November 8th is a little over forty days away. While the debate earlier this week focused on who was going to take the oval office in November, California has another big decision to make – whether to legalize the recreational use of marijuana. Although California has repudiated marijuana legalization for nearly a century, it now appears that the Adult Use of Marijuana Act (AUMA) is very likely to pass, and it is time for California businesses get on board and get serious about cannabis. [1]

The Adult Use of Marijuana Act (Proposition 64) is designed to legalize and tax recreational adult use of marijuana in California.[2] The Field Poll/Institute for Governmental Studies survey indicated that over 60 percent of California voters intend to vote for the AUMA, with 9 percent of voters remaining undecided. [3] To compare, a similar measure to the AUMA was proposed in 2010; in October of 2010, voters were polling at 51 percent against the proposition.[4] Furthermore, the California Medical Association, Lt. Governor Gavin Newson, and the California Democratic Party have all backed the AUMA.[5] While these numbers may not be indicative of who shows up to the polls in November, it is hard to deny that the support for legalization has grown exponentially and legalization is surely on the horizon.

In addition to the excitement surrounding the future ballot measure, the California legislature passed the Medical Marijuana Regulation and Safety Act (MMRSA) in September 2015, which established a licensing system for medical marijuana dispensaries, cultivators, and testing facilities.[6] Although the MMRSA licensing agencies won’t be operating until January 2018, the potential benefits for marijuana startups are hard to ignore. Perhaps the most important facet of the MMRSA is that it lifted the previous prohibition of for-profit businesses to operate medical marijuana businesses; whereas before, only non-profits or collectives could operate this type of business. This aspect of the legislation completely changes the landscape for medical marijuana startups, allowing owners to maximize profits to their full potential rather than simply taking a reasonable salary.

The “budding” entrepreneur may ask: how will licensing requirements for medical marijuana apply to recreational marijuana legalization? Fortunately, the AUMA’s framework is mostly congruent with the MMRSA; therefore, while licenses for medical and recreational adult-use marijuana will differ, the same agencies will distribute the licenses.[7] Additionally, if the AUMA passes in November, the legislature may try to consolidate these two distinct systems to streamline licensing applications.

While piecing together the two systems will certainly be difficult and tedious, the potential benefits for both businesses and the state may be worth the headache. For example, last year Colorado retailers sold $386 million of marijuana for both medical use and recreational use, and the state received nearly $80 million dollars in tax revenue, licensing revenue, and other fees.[8] Similarly, in addition to the profits to be reaped by small businesses, California could eventually raise more than $1 billion a year from state taxes.[9] Therefore, the government also has a compelling interest in promoting the marijuana business.

Despite the negative connotations marijuana has received through popular culture, politics, and business (e.g. William Randolph Hearst’s campaign against hemp), it appears that California in 2016 is willing to drop the baggage and embrace the benefits of this once maligned plant. Soon, marijuana will lose its status as a Cheech and Chong punchline and instead become a line item on a balance sheet. The financial benefits of legalization for small businesses and government are too substantial to ignore; it is time for us to get serious about cannabis.

By Robert L. Prine, Law Clerk

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