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California Marijuana Dispensaries Slashed Prices Before July Regulations

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July 1st Regulations Put a Squeeze on California Dispensaries

The new legal marijuana regulations from the Bureau of Cannabis Control in California took effect on July 1st.  Licensed retailers, distributors and cultivators selling marijuana were required to be in compliance with testing and packaging rules; otherwise, all products must be destroyed “in accordance with the rules governing destruction”.

These regulations contain the rules on packaging and testing for distributors, retailers, and cultivators. It also specifies the THC limits for edible and non-edible marijuana goods, as well as the ingredients and the appearance of marijuana products. Businesses and dispensaries were forced to slash prices in order to sell their non-compliant products by July 1st.

Lab Testing Requirements

The new regulations that took effect on July 1st mandated that businesses pass lab testing requirements or destroy all cannabis products on their shelves for failure to comply.

Retailers, distributors, manufacturers, and cultivators have to ensure that the products are sent for testing before selling them. Any retailer who still had marijuana products in stock from the exemption period that ended on June 30th, 2018 was required to destroy them.

A distributor is also required to destroy goods in his possession unless those products are owned by the manufacturer or cultivator. A distributor may send them back to the manufacturer or cultivator. The manufacturer or cultivator can choose to send the products to the lab. If the merchandise passes lab testing then the manufacturer or cultivator can choose to re-stock the products.

These regulations have left retailers and distributors in possession of products that are non-compliant and the dilemma of what to do with the cannabis inventory that they are no longer allowed to sell. In Sacramento, some cannabis dispensaries reported being forced to turn away customers due to having empty shelves.

Packaging and Labeling Requirements

After testing, all cannabis products must be labeled properly and have packaging that is child resistant. All products must be labeled, and packaged before sending them to a retailer. A retailer cannot package goods and sell them to other retailers.

The packaging is required to be child resistant to prevent consumption of cannabis by children, which can lead to harmful side effects. The new regulations also applies to exit bags as these types of bags are not always childproof.

In addition to childproof packaging, the regulations from the Bureau of Cannabis Control requires the product packaging to comply with ingredients and appearance requirements as stipulated by the California Department of Health.

Distributors and retailers have been creating packaging for both edibles and non-edibles to make their merchandise attractive to consumers. However, the California Department of Health stipulates that packaging “must not resemble traditionally available food packages”.

The package must not be designed in such a way that is attractive to children and cannot resemble things like cartoons, candy, or popular food products. In the case of multiple servings, the casing must be tamper-evident. Packaging for cannabis goods must be tested for its child-resistant quality and be compliant in accordance with the regulations from the PPPA (Poison Prevention Packaging Act).

THC Limits for Edible and Non-Edible Cannabis

Before the transitional rules and regulations took effect, the California Department of Health required that both the CBD (cannabinoid) and THC content be included on the packaging. The cannabinoid and THC content were to be listed in their exact quantities and not approximations of the ingredients. CBD and THC content should be listed on the package in milligrams per serving.

The Bureau of Cannabis Control now requires that no products exceed its THC limits. For edible and non-edible products. The THC limit for edible cannabis is 100 milligrams per package and 1,000 milligrams per serving.

Non-edible cannabis meant for recreational adult-use is 1,000 milligrams of THC. For non-edible cannabis meant for medicinal purposes, the limit is 2,000 milligrams per serving.

The product and packaging must be complete before being sent to the distributor. A distributor or retailer cannot label received products even if they know or have received the testing results from the lab.

Impact of the New Regulations

The legalization of marijuana in California was met with a lot of excitement from consumers and businesses alike. On the first day of legalization on January 1st, 2018, the Bureau of Cannabis Control issued more than 400 temporary licenses to businesses interested in selling and distributing marijuana.

The temporary licenses were issued to encourage compliance, especially for the businesses that have not complied since recreational marijuana became legal. The laws and regulations are governed by three state agencies; the California Department for Food and Agriculture which issues cultivation licenses, California Department of Health which regulates content and testing, and the Bureau of Cannabis Control.

By April 2018 more than 6,000 businesses received licenses from the regulatory agencies. However, there are still a significant number of businesses that are operating without a license. For example, the California Growers Association states that only 1% of cultivators are licensed.

Businesses with a license would still be required to comply with regulations, especially after the exemption period that ended on June 30th. Therefore, distributors with untested and non-compliant stock do not have any option but to get rid of their inventory.

A licensee cannot send or receive goods from unlicensed businesses, which has resulted in product shortages that have caused retailers to turn away customers. A disproportional number of licensees could result in distribution businesses carrying an over supply ofmay find themselves without compliant products with fewer retailers to sell to.

Another concern is the losses that result from the destruction of large inventories of marijuana. Cannabis businesses have faced legal hurdles when it comes to banking. Banks have been reluctant to conduct business with companies and business owners in the cannabius industry so long as cannabis is a schedule I drug and federal law still deems it illegal. Many cannabis businesses could not access credit and had no other options but to conduct their business transactions with cash.

However, with these new regulations, entrepreneurs are excited about the many prospects of the legalized marijuana industry. Currently, the cannabis market in California is estimated to generate between $3 billion and $5 billion and is expected to grow to $7 billion by the year 2020.

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