When California’s Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) was passed in June, marijuana licensees were given the go ahead to vertically integrate cultivation, distribution, and sales. As Hilary Bricken of Above the Law points out, distributors in California’s marijuana industry won’t be acting in the distributor role most people are familiar with in other regulated industries, such as alcohol. It’s this change that could bring significantly more distributor licenses to the state in the future.
Distribution under MAUCRSA refers to procurement, sale, and transport of marijuana and marijuana products between licensees. That would be great for distributors if they were the only ones allowed to procure, sell, and transport marijuana between licensees, but MAUCRSA does not give them that exclusivity.
Furthermore, MAUCRSA allows any marijuana licensee to sell marijuana products directly to retailers. They can bypass distributors except for one piece of the puzzle. They have to work with distributors for testing as well as packaging and labeling quality assurance. Of course, distributors can charge other marijuana licensees for these services. Distributors are also responsible for collecting and remitting taxes on behalf of cultivators and retailers.
Suddenly, opening up businesses solely to offer marijuana testing and quality assurance services sounds like a great idea, and thus, the number of distributor licenses could grow by leaps and bounds in the future. In other words, with the ability to bypass distributors made easier for growers, processors, and retailers who can acquire their own distributor licenses, the role of a “distributor” is changing dramatically. Truth be told, the word “distributor” might not be entirely appropriate anymore.
Looking at the Bigger Picture
“The changes laid out under MAUCRSA seem like a half step in the right direction,” shares Cannabiz Media Senior Data Analyst Jason Kikel. “Strangely, distribution alone will not be mandated via distributors, but product testing and labeling/packaging QA will still be mandated through distributors. Looking at the bigger picture, this seems to alleviate some of the concerns that arose after Nevada’s awkward rollout in July. Growers will be able to move their products directly to retailers.”
Jason explains, “If I’m a grower in the Emerald Triangle, and I want to make a personal delivery to Los Angeles ASAP, it looks like I’ll be able to do so. Under the MAUCRSA rules, I’ll have to have testing and a QA check done by a distributor, which shifts the risk for delays and backlog onto two companies: a distributor and the distributor’s testing lab of choice.”
“One possible exception is the microbusiness license category, where distribution is part of the permitted activities under that specific license type,” suggests Jason. “I’ll be curious to see if there are more microbusiness applications during the first few months of 2018 where some companies will try to avoid distributor-related concerns. Temporary licenses will be available to companies that meet local and state licensing requirements, and the transition into January is coming quickly. Distribution licenses should be issued within the next few weeks, or a Nevada-style backlog could be coming in the near future.”
The Value of a Marijuana License in California
The value of a marijuana business is in its license, but California is changing the game. As one of the largest economies in the world with a population larger than most countries, investors must keep MAUCRSA and trends in marijuana licensing in California in mind as they evaluate marijuana businesses. Much will be learned from California as it rolls out its recreational marijuana program. No, it’s not the first state to do so, but all eyes are watching. This one could matter the most.