as required pursuant to subdivision (c) of Section 26013. with

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recognition that the minimum measures necessary for a large operation may be disproportionate to the security needs or other needs of a small operation.

III Subject to waiver if they impose criteria. such as mandatory setbacks from sensitive receptors, that are redundant or superfluous given the conditions and circumstances of a premises, such as the presence of topographic, geographic, or other natural barriers.

(IV) Subject to waiver if the licensing authority, pursuant to a procedure established by regulation by which the local jurisdiction may apply to the licensing authority to waive the application of certain requirements within that jurisdiction as it deems appropriate, has approved that waiver,

(B) (C) In coordination with each other, the licensing authorities shall establish a

process by which an applicant for a microbusiness license can demonstrate compliance with all the requirements under this division for the activities that will be conducted 190930593414BILLMR02

under the license. The licensing authorities shall collaborate to prepare, and each licensing authority shall publish on its internet website, a detailed manual for cottage microbusinesses that sets forth a step-by-step license application and procedures. all requirements under this division for the activities that will be conducted under a cottage microbusiness license, and step-by-step procedures by which a cottage microbusiness may demonstrate compliance with those requirements.

(D) The bureau may enter into interagency agreements with licensing authorities to implement and enforce the provisions of this division related to microbusinesses. The costs of activities carried out by the licensing authorities as requested by the bureau pursuant to the interagency agreement shall be calculated into the application and licensing fees collected pursuant to this division, and shall provide for reimbursement to state agencies for associated costs as provided for in the interagency agreement.

(b ) (c) The bureau shall establish minimum security and transportation safety

requirements for the commercial distribution and delivery of cannabis and cannabis products. Except as provided in subdivision (d) of Section 26110, the transportation of cannabis and cannabis products shall only be conducted by persons holding a distributor license under this division or employees of those persons. Transportation safety standards established by the bureau shall include, but not be limited to, minimum standards governing the types of vehicles in which cannabis and cannabis products may be distributed and delivered and minimum qualifications for persons eligible to operate such vehicles. For a cottage microbusiness, the minimum security and transportation safety standards and requirements established pursuant to this subdivision shall be determined pursuant to clause (1) of subparagraph (B) of paragraph (3) of subdivision (b).

e)d) The driver of a vehicle transporting or transferring cannabis or cannabis

products shall be directly employed by a licensee authorized to transport or transfer cannabis or cannabis products.

() Notwithstanding any other law, all vehicles transporting cannabis and cannabis products for hire shall be required to have a valid motor carrier permit pursuant to

02/19/19 11:30 AM 531 14 RN 19 09305 PAGE 17

Chapter 2 (commencing with Section 34620) of Division 14.85 of the Vehicle Code. The Department of the California Highway Patrol shall have authority over the safe operation of these vehicles, including, but not limited to, requiring licensees engaged in the transportation of cannabis or cannabis products to participate in the Basic Inspection of Terminals (BIT) program pursuant to Section 34501.12 of the Vehicle Code.

e) Prior to (f) Before transporting cannabis or cannabis products, a licensed distributor shall

do both of the following: (1) Complete an electronic shipping manifest as prescribed by the licensing

authority. The shipping manifest shall include the unique identifier, pursuant to Section 26069, issued by the Department of Food and Agriculture for the original cannabis product.

2) Securely transmit the manifest to the bureau and the licensee that will receive the cannabis product. The bureau shall inform the Department of Food and Agriculture of information pertaining to commercial cannabis activity for the purpose of the track and trace program identified in Section 26067.

g) During transportation, the licensed distributor shall maintain a physical copy of the shipping manifest and make it available upon request to agents of the Department of Consumer Affairs and law enforcement officers.

The licensee receiving the shipment shall maintain each electronic shipping manifest and shall make it available upon request to the Department of Consumer Affairs and any law enforcement officers.

i) Upon receipt of the transported shipment, the licensee receiving the shipment shall submit to the licensing authority a record verifying receipt of the shipment and the details of the shipment.

(i) (i) Transporting, or arranging for or facilitating the transport of, cannabis or

cannabis products in violation of this chapter is grounds for disciplinary action against the license.

(k) Licensed retailers and microbusinesses, and licensed nonprofits under Section 26070.5, shall implement security measures reasonably designed to prevent unauthorized entrance into areas containing cannabis or cannabis products and theft of cannabis or cannabis products from the premises. These security For a cottage microbusiness, the minimum measures necessary for compliance with this subdivision shall be determined pursuant to clause (ii) of subparagraph (B) of paragraph (3) of subdivision (b). Security measures shall include, but not be limited to, all of the following:

1) Prohibiting individuals from remaining on the licensee's premises if they are not engaging in activity expressly related to the operations of the retailer.

(2) Establishing limited access areas accessible only to authorized personnel. 3) Other than limited amounts of cannabis used for display purposes, samples,

or immediate sale, storing all finished cannabis and cannabis products in a secured and

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locked room, safe, or vault, and in a manner reasonably designed to prevent diversion, theft, and loss.

4) For a cottage microbusiness, the following additional measures: i) When a living area on the primary premises is used for licensed activity, using

a permanent or temporary barrier to keep the area clear of all unrelated activity and prevent the entrance of unauthorized persons, children, and animals.

(ii) Measures for the treatment and destruction of cannabis waste.

(1) A retailer shall notify the licensing authority and the appropriate law enforcement authorities within 24 hours after discovering any of the following:

(1) Significant discrepancies identified during inventory. The level of significance shall be determined by the bureau.

(2) Diversion, theft, loss, or any criminal activity pertaining to the operation ofthe retailer. 190930553114BILLX262

(3) Diversion, theft, loss, or any criminal activity by any agent or employee of the retailer pertaining to the operation of the retailer.

(4) The loss or unauthorized alteration of records related to cannabis or cannabis products, registered qualifying patients, primary caregivers, or retailer employees or agents.

5) Any other breach of security.

(m) Beginning January 1, 2018, a licensee may sell cannabis or cannabis products that have not been tested for a limited and finite time as determined by the bureau. The cannabis or cannabis products must have a label affixed to each package containing the cannabis or cannabis products that clearly states "This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act" and must comply with any other requirement as determined by the bureau.

SEC. 10. Section 26070.3 is added to the Business and Professions Code, to read:

26070.3. (a) (1) Licensed activity of a cottage microbusiness shall be classified as a permitted use of residential property for zoning purposes, subject to Sections 26054 and 26054.1.

(2) This subdivision shall apply notwithstanding paragraph (1) of subdivision (a) of Section 26100, except that a local jurisdiction shall retain the authority to

completely prohibit the establishment or operation of all cottage microbusinesses within the local jurisdiction.

(b) (1) Use of a private residence as the primary premises of a cottage microbusiness shall not constitute a change of occupancy or cause a different classification of the private residence, or portion of the private residence, for purposes of the State Housing Law (Part 1.5 (commencing with Section 17910) of Division 13 of the Health and Safety Code) or the California Building Standards Code, respectively, or local building and fire codes.

2) This subdivision shall apply notwithstanding any cannabis processing operation, manufacturing operation, storage, or other licensed activity of the cottage microbusiness that is conducted in the private residence and that may otherwise cause the private residence, or portion of the private residence, to receive a business, factory industrial, storage, or other nonresidential classification.

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SEC. 11. Section 26070.4 is added to the Business and Professions Code, to read:

26070.4. (a) For purposes of this section, the following terms have the followingmeanings:

(1) "28 CFR Part 36, Subpart D" means Subpart D of Part 36 of Title 28 of the Code of Federal Regulations.

(2) "ADA" means the federal Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12101 et seq.).

(3) "Certified access specialist" means a person who is certified pursuant to Section 4459.5 of the Government Code.

(4) "Commercial facility" has the same meaning as "commercial facilities," as defined in Section 301 of the ADA (42 U.S.C. Sec. 12181) and the federal regulations adopted pursuant to that section.

(5) "Meets applicable standards" has the same meaning as defined in Section 55.52 of the Civil Code.

(b) Notwithstanding the definition of the term "alteration" by the Division of the State Architect, in Section 202 of Chapter 2 of Volume 1 of Part 2 of the California Building Standards Code, to include a change in occupancy or use, if the primary premises of a cottage microbusiness is a commercial facility located in a private residence within the meaning of subsection (b) of Section 36.401 of 28 CFR Part 36, Subpart D, and the private residence is an existing facility, as defined in Section 36.104 of 28 CFR Part 36, Subpart A, conversion of the private residence to use as a commercial facility shall not trigger the application of state accessibility requirements under state law, including Section 1.9.1 of Chapter 1 of Volume 1 of Part 2 of the California Building Standards Code and Section 11B-202 of Division 2 of Chapter 11B of Volume 1 of Part 2 of the California Building Standards Code, except in the following circumstances:

(1) Alterations, as defined in subsection (b) of Section 36.402 of 28 CFR Part 36, Subpart D, within the scope of coverage provided in subsection (b) of Section 36.406 of 28 CFR Part 36, Subpart D, are made to the private residence that affect or could affect the usability of the commercial facility, as provided in paragraph (2) of subsection (a) of Section 303 of the ADA and Section 36.402 of 28 CFR Part 36, Subpart D.

(2) The cottage microbusiness is an employer, as defined in paragraph (5) of Section 101 of the ADA (42 U.S.C. Sec. 12111), and therefore subject to Title I commencing with Section 101) of the ADA (Subchapter I (commencing with Section 12111) of Chapter 126 of Title 42 of the United States Code)

(3) The cottage microbusiness is required to make reasonable accommodation for an employee pursuant to the California Fair Employment and Housing Act (Part 2.8 (commencing with Section 12900) of Division 3 of Title 2 of the Government Code)

c) (1) If conversion of a private residence to use as a commercial facility triggers the application of state accessibility requirements as provided in subdivision (b), state law, except for the California Fair Housing and Employment Act, shall not be interpreted to require accessibility measures that exceed requirements under federal law.

(2) In determining the measures required under this subdivision upon an alteration described in paragraph (1) of subdivision (b), factors to be considered shall include,

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but are not limited to, whether the measure is technically infeasible or would impose an accessibility requirement greater than required for new construction, within the meaning of Sections 106, 202.3, and 202.3.2 of the federal Americans with Disabilities Act Accessibility Guidelines (Appendices B and D to Part 1191 of Title 36 of the Code of Federal Regulations), and, regarding a measure to provide an accessible path of travel to an altered area, whether the measure is disproportionate to the overall alteration, within the meaning of paragraph (2) of subsection (a) of Section 303 of the ADA (42 U.S.C. Sec. 12183) and subsection (f) of Section 36.403 of 28 CFR Part 36, Subpart D.

(d) (1) If a certified access specialist issues a written inspection report for the premises of a cottage microbusiness pursuant to Section 55.53 of the Civil Code that determines that the site meets applicable standards, as applied pursuant to subdivision (b), and that no correction is needed, or that identifies and describes structures or areas of the premises that need correction and the correction needed, no accessibility measures 190930553134RILLMn42

shall be required that exceed the minimum corrections needed, as specified in the inspection report.

(2) For purposes of this subdivision, a certified access specialist may inspect the primary premises of a cottage microbusiness described in subdivision (b), and issue a written inspection report for that premises, as if the term "site," as defined in Section 55.52 of the Civil Code, included a commercial facility.

(e) References in this section to provisions of the California Codes, the ADA, the Code of Federal Regulations, or the federal Americans with Disabilities Act Accessibility Guidelines, also refer to their successor provisions.

SEC. 12. Section 26100 of the Business and Professions Code is amended to read:

26100. (a) (1), Except as otherwise provided by law, cannabis or cannabis products shall not be sold pursuant to a license provided for under this division unless a representative sample of the cannabis or cannabis products has been tested by a licensed testing laboratory.

2) Testing requirements for a cottage batch provided by a cottage microbusiness shall be as follows

(A) Except as provided in subparagraph (B), the representative sample of the cottage batch shall be one composite sample consisting of cannabis from all lots in the cottage batch. This composite sample shall be considered a representative sample of each lot in the cottage batch.

(B) For purposes of cannabinoid testing, terpenoid testing, if any, and potency testing, each lot in the cottage batch shall be considered a separate batch.

3) Notwithstanding paragraph (1). a medicinal cannabis product that is specially compounded by a cottage microbusiness to have a cannabinoid ratio, potency, or delivery method that fulfills an individual patient's specific medical needs may be sold without testing if the following criteria are met;

A) The cottage microbusiness and retailer hold M-licenses. (B) The only ingredients in the product are cannabis concentrate. cannabis extract,

or other medicinal cannabis products from batches that have already passed the testing requirements pursuant to this division, and up to three additional, commercially available inactive ingredients.

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(C) The ingredients contain no more than 40 grams of cannabis concentrate or extract, in aggregate, per production cycle,

(b) The bureau shall develop criteria to determine which batches shall be tested. All testing of the samples shall be performed on the final form in which the cannabis or cannabis product batches will be consumed or used consumed, used, or used as medicinal ingredients pursuant to paragraph (3) of subdivision (a).

(c) Testing of batches to meet the requirements of this division shall only be conducted by a licensed testing laboratory.

(d) For each batch tested, the testing laboratory shall issue a certificate of analysis for selected-lots samples at a frequency determined by the bureau with supporting data, to report both of the following:

(1) Whether the chemical profile of the sample conforms to the labeled content of compounds, including, but not limited to, all of the following, unless limited through regulation by the bureau: 190930853124HILL.MAD

(A) Tetrahydrocannabinol (THC).(B) Tetrahydrocannabinolic Acid (THCA). (C) Cannabidiol (CBD). (D) Cannabidiolic Acid (CBDA). (E) The terpenes required by the bureau in regulation. (F) Cannabigerol (CBG). (G) Cannabinol (CBN). (H) Any other compounds or contaminants required by the bureau. (2) That the presence of contaminants does not exceed the levels established by

the bureau. In establishing the levels, the bureau shall consider the American Herbal Pharmacopoeia monograph, guidelines set by the Department of Pesticide Regulation pursuant to subdivision (d) of Section 26060, and any other relevant sources. For purposes of this paragraph, "contaminants" includes, but is not limited to, all of the following:

(A) Residual solvent or processing chemicals. (B) Foreign material, including, but not limited to, hair, insects, or similar or

related adulterant. C) Microbiological impurities as identified by the bureau in regulation.

(e) Standards for residual levels of volatile organic compounds shall be established by the bureau.

(f) The testing laboratory shall conduct all testing required by this section in a manner consistent with general requirements for the competence of testing and calibrations activities, including sampling and using verified methods.

(g) All testing laboratories performing tests pursuant to this section shall obtain and maintain ISO/IEC 17025 accreditation as required by the bureau in regulation.

h) If a test result falls outside the specifications authorized by law or regulation, the testing laboratory shall follow a standard operating procedure to confirm or refute the original result.

(i) A testing laboratory shall destroy the remains of the a sample of medical medicinal cannabis or medieat medicinal cannabis product upon completion of the analysis, as determined by the bureau through regulations. regulations, unless otherwise

requested pursuant to paragraph (5) of subdivision (b) of Section 26104.

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(j) Any presale inspection, testing transfer, or transportation of cannabis or cannabis products pursuant to this section shall conform to a specified chain of custody protocol and any other requirements imposed under this division.

k) This division does not prohibit a licensee from performing testing on the licensee's premises for the purposes of quality assurance of the product in conjunction with reasonable business operations. This division also does not prohibit a licensee from performing testing on the licensee's premises of cannabis or cannabis products obtained from another licensee. Onsite testing by the licensee shall not be certified by the bureau and does not exempt the licensee from the requirements of quality assurance testing at a testing laboratory pursuant to this section.

SEC. 13. Section 26104 of the Business and Professions Code is amended to read:

26104. (a) A licensed testing laboratory shall, in performing activities concerning cannabis and cannabis products, comply with the requirements and restrictions set forth in applicable law and regulations.

(b) The bureau shall develop procedures to do all of the following: Ensure that testing of cannabis and cannabis products occurs prior to before

distribution to retailers, microbusinesses, or nonprofits licensed under Section 26070.5. (2) Specify how often licensees shall test cannabis and cannabis products, and

that the cost of testing cannabis shall be borne by the licensed cultivators and the cost of testing cannabis products shall be borne by the licensed manufacturer, and that the costs of testing cannabis and cannabis products shall be borne by a nonprofit-licensed licensee under Section 26070.5.

(3) Require destruction of harvested batches whose testing samples indicate noncompliance with health and safety standards required by the bureau, unless remedial measures can bring the cannabis or cannabis products into compliance with quality assurance standards as specified by law and implemented by the bureau.

(4) (A) Ensure that that, except as provided in subparagraph (B), a testing laboratory employee takes the sample of cannabis or cannabis products from the distributor's premises for testing required by this division and that the testing laboratory employee transports the sample to the testing laboratory.

(B) If the sample is taken at the testing laboratory pursuant to subdivision (d) of Section 261 10. ensure that the chain of custody is documented and that the tamper-evident seals placed on the storage unit by the testing laboratory are not broken until the testing laboratory issues a certificate of analysis for the sample.

(5) Ensure that, if requested by a cottage microbusiness, any portion of the sample that a testing laboratory does not use in the testing process is returned to the cottage microbusiness for destruction, remediation, manufacture, distribution, or retail sale, as appropriate.

(c) Except as provided in this division, a testing laboratory shall not acquire or receive cannabis or cannabis products except from a licensee in accordance with this division, and shall not distribute, sell, or dispense cannabis or cannabis products, from the licensed premises from which the cannabis or cannabis products were acquired or received. All transfer or transportation shall be performed pursuant to a specified chain of custody protocol.

(d) A testing laboratory may receive and test samples of cannabis or cannabis products from a qualified patient or primary caregiver with a valid physician's

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recommendation for cannabis for medicinal purposes. A testing laboratory shall not certify samples from a qualified patient or primary caregiver for resale or transfer to another person or licensee. All tests performed by a testing laboratory for a qualified patient or primary caregiver shall be recorded with the name of the qualified patient or primary caregiver and the amount of cannabis or cannabis product received.

(e) A testing laboratory may receive and test samples of cannabis or cannabis products from a person over 21 years of age when the cannabis has been grown by that person and will be used solely for his or her their personal use, as authorized pursuant to Section 11362.1 of the Health and Safety Code. A testing laboratory shall not certify samples from the person over 21 years of age for resale or transfer to another person or licensee. All tests recorded pursuant to this subdivision shall be recorded with the name of the person submitting the sample and the amount of cannabis or cannabis product received.

SEC. 14. Section 261 10 of the Business and Professions Code is amended to 190930553314BILLMAG

read: 26110. (a) Cannabis batches Batches are subject to quality assurance and testing

prior to before sale at a retailer, microbusiness, or nonprofit licensed under Section 26070.5, 26070.5. or use as a medicinal ingredient pursuant to paragraph (3) of subdivision (a) of Section 26100, except for immature cannabis plants and seeds, as provided for in this division.

(b) A licensee that holds a valid distributor license may act as the distributor for the licensee's cannabis and cannabis products.

(c) The distributor shall store, as determined by the bureau, the cannabis batches on the premises of the distributor distributor, or the batches shall be stored in a storage unit as provided in paragraph (2) of subdivision (d). before testing and continuously until either of the following occurs:

(1) The cannabis batch passes the testing requirements pursuant to this division and is transported to a licensed retailer or retailer, to another licensed-distributor. distributor, or, if used as a medicinal ingredient pursuant to paragraph (3) of subdivision (a) of Section 26100, to a cottage microbusiness holding an M-license.

(2) The cannabis batch fails the testing requirements pursuant to this division and is destroyed or transported to a manufacturer for remediation as allowed by the bureau or the State Department of Public Health.

(d) The distributor shall arrange for a testing laboratory to obtain a representative sample of each-cannabis batch at the one of the following locations

(1) The distributor's licensed premises. After obtaining the sample, the testing laboratory representative shall maintain custody of the sample and transport it to the testing laboratory.

(2) (A) Under a cottage microbusiness license that authorizes distribution, the licensee may transport the batches to the testing laboratory in a secure. lockable trailer, ockbox, or similar storage unit. for the sample to be obtained at the testing laboratory. After obtaining the sample, the testing laboratory shall secure all batches in the storage unit. apply a tamper-evident seal to the storage unit. and remand the storage unit to the licensee's custody at an agreed-upon time before, during, or after testing to be stored on the licensee's premises,

(B) For a cottage microbusiness, any required video documentation of sampling procedures pursuant to this paragraph may be performed by remote video camera.

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e) Upon issuance of a certificate of analysis by the testing laboratory that the cannabis batch has passed the testing requirements pursuant to this division, the distributor shall conduct a quality assurance review before distribution to ensure the labeling and packaging of the cannabis and cannabis products conform to the requirements of this division.

(f) (1) There shall be a quality assurance compliance monitor who is an employee or contractor of the bureau and who shall not hold a license in any category or own or have an ownership interest in a licensee or the premises of a licensee.

(2) The quality assurance compliance monitor shall conduct random quality assurance reviews at a distributor's licensed premises before distribution to ensure the abeling and packaging of the cannabis and cannabis products conform to the

requirements of this division. (3) The quality assurance compliance monitor shall have access to all records

and test results required of a licensee by law in order to conduct quality assurance analysis and to confirm test results. All records of inspection and verification by the quality assurance compliance monitor shall be provided to the bureau. Failure to comply shall be noted by the quality assurance compliance monitor for further investigation. Violations shall be reported to the bureau. The quality assurance compliance monitor shall also verify the tax payments collected and paid under Sections 34011 and 34012 of the Revenue and Taxation Code are accurate. The monitor shall also have access to the inputs and assumptions in the track and trace system and shall be able to verify their accuracy and that they are commensurate with the tax payments.

(g) After testing, all cannabis and cannabis products fit for sale or for use as a medicinal ingredient pursuant to paragraph (3) of subdivision (a) of Section 26100may be transported only from the distributor's premises to the premises of another licensed distributor for further distribution, or to a licensed retailer, microbusiness, or nonprofit for retail sale.

(h) A licensee is not required to sell cannabis or cannabis products to a distributor and may directly contract for sale with a licensee authorized to sell cannabis and cannabis products to purchasers.

(i) A distributor performing services pursuant to this section may collect a fee from the licensee for the services provided. The fee may include, but is not limited to, the costs incurred for laboratory testing. A distributor may also collect applicable state or local taxes and fees.

i) This section does not prohibit a licensee from performing testing on the licensee's premises for the purposes of quality assurance of the product in conjunction with reasonable business operations. The testing conducted on the licensee's premises by the licensee does not meet the testing requirements pursuant to this division.

SEC. 15. Section 26152.5 is added to the Business and Professions Code, to read:

26152.5. In addition to the prohibitions in Section 26152, a cottage microbusiness shall not, in its capacity as a cottage microbusiness, publish or disseminate advertising or marketing for any merchandise that is not, or does not contain as an ingredient, cannabis or a cannabis product produced by the cottage microbusiness. Any sale by a cottage microbusiness of merchandise that is subject to this prohibition shall be incidental and accessory to all other sales.

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SEC. 16. Section 26180 of the Business and Professions Code is amended to read:

26180. Each licensing authority shall establish a scale of application, licensing, and renewal fees, based upon the cost of enforcing this division, as follows:

(a) Each licensing authority shall charge each licensee a licensure and renewal fee, as applicable. The licensure and renewal fee shall be calculated to cover the costs of administering this division. The licensure fee may vary depending upon the varying costs associated with administering the various regulatory requirements of this division as they relate to the nature and scope of the different licensure activities, including, but not limited to, the track and trace program required pursuant to Section 26067, but shall not exceed the reasonable regulatory costs to the licensing authority.

(b) The total fees assessed pursuant to this division shall be set at an amount that will fairly and proportionately generate sufficient total revenue to fully cover the total costs of administering this division.

c) (1). All license fees shall be set on a scaled basis by the licensing authority, dependent on the size of the business.

(2) Consistent with paragraph (1), a licensing authority shall set separate license fees for general microbusiness licenses and cottage microbusiness licenses. License fees established for a cottage microbusiness license shall reflect the greater restrictions on commercial cannabis activity that apply under that license

d) The licensing authority shall deposit all fees collected in a fee account specific to that licensing authority, to be established in the Cannabis Control Fund. Moneys in the licensing authority fee accounts shall be used, upon appropriation by the Legislature, by the designated licensing authority for the administration of this division.

SEC. 17. Section 34010 of the Revenue and Taxation Code is amended to read: 34010. For purposes of this part: (a) "Arm's length transaction" shall mean a sale entered into in good faith and

for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.

b) "Average market price" shall mean: 1) In an arm's length transaction, the average retail price determined by the

wholesale cost of the cannabis or cannabis products sold or transferred to a cannabis retailer, plus a mark-up, as determined by the department on a biannual basis in six-month intervals.

2) In a nonarm's length transaction, the cannabis retailer's gross receipts from the retail sale of the cannabis or cannabis products.

(c) "Department" means the California Department of Tax and Fee Administration or its successor agency.

(d) "Bureau" means the Bureau of Cannabis Control within the Department of Consumer Affairs.

(e) "Tax Fund" means the California Cannabis Tax Fund created by Section34018.

(f) "Cannabis" has the same meaning as set forth in Section 11018 of the Health and Safety Code and shall also mean medicinal cannabis.

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(g) "Cannabis products" has the same meaning as set forth in Section 1 1018.1 of the Health and Safety Code and shall also mean medicinal concentrates and medicinal cannabis products.

(h) "Cannabis flowers" means the dried flowers of the cannabis plant as defined by the board. department.

(i) "Cannabis leaves" means all parts of the cannabis plant other than cannabis flowers that are sold or consumed.

(j) "Cannabis retailer" means a person required to be licensed as a retailer, microbusiness, or nonprofit pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code.

k) "Cultivator" means all persons required to be licensed to cultivate cannabis pursuant to Division 10 (commencing with Section 26000) of the Business and Professions Code: Code, including a microbusiness that cultivates cannabis as set forth in subparagraph (A) of paragraph (3) of subdivision (b) of Section 26070 of the Business 190930593414

and Professions Code. () "Distributor" means a person required to be licensed as a distributor pursuant

to Division 10 (commencing with Section 26000) of the Business and Professions Code. Code, including a microbusiness that acts as a distributor as set forth in subparagraph (A) of paragraph (3) of subdivision (b) of Section 26070 of the Business and Professions Code.

(m) "Enters the commercial market" means cannabis or cannabis product, except for immature cannabis plants and seeds, that complete and comply with a quality assurance review and testing, as described in Section 261 10 of the Business and Professions Code.

(n) "Gross receipts" has the same meaning as set forth in Section 6012. (o) "Microbusiness" has the same meaning as set forth in subparagraph (A) of

paragraph (3) of subdivision (a) (b) of Section 26070 of the Business and Professions Code.

(p) "Nonprofit" has the same meaning as set forth in Section 26070.5 of the Business and Professions Code.

"Person" has the same meaning as set forth in Section 6005. "Retail sale" has the same meaning as set forth in Section 6007. (s) "Sale" and "purchase" mean any change of title or possession, exchange, or

barter, conditional or otherwise, in any manner or by any means whatsoever, for consideration.

t) "Transfer" means to grant, convey, hand over, assign, sell, exchange, or barter, in any manner or by any means, with or without consideration.

(u) "Unprocessed cannabis" includes cannabis flowers, cannabis leaves, or other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers.

(v) "Manufacturer" means a person required to be licensed as a manufacturer pursuant to Division 10 (commencing with Section 26000) of the Business and Professions-Code. Code, including a microbusiness that acts as a manufacturer as set forth in subparagraph (A) of paragraph (3) of subdivision (b) of Section 26070 of the Business and Professions Code.

SEC. 18. Section 34012 of the Revenue and Taxation Code is amended to read:

02/19/19 11:30 AM 53114 RN 19 09305 PAGE 27

34012. (a) (1) Effective January 1, 2018, there is hereby imposed a cultivation tax on all harvested cannabis that enters the commercial market upon all cultivators. The tax shall be due after the cannabis is harvested and enters the commercial market.

(H) (A) The tax for cannabis flowers shall be nine dollars and twenty-five cents

($9.25) per dry-weight ounce. (2)

(B) The tax for cannabis leaves shall be set at two dollars and seventy-five cents ($2.75) per dry-weight ounce.

(2) The cultivation tax for untrimmed cannabis flowers shall be determined by calculating the weight attributable to cannabis flowers and the weight attributable to cannabis leaves. and by applying the tax rates for cannabis flowers and cannabis leaves. respectively, to those respective weights

(b) The department may adjust the tax rate for cannabis leaves annually to reflect 1909305531441LIMA0 fluctuations in the relative price of cannabis flowers to cannabis leaves.

(c) The department may from time to time establish other categories of harvested cannabis, categories for unprocessed or frozen cannabis or immature plants, or cannabis that is shipped directly to manufacturers. These categories shall be taxed at their relative value compared with cannabis flowers.

d) The department may prescribe by regulation a method and manner for payment of the cultivation tax that utilizes tax stamps or state-issued product bags that indicate that all required tax has been paid on the product to which the tax stamp is affixed or in which the cannabis is packaged.

(e) The tax stamps and product bags shall be of the designs, specifications, and denominations as may be prescribed by the department and may be purchased by any licensee under Division 10 (commencing with Section 26000) of the Business and Professions Code.

(f) Subsequent to the establishment of a tax stamp program, the department may by regulation provide that cannabis shall not be removed from a licensed cultivation facility or transported on a public highway unless in a state-issued product bag bearing a tax stamp in the proper denomination.

g) The tax stamps and product bags shall be capable of being read by a scanning or similar device and must be traceable utilizing the track and trace system pursuant to Section 26068 of the Business and Professions Code.

h) Cultivators shall be responsible for payment of the tax pursuant to regulations adopted by the department. A cultivator's liability for the tax is not extinguished until the tax has been paid to this state except that an invoice, receipt, or other document from a distributor or manufacturer given to the cultivator pursuant to paragraph (3) is sufficient to relieve the cultivator from further liability for the tax to which the invoice, receipt, or other document refers. Cannabis shall not be sold unless the tax has been paid as provided in this part.

(1) A distributor shall collect the cultivation tax from a cultivator on all harvested cannabis that enters the commercial market. This paragraph shall not apply where a cultivator is not required to send, and does not send, the harvested cannabis to a distributor.

2) (A) A manufacturer shall collect the cultivation tax from a cultivator on the first sale or transfer of unprocessed cannabis by a cultivator to a manufacturer. The

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manufacturer shall remit the cultivation tax collected on the cannabis product sold or transferred to a distributor for quality assurance, inspection, and testing, as described in Section 26110 of the Business and Professions Code. This paragraph shall not apply where a distributor collects the cultivation tax from a cultivator pursuant to paragraph (1).

(B) Notwithstanding subparagraph (A), the department may prescribe a substitute method and manner for collection and remittance of the cultivation tax under this paragraph, including a method and manner for collection of the cultivation tax by a distributor.

(3) A distributor or manufacturer shall provide to the cultivator, and a distributor that collects the cultivation tax from a manufacturer pursuant to paragraph (2) shall provide to the manufacturer, an invoice, receipt, or other similar document that identifies the licensee receiving the product, the cultivator from which the product originates, including the associated unique identifier, the amount of cultivation tax, and any other 190930553114MILEMR.02

information deemed necessary by the department. The department may authorize other forms of documentation under this paragraph.

(4) The department may adopt regulations prescribing procedures for the refund of cultivation tax collected on cannabis or cannabis product that fails quality assurance, inspection, and testing as described in Section 26110 of the Business and Professions Code.

(i) All cannabis removed from a cultivator's premises, except for plant waste, shall be presumed to be sold and thereby taxable under this section.

j) The tax imposed by this section shall be imposed on all cannabis cultivated in the state pursuant to rules and regulations promulgated by the department, but shall not apply to cannabis cultivated for personal use under Section 11362.1 of the Health and Safety Code or cultivated by a qualified patient or primary caregiver in accordance with the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code).

(k) Beginning January 1, 2020, the rates set forth in subdivisions (a), (b), and (c) shall be adjusted by the department annually thereafter for inflation.

() The Department of Food and Agriculture is not responsible for enforcing any provisions of the cultivation tax.

SEC. 19. Section 1831 of the Water Code is amended to read: 1831. (a) When the board determines that any person is violating, or threatening

to violate, any requirement described in subdivision (d), the board may issue an order to that person to cease and desist from that violation.

b) The cease and desist order shall require that person to comply forthwith or in accordance with a time schedule set by the board.

(c) The board may issue a cease and desist order only after notice and an opportunity for hearing pursuant to Section 1834.

(d) The board may issue a cease and desist order in response to a violation or threatened violation of any of the following:

(1) The prohibition set forth in Section 1052 against the unauthorized diversion or use of water subject to this division.

(2) Any term or condition of a permit, license, certification, or registration issued under this division.

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(3) Any decision or order of the board issued under this part, Section 275, Chapter 11 (commencing with Section 10735) of Part 2.74 of Division 6, or Article 7 (commencing with Section 13550) of Chapter 7 of Division 7, in which decision or order the person to whom the cease and desist order will be issued, or a predecessor in interest to that person, was named as a party directly affected by the decision or order.

(4) A regulation adopted under Section 1058.5. (5) Any extraction restriction, limitation, order, or regulation adopted or issued

under Chapter 11 (commencing with Section 10735) of Part 2.74 of Division 6. (6) Any diversion or use of water for cannabis cultivation if any of paragraphs

(1) to (5), inclusive, or any of the following applies: (A) A license is required, but has not been obtained, under Chapter 6

(commencing with Section 26060) or Chapter 7 (commencing with Section 26070) of Division 10 of the Business and Professions Code. 190930553114BILLIN2

(B) The diversion is not in compliance with an applicable limitation or requirement established by the board or the Department of Fish and Wildlife under Section 13149

C) The diversion or use is not in compliance with a requirement imposed under paragraphs (1) and (2) of subdivision (b) of Section 26060.1 of, and paragraph (3) of subdivision (a) (b) of Section 26070 of, the Business and Professions Code.

(e) This article does not alter the regulatory authority of the board under other provisions of law.

SEC. 20. Section 13149 of the Water Code is amended to read: 13149. (a) (1) (A) The board, in consultation with the Department of Fish and

Wildlife, shall adopt principles and guidelines for diversion and use of water for cannabis cultivation in areas where cannabis cultivation may have the potential to substantially affect instream flows. The principles and guidelines adopted under this section may include, but are not limited to, instream flow objectives, limits on diversions, and requirements for screening of diversions and elimination of barriers to fish passage. The principles and guidelines may include requirements that apply to groundwater extractions where the board determines those requirements are reasonably necessary for purposes of this section

B) Prior to Before adopting principles and guidelines under this section, the board shall allow for public comment and hearing, pursuant to Section 13147. The board shall provide an opportunity for the public to review and comment on the proposal for at least 60 days and shall consider the public comments before adopting the

principles and guidelines. (2) The board, in consultation with the Department of Fish and Wildlife, shall

adopt principles and guidelines pending the development of long-term principles and guidelines under paragraph (1). The principles and guidelines, including the interim principles and guidelines, shall include measures to protect springs, wetlands, and aquatic habitats from negative impacts of cannabis cultivation. The board may update the interim principles and guidelines as it determines to be reasonably necessary for purposes of this section.

(3) The Department of Fish and Wildlife, in consultation with the board, may establish interim requirements to protect fish and wildlife from the impacts of diversions for cannabis cultivation pending the adoption of long-term principles and guidelines

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by the board under paragraph (1). The requirements may also include measures to protect springs, wetlands, and aquatic habitats from negative impacts of cannabis

cultivation. (4) Principles, guidelines, and requirements established pursuant to this section

shall be consistent with principles, guidelines, and requirements for cultivation of other agricultural products and shall not impose a disproportionate burden on cannabis cultivators. The board shall redevelop and reissue the cannabis cultivation guidelines published on October 17. 2017, in conformance with this paragraph.

b) (1) Notwithstanding Section 15300.2 of Title 14 of the California Code of Regulations, actions of the board and the Department of Fish and Wildlife under this section shall be deemed to be within Section 15308 of Title 14 of the California Code of regulations, provided that those actions do not involve relaxation of existing streamflow standards.

(2) The board shall adopt principles and guidelines under this section as part of 190930553114ILIMAQ2

state policy for water quality control adopted pursuant to Article 3 (commencing with Section 13140) of Chapter 3 of Division 7.

3) If the Department of Fish and Wildlife establishes interim requirements under this section, it shall do so as emergency regulations in accordance with Chapter 3.5 commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. The adoption of those interim requirements is an emergency and shall be considered by the Office of Administrative Law as necessary for the immediate preservation of the public peace, health, safety, and general welfare. Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the emergency regulations shall remain in effect until revised by the Department of Fish and Wildlife, provided that the emergency regulations shall not apply after long-term principles and guidelines adopted by the board under this section take effect for the stream or other body of water where the diversion is located.

(4) A diversion for cannabis cultivation is subject to both the interim principles and guidelines and the interim requirements in the period before final principles and guidelines are adopted by the board

5) The board shall have primary enforcement responsibility for principles and guidelines adopted under this section, and shall notify the Department of Food and Agriculture of any enforcement action taken

SEC. 21. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17356 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SEC. 22. The Legislature finds and declares that this act furthers the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act, for the following reason:

This act would incentivize small cannabis operations to obtain a license and pay the required fees and taxes by providing a practical pathway into the legal cannabis

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market, thereby taxing the growth and sale of cannabis in a way that drives out the illicit market for cannabis and reducing barriers to entry into the legal regulated market.

- 0 -

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LEGISLATIVE COUNSEL'S DIGEST

Bill No. as introduced,

190930553114ILLX42General Subject: Cannabis: cottage microbusiness license.

(1) Existing law, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), approved by the voters as Proposition 64 at the November 8, 2016, statewide general election, regulates the cultivation, distribution, transport, storage, manufacturing, testing, processing, sale, and use of marijuana for nonmedical purposes by people 21 years of age and older. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities.

MAUCRSA allows the issuance of a microbusiness license for the cultivation of cannabis on an area less than 10,000 square feet and to act as a licensed distributor, Level 1 manufacturer, and retailer, as provided.

This bill would create a new license, to be known as a cottage microbusiness license. Under the bill, a cottage microbusiness license would authorize the licensee to conduct any, but at least 3, of the 4 above-referenced activities that may be authorized under a microbusiness license, except that instead of a cultivation cap there would be a canopy size limit, calculated as provided, manufacture would be limited to manufacture using consumer equipment, and retail sale would be limited to offsite retail. The bill would also limit the total amount of cannabis or cannabis products that may be distributed, manufactured, or sold by a cottage microbusiness, The bill would authorize the primary premises of a cottage microbusiness to be a private residence or to be located within a residential area, rural area, or other appropriately zoned area, as designated by the local jurisdiction, subject to requirements that, among other things, a licensee preserve the residential or rural character of the premises and avoid causing disruptive impacts on the neighboring surroundings. The bill would authorize a local jurisdiction to waive some of these requirements.

The bill would also create an accessory license to the cottage microbusiness license that would authorize use of an accessory premises to conduct activities authorized by a cottage microbusiness license.

(2) Existing law generally requires a microbusiness licensee to demonstrate compliance with all requirements, including laboratory testing requirements, imposed by MAUCRSA on licensed cultivators, distributors, Level 1 manufacturers, and retailers, to the extent that the licensee engages in those activities. Existing law provides that,

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except as specifically provided in MAUCRSA, the requirements for A-licenses, which authorize commercial adult-use cannabis activity, and M-licenses, which authorize commercial medicinal cannabis activity, shall be the same.

Existing law establishes various guidelines for the exercise of regulatory authority by the Bureau of Cannabis Control, the Department of Food and Agriculture, and the State Department of Public Health (the "licensing authorities") under MAUCRSA. Under existing law, these guidelines require licensing authorities to make protection of the public the highest priority, to mandate only commercially feasible procedures, technology, or other requirements, and not to make compliance so onerous that operation under a cannabis license is not worthy of being carried out in practice by a reasonably prudent businessperson.

This bill would revise the guidelines described above and establish new guidelines specific to the licensing of cottage microbusinesses, consistent with the policy of enabling cannabis operations of all sizes to enter the regulated and legitimate market. 190930563414BILLMROZ

The bill would require licensing authorities to determine the minimum measures necessary for a cottage microbusiness to comply with licensing requirements. The bill would require these minimum measures to be specific to the type of activity authorized by a license and regional considerations, appropriate to the size of a cottage microbusiness and its volume and scale of commercial activity, and subject to waiver under certain circumstances.

As part of the regulatory framework established by the bill for the cottage microbusiness license, the bill would also establish special rules and procedures applicable to cottage microbusinesses for, among other things, laboratory testing, preparation and sale of medicinal cannabis products, and, if licensed activity is conducted in a private residence, compliance with zoning and building standards, including state construction-related accessibility standards.

(3) AUMA imposes a cultivation tax upon all cultivators on all harvested cannabis that enters the commercial market, at specified rates per dry-weight ounce of cannabis flowers and leaves. Existing law imposes on manufacturers and distributors certain requirements related to the collection, reporting, and remittance of those taxes. Existing law defines cultivator, distributor, and manufacturer for purposes of these tax provisions. Existing adopted regulations include certain microbusinesses in the definitions of cultivator, distributor, and manufacturer for purposes of cannabis excise and cultivation tax provisions.

This bill would require the cultivation tax on untrimmed cannabis flowers to be determined by calculating the weight attributable to cannabis flowers and the weight attributable to cannabis leaves, and applying the tax rates for cannabis flowers and cannabis leaves, respectively, to those respective weights. The bill would include certain microbusinesses in the definitions of cultivator, distributor, and manufacturer for purposes of cannabis excise and cultivation tax provisions, as specified

(4) Existing law requires the Department of Food and Agriculture to include certain conditions in a cultivation license, including a microbusiness license that authorizes cultivation activity, that address potential negative environmental impacts of that activity.

This bill would require these conditions to be consistent with the conditions imposed on cultivation of other agricultural products and not to impose a disproportionate burden on cannabis cultivators.

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(5) Existing law requires an applicant for any type of state license under MAUCRSA to include, with an application, specified information about the applicant and the applicant's proposed cannabis operation. Existing law requires the applicant to provide a statement, signed by the applicant under penalty of perjury, that the information provided is complete, true, and accurate.

This bill would require an applicant for a cottage microbusiness license to include, with the application, additional information specific to a cottage microbusiness. By requiring an applicant to provide additional information to be certified by the applicant under penalty of perjury, the bill would expand the scope of an existing crime, thus imposing a state-mandated local program.

(6) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

196930653414BILLNA02This bill would provide that no reimbursement is required by this act for a specified reason.

(7) AUMA authorizes the Legislature to amend its provisions with a y, vote of both houses to further its purposes and intent.

This bill would declare that its provisions further specified purposes and intent of AUMA.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.