State agency anticipating cannabis business regulation

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The state, as well as Riverside County, is reviewing and developing ordinances and regulations for California’s future cannabis industry. Last month, the State Water Resources Control Board approved a set of policies to protect stream flow and water quality in areas where cannabis will be cultivated.

Commercial cannabis cultivation is expected to grow significantly in the state and will need plenty of water. Cultivation will spread to new areas of California following the adult-use legalization this coming January.

“We are establishing the environmental protection rules of the road needed to deal with the expected expansion of cannabis cultivation statewide,” said State Water Board Chair Felicia Marcus in a press release. “… action creates a strict set of rules cannabis cultivators will need to follow in order to protect water quality and quantity. We will work closely with other state agencies to make sure cultivators are aware of these rules and are following them.”

The SWRCB policy will require both a permit and a water right. The water quality permit will be called Statewide General Order for Cannabis Cultivation Activities (Cannabis General Order). The permit or General Order will authorize the discharge of waste, which is the result of cannabis cultivation (indoors or outdoor), into streams and creeks. A personal-use exemption will be available if the disturbed land is less than 1,000 square feet.

The water right is referred to as a Cannabis Small Irrigation Use Registration.

The permit will have two tiers; less than an acre, and equal to or greater than an acre. A fee will be imposed based on the site complexity and threat to water quality.

The state permit will address various issues. In its release, the SWRCB listed the following areas to be considered when issuing a cannabis General Order Permit: streams and wetland management; water diversion, storage and use; irrigation runoff; land development and maintenance; land erosion control and drainage features; soil disturbance; stream crossing installation and maintenance; fertilizer, chemical and soil use, and storage; cultivation-related waste disposal; refuse and human-waste disposal; and winterization (preparing post-harvest lands for adverse winter-weather conditions).

Besides discharge into public waterways, the policy also addresses water diversion. There will be conditions and review to ensure cannabis cultivation does not affect stream flows needed for fish, and maintains and protects aquatic habitat and resources.

According to the SWRCB release, the agency will monitor and protect stream flow through the review of the following measures: maximum allowable diversion rates; minimum amount of water that must be left in the stream; no diversion during dry season; groundwater pumping restrictions, if necessary, to protect surface flows; and water conserving irrigation methods.

The policy will become effective after its approval by the state’s Office of Administrative Law, which is expected later this year.

Other Cannabis regulation

Last week, California Department of Tax and Fee Administration announced that individuals planning to sell cannabis or cannabis products after Jan. 1, 2018, must register with the CDTFA for a seller’s permit.

Cannabis cultivators, processors, manufacturers, retailers, microbusinesses and distributors who make sales will be required to obtain and maintain a seller’s permit as a prerequisite for applying for a license with the Bureau of Cannabis Control, the Department of Food and Agriculture, or the Department of Public Health.

According to the CDTFA press release, registration may be done on its website.

Also, distributors of cannabis and cannabis products must also register with the CDTFA for a cannabis tax permit, which is separate from a seller’s permit. The tax permit will be used to report and pay the two new cannabis taxes to the CDTFA starting in January 2018.

Registration for the cannabis tax permit will be available on November 20, 2017.

Cannabis taxes

As of Jan. 1, buyers of cannabis and cannabis products will pay a 15-percent excise tax, which retailers will be required to collect.

The second tax will be imposed on the cultivation of cannabis that enters the commercial market. Cultivators will be required to pay the tax to either a distributor or manufacturer depending upon the nature of the transaction. The cultivation tax rates are $9.25 per dry-weight-ounce of cannabis flowers, and $2.75 per dry-weight-ounce of cannabis leaves.

As Riverside County considers, if it will regulate cannabis businesses within the county, a separate county tax is part of these deliberations.

Individuals who operate a cannabis business that does not make taxable sales will need to obtain a certification letter from the CDTFA indicating their business does not require a seller’s permit.

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