Cannabis Knowledge & Insights

How to Get Your State Cannabis Manufacturing License

In this presentation, Jim will walk you through how to prepare your State Manufacturing Cannabis License Application including:

  • ​​Difference between Manufacturing Licenses
  • Breakdown of the fees
  • Fully outlining the application requirements
  • Product Standards

If you are considering to launch a cannabis product that requires any type of manufacturing, then don’t miss this video because this is information you must know to get approved.

Need help with your cannabis company? Reach out to us today at: https://GreenGrowthCPAS.com/Get-Started
or give us a call at 1-800-674-9050

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Full Transcription

pocastsHey everybody, how you doing? My name is Jim Breese and I’m the CMO here at GreenGrowth CPAs. And today we’re going to talk about how to get your annual state cannabis manufacturing license.

So a little bit about GreenGrowth CPAs. Before we get started, we prepared over 1200 annual tax returns every year, and we work with all different verticals: Dispensary’s, distribution, cultivation, manufacturing, delivery testing; every part of the cannabis supply chain is who we help out. We have over 350 clients throughout 12 states, including California, Oregon, Montana, Arizona, lots of states, and even international clients as well. We audit related and valuation projects. And we have a thorough and deep understanding of tax compliance and assurance related items for the cannabis industry. Now we are a cannabis specific CPA firms, so all we work with is cannabis clients. And one of the important things about working with a cannabis specific firm, whether it’s a law firm, a CPA firm, or any other kind of security firm or compliance firm, is working with someone who works with just cannabis clients, means you’re not paying them to learn on your dime.

So if you were to go into like regular ABC tax company or ABC lawyers and they do everything, they have so many practice areas, what you’re not getting there is the specialty and the expertise that comes with working with only cannabis clients. So we make sure you’re getting what you need when you need it at the right times cause we have the experience necessary for this.

So before we get started, just need to let you know that the information contained in this Webinar is meant for guidance purposes only and not as professional legal or tax advice. And further, it does not give any personalized legal tax investment or any business advice in general. So with that out of the way, let’s hop right into the presentation here.

A quick review of our agenda. We’re going to go over key definitions in the manufacturing space. We’ll discuss the types of manufacturing licenses, identify which governing agencies that you’ll be working with throughout the application process. We’ll review the fees outlined, the different application requirements, product standards, and then what actually happens after you get your license.

So before we actually hop into the presentation of how to get your license, we have the opportunity for you if you’re in the Los Angeles area, to skip the entire licensing process, the entire real estate finding process and go to our coworking space. So we have a coworking space. It’s a 45,000 square foot building in downtown Los Angeles; Fully licensed, vertically integrated, pretty much a turnkey solution for your cannabis business. We do everything but the delivery and dispensary. So if you want to start a manufacturing, you want to go into cultivation or distribution, we have access to the facilities that you need. You know, we have office space and then you know, you get to be in working with other cannabis business owners around them and share this knowledge and be in that environment where great collisions can happen and great things can happen. So if you’re interested in getting started today and not waiting for anything and any licenses, reach out to us for the cannabis coworking space in Los Angeles.

So first let’s talk about who is a cannabis manufacturer. When you hear that word manufacturer, you might think heavy machines and heavy duty everything, but manufacturing is a pretty general term out there. So a manufacturer by definition is anyone who makes or packages a prepared cannabis product and cannabis products can include edibles, topicals, tinctures, extracts, vape cartridges, capsules and many other things. But those are the most common things you see out there. And the most common way that cannabis products are manufactured is through the use of an extraction machine such as a closed loop system if they infuse the cannabis concentrates with other non-cannabis goods as well. So lots of different ways to be a manufacturer. Also cannabis manufacturers can package flower and do pre-rolls and that is considered a manufacturing and there’s particular tax benefits that come along with being a manufacturer as we discussed in our outsourcing, the CFO video fund flow management. So if you don’t have any of that information, you should check that video out as well.

But every business that manufacturers cannabis products must hold a state license for each separate premises where the manufacturing operations will be conducted and manufacturers must disclose all the activities they will conduct on their license applications. So if you want to start with one and maybe a different type of manufacturing later, you need to disclose kind of all these things at once and laying out your plan to build out your place. So that’s what a candidates manufacturer is. Anyone who makes or packages any prepared cannabis products from pre rolls all the way to concentrates and tinctures and everything else.

So let’s hit some key definitions to kind of walk you through. As we say, some of these words throughout the presentation or if you’re reading other materials, you know what you’re actually getting into when you see these words.

So extraction is the process of separating cannabinoids from cannabis plant material using chemical solvents or mechanical methods. You have an infusion, which is the act of creating a cannabis product by incorporating either cannabis extracts or plant material into a recipe. Packaging and labeling is a final step of the cannabis product creation. In which cannabis finished goods and products are placed into a container and marked for retail sale. You have volatile solvent, which is a solvent that produces a flammable gas or vapor. And some examples of this are butane, hexane and propane. And you have nonvolatile solvents, which is another solvent used during the extraction process. And examples of this are carbon dioxide, ethanol, water, butter and oil. And then we have shared use facility, which is a manufacturing premises operated by a type seven six or N licenses in which type S licensees can conduct manufacturing operations. So if you see those words throughout the presentation, you can reflect back to this and know what we’re actually talking about here.

So there are five types of licenses that you can get as a canvas manufacturer. You have type six type seven type N type P and type S. So real quickly just go through what those types of licenses are. So you kind of know where you stand throughout this process. So type six is for manufacturers using nonvolatile solvents such as the carbon dioxide or the ethanol, the butter, the oil or performing extraction using mechanical methods. And you can also engage in type N in type P activities, if you hold a type six license. Now type seven license is for those that are gonna be using volatile solvents such as the butane, the hexane propane, and they can also engage in type six and type N and type P activities.

Now for type N are those manufacturers that are performing infusions and they can also do type P activities. And Type P is packaging and labeling cannabis products. So you see that the more volatile licenses, the type seven can do a lot more things that you know, fall under that license. Whereas you get to the type P they can only do type P and then you have type s licenses, which are for manufacturers operating on a registered shared use facility.

So from there, let’s discuss what shared use facilities are a little bit more in depth. So a shared use facility is a manufacturing premises in which businesses take turns utilizing the space and the equipment, right? There’s a lot of capital expenditures to starting up a manufacturing business. So if you want to go into a shared use facility, it’s more economically sound to do that. And depending, there’s a lot of variables here. We’re just saying in a generality that if you want to do a shared use facility, it could be more cost effective. So this allows for operations similar to like a commercial kitchen or agreements in which large manufacturers offer space and use of equipment to smaller manufacturers.

So the primary licensee is the owner and or operator of the shared use facility. And then cannabis manufacturers that work within the shared use facility are type s licensees. So type s licensees may conduct the following cannabis manufacturing activities. You have infusions, packaging and labeling and extractions with butter or food grade oils. Now note the extract or concentrate produce can only be used in the type s licensees infused products.

So when you go throughout this licensing process, you’re going to working with a fair amount of government agencies and these should be seen as partners in the process, not as roadblocks in the process. I say this with every one of our clients and every one of these webinars, there’s a lot of people that have to have their hand in helping you get your license. So don’t see these again as roadblocks. These are people you’re going to be partnering with specifically in California in a lot of the things we’re going to talk about today will pretty much, it’s all based on California code and compliance, but a lot of this can be transferred and translated over to other states. A lot of states are looking to the west to see what they should do when they offer these type of licenses. So when a state in the east opens up, they look at, Hey, what’s working in a Colorado? What’s not working in Oregon, what’s working in California? And then they adapt their policies in that manner. So just go through here and see who your new working within the state of California.

So in state of California, there are three government agencies that enforce all the regulations specific to cannabis businesses. Now first you have the CDFA, which is the California Department of Food and agriculture. And then you have the CDPH, the California Department of Public Health and the manufactured cannabis safety branch specifically, and then the BCC, the bureau of Cannabis Control. And depending on what type of cannabis business you’re planning, the application may require you to go to other government agencies as well. But with what we’re talking about here, these are the three main people you’re going to be working with. And manufacturers, the agencies that are in charge of determining your licensing for your cannabis manufacturers is a CDPH who established their own division. As I said earlier, the manufactured cannabis safety branch, the MCSB specifically designed for working with cannabis manufacturers. So you’re going to get very intimate with working with that branch of the government.

And one thing I should have brought this up at the beginning of this slide is make sure you get your local approval granted before going for a state license. You will not get a state license if you do not have a local approval from another jurisdiction. So if you’re going to open up a manufacturing facility in, say Valencia, California, you have to be approved by the city of Valencia or whatever municipality is running that, and then pretty much this state license process is taking everything you did for that city license or that local approval and giving all that same information to the state and other agencies. There’s some additional information on there at the city, may not have asked for, but that’s pretty much what it is. You’re transferring everything you did for that local approval to the state. They’ll grant you that license. It’s an annual license and you have to pay up every annual for them. And if you get your local license, you will most likely get your state license. It’s not, you know, a very stringent process and that it’s different from the local approval, but it’s if you get a local approval, you will most likely get your state approval.

Let’s talk about licensing fees. Again, this is an annual licensing fee. So as with all other licensing agencies, the associated fees are based on the type and scale of your operations. So the more you sell, the more your licensing fee is. And the application fee for all manufacturing types, except type s is $1,000 and type S as a $500 application fee and all application fees are nonrefundable. Now that’s just the application fee. Now you have to go on to actually getting your licensing fees. So we’ll just break it down here.

You can read the fees on the slides here, but minimum fee is gonna be $2,000 all the way up to a $75,000 fee. So if you’re making only up to $100,000 in gross revenue, your licensing fee is going to be $2,000 and then up and up and up, all the way to that, more than $10 million in gross revenue, which is going to be a $75,000 license here.

So now let’s go over the CDPH’s general requirements for the applications. So in this presentation, I’m going to talk about the general requirements for all licensing applications related to cannabis manufacturers in the state of California. There may be more or less things that you have to do depending on your type of license, but let’s just generally go over those main guidelines.

So you have to distinguish, are you going to be medical or adult use or both? You’re going to have to prepare the owner’s information, a property owner statement, a premises diagram, your local authorization, business formation documents. You’re limited waiver of sovereign immunity and that only applies if the applicant is part of a federally recognized tribe or sovereign entity. Pretty much in short, what that says is if you’re a sovereign entity or a tribe, you don’t have to always follow all of the federal regulations. So what you’re doing when you give that limited waiver of sovereign immunity, just saying, hey, all those rights I used to have by, I could bypass this law or that law. I’m not taking that route and I give up all access to that route next you’ll have to get your CEQA compliance documentation, your seller’s permit, your closed loop certification, if it’s applicable, if that’s the kind of manufacturing you are going to be in a labor peace agreement, your financial information form, surety bond, live scans, and your SOPs for transportation, inventory, quality controls, security and waste management.

So let’s dive into local authorization first. So as with all state licensing, it’s important to ensure that your business has secured a local approval before attempting to attain a state license. So I already said this, but it’s very, very important. I don’t want you to get all riled up and get excited and say, Hey, I have to just go all into the state. You need to pick a jurisdiction, get that local approval and then go for your state license.

So the BPC, the business and Professional Code in California provides applicants with the possibility of voluntarily submitting their local license or permit to the state agency in charge of licensing in. In that case it’d be the CDPH for manufacturers and doing so will give the local jurisdiction 10 days to confirm this authorization document. Making the state licensing process slightly easier for everyone that’s involved. Some of that information just going to be transferred right over and you want it to produce these documents as second or third time.

Now if you’re going to be doing a closed loop system, you have to get the certificate, you have to have this manufacturing facility in the whole system audited by a California licensed engineers. So we’ll just go over this slide real quick. There’s a good amount of information on here. This is for extractions using CO2 volatiles, solvents, chlorofluorocarbons, hydrocarbon, and other fluorinated gasses that are processed in a closed loop system during the extraction process. And this applies to both volatile and nonvolatile solvents. So certification by a California licensed engineer is required for each extraction system. It must be completed following a review of the equipment being installed on the premises. This certificate is going to include the serial number of the extraction unit, the confirmation that the unit was commercially manufactured, safe for use for the intended solvent and built to codes of recognized or generally accepted good engineering practices and the signature and the stamp of that engineer and documentation showing the extraction system has been approved for use by the local jurisdictions Fire Department. Approval from the fire department is also required for licensees conducting ethanol extraction.

It’s not like you can just build your own manufacturing machine as well, your extraction machine. This is something that there are vendors out there that make these specific machines that has to be installed, inspected, just like any other large heavy manufacturing business. They have to know that you’re using the right equipment because when you get all this pressure, all those volatiles stuff going, it could be like a big bomb going off inside that room and they don’t want, especially they don’t want the business owners to be hurt, but they also don’t want the community being impacted negatively as well. So that’s why you have to work with real equipment, real people, real engineers. This is not going to be some kind of piecemeal kind of business where you put this a little bit of that, a little bit of this. It’s like it’s a real deal thing. You can’t just go get some kind of, you know, extraction machine off of Alibaba and think it’s going to be okay. You have to go through a California licensed engineer to validate and certify your closed loop system.

Next we’re talking about operating procedures. Now the most important thing of a business is making sure that it’s run the right way every day. And what the state is going to require a view is to show that you know how to run this business. So the MCSB, which is the manufactured cannabis safety branch of the CDPH, have included operations specific sections in the application that can be submitted as separate documents. They just want to see your SOPs and they’re gonna want to see it for five main areas: Inventory, transportation, quality control, security and waste management. So let me just hit a few of these here and kind of give you some color around what does this even mean?

So for the inventory control plan, how are you going to receive the shipments of your cannabis? How are you going to store it? How are you going to perform inventory reconciliation? How will you track inventory? How are you going to ensure that those inventory records are accurate and maintained in the best way possible?

Your transportation plan, how is loading and unloading cannabis products on the premises going to work? How are you going to prevent diversion? How are you going to inspect the raw materials and the other ingredients and make sure they’re kept safe from contamination or degradation during the transportation process, like will you have refrigeration, what kind of packaging will you use to move them around.

So quality control plan. How are you going to clean the equipment? How are you going to prevent cross contamination of cannabis goods? What protective clothing and equipment are you going to be having your people use? The description of the storage of all product components, raw materials, how are you going to make sure that that high quality stays there?

The security plan, how are you going to prevent theft? What are your limited access areas? What’s your video surveillance? Kind of set up your camera placement, your alarm systems and maintenance of the equipment.

And then you have your waste management plan. You know, how are you going to handle the cannabis versus non-cannabis waste on the premises? How are you going to identify a waste hauler? What is your disposal protocol? What’s your hazard waste plan if that’s applicable to your business?

So a lot of things here to consider, and it’s very important that you work with someone who’s written these slps before and can provide you the context and how to actually operate and run this business. If you need help with this, this is something that GreenGrowth CPAs can help out with.

So some requirements for shared use facilities. So the primary licensee must first obtain a type seven six or n, but not a tight p cannabis manufacturing license and register their space as a shared use facility. Now once the facility registration is approved, cannabis manufacturers wishing to utilize that space can apply for a type s license. Now the following conditions apply to that scenario.

So licenses are only available to type us applicants with an estimate Gross revenue less than $1 million. Activities are limited to infusion packaging and labeling and certain extractions using butter in food grade oils. for infusion. The shared use facility must meet all requirements outlined in the cannabis manufacturing regulations and include secured storage for the type s licensees, cannabis and cannabis products. All responsibility for the maintenance and commonly used equipment and services is allocated between the primary licensee and type s licensees. Both parties may assume liability for any violations of those regulations in those responsibilities. Now the primary licensee will assign a designated area to be used as a shared space and occupancy schedule outlined in the days and or times that the space will be used by the type s licensees must be posted and then assigned to agreement between the primary licensee and the type s applicant must be submitted to the CDPH and only one licensee can utilize the space at a time.

Now when submitting your application, the state agencies need to know who are the owners of this business. So owners can be defined in a few ways, so individuals or business entities or other groups with an aggregate ownership of 20% or more in the business applying for the license. Also, an owner can be a chief executive officer or a member of the board of a nonprofit or an individual who will participate in the direction control or management of the business as outlined in the business and professional code and percentages of ownership interests, prior convictions, licensing, sanctions, and financial interest in other cannabis businesses must be disclosed. So when you start to go through this licensing process, you’re pretty much telling everybody you’ve ever done, you know anything. Pretty much it. It’s a very open Kimono type of thing and you just have to disclose who those owners are going to be.

Now the property owners statement, if you don’t own your own building, if you’re not going to be coming to our building downtown in Los Angeles and you’re gonna be leasing a property, you have to get a document from your landlord demonstrating that they know that the applicant is going to be conducting commercial cannabis activities on the property. You also have to provide that lease agreements and any other agreements pertaining to that lease to the state. But if you own the property, you just have to provide the title or the deed of the property demonstrating that you own the property to the state. They just need to know that everyone is onboard and knows exactly what’s going to be happening when you start this business.

Now, one of the more intense parts of this process is the premises diagrams. So there’s what has 10 15 points here that I’m going to go over and we won’t go too deep into them. But if you need help with this, please reach out to us. So the premises diagram has to be made to scale. You have to have the APN and the parcel boundaries written on there. Premises boundaries and dimensions, the perimeter dimensions of all rooms, where the entrances and exits are, what our common areas are there any interior partitions where the windows and doors, areas where the commercial cannabis activity will be conducted, including your extraction, infusion, packaging and labeling, loading and unloading and transportation. Saying where the limited access areas are, what are the waste disposal areas, the numbering and location of all the cameras, label any neighboring licensees and other businesses on the property. And for shared use facilities, you need to indicate the designated area to be used by the type s applicant and detail where the applicant will store its cannabis, its cannabis concentrates and cannabis products and identify any shared spaces and equipment.

Another document you’ll have to submit when going for your license is business formation documents. Now, if you’re a sole proprietor, you may only be required to submit your DBA or your fictitious business name form that you file with your local business permit office along with any appropriate tax forms. But whether you’re an LLC, a limited partnership, a general partnership or corporation, you’ll most likely need to submit a combination of the following documents in addition to those required if you were sole proprietors. So those documents could include your articles of incorporation, statement of information, Certificate of stock, Stock Ledger, organizational charts, bylaws, list of board members, partnership agreements, statement of partnership authority, certificates of limited partnership and operating agreements. Again, it could be any number of those documents you just have to reach out to probably to your lawyer that put this together for you or your CPA that put this together for you. That’s where all those documents will be at. And if you not maybe even have them in your email and you know, obviously you probably had to put them together for your local license application as well.

Now you have other types of businesses out there such as a trust, right? So trust, have to provide a certificate of trust, establishing the trustee authority or if you’re foreign corporation or foreign LLC, you had to have a statement and designation by a foreign professional corporation, certificates of qualification, certificate of registration, or certificate of status issued by the California Secretary of state.

Now you may say, Oh man, I don’t know where all these documents are. I, I haven’t, I don’t have them all in one place. Well, there’s a thing called the cannabizfile at the secretary of State of California maintains and you can go get a lot of your business formation documents off of that. So you can check there. You can also reach out to your lawyer or CPA, whoever helped you set up to all those entities. Or you may have them even sitting in your email. You just need to do a little searching through that inbox and you know, find those documents.

Next is CEQA compliance and this is the California Environmental Quality Act. And what you’re going to need is documentation that demonstrates an exemption or compliance with CEQA. So again, a notice of determination or notice of exemption. And for this purpose, the BCC has uploaded the following forms to its portal. You have the CEQA project specific information form and the CEQA exemption petition form. Now in the event, there is no CEQA compliance or exemption documentation from the city or county than the burden of providing this documentation to the state falls upon you, the applicant. So you should look into this sooner than later to see if you have to have this kind of study done for your property.

Some additional requirements here, you have to go to the CDTFA and get your seller’s permit. You can apply online for that. A Labor peace agreement. So if you have 20 or more employees or planned to have 20 more employees, you’re going to need to pretty much create a document, a contract that says you’re going to provide them living wages, a good wage benefits, and the to organize under a union. You have to get a surety bond, which is submit of $5,000 bonds. That is state your financial information form, which lists all of your investments, loans, funds and gifts associated with your cannabis business. Live scan, background checks for all the owners and compliance with the compassionate use act if applicable.

So let’s just go over some product standards and these are some rules for edibles. Just basic things from the regulations that you’ll have to abide by. And this is more of an informational FYI for you. So when you start to think about, you know, starting a business, is it even legal to do that or that type of business or that type of extraction or that type of manufacturing.

So products can not be infused with nicotine or alcohol or have added caffeine. Edible Products can not be shaped like a human animal insect or a fruit. Potentially hazardous food such as meat or seafood and any other products requiring refrigeration below 41 degrees Fahrenheit are prohibited for sale as cannabis products. Juice and dried meat are allowed. All dairy products are strictly prohibited except butter purchased from a license mill products plant or retail location for the purpose of infusion. Commercially available products are allowed to be used for infusion as long as they are rendered unrecognizable through processing. And the original product is not listed in the cannabis products label.

So for example, gummy bears can be used, but they must be melted down and processed into a different shape. And the final product may list the original ingredients without using the trademark names. So for example, if you went and bought ACME gummy bears and melted them down and repurpose them into a different type of gummy for your cannabis infusion, you don’t have to put in there ACME gummy bears. You can put in the actual ingredients listed from that original product.

So let’s go for some product standards on THC limits. So the following limits apply to all cannabis products and old products are limited to a max of 10 milligrams of THC per serving and 100 milligrams of THC per package. Other cannabis products such as tinctures, capsules, topicals are limited to a maximum of 1000 milligrams per package for the adult use market and 2000 milligrams of THC per package for the medical use market. Very cut and dry. Basic things from the regulations there.

Now after your state licenses issued, what happens? Next thing you’re gonna have to do is go through track and trace training, which is METRC. Okay? And that’s in the state of California. It’s pretty much the ability for the state to track all the products from seed to consumer. It’s a very robust system. The kinks are still getting worked out of it, but you have to go through the training. So track and trace training. You’re gonna have 10 business days to register for the cal cannabis track and trace program upon receiving, notice that your application had been received by the CDPH. Now you’re going to provide proof of completion to get access to the track and trace system and that you’ve actually completed the training before you can get access to the system. And then you can obtain your UID tags from the CDFA, which is a department of food and agriculture for any products that you need to track and trace.

So that covers all the things you’re going to be needing for your state license. Again, most of this stuff translates over from the local approval that you had some new things cause you’re working with other government agencies. But let’s just hit on some key takeaways here. So there are five types of licenses: type six type seven type end type P and type s licensing fees are scaled based on the size of your operation. You also need to have your system certified, your closed loop certificate as required from a licensed California engineer. Shared use facilities require a primary licensee, a type six type seven or type N. Certain ingredients for infusion are limited as well as work with a specialist for guidance when applying for your local and state approval in licenses. It’s very, very smart to work with a seasoned quarterback, someone that can actually tell you what part of the process needs to be done next, what things need to be done in parallel, the priority of different types of things and also can give you context to the other things that are going on in the market.

If you work with someone who has a lot of clients or a sizable amount of clients, they can tell you what has worked and what hasn’t worked. So instead of just hoping on a dream that your thing’s going to work out, they can tell you and give you a gut check. Hey, I’ve worked with seven other people that have tried this, only two of the seven are working. I’ve worked with nine other people that are doing this way, and eight of the nine people are still in business. So that’s where it helps with GreenGrowth CPAs or any other specialist in the cannabis business to help you with this.

So if you need help with getting your cannabis manufacturing license, please contact us today at GreenGrowthCPAs.com or give us a call at (800) 674-9050. I really appreciate you taking the time to listen to everything we have here. We did go through very fast. It’s a very intricate process and it’s not easy to break it all down within a 30 minute presentation here, but this kind of gives you some color and context to what you’re up for in the next nine months, 10 12 months whenever you’re getting started with your business. Maybe even tomorrow if you want to start operating in the downtown Los Angeles Cannabis coworking facility. Again, thank you for attending. If you have any questions, reach out to GreenGrowthcpas.com or give us a call at (800) 674-9050.

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