July 2019


The Momma Blog: The Rules About Children on a “Licensed Premise”

By Heather Burke

I’ve been asked several times about the ability to have children at one’s regulated commercial cannabis business, and the question always reminds me of those days when my girlfriends would strap their babies onto their back and get to work out in the garden. Sadly, those days are long gone and the new rule is clear:

No one under 21 is allowed on a “licensed premises” at any time.

No Rules Under the Collective/Co-op Resulted in Discriminatory Application of Child Welfare Rules.

Under the old rules, commercial cannabis activity was “unregulated,” meaning there were no rules except (1) the cannabis had to be cultivated, processed, or distributed to patient-members of a (2) collective or cooperative that (3) was not engaged in a profit making enterprise. Without rules for children, the primary consideration  was whether the child would suffer physical harm as a result of the parent’s inability to physically care for the child. (Check out the brilliant Jen Ani’s overview HERE.)

In most cannabis cases, the child was not at risk of harm unless the child had easy access to cannabis, or where there was inherent danger in the cannabis activity itself, such as with BHO manufacturing. However, due to the lack of certainty in the rules and cannabis discrimination by child welfare workers, application of the standard was often dependent upon the particular CPS’ worker’s view on cannabis. Unsurprisingly, I observed wealthy white parents treated with far more deference than African American and Latino parents for identical conduct, which is unacceptable on every level.

The New Rules are Clear: No Kids On the “Licensed Premises”.

California statutory law now clearly restricts a licensee from allowing anyone under 21 years of age from entering “its premises,” except that someone over 18 can enter a medical dispensary if-and-only-if they have a physician’s recommendation. (Cal. Business & Professions Code § 26140 (a)(2), (c)(1)-(2).)

Interestingly though, the regulations are less clear. Indeed, the regulations only address minors being on a retailer’s licensed premise, though none of the three regulatory packages address the effect of a child being on a farm, a manufacturing site, a distributor, testing lab, or microbusiness’ “licensed premise.” Nor do any of the three regulation packages set out a penalty for violating this statute

Thus, while it is not yet clear to me what a violation of the statute would look like for a licensee, we can presume it is a serious violation with severe consequences for the license holder.

When the Property is the Same as the “Licensed Premise”

Keep in mind that when you submitted your annual or temporary license application to the state, you had to submit a Property and/or Premises Diagram. If the Property and the Premises in those diagrams is the same, then your entire property is considered the “licensed premises.”

The legal effect of not carving out any non-cannabis areas in your Property Diagram is:

  1. Children are now arguably excluded from the entire property; and

  2. Law enforcement can arguably search an entire “licensed premises” without cause. (*This  is a whole other topic I won’t get into here.)

Thus, for those folks with children on site, it is imperative they re-define their licensed premises to exclude the home and the places children will be. For sites with homes on them, it is as simple as drawing the “premises boundary” around the home. For industrial or commercial sites, a break area or other safe space for a nursing mother to bring her child can sometimes be carved out of the “licensed premises” floor-plans.

Child Welfare Rules are Still in Effect

Although this blog focuses on the rules regarding children in “licensed premise,” note that child welfare rules relating to use of cannabis in the home or around children are still in effect. As such, child welfare workers will continue to hold preconceived notions about cannabis use, so wise parents will continue to ensure their children do not have access to the parents’ personal-use cannabis and that parents don’t consume cannabis near the children.

Final Analysis/Conclusion

Gone are the days of carrying babies in slings while mama and papa work the garden.

However, as CAMP-style raids and law enforcement actions against unregulated operators are already at a feverish peak this summer, regulated farmers and other licensees with young children can rest in the peace of knowing their business (and their family) will make it through the season unscathed by deputies arriving at 7:00 a.m. with a warrant.

For most families, that trade off will be worth it.

Much respect,

~hb
#protectourfarmers

PART 2 of 5: The Business Fundamentals Every California Cannabis Company Needs to Know: CLEANING YOUR OWN HOUSE, Regulatory Compliance & Entity Governance  

By Heather Burke and Virginia Ryan

As Virginia Ryan and I discussed in the first of our 5-part business blog series, “The Business Fundamentals Every California Cannabis Business Needs to Know,” one of the first steps to doing business is to ensure you have your own house in order. Sorry to tell you this, but people in business get sued and, yes, someone may try to take what you spent your lifetime to build. A successful business will be prepared for those situations before they arise.  In order to gauge the cleanliness of our clients’ houses, we often ask the following questions of potential clients:

1. Are your cannabis business operations strictly compliant with all state and local regulations?

Compliance includes recordkeeping for any sale of your product, maintaining those records in a particular way, and reporting certain information to the state regarding sales, and so on. If you do not know the recordkeeping rules, you may be compliant in certain ways, i.e. your farm operations could be set up in a compliant manner, but you’re not compliant with your records (and the records are one of the primary issues the CDFA will be most concerned about).

2. Are your entity’s governance documents in order, including appropriate resolutions and a workable procedure for making resolutions?

This article presumes the reader is strictly compliant with local and state laws, which require you to have a valid license, a Seller’s Permit, and an EIN. But many farms don’t have those documents organized on the farm in an easily accessible place, which they’re required to be for regulatory purpose.

Equally as important, if the farm got sued for some aspect of a potential sale, would the entity protect you or would the entity’s “veil” be pierced? In other words, can someone sue the farm and get the personal assets of the owners (such as the land)? Here’s what courts will be looking for to determine whether someone can take your personal assets:

  • Does the corporation have executed bylaws and minutes of the Board of Directors and Shareholders (for LLCs: does the LLC have an executed operating agreement?)?

  • Are you current on your state filing requirements (i.e., Statement of Information with the California Secretary of State) and franchise taxes with the California Franchise Tax Board.

  • Is the type of business you want to conduct included in the “purpose” language in those documents (or in a resolution, which is where our firm often places the purpose language for access to banking). Note: purpose language can be important.

  • Do you and the company have separate “personalities,” meaning do you treat your company as a different and distinct entity from yourself? If you own the property, do you have a lease between yourself as the landowner and with your corporation or LLC? Do you keep separate financial records and separate bank accounts? Do you do business in the name of your entity or in your own name?  Do you personally offer to “guarantee” the debts of the company (:i.e. “I got you bro.”)?

All of those are factors California courts may look to in determining whether the relationship between you individually and you as an owner of the company are truly “arms-length,” i.e. strictly professional.

In addition, to these basic requirements, there are a host of other items that you should implement in your business, such as obtaining a state or federal trademark for your brand, obtaining commercial and product liability insurance, executing buy-sell agreements with the owners to protect the business in the event a partner wants to leave, implementing confidentiality agreements with all consultants and employees, implementing appropriate terms and conditions for your website presence, to name a few.

If you’re new to business, this may seem like a lot to think through, but these are the BASICS required in order to enter into a business transaction, particularly where the product is federally prohibited, carries stiff mandatory minimum penalties, and the only defense is strict compliance with local and state law.

This may sound like a lot, but no need to worry, we will discuss these items and more later in our blog series, including:

Blog 3 of 5: Snakes in the Grass: Due Diligence and Proper Vetting of Potential Deals 

Blog 4 of 5Contract Fundamentals: Dude, Where’s My Indemnity Clause and Other Super Fun Terms Every Cannabis Business Should Know

Blog 5 of 5: Contracts Overview: What Paper to Push? (+ Sample Contract Templates)

Much respect, ~hb

#protectourfarmers

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Please contact an attorney for specific legal advice.