aBIZinaBOX Inc - CPG

Cannabis Practice Group

Cannabis Biz - California

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California Chaos Causes

“California Chaos Causes”

California Chaos Causes [“CCC”} – What do the following headlines have in common?California Chaos Causes

“700+ OFFICERS & SOLDIERS ASSIST DURING ANZA VALLEY POT RAIDS”

“HOW LEGAL WEED IS KILLING AMERICA’S MOST FAMOUS MARIJUANA FARMERS?”

“CALIFORNIA MARIJUANA SALES A FAR CRY FROM STATE’S PROJECTIONS”

“LEGISLATIVE ACTION NEEDED TO KEEP CALIFORNIA’S LEGAL CANNABIS INDUSTRY AFLOAT”

What does the acronym “CCC” mean?

California Chaos Causes

CCC is our acronym for “California Chaos Causes” We cannot list all of the causes of problems in California’s cannabis industry.  The list of causes becomes longer every day.  Our CCC refers solely to major causes.

The Bureau of Cannabis Control (“BCC”), CalCannabis, which is a Division of the California Department of Food and Agriculture, and the California Department of Tax and Fee Administration (“CDTFA”) are the principal causes of this chaos.  These three agencies are also responsible for the events that produced the headlines above.

The actions of BCC, CalCannabis, and CDTFA created the circumstances that produced these headlines.  The circumstances that produced the headlined events would not have existed if these three agencies had not been so inept.  These three agencies are the sources of the judgmental errors that have created chaos for California’s cannabis industry.

California Chaos Causes

We want to be completely fair to these three agencies.  These three agencies are not solely responsible for the chaos.  California’s cannabis industry was already a mess when the California Legislature tasked these three agencies with the principal responsibility for the administration of a regulatory system pursuant to the Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”).

It took California twenty years to create the messy state that  BCC, CalCannabis, and CDTFA were tasked with regulating.  However, it has taken only two years for these three agencies to turn a messy set of laws and conflicting political and economic pressures into chaos.  Headlined events prove our point.

Compare the Anza Valley eradication with the raid on Oaksterdam University and Richard Lee seven years ago.  It made national news. The Anza Valley raids involved a ten-fold increase in the number of law-enforcement officers, dollars, locations, and cannabis.  Has California made progress?  Law-enforcement has changed from federal to State and local, but it is difficult to consider such a change as progress.  A lack of interest in California’s cannabis industry by the federal government is a more likely explanation.

Five years ago, the Emerald Triangle produced twice as much cannabis as was consumed in California.  Cannabis cultivation has increased dramatically in California over the past five years.  Multiple regions in California now produce cannabis in amounts comparable to the Emerald Triangle.  Look at the other headlines!

Through bureaucratic ineptitude BCC, CalCannabis and CDTFA encouraged increased production throughout California; choked commercial cannabis distribution, and incompetently administered California’s two new sources of tax revenue.  The judgmental errors of BCC, CalCannabis, and CDTFA in creating the administrative framework for California’s regulation of its cannabis industry places responsibility for the present chaos squarely on the doorsteps of these three agencies.

BCC is ultimately responsible for the chaos.  BCC has supervisory responsibility for the administration of MAUCRSA.  BCC is ultimately responsible for all of the failure in California’s regulation of its cannabis industry.

California Chaos Causes

CalCannabis made the largest pro-active contribution to the chaos through its bureaucratic ineptitude in the roll-out of the regulation of cultivation.  CalCannabis created systems, procedures, and forms in a vacuum.  The staff of CalCannabis appears to have been devoid of knowledge of cannabis and of the evolution of California’s cannabis industry from the ‘60s.  CalCannabis acted without knowledge or perspective.  CalCannabis failed, although it seems blissfully unaware it has failed.

CDTFA merely failed to devote the attention to the two new taxes established by Proposition 64 that was required to develop appropriate procedures for administration.  CDTFA failed to recognize the two new cannabis taxes were different in multiple respects from the taxes the agency already administered.

California Chaos Causes

We said we would be fair to BCC, CalCannabis, and CDTFA.  We will be fair.  Most of the problems that have arisen in the regulation of California’s cannabis industry were inevitable.  California had a well-established and successful but largely unregulated cannabis industry with a libertarian (or outlaw) mentality depending on your perspective.  Regulation was never going to be simple or easy.  Proposition 64 added legal adult-use cannabis to legal medical cannabis through an ill-conceived and poorly-drafted amendment to the California Constitution.

 The California Legislation then cobbled together legislation to integrate the regulation of two partially inconsistent legal cannabis regimes into a single regulatory structure.  Political pressure from groups with conflicting interests shaped MAUCRSA.  Sorting out the conflicts created by MAUCRSA will provide employment for hundreds of California lawyers for the next ten years.  This mess was turned over to BCC as a newly created bureau in the California Department of Consumer Affairs to administer.

We said we would be fair to BCC, CalCannabis, and CDTFA.  These three agencies cannot be blamed for the mess.  BCC, CalCannabis, and CDTFA are responsible for turning a mess into total chaos.  BCC, CalCannabis, and CDTFA have created a showpiece of bureaucratic ineptitude out of a daunting challenge.

Can anything be done?  BCC, CalCannabis, and CDTFA are both the cause and the solution to many of the problems.  These agencies must stop trying to force square pegs into round holes.  These agencies must change the shapes of the holes and help round the edges of the square pegs in order to ease all of California into a regulated cannabis industry.

California Chaos Causes

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California Uses ACID – Illegal Grows

California Uses ACID – Illegal Grows

California Uses ACID – the Califonia Bureau of Cannabis Control [“BCC”], California Dept. of Fish & Wildlife [“CDFW”], California Dept. of Food & Agriculture [“CDFA”] Cal Cannabis Division, and the US Dept. of Justice – Drug Enforcement Agency [“DEA”] unveiled a heretofore “Top secret” Program. Avian Cannabis Interdiction & Destruction [“ACID”] is Avian Cannabis Interdiction Destructiona quite novel program that utilizes highly trained flightless birds in connection with it cannabis interdiction programs.

Specifically, they have deployed Cassowary, Emu, and Ostriches [collectively “CEO’] in a novel approach to illegal cannabis destruction. These large flightless birds have the no carbon footprint, can operate in just about any terrain including hills and mountains with little difficulty and serve a variety of functions. A spokesperson for ACID explained that with reports of the deployment of the California National Guard in connection with the destruction California Uses ACIDof illegal grows being described as military exercises on the civilian population of California the authorities decided to roll out the new program as they are certain that the credibility of people that they were attacked by, and their cannabis grow destroyed by giant birds would be almost nil.

The spokesperson then began a discussion of the various species of birds, starting with the Cassowary noting that it was akin to a Cobra or Apache attack helicopter due to its five-inch dagger-like claws, incredibly mean-spirited temper and ability to jump six feet into the air and run thirty miles an hour. Cassowary have killed humans with their kicking attacks. 

Cassowaries feed mainly on fruit, although all species are truly omnivorous and will take a range of other plant food, including shoots and grass seeds, in addition to fungi, invertebrates, and small vertebrates. Cassowaries are very wary of humans, but if provoked they are capable of inflicting serious injuries, occasionally fatal, to dogs and people. It is often called “the world’s most dangerous bird“.

California Uses ACID – Illegal Grows

The ACID program has trained a number of deputies and ostriches a fast response avian cavalry where small groups of deputies armed with automatic rifles can ride the ostriches in small rapid response unit to be able to reinforce other ACID activities.California Uses ACID Imagine the sight of a dozen highly armed tactical appearing on the horizon mounted on ostriches moving towards an illegal grow.

An ostrich can carry a human ride that weighs less than 170 lbs. Ostrich riding is a big thing in South Africa, but the Association of British Travel Agents say that tour agencies should not offer this. The skeleton of the ostrich is not designed to support a human’s weight, nor is it safe for humans to come close to these animals, as they can viciously attack.

A frightened ostrich can achieve a speed of 72.5 kilometers (45 miles) per hour. If cornered, it can deliver dangerous kicks capable of killing lions and other large predators. Deaths from kicks and slashes are rare, with most attacks resulting from humans provoking the birds. An ostrich’s powerful, long legs can cover 10 to 16 feet in a single stride. These legs can also be formidable weapons. Ostrich kicks can kill a human or a potential predator like a lion. Each two-toed foot has a long, sharp claw.

The ACID program has deployed emu as pack animals which are used to transport cannabis plants which have been cut down to locations where destruction takes place.

California Uses ACID – Illegal Grows

The emu (Dromaius novaehollandiae) is the second-largest living bird by height, after its ratite relative, the ostrich. It is endemic to Australia where it is the largest native bird and the only extant member of the genus Dromaius. The emu’s range covers most of mainland Australia, but the Tasmanian, Kangaroo Island and King Island subspecies became extinct after the European settlement of Australia in 1788. The bird is sufficiently common for it to be rated as a least-concern species.

Breeding takes place in May and June, and fighting among females for a mate is common. Females can mate several times and lay several clutches of eggs in one season. The male does the incubation; during this process, he hardly eats or drinks and loses a significant amount of weight. The eggs hatch after around eight weeks and the young are nurtured by their fathers. They reach full size after around six months but can remain as a family unit until the next breeding season.

Cassowary – Emu – Ostrich

Although flightless, emus have vestigial wings, the wing chord measuring around 20 cm (8 in), and each wing having a small claw at the tip. California Uses ACIDEmus flap their wings when running, perhaps as a means of stabilizing themselves when moving fast. They have long necks and legs and can run at speeds of 48 km/h (30 mph) due to their highly specialized pelvic limb musculature. Their feet have only three toes and a similarly reduced number of bones and associated foot muscles; emus are unique among birds in that their gastrocnemius muscles in the back of the lower legs have four bellies instead of the usual three.

The pelvic limb muscles of emus contribute a similar proportion of the total body mass as do the flight muscles of flying birds. When walking, the emu takes strides of about 100 cm (3.3 ft), but at full gallop, a stride can be as long as 275 cm (9 ft). Its legs are devoid of feathers and underneath its feet are thick cushioned pads. Like the cassowary, the emu has sharp claws on its toes which are its major defensive attribute, and are used in combat to inflict wounds on opponents by kicking. The toe and claw total 15 cm (6 in) in length. The bill is quite small, measuring 5.6 to 6.7 cm (2.2 to 2.6 in), and is soft, being adapted for grazing. Emus have good eyesight and hearing, which allows them to detect threats at some distance.

California Uses ACID – Illegal Grows

The program’s techniques are evolving, and ACID program staff was rather tight-lipped Avian Cannabis Interdiction Destructionabout their deployment. However, we did spot a large number of armored horse trailers that seem to be being used to transport the Avian attack creatures.

Rumor has it that the ACID Unit is about to deploy to Oakland for a series of raids in conjunction with local sheriff’s departments in Operation Flying Bird Shit. If anyone notices giant birds working in conjunction with local law enforcement to destroy cannabis grows please take photos or video and get to us as soon as you can. This should be about as believable as the Riverside County Sheriff using tanks.

California Uses ACID – Illegal Grows

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CalCannabis Harming CCA’s

CalCannabis Harming CCA’s

CalCannabis Harming CCA’s – By now, anyone that reads our articles is certainly aware that we like the cannabis cooperative association [“CCA”] structure, its an amazing vehicle for small craft cannabis cultivators to pool their resources, save money and remain competitive in a market that is quickly filling up with large vertically integrated businesses. We have become incredibly frustrated with the reticence of CalCannabis to issue a license to a CCA other than one that is for a Redacted Richard Parrott Letter (2) CalCannabis Harming CCA'sengaged in cultivation or processing. One of the professionals we know that is active in seeking to get CCA’s licensed wrote a letter to Mr. George Parrott, the Director of CalCannabis.

We are sharing a redacted version of that letter with everyone so that everyone becomes aware of where this situation stands. We intend to distribute this broadly in the hope that we can resolve this without litigation.

Richard Parrott Director,

CalCannabis

Re:      Growers Cooperative Association; Application for Licensure

Dear Director Parrott:

We are writing to formally demand the issuance of a license by CalCannabis to XXXX, a cannabis cooperative association duly organized pursuant to Division 10, Chapter 22, of the California Business and Professions Code (“B&P”).  We hereby demand CalCannabis issue a license pursuant to the authority granted to CalCannabis pursuant to B&P §26012(a)(2) based on the application heretofore submitted to CalCannabis, which shall authorize XXXX, as a specially defined corporation under California law, to engage in “commercial cannabis activity” as defined in B&P §26001(k).

This demand is based on the information and analysis hereinafter set forth.  In the event that CalCannabis declines to immediately issue a license to XXXX authorizing the corporation to engage in commercial cannabis activity as a cannabis cooperative association owned and controlled by licensed cultivators and engaged in business for the benefit of said cultivators, we demand CalCannabis provide us with a written statement of the reasons CalCannabis refuses to issue such a license to XXXX with a citation to the authorities on which CalCannabis relies.

LICENSING OF COMMERCIAL CANNABIS ACTIVITY

The Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) was enacted by the Legislature to establish a comprehensive system to control and regulate the cultivation, distribution, transport, storage, manufacturing, processing, and sale of medicinal and adult-use cannabis and cannabis products.  B&P §26000(b).

CalCannabis Harming CCA’s

B&P §26000(c) provides: “In the furtherance of subdivision (b), this division [Division 10] sets forth the power and duties of the state agencies responsible for controlling and regulating the commercial medicinal and adult-use cannabis industry.”

B&P §26053(a) requires any “person,” which is broadly defined in B&P §26001(an), that engages in commercial cannabis activity in California to be licensed.  The definition of “commercial cannabis activity” is set forth in B&P §26001(k).  B&P §26001(k) states such activity “includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery, or sale of cannabis and cannabis products as provided for in this division.”

Section 26010 creates within the Department of Consumer Affairs the Bureau of Cannabis Control (“BCC”).  BCC is vested with overarching supervisory responsibility for the regulation of California’s cannabis industry in B&P §26010.5(d) and (e) which provide:

“(d) The bureau [BCC] has the power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity as provided in this division.

“(e) The bureau and the director shall succeed to and are vested with all the duties, powers, purposes, responsibilities, and jurisdiction formerly vested in the Bureau of Marijuana Control, also formerly known as the Bureau of Medical Cannabis Regulation and the Bureau of Medical Marijuana Regulation, under the former Medical Cannabis Regulation and Safety Act (former Chapter 3.5 (commencing with Section 19300) of Division 8).”

Three different agencies are assigned responsibility for the licensing of the persons that engage in commercial cannabis activity.  The licensing authority under MAUCRSA is set forth in B&P §26012(a) which provides in relevant part:

“(a) It is a matter of statewide concern, except as otherwise authorized in this division:

“(1) The bureau [BCC] shall have the sole authority to create, issue, deny, renew, discipline, suspend, or revoke licenses for microbusinesses, transportation, storage unrelated to manufacturing activities, distribution, testing, and sale of cannabis and cannabis products within the state.

“(2) The Department of Food and Agriculture [CalCannabis] shall administer the provisions of this division related to and associated with the cultivation of cannabis. The Department of Food and Agriculture shall have the authority to create, issue, deny, and suspend or revoke cultivation licenses for violations of this division.

“(3) The State Department of Public Health shall administer the provisions of this division related to and associated with the manufacturing of cannabis products. . . . .”

As CalCannabis are already aware, one of the issues that arise from the requirement that all commercial cannabis activity be conducted between licensees flows from the division of the responsibility for licensing among three separate agencies.  Another issue arises from the lack of specificity that flows from the use of the word “includes” in the enumeration of the specific activities that constitute commercial cannabis activity.  Another issue arises from the fact the range and variety of the business activities involved in the movement of cannabis as a commodity from cultivator to consumer cannot be easily compartmentalized into a series of neatly defined boxes.  Sales and transfers of cannabis occur on multiple occasions in connection with every movement of a cannabis product from a cultivator to a consumer in some sense of the meaning of the words “sales” and “transfers.”’

CalCannabis Harming CCA’s

An additional complication flows from the definition of “sale” in B&P 26001(as) which provides:

“‘Sell,’ ‘sale,’ and  ‘to sell’ include any transaction whereby, for any consideration, title to cannabis or cannabis products is transferred from one person to another, and includes the delivery of cannabis or cannabis products pursuant to an order placed for the purchase of the same and soliciting or receiving an order for the same, but does not include the return of cannabis or cannabis products by a licensee to the licensee from whom the cannabis or cannabis product was purchased.”

There is one additional definition that must be mentioned.  B&P §26001(ak) provides, “‘Operation’ means any act for which licensure is required under the provisions of this division, or any commercial transfer of cannabis or cannabis products.”  We have included the definition of “operation” on account of the apparent requirement for a cannabis “sale” that a transfer of title occur, or be contracted for, whereas a commercial transfer of cannabis requires both the transferor and the transferee to be licensed even if no transfer of title to the cannabis material. The express provisions of MAUCRSA expressly so state.

ENABLING LEGISLATION FOR CANNABIS COOPERATIVE ASSOCIATIONS

The Legislature adopted the enabling legislation for Cannabis Cooperative Association (“CCAs”) effective in June of 2017.  This legislation is codified in B&P Division 10, Chapter 22.  We will not repeat the analysis of Chapter 22 which we earlier provided to CalCannabis.

It cannot be doubted the Legislature created CCAs in order to provide small cannabis cultivators with the benefits of agricultural cooperatives.  The Legislature expressly stated that this was the purpose of this legislation.  This legislation was required because cannabis has not been treated as an agricultural crop for a number of years under California law.  The reason agriculture was not treated as an agricultural crop is irrelevant, although the failure to treat cannabis as an agricultural crop prevented cannabis growers from utilizing the corporate laws relating to agricultural cooperatives that are available to growers of other crops.

It also cannot be doubted that the sole purpose of organizing a CCA is to engage in commercial cannabis activities.  Membership in a CCA is limited to cannabis cultivators.  At least 50% of the business activities of a CCA must be with or on behalf of the members of the CCA.

CalCannabis Harming CCA’s

B&P §26223 (a) provides:

“Three or more natural persons, who are engaged in the cultivation of any cannabis product, may form an association pursuant to this chapter [Chapter22] for the purpose of engaging in any activity in connection with any of the following:

“(1) The cultivation, marketing, or selling of the cannabis products of its members.

“(2) . . . .

“. . . .”  [Emphasis added.]

We have highlighted marketing and selling because these activities are specifically identified by the Legislature as activities it contemplated would be undertaken by a CCA in furtherance of the cannabis cultivation of the CCA’s members.  “Sale” is one of the commercial cannabis activities specifically identified in B&P 26001(k).  A number of activities that may be associated with or supportive of marketing and selling are also specifically identified in the definition of commercial cannabis activity in B&P §26012(k).  Further, B&P §26001(as) includes within the definition of a sale the solicitation or procuring of a transfer of cannabis or a cannabis product.

APPLICATION OF XXXX FOR LICENSURE

As CalCannabis is aware, XXXX has now applied to CalCannabis for the issuance of a license as a Cannabis Cooperative Association on multiple occasions.  Each of these applications was submitted in order to secure a License Identification from CalCannabis in order to establish that XXXX is fully authorized and licensed to engage in commercial cannabis activity on behalf of its members as a legally recognized person independent of its constituent members.  Each of these applications was preceded by one or more conversations with representatives of CalCannabis regarding the proper form and procedure for the submission of an application for licensure for a CCA.  The first such application was submitted several months ago.  The applications subsequent to the first application were submitted when we were advised a different form and procedure must be followed in connection with the licensure of a CCA by CalCannabis.

It is our understanding based on our discussion at our most recent meeting that CalCannabis now contends it lacks the authority to issue a license to a CCA except in an instance in which the CCA is engaged in the cultivation of cannabis independently from any member, or in an instance in which the CCA is engaged in processing as a separate activity from cultivation.  The conclusion of CalCannabis that it lacks authority to issue a license to a CCA except in the two specifically referenced circumstances is erroneous for the reasons described below.

ANALYSIS

    1. All California Cannabis Businesses Must Be Licensed.

B&P §26053(a) unequivocally states that all commercial cannabis activity must be conducted between licensees except as otherwise provided in Division 10.  B&P §26001(k) defines commercial cannabis activity as “includes cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery, or sale of cannabis and cannabis products . . . .”

As a consequence of the use of the word “includes” in the definition of commercial cannabis activity, a business activity that is not one of the specifically identified activities may constitute commercial cannabis activity.  Any such an activity, of course, would require licensure.  Further, a business function that is merely supportive of or associated with a specified cannabis business activity, if undertaken in close enough a connection with a specifically identified cannabis business activity, may well fall within the definition of commercial cannabis activity.  Any such an activity, of course, would require licensure.

CalCannabis Harming CCA’s

It is, however, the use of the word “sale” in B&P26001(k) coupled with other definitions in B&P §26001that establish CalCannabis is required to grant licensure to CCAs.  As is described above, B&P §26001(as) broadly defines “sale, sell and to sell” to include any transaction involving a transfer of title whether or not a physical movement of the cannabis material occurs.  Further, B&P §26001(ak) defines “operation” as including any commercial transfer of cannabis or cannabis products as well as any activity for which a cannabis license is required.

As is described above, the Legislature authorized the establishment of CCAs for the express purpose of engaging in any activity in connection with the cultivation, marketing, or selling of the cannabis or cannabis products of the members of such CCAs.  As soon as the organization of a CCA is completed, the CCA is fully authorized under California law to engage in business on behalf of its members.  However, for the reasons described above, in order to engage in any commercial cannabis activity, which is the purpose for which CCAs were created, such a corporation must be licensed.

      1. CalCannabis Is the Proper Agency for the Licensing of CCAs.

B&P §26223 authorizes three cannabis cultivators to organize a CCA for the purpose of engaging in any activity in furtherance of cultivating, marketing or selling the cannabis or cannabis products of the members of the CCA.  As is described in detail above, B&P §26010.5(d) vests in BCC the “power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity” as provided in Division 10.  This language places the exercise of regulatory authority over all cannabis business activities in California under the supervision of BCC.

Licensing of cannabis businesses is addressed elsewhere in Division 10.  Licensing authority for all commercial cannabis activities is allocated among BCC, CalCannabis and the California Department of Public Health (“CDPH”).  One of these three agencies has the authority to license CCAs under MAUCRSA.

B&P §26012(a)(1) provides that the BCC has the “sole authority to create, issue, deny, renew, discipline, suspend, or revoke licenses for microbusinesses, transportation, storage unrelated to manufacturing activities, distribution, testing, and sale of cannabis and cannabis products” within California..  B&P §26012(a)(1) is not a model of legislative clarity.

Except for the reference to the “sale of cannabis and cannabis products” there is nothing in the language of B&P §26012(a)(1) that suggests BCC is the appropriate licensing agency for CCAs.  Further, BCC has taken no action relating to the licensing of CCAs.  For the reason discussed in Item 3 below, the reference to the licensing of the “sale of cannabis and cannabis products” is not a sufficient foundation to conclude BCC is the proper agency to license CCAs.

CalCannabis Harming CCA’s

The regulatory authority of CDPH is expressly limited to the administration of the provisions of Division 10 relating to the manufacture of cannabis products.  The narrow limitation on the regulatory authority of CDPH makes this agency clearly not the appropriate agency to license CCAs.  The elimination of CDPH leaves solely BCC and CalCannabis.  CalCannabis is clearly the more appropriate licensing agency for multiple reasons including the requirement that a CCA be organized by licensees of CalCannabis.

CalCannabis is undoubtedly the most appropriate agency of the three to license CCAs.  CalCannabis has the authority to license CCAs.  B&P §26012(a)(2) describes the administrative authority of CalCannabis as well as its licensing authority.  B&P §26012(a)(2) provides that CalCannabis shall administer the provisions of Division 10 associated with and related to the cultivation of cannabis. The second sentence of B&P §26012(a)(2), which is similar to the language of B&P §26012(a)(1), states that CalCannabis “shall have the authority to create, issue, deny, and suspend or revoke cultivation licenses for violations of this division.”

This provision of MAUCRSA is also inelegantly drafted.  This provision must be read as CalCannabis “shall have the authority to create, issue, [and] deny . . . cultivation licenses . . . .”  CalCannabis has the authority under any reasonable construction of B&P §26012(a)(2) to create and issue a license to a CCA if such an organization is viewed as an agricultural cooperative created by the Legislature for the benefit of cannabis cultivators.

CalCannabis has disregarded the clear intent of the Legislature with its position that it lacks authority to license CCAs.  CCAs were created because cannabis cultivators cannot avail themselves of the provisions of California law available to every other agricultural producer.  It defies logic to insist CalCannabis has exclusive authority to license individual cannabis cultivators but lacks authority to license an organization the Legislature created for the express purpose of allowing these same growers to collectively engage in commercial cannabis activity.  We also note that in Article 11 the Legislature clearly indicated it intended for CCAs to become the successor organizations to the many different forms of collectives and cooperatives utilized in California’s cannabis industry over the past 25 years.

    1. CalCannabis Has Statutory Authority to License CCAs.

CalCannabis acknowledges it is the appropriate licensing agency in an instance in which a CCA engages in cultivation independently from the cultivation activities of its members.  Further, CalCannabis acknowledges it is the appropriate licensing agency in an instance in which a CCA acts as a processor.  CalCannabis has, however, advanced multiple reasons that it cannot license a CCA except in the two above described circumstances.

The reasons CalCannabis has advanced for its failure and refusal to issue a license to XXXX include the following: the failure of the Legislature to instruct CalCannabis to license CCAs; the failure of the Legislature to specify the license that a CCA must be issued; and a lack of a grant of authority to issue a license to a CCA.  These reasons are poppycock.  These reasons equally apply to BCC and CDPH.  One of these three agencies must license CCAs to engage in commercial cannabis activity.  CalCannabis is the most appropriate of the three agencies to license CCAs.  Title 10 of the B&P mandates that CalCannabis provide licensure to CCAs.  CalCannabis has the statutory authority to issue a license to XXXX as a CCA.

CalCannabis Harming CCA’s

The express grant of authority to BCC to license the “sale of cannabis and cannabis products” in B&P §26012(a)(1) must be construed to be susceptible to the delegation as distinguished from a grant of the exclusive licensing authority.  If the express grant to license the “sale of cannabis and cannabis products” in B&P §26012(a)(1) could not be delegated by BCC, a licensed manufacturer or cultivator would be required to secure two licenses in order to conduct business.  By virtue of the express definitions in B&P §26001, all transfers of cannabis and cannabis products, whether or not the transfers are sales, must be made between licensees.  If the licensing of the sale of the cannabis of a manufacturer or cultivator is not a function authorized by the license granted by CDPH or CalCannabis, respectively, such a licensee would be required to secure a second license from BCC in order to conduct business.

CalCannabis has exercised its specific grant of authority issue to create licenses in B&P §26012(a)(2) in connection with its decision to issue “processor” licenses to cultivators.  CalCannabis has exercised the authority it is granted in B&P §26012(a)(2) to create a license that is not specifically identified in B&P §26050(a).  Of course,  B&P §26050(a) includes the phrase “at a minimum” in connection with its specification of the types of authorized licenses.  Further, it should be noted that processing is generally associated with the function of a distributor for which the BCC has licensing authority pursuant to B&P §26012(a)(1).

CalCannabis Harming CCA’s

CalCannabis has stated its licensing authority is limited to licensing the cultivation of cannabis.  The statutory grant of licensing authority to CalCannabis is not so narrow.  B&P §26012(a)(2) expressly states CalCannabis has administrative authority over the provisions of Division 10 “related to and associated with the cultivation of cannabis.”  B&P §26012(a)(2) expressly grants CalCannabis authority to license CCAs.  A CCA is a special form of a corporation organized by cultivators for the express purpose of engaging in activities “related to and associated with” cannabis cultivation.  CalCannabis has failed to exercise proper administrative judgment in not recognizing the need for the licensing of CCAs as well as the need for CalCannabis to establish a process for licensing such corporations as cooperative associations of cultivators.

    1. Initial Licensure of a CCA Solely Requires Registration.

As we have pointed out on multiple occasions to CalCannabis, the initial licensing of a CCA should involve nothing more than the registration of the CCA with CalCannabis upon the completion of the organization of a CCA.  The Legislature contemplated the organization of a CCA should be completed within 30 days following the filing of Articles of Incorporation with the Secretary of State, although there is no obvious consequence if the process takes longer.  A CCA is fully authorized to engage in business in California upon its completion of the details that flesh out the organization of a corporation.  Such a corporation is fully authorized to engage in commercial cannabis activity upon the completion of these organizational details save for the lack of a license issued by CalCannabis, BCC or CDPH authorizing the CCA to engage in commercial cannabis activity.

CalCannabis Harming CCA’s
    1. The Refusal of CalCannabis To License XXXX Is Arbitrary and Capricious.

All persons engaged in commercial cannabis activities in California are required to be licensed.  The sole purpose for the organization of XXXX is to engage in commercial cannabis activity.  XXXX is duly organized as a CCA.  CalCannabis, BCC and CDPH are the three agencies empowered to license persons to engage in commercial cannabis activity.  CalCannabis is the most appropriate of the three agencies to license CCAs.  CalCannabis is empowered by statute to license XXXX as a cannabis cooperative association to engage in commercial cannabis activity.  The failure and refusal of CalCannabis to grant licensure to XXXX as a CCA is arbitrary and capricious.

CONCLUSION

XXXX hereby demands CalCannabis issue a License to XXXX Growers Cooperative Association as a Cannabis Cooperative Association duly organized pursuant to Chapter 22 of Division 10 of the California Business and Professions that authorizes the corporation to engage in all of those commercial cannabis activities that do not require an additional separate license from CalCannabis, the Bureau of Cannabis Control or the California Department of Public Health.

In the event that CalCannabis fails and refuses to immediately issue a license to XXXX Growers Cooperative Association authorizing the corporation to engage in commercial cannabis activity as a cooperative association owned and controlled by licensed cultivators and engaged in business for the benefit of said cultivators, we demand CalCannabis provide a written statement of each reason that supports the failure and refusal of CalCannabis to issue such a license with a citation to the authorities on which CalCannabis relies for its failure and refusal to issue a license  to XXXX Growers Cooperative Association.

Very truly yours,

We welcome comments, and are particularly interested if anyone has had an different experience with a CCA.

CalCannabis Harming CCA’s

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Free Advice

Free Advice

Free Advice – Everyone knows the maxim “Free advice is worth what you pay for it”  There are, however, exceptions.  Everyone knows a second maxim “The exception that proves the rule”  In this article, we provide free advice to the California Department of Tax and Fee Administration (“CDTFA”).  We are providing free advice which we believe is valuable. Free Advice Hence, our free advice in this article is an exception that proves on some occasions free advice should be followed. We can summarize this article with a simpler statement.  “Wake up CDTFA…You are leaving money on the table!”

We have severely criticized CDTFA in the past.  See Missing or Uncollected? and Key to Success for California Cannabis Businesses – Managing Tax Liabilities.  Our criticisms were justified.  We are appalled when we see that taxes are not being collected because tax laws are not effectively administered.  The failure of CDTFA to effectively administer California’s tax laws punishes responsible taxpayers because the irresponsible taxpayers do not pay their share.  California spends the tax money that it plans to collect.  When some taxpayers do not pay the share of tax that California expected to collect from these taxpayers, California collects the shortfall from those responsible taxpayers who pay all they are asked to pay.

Free Advice

As anyone interested in California’s cannabis industry is aware, cannabis tax collections are lagging behind projections.  Why?  The answer to this question is simple.  Cannabis tax collections are lagging behind projections because CDTFA has not collected the cannabis taxes it was expected to collect.  Why?  Drilling down makes answering the “why question” more difficult.  There are a number of reasons CDTFA has not collected the full amount of the cannabis taxes it was expected to collect.

As we mentioned above, we have already described several reasons CDTFA failed to collect all of the cannabis taxes California expected it to collect.  We are writing this article to describe yet another reason for the shortfall – one we have not previously pointed out.  We will also suggest a simple solution – one that will please all who are interested.  Governor Newsom should be particularly pleased.

First, we must provide some foundational information relating to the cause of this particular reason for the cannabis tax shortfall.  This background is necessary because this particular cause for the shortfall appears to have occurred because no one noticed an obvious oversight.

As part of MAUCRSA, the Legislature established a new form of California corporation – Cannabis Cooperative Associations (“CCAs”).  The Legislature created this new form of corporation in order to give groups of small cannabis cultivators the benefits of an agricultural cooperative.  See Cannabis Cooperative Associations and Licensing Cannabis Cooperative Associations 

Free Advice

The enabling legislation for CCAs is codified in Chapter 22 of Division 10 of the California Business and Professions Code (“B&P”).  The Legislature created CCAs for the express purpose of giving small cannabis cultivators an organizational vehicle to enhance their ability to effectively compete in California’s commercial cannabis industry.

The legislation that created CCAs was applauded by many who are interested in California’s cannabis industry.  There was a good reason for this applause.  This legislation is truly worthwhile.  The conduct of business in California’s cannabis industry through a properly organized and operating CCA creates substantial financial advantages over conventional business structures.  Numerous advisors and consultants recognized the benefits of CCAs both before and after the passage of MAUCRSA.  See Longtime head of California cannabis growers group steps down to head new MJ venture.  The benefits of CCAs continue to be extolled.  See Smaller California marijuana farmers form co-ops to save on costs, compete with large growers.  Unfortunately, there are some flies in the ointment.

MAUCRSA requires all commercial cannabis activities to be conducted between licensed businesses.  MAUCRSA expressly states there are exceptions to this requirement, but we cannot find an exception that applies to a CCA.  Commercial cannabis activity is defined in MAUCRSA to include “cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery, or sale of cannabis and cannabis products.”  One of the principal benefits of a CCA is the marketing power of a represented group of growers. This gets us to, “Oops”!  CCAs are organized to engage in most of the listed activities, but the Legislature neither specified a CCA is required to have nor exempted a CCA from any licensing requirement based solely on its organization as a CCA.

Free Advice

California law vests in the Bureau of Cannabis Control (“BCC”) the “power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity” as a bureau operating under the supervision of the Department of Consumer Affairs.  BCC has overall supervisory authority over the regulation of commercial cannabis in California.

The licensing of California cannabis businesses is allocated among three agencies.  BCC has delegated the licensing for certain business activities to other agencies.  The licensing of the cultivation of cannabis is in the hands of the California Department of Food and Agriculture, through its CalCannabis division.  We thought CCAs should be licensed by CalCannabis as a cooperative consisting of cannabis cultivators.  CalCannabis disagrees.  CalCannabis believes it lacks the requisite authority to license CCA’s unless the organization is engaged in cultivation or processing activities as an entity.  The licensing of manufacturing is in the hands of the California Department of Public Health (“CDPH”).  BCC licenses all other cannabis businesses, although BBC has taken no action with respect to the licensing of CCAs.

Neither BCC, nor CalCannabis, nor CDPH has assumed responsibility for licensing CCAs. At least, none of the agencies has established a procedure for the licensing of a CCA to engage in commercial cannabis activities.  The failure of any of these three agencies has little impact on these agencies.  It actually means less work for each of these agencies.  Fewer licenses to issue mean less effort processing licenses.  Of course, such an arrangement hurts CDTFA because CCAs appear to be prohibited from engaging in commercial cannabis activities for lack of a license.

Free Advice

The preceding analysis gets us to our elegant solution to facilitate the conduct of commercial cannabis activities by a CCA.  CDTFA has the ability to issue Cannabis Permits for Cannabis Taxes in addition to Seller’s Permits for Sales Tax to CCAs.  A public announcement by CDTFA that a Cannabis Permit issued to a CCA by CDTFA with an additional designation that the Permit is issued to a CCA is all of the identification that is required for such a duly organized CCA to engage in commercial cannabis activity would eliminate any question regarding the need for the licensing of such CCAs except in those instances in which a license is required for a specific activity.  Such an announcement should be made with the approval and concurrence of BCC.  A joint announcement by BCC and CDTFA would be even better.

While simple and straight-forward, the preceding is inadequate.  However, with a little elaboration relating to the issuance of a Cannabis Permit to a CCA, an elegant solution can be created by CDTFA.  If CDTFA requires each CCA to register its organization and ownership with CDTFA when it secures the issuance of a Cannabis Permit, CDTFA will track all of the regulatory information related to every CCA including all of the licensing information, if any, relating to BCC, CalCannabis, and CDPH.

CDTFA and Governor Newsom should be pleased. More taxes will be collected.  The Legislature, the public, and the small cannabis cultivators should be pleased. California’s cannabis industry will take a positive step forward.  BCC should also be pleased. CDTFA will have solved a problem for BCC that BCC appears to have not known existed.

Free Advice

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Keeping Cannabis Simple

Keeping Cannabis Simple

Keeping Cannabis Simple – We have had an on-going debate with a friend over a long period of time. We have a running debate over whether knowledge is a blessing or a curse. Every time he invokes “I wish I was stupid and didn’t have to think about everything…I remind him “be careful what you wish for, sometimes you get it. If anyone wereKeeping Cannabis Simple to ask me for an example of where the adage is absolutely true, the legal cannabis industry in California is probably the best example.

Before everyone recoils with the thought that this article is more of the same, permit us to promise it won’t be that. We have written extensively about what believe the regulatory and tax authorities could have done to have avoided the chaos in the pervade the market today. There are a small number of critical points that would have made a tremendous difference.

The bulk of the licensing process should have been centered at the city, municipality and county levels for more than land-use and health-related issues. [We have learned that we need to add that any individual or firm that is performing services for a unit of government should be absolutely prohibited from representing applicants or licensees].

Once the local approvals were obtained, the issuance of a state license should have been nothing more than a formality.

The state regulators should have been focused on promulgating procedures and rules which were understandable, easy and simple to comply with.

The cannabis industry tax filing, reporting, and payment should have been the same. CDTFA’s focus should have been on “following the money”, not a Byzantine version of Track & Trace.

If these four principles had been followed, a substantial portion of the problems that the industry has experienced never would have happened or been so prolonged. There is perhaps nothing that illustrates this better than the Gordian knot that CalCannabis seems to be in with cannabis cooperative associations [“CCA’s]. [See “Licensing CCA’s”]

The insanity of business plans and decks that focus on cornering the supply chain, inventing the next best whatever, while paying scant attention to who would be targeted as customers and how they would be attracted is “ass-backward”.

The California Legislature’s attempt to spawn a large number of “instant licenses” under AB 1356 is complete nonsense. Nothing is going to be accomplished with more licenses unless and until the four items described above are corrected.

The reduction of tax rates will accomplish VERY LITTLE until the recordkeeping, filing, reporting and payment process is substantially simplified and streamlined.

When people get excited about legalization at the Federal level we point them to Federal Legalization – Then What?

We have revised our definition of why a cannabis industry business [or any business for that matter needs a CPA]. The answer is either

“To help ensure that the business doesn’t destroy itself by failing to meet compliance obligations [especially employment and sales and other indirect taxes] before they start making millions” or

“By providing the owners of a business with a constant harsh reality check and a way to prevent them from getting screwed by everyone that purports to want to help them.“

Just a touch over 500 words.

 

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CA Lobby Activity Background

CA Lobby Activity Background

CA Lobby Activity Background – we enjoy turning over rocks…we find poisonous snakes, scorpions, all kinds of vermin and lobbyists. Our current fascination is with lobbyists, lobbying firms, trade associations, and consultants that are contracted by businesses to seeking to exert influence over elections, activity by California Legislature, activities byCA Lobby Activity Background state-level agencies in California the regulate and tax the legal cannabis industry [BCC, CDPH-MCSB, CFDA-CalCannabis, and CDTFA.]. [We will address the municipal and city level in a separate article.]

The California Fair Political Practices Commission [“FPPC”] has voiced concerns over the unregistered and unreported lobby activity on numerous occasions. We intend to dig into the publicly available information for the activity that impacts the California cannabis industry and shares what we find. In addition, we have put together a repository of tools for anyone that would like to investigate for themselves which can be found here. We believe that we need to provide some background information before we dive into the documents.

CA Lobby Activity Background

The Political Reform Act[1] requires individuals, businesses and other organizations that make or receive payments to influence state governmental decisions – such as advocating for or against legislative bills and state agency regulations – to register as lobbyists and submit periodic reports of their lobbying activity. The Act does not regulate individuals or other entities that lobby the federal government, or city, county or other local government agencies. Let’s begin with some basic definitions that will dive deeper into as we proceed.

“A lobbyist is an individual who is compensated to communicate directly with any state, legislative or agency official to influence legislative or administrative action on behalf of his or her employer or client. An individual who receives reimbursement only for reasonable travel expenses is not a lobbyist.

A lobbying firm is a business that is compensated to communicate directly with any state, legislative or agency official to influence legislative or administrative action on behalf of a client.

A lobbyist employer is an individual, business or other organization that employs a lobbyist or hires a lobbying firm.

A lobbying coalition is a group of 10 or more individuals, businesses or other organizations that pool their funds for the purpose of hiring a lobbyist or lobbying firm.

A $5,000 filer is an individual or entity that does not make payments to a lobbyist or a lobbying firm but still spends $5,000 or more in a calendar quarter to influence legislative or administrative action, such as placing an advertisement or sending a mailing urging others to contact their legislators concerning pending legislation. 

A placement agent is any person hired, engaged, or retained by, or serving for the benefit of or on behalf of, an external manager, or on behalf of another placement agent, who acts or has acted for compensation as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets, or services of an external manager to a board or an investment vehicle, either directly or indirectly.  Individuals who serve as placement agents before an entity such as CalPERS or CalSTRS must register as lobbyists and file disclosure reports.”

Our recent experiences have caused us to focus on the provisions which govern lobbyists[2] and lobbying activities in California. California requires an individual to register as  lobbyist if he or she receives (or is entitled to receive) $2,000 or more in a calendar month (other than reimbursement for reasonable travel expenses) to communicate directly with any covered official for the purpose of influencing legislative or administrative action, and to prepare for those direct communications.

CA Lobby Activity Background

In practice, a contract lobbyist might engage in a range of activities, only some of which involve direct communication with officials. Prior to the new rule, the Fair Political Practices Committee [“FPPC “] had little recourse when individuals claimed that less than $2,000 of a monthly retainer was devoted to direct communications with officials to influence legislation, The practice has been referred to as “shadow lobbying” has been talked about for a number of years and we’ve got to start figuring out a way to address it, with the rest attributable to non-lobbying activities, such as strategic planning, grassroots campaigns, or public relations.

When an individual receives or is entitled to receive more than $2,000 a month for services that include direct communications with a public official to influence government action, the FPPC will presume that the entire payment was for direct communications with covered officials and therefore requires registration – unless the individual can produce evidence to support a different allocation. Such evidence may include testimony, records, bills, and receipts establishing that less than $2,000 of any monthly payment is allocable to lobbying activity.

As a result of the new lobbying rule, it is important that consultants and others who engage in direct communications with California officials, but who do not meet the $2,000 per month threshold for lobbying registration, maintain records that substantiate their decision not to register. The FPPC has effectively proposed a reverse-record keeping requirement – mandating that individuals who do not fall under the provisions of the Act maintain records to prove they do not meet the registration/reporting thresholds under the Act,” the California Political Attorneys Association wrote in a letter to the agency.

CA Lobby Activity Background

Anyone communicating with public officials should be keeping records anyway to determine whether they trigger lobbying registration requirements. The presumption is eliminated if they provide evidence showing the payment in question was not made for lobbying activities. The provisions are among a series of actions the commission has taken recently to increase lobbying transparency.

Once a contract lobbyist registers, his/her firm is also required to register, and the lobbyist, firm, and employer are required to file quarterly disclosure reports. Lobbyists, lobbying firms, and employers are also subject to strict gift rules and campaign contribution restrictions.

The FPPC has produced a number of materials and created several channels for individuals and business entities that might have a need to seek advice on the application of these laws and regulations. They have created:

Publications – Numerous pamphlets, publications, and guides that provide explanations and best practices.

Informal Advice – Informal advice can provide guidance if you have questions such as where to file campaign statements, filing schedules, or your basic responsibilities under the Act. Unlike formal advice, informal advice does not provide immunity from prosecutions by the FPPC and does not qualify as legal advice[3].

Formal Advice – If the request for advice contains sufficient information and the question is within the FPPC’s jurisdiction, the FPPC must provide formal written advice within 21 working days. The response will be provided in the form of an “advice letter.”

A formal advice letter can provide the requestor immunity from enforcement actions by the FPPC. It also provides evidence of good faith conduct in any relevant civil or criminal proceeding brought by another party, so long as the facts presented in the request for advice are accurate and the requestor follows the guidance provided in the FPPC’s advice letter. Formal advice does not provide immunity to any person other than the requestor.

The FPPC saves and posts all advice letters which you can click here to search. The letters may be searched and used for guidance only – they will not provide immunity to any person other than the original requestor[4].

Commission Opinions – Another form of formal advice is a Commission Opinion. Any individual or entity (or their authorized representative) may request a formal opinion from the Commission concerning their duties under the Act. The Commission’s Executive Director must accept or reject a request for a formal opinion within 14 days.

A request will normally be rejected if the question can be answered under existing statutes or regulations, or does not otherwise present a significant policy issue. In addition, since the process requires formal action by the full Commission, it normally takes several months after the question is submitted and accepted before a formal opinion may be issued. Due to the topic restrictions and the processing time, Commission Opinions are infrequent.

A Commission Opinion provides the requestor with immunity from civil or criminal prosecution under the Act so long as the facts presented by the requestor are accurate and the requestor acts within the confines of the opinion. More details about the formal opinion process can be found in sections 18320 through 18326 of Title 2 of the California Code of Regulations.

CA Lobby Activity Background

Potential Areas of Investigation

Grower’s Associations

Government Relations Consultants

Attorneys, Certified Public Accountants [“CPA’s] and Other Licensed Professionals

[1] The Fair Political Practices Commission website provides links to a number of resources that are very helpful in understanding the process.

CA Lobby Activity Background

[2] § 18239. Definition of Lobbyist.

(1) If an individual engages in direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action on behalf of any person other than his or her employer, apply Section 82039 and subdivision (b) of this regulation to determine if the individual is a lobbyist.

(2) If an individual engages in direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action on behalf of his or her employer only, apply Section 82039 and subdivision (c) of this regulation to determine if the individual is a lobbyist.

(3) Except as provided in Section 86300, if an individual is a “placement agent” as defined in Section 82047.3, the individual is a lobbyist for purposes of the Act, regardless of the definitions in subdivisions (b) through (d), below.

An individual does not become a placement agent under Section 82047.3 solely as a result of communicating with a state public retirement system representative provided that the individual accompanies a registered placement agent who represents that individual or that individual’s organization, is present only to provide additional substantive information, and would not otherwise qualify as a placement agent under Section 82047.3

(b) A lobbyist is an individual who receives or becomes entitled to receive $2,000 or more in compensation in a calendar month for engaging in direct communication, other than administrative testimony, with one or more qualifying officials for the purpose of influencing legislative or administrative action.

(c) A lobbyist is an individual who spends one-third or more of the time, in a calendar month, for which the individual receives compensation from his or her employer, engaging in direct communication, other than administrative testimony, with one or more qualifying officials for the purpose of influencing legislative or administrative action.

(d) Definitions.

    • “Administrative testimony” means either of the following:
    • Influencing or attempting to influence administrative action by acting as counsel in, appearing as a witness in, or providing written submissions, including answers to inquiries, that become part of the record of any regulatory or administrative agency proceeding:

(i)That is conducted as an open public hearing for which public notice is given

(ii) Of which a record is created in a manner that makes possible the creation of a transcript; and

(iii) Where full public access is provided to the record or transcript and to all written material that is submitted as part of the record.

(B) Any communication made at a public hearing, public workshop, public forum, or included in the official record of any proceeding, as defined in Section 82002(b) or (c), before the California Public Utilities Commission.

(2) “Compensation” means any economic consideration, other than reimbursement for reasonable travel expenses (i.e., expenses for transportation plus a reasonable sum for food and lodging). Under subdivision (b), if it is established in an administrative or civil action that an individual received or is entitled to receive compensation of $2,000 or more in a calendar month 3 from a person for services that include direct communication, other than administrative testimony, with a qualifying official for the purpose of influencing legislative or administrative action, there is a rebuttable presumption affecting the burden of producing evidence that all compensation from that person to the individual during that calendar month is for direct communication. This presumption can be rebutted by evidence that may include testimony, records, bills, and receipts establishing the allocation of the individual’s compensation for all other goods and services provided.

(3) “Direct communication” means appearing as a witness before, talking to (either by telephone or in person), corresponding with, or answering inquiries from, any qualifying official, either personally or through an agent who acts under the individual’s direct supervision, control, or direction.

(A) Direct communication does not include any request for or provision of purely technical data or analysis to an administrative agency by a person who does not otherwise engage in direct communication for the purpose of influencing legislative or administrative action.

(B) For the purpose of determining whether an individual qualifies as a lobbyist pursuant to subdivision (c), an individual does not engage in “direct communication” when the individual is an employee of a lobbyist employer, meets or speaks with a qualifying official in the company of a registered lobbyist retained by the individual’s lobbyist employer, and participates as a subject matter expert regarding a legislative or administrative action at issue. For purposes of this exception, an employee includes a member of a bona fide trade association or membership organization.

(4) “Influencing legislative or administrative action” means communicating directly or taking any other action for the principal purpose of supporting, promoting, influencing, modifying, opposing, delaying, or advancing any legislative or administrative action.

(5) “Qualifying official” means:

    • Any elected state official;
    • Any legislative official;
    • Any appointed, elected, or statutory member or director of any state agency;

(D) Any staff member of any state agency who makes direct recommendations to the persons listed in subdivision (5)(C) of this subdivision, or who has decision-making authority concerning such recommendations.

CA Lobby Activity Background

[3] The information that must be provided when seeking “Informal Advice” includes:

    • State your name, telephone number, and position.
    • List the public official, agency, candidate or committee that is related to your question.
    • If asking a question on behalf of another, state the capacity in which you are authorized to represent the official, agency, committee or other organization (e.g., city attorney, candidate’s attorney, committee officer, campaign consultant).
    • Articulate your question with as much specificity as possible.
    • If you have a question about Form 700 disclosure, include your disclosure category.

[4] The request must:

    • Be in writing,
    • Provide specific information about the requestor, and
    • Contain sufficient information for the FPPC’s staff attorneys to conduct a complete legal analysis.
    • If a request does not meet these criteria, the FPPC may provide an informal written reply with general guidance. This type of advice does not provide the requestor with immunity from enforcement actions.

CA Lobby Activity Background

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