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California’s BCC Target White Labeling Contracts in Proposed Rule

Under the proposal, licensed cannabis business would not be allowed to engage in contracts with unlicensed businesses.

California’s Bureau of Cannabis Control has been shopping around a draft of permanent rules for the industry, and one proposal in particular could have far-reaching implications for a nascent marketplace that’s still figuring out statewide norms and best practices.

(The California Department of Food and Agriculture and the California Department of Public Health, which also oversee segments of the cannabis industry, released draft rules as well.)

Tucked into the BCC rules is a provision that would bar licensed cannabis businesses from conducting any commercial cannabis activity via “contract with any person that is not licensed under the [law].” (See Section 5032 here.)

Under this rule, commercial cannabis activity would include:

(1) Procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer.

(2) Manufacturing cannabis goods according to the specifications of a non-licensee.

(3) Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee.

(4) Distributing cannabis goods for a non-licensee.

In short, this rule would put an end to the white labeling workaround that has brought many unlicensed, non-cannabis-specific companies into the growing California cannabis industry. While the practice is not uncommon or illegitimate on face value, this proposed BCC rule would serve to tighten the cannabis industry and further prescribe who’s in and who’s out.

Lauren Geisser, a transactional lawyer at Russ, August & Kabat in Los Angeles, tells Cannabis Business Times that white labeling has become a point of entry for many businesses jockeying for a spot on shelves in California.

“The way that a lot of businesses have been operating in California is: Unlicensed companies will engage in a co-packing relationship with a licensed manufacturer,” she says. “Interstate commerce of cannabis is illegal, so, for even Canadian companies that want to enter the California market, [unlicensed businesses] can enter into a licensing arrangement with a manufacturer. [They] license their IP and their ideas for an edible product or a cannabis product, and the manufacturer will procure the cannabis and all the other supplies, create it [and] they’ll even package it sometimes. [In this way, they] enter into an agreement with a distributor … to get those products to market without the unlicensed company ever touching the plant.”

To Read The Rest Of This Article By Eric Sandy on Cannabis Business Times

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Published: November 09, 2018

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