In January 2018, California enacted Prop 64, and officially legalized recreational cannabis. As a courtesy, a six-month transition window was put into place for cannabis businesses to make the necessary adjustment to comply with new California cannabis testing and packaging regulations. This six-month window has allowed cannabis businesses to ensure their products and packaging meet new industry guidelines and protocols.

Now, the six-month deadline is fast approaching: July 1 is the date by which existing cannabis companies must be compliant with Prop 64. These rules are to be taken seriously.  If your business does not comply, you stand to lose any licenses you have obtained and become subject to fines.

The California Bureau of Cannabis Control released this transition fact sheet to with guidelines for cannabis companies trying to comply with the July 1 deadline. Here’s a detailed look at the new July 1 regulations and how they may affect your business.  

Cannabis Laboratory Testing Requirements

Starting July 1, the state of California mandates that all cannabis goods be tested and pass strict quality control requirements. Cannabis licensees are responsible for this testing. All cannabis products must now be sent to a lab for testing for substances such as heavy metals and pesticides, as well as levels of THC.

If you have untested goods in your store or retail place of business, they must be destroyed. In addition:

• Retailers cannot send their current goods to a distributor for testing.
• If you are a distributor and own untested cannabis goods that were made before January 1, 2018 – they must be destroyed.
• Untested cannabis goods manufactured or harvested before January 1, 2018 (that are in the possession of a distributor or owned by a manufacturer or cultivator) may be returned to the licensee.

California Cannabis Packaging and Labeling Requirements

In addition to testing, there are new packaging and labeling requirements. Beginning July 1, all cannabis packaging and labeling must be done prior to being transported to a retailer.  Any child-resistant packaging must also be finished prior to delivery.

If you are a retailer, it’s important you don’t accept cannabis goods if they are improperly labeled. It is your responsibility just as much as the person who packaged and labeled them. As a retailer, you’re also not allowed to package your own goods. The only tiny exception to this is putting a sticker on the cannabis good that states “for medical use only,” if it is not already labeled so.

A retailer may not send unpackaged cannabis goods to another licensee for packaging or labeling. If a retailer has cannabis goods in their possession that do not meet packaging and labeling requirements, the goods must be destroyed.

California’s THC Limits

The new deadline also restricts the amount of THC allowed in non-edible cannabis products.  After July 1, non-edible cannabis products cannot contain more than 1,000 milligrams of THC per package for items sold into the adult-use market. Packages intended for medicinal use can contain up to 2,000 milligrams of THC.

Potential Supply Shortages For Retailers

As a cannabis retailer, your inventory levels may take a hit if you have not had the right testing and labeling done prior to this deadline. It’s essential that your distributors can guarantee new products will pass lab testing standards.

If you do know of a distributor that can supply properly regulated product, purchase it now so your inventory is full. It’s possible that price hikes may come soon as many retailers may be rushing to have compliant products before the deadline.

With only 28 licensed labs in the entire state of California, obvious shortages may occur due to the hefty workload. Any retailers owning cannabis products from 2017 will have to sell it before the July 1 date; otherwise, it must be destroyed.

On the bright side, if you are one of the retailers that did their due diligence and are prepared for July 1 – you’re in a great position! You’ll likely be able to take advantage of your competitor’s inventory shortage, which means a potential boost in short-term sales. If you need some assistance in preparing for anything related to the July 1 deadline, please reach out to Green Growth CPAs and ask how we can help.