Not So Fast - Double Check Whether You Can Actually Enter the Marijuana Industry

With the recent passage of Proposition 64 this past election cycle, California becomes one of the eight states that now legalized marijuana for recreational use. While California had previously faltered before, the vote in 2016 turned the "Golden State" into the next "Golden Opportunity" for investors and business owners who are seeking to get in on the "green rush".

And why not? California will be the most populous state to legalize recreational marijuana. There's a huge market for those getting into the business. The expected market for California will be a huge boon for the California economy with estimates topping $5 billion. With that type of estimate, why wouldn't any savvy business owner be looking to get a sliver of the pie?

The most important thing to remember is that while it all sounds good to hop into this new "green rush", there are some hurdles that investors must remember. High end investors, and early adopters have teams of lawyers to research and make sure they are properly advised of the potential legal pitfalls of entering the cannabis industry. New entrants, most likely do not.

And there are plenty of legal pitfalls to be had. Yes, California legalized recreational marijuana, but it's still illegal federally (which is what you will hear from every cannabis attorney as a disclaimer). But the federal preemption is just the beginning.

It may come to a surprise to some, but recreational marijuana will not be legal everywhere in California. Sounds contradictory right? Wouldn't the state preempt all other ordinances and regulations? Well, yes and no.

The AUMA (Prop 64's Title), is state law, but it delegates authority down to the counties and cities to determine what to do about it. Thus giving the localities more power to determine how to approach recreational marijuana. Here in Southern California for example, San Diego and LA counties have stated that sale, distribution, or cultivation of recreational marijuana will not be allowed in any "unincorporated areas" of the counties. For example, in LA, if you live in a city that is unincorporated, then you will have to drive to your closest incorporated city to purchase marijuana (LA city is incorporated).

For business owners however, the hurdles can get even more perplexing and confusing. It's important to check with your local regulations and ordinances to make sure you are not in violation. Returning to LA as an example, the City just released their proposed regulations for marijuana businesses within the city. The regulations state what areas of LA city are allowing marijuana businesses. The regulations then break down by license type, what zoning areas you are permitted to operate in. For example, cultivators are primarily allowed in "MR" zoning areas (manufacturing zones), while distributing and testing are allowed in "CM" zones (commercial manufacturing). On top of the 800 foot restriction from public schools and parks, the dizzying area of zone abbreviations and areas makes you wonder where you can set up shop.

The regulations even go on to prohibit owners from leasing any part of their property to allow for any activity in the commercial cannabis area. This further limits current property owners who think it might be a good idea to lease to a cannabis business.

The point being, yes it is exciting that California is finally entering into the recreational marijuana arena. However, it's important to remember that this won't be the Wild West gold rush all over again. Cities and counties have been working feverishly to set up stringent regulations and ordinances regarding what is and what is not permitted. It's vital to make sure you double check these local ordinances before entering into any business dealing in the cannabis industry. It may be even be even more prudent to wait to see what the final product is when the dust settles in terms of regulations.

*The above does not constitute legal advice, and is merely opinion based on observations. Any legal questions should be directed to an attorney in the industry.