California’s Governor Rejects Anti-Competitive Marijuana Rules

On Tuesday night California Gov. Jerry Brown unveiled proposed legislation aimed at reconciling Proposition 64, the 2016 ballot initiative that legalized cannabis for recreational use in that state, with the medical marijuana regulations that state legislators approved in 2015. The bill generally favors the more liberal rules of Proposition 64, a.k.a. the Adult Use of Marijuana Act (AUMA), over the more restrictive provisions of the Medical Cannabis Regulation and Safety Act (MCRSA), which is good news for entrepreneurs and consumers.

California officials plan to start distributing marijuana licenses by next January, but first legislators have to decide how that will work. The MCRSA requires independent marijuana distributors, similar to the state-appointed middlemen who have the exclusive right to distribute alcoholic beverages in most states, and restricts other licensees (growers, manufacturers, transporters, and retailers) to no more than two categories. The AUMA does not require independent distributors and imposes no restrictions on vertical integration, except that testing companies cannot hold other licenses.

Brown thinks the latter approach makes more sense. "Overly restrictive vertical integration stifles new business models and does not enhance public and consumer safety," he says. "Allowing for a business to hold multiple licenses including a distribution license will make it easier for businesses to enter the market, encourage innovation, and strengthen compliance with state law."

Brown also favors the AUMA's narrower definition of cannabusiness "owners" who are required to undergo background checks. The AUMA sets the threshold at a 20 percent ownership stake, compared to 5 percent under the MCRSA.

Brown's bill preserves the MCRSA's limit on the number of midsized growers "in furtherance of the intent of Proposition 64 to prevent illegal production and avoid illegal diversion to other states." It also prohibits medical and recreational retailers, who will collect different taxes and enforce different age restrictions, from operating under the same roof. That separation might help the Trump administration, which according to White House Press Secretary Sean Spicer supports medical marijuana but frowns on recreational use, target some cannabusinesses while leaving others alone.

The Drug Policy Alliance (which backed the AUMA), the California Cannabis Industry Association, the United Food and Commercial Workers Western States Council, and the California Cannabis Manufacturers Association are pleased with Brown's proposal. The Teamsters, who represent the employees of state-mandated alcohol distributors and hoped to represent the employees of state-mandated cannabis distributors, are not. "We're going to fight that part of it really hard," Teamsters lobbyist Barry Broad told The Sacramento Bee. "It raises really significant anti-trust issues that we don't think are accounted for....It's quite conceivable that the entire market can be owned by someone who also controls distribution and access to the market. It's a big problem."

For the Teamsters, yes. For the rest of us, not so much.