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Overview of Proposed Regulations for Cannabis Appellations

February 25, 2020

By Omar Figueroa and Lauren Mendelsohn

**NOTE 3/5/21: Modifications to the proposed regulations have been released since this blog post was published. We encourage you to visit the CalCannabis Appellations Program webpage for the most up-to-date information.**

On February 20, 2020 the California Department of Food & Agriculture (CDFA) issued proposed regulations for Appellations of Origin. We have included the proposed regulations and related documents here for your reference:

Notice of Proposed Rulemaking – Cannabis Appellations Program

Proposed Text of Regulations – Cannabis Appellations Program

Initial Statement of Reasons – Cannabis Appellations Program

Overview of Proposed Regulations

The regulations proposed by CDFA would make changes to existing regulations applicable to cannabis cultivators, as well as add an entirely new Chapter 2 (entitled “Cannabis Appellations Program”) to Division 8 (entitled “Cannabis Cultivation”) of the CDFA regulations.

Briefly, existing regulations would be amended to recognize and protect appellations of origin.  See, for example, § 8212(a)(4) (“Cannabis shall not be advertised or marketed containing any statement, design, device, or representation which tends to create the impression that the cannabis originated from a particular county or appellation of origin, unless the label of the advertised product bears that county of origin or appellation of origin.”); § 8212(b)(5)(A) (“A county of origin, appellation of origin, or any similar name that is likely to mislead consumers as to the kind or origin of the cannabis shall not be used in the labeling of cannabis unless: One-hundred percent of the cannabis was produced in the named county or appellation of origin.”); § 8212(b)(6) (“For purposes of labeling and packaging using a county of origin or appellation of origin, cannabis is produced in a county or appellation of origin if all cultivation […], starting from the time the cannabis plants were taller or wider than 18 inches, was conducted within the county or appellation of origin and according to any applicable standard, practice, and cultivar requirements.”); and § 8601 (“Violations would be classified as Minor, with a Fine Range of $100-$500.”).

After an appellation of origin has been established, the proposed regulations would require licensed cultivators to submit a Notice of Use to CDFA within 30 days of use of an appellation of origin; a Notice of Use would be good for three years; if CDFA does not receive a Notice of Use for a specific appellation for a period of five years, CDFA could in its sole discretion cancel the appellation of origin. § 8212.1.

With respect to record-keeping, licensed cultivators would be required to maintain for at least seven years documentation establishing compliance with appellation of origin requirements: “For each appellation of origin used in the advertising, labeling, marketing, or packaging of cannabis, documentation demonstrating that the cannabis was produced in the geographical area of the appellation of origin and according to all standard, practice, and cultivar requirements of the appellation of origin.” § 8400(d)(14). Violations are classified as Minor, with a Fine Range of $100-$1000. § 8602.

Establishing a New Appellation of Origin

The proposed regulations would also add an entirely new Chapter 2 (entitled “Cannabis Appellations Program”) which sets forth the process for establishing a new appellation of origin, and amending existing appellations of origin once they have been established.  Petitions would have to be backed by a “Petitioning Organization”, which means a group of licensed cultivators representing three or more unique businesses within the geographical area of the proposed appellation of origin.  § 9000.  According to the Initial Statement of Reasons (hereafter “ISOR”), “a group of licensed cultivators representing three or more unique businesses represents the minimum number of licensees needed for a group to represent an area rather than a single business or partnership venture.” ISOR, page 15.

CDFA did state that it “considered the alternative of allowing individual cultivation licensees to petition for an appellation of origin, similar to the U.S. wine American Viticultural Area (AVA) petition system. However, the inclusion of standard, practice, and cultivar requirements in Bus. & Prof. Code section 26063(b) necessitates greater consensus-building in a proposed cannabis appellation of origin to avoid the establishment of appellations with overly specific or burdensome requirements in favor of any individual cultivator.”

Since the proposed regulations require a Petitioning Organization, licensed growers who collaborate together to form a Petitioning Organization should be wary of entering into an unintended partnership.  The solution may be a strategic alliance or joint venture agreement, or perhaps forming a legal entity (such as a nonprofit trade association) to administer the appellation in the future.

The petition fees are non-refundable and astronomical for struggling farmers: $20,880 to establish an Appellation of Origin, and $10,440 to amend an existing appellation.  Before review of the petition can begin, fees must be submitted to CDFA in full.  According to the ISOR, CDFA “considered an alternate approach of performing an initial review of petitions before collecting a fee but determined that the uncertainty in amount of pre-fee-collection review workload may result in insufficient funding to administer the CAP [Cannabis Appellations Program].  Requiring the submission of fees with the petition is necessary for funding of the CAP including petition review.”  ISOR, page 16.  It is anticipated that many public comments will suggest an alternate approach of performing an initial review of petitions for completeness (for say $500) and collecting the remainder of the fee before further review.

While the high fees may indicate that the review process will be extremely rigorous, according to the ISOR, “Fees were determined by modeling an average of ten petitions to establish new appellations of origin per year, with an expected rate of petitions to amend consistent with amendment rates reported for other geographical indications (GI), and a total number of anticipated cannabis appellations slightly higher than for wine to account for the ability of cannabis appellations to vary by standard, practice, and cultivar requirements within the same geographical area in California.  The Department determined that fees based on these conservative estimates are necessary to ensure effective administration of the CAP during the years following implementation, in which petition rates are anticipated to vary widely and decline over time in general.”  ISOR, page 16.

In other words, it seems the high fees are intended to fund the Cannabis Appellations Program over the years, when petition rates are anticipated to decline.  One simple solution might be to reduce the fees for establishing new appellations in the first place, and make up the difference by imposing periodic appellation renewal fees upon the Petitioning Organization.  Another option is to impose fees on the required Statement of Use (which must be renewed every three years) thereby shifting some program costs to those who actually use the appellations that have been established.

The ISOR also points out an interesting feature of cannabis appellations in California: “the ability of cannabis appellations to vary by standard, practice, and cultivar requirements within the same geographical area in California.”  In other words, the same geographical area in California can contain a multitude of appellations, each one with its own defining  cultivars, standards, and practices.

Contents of a Petition to Establish a New Appellation of Origin

The proposed regulations describe the contents of a petition to establish a new appellation of origin. Ten categories of specific information are required, and set forth in § 9102.  In summary, they are:

  1. Petitioner’s name and contact information. § 9102(a).
  2. Names and license numbers of individuals in petitioning organization. § 9102(b).
  3. General description and location of proposed geographical area which may include information such as total acreage of the area, total canopy acreage within the area that is currently occupied under licensed commercial cannabis cultivation, estimated cannabis canopy acreage eligible to use proposed appellation of origin, and any other information to place the appellation in context and thereby allow petitioners better control over the information conveyed by the proposed appellation of origin and ultimately its reputation in the market. § 9102(c).
  4. Evidence that the proposed appellation of origin is used to refer to the geographical area. § 9102(d), § 9104.
  5. Description of the boundary of the proposed appellation of origin and USGS topographical maps depicting the boundary. § 9102(e), § 9105.
  6. Description of each distinctive geographical feature affecting cannabis cultivation in the area of the proposed appellation, including substantial evidence that the geographical area is distinctive when compared to areas outside the proposed boundary and when compared to other areas which produce cannabis for sale into the marketplace, and identification of at least one specific standard, practice, or cultivar requirement which acts to preserve the distinctiveness of the geographical feature. § 9102(f), § 9106.
  7. Identification and definition of all standard, practice, and cultivar requirements; specification of standard requirements as either limits or program-level certifications; specification of practice requirements to include a description of the practice requirement in plain language to allow any unfamiliar person to comply without substantial additional research; specification of cultivar requirements as lists of cultivar names or limits on acceptable methods, vendors, and practices; description of mandatory mechanism by which compliance with standard, practice, and cultivar requirements shall be documented; compliance mechanism should be designed to allow timely determination of compliance solely on upon review of the records. § 9102(g), § 9107.
  8. A description and evidence of the legacy, history, and economic importance of cannabis cultivation in the area. § 9102(h).
  9. If the proposed appellation of origin is located either partially or fully within the geographical area of another appellation of origin, an explanation of how the proposed appellation of origin is distinct from the existing appellation of origin. § 9102(i).
  10. A list of the cultivator license types issued by CDFA (such as Indoor, Mixed-light Tier 1, Mixed-light Tier 2, or Outdoor) which are prohibited from using the appellation of origin. § 9102(j).

Petition Review Process

The proposed regulations also detail the petition review process. First, a petition would not be deemed received unless the petition fee is submitted in full.  § 9200(a).

Second, a review for completeness would be conducted to determine whether the petition meets the content requirements of § 9102.  If CDFA finds that the petition is incomplete or additional information is needed to make a decision, the petitioner would be notified by e-mail of what information the petitioner needs to provide; if petitioner fails to respond within specified time limits, the petition would be deemed abandoned and no longer considered.

If CDFA finds that the petition is complete, CDFA would: (1) notify the petitioner by e-mail of the determination that the petition is complete, (2) request that the Petition Review Panel, if established, review and provide a recommendation on the petition, and (3) issue notice of proposed action on the petition.

Public notice of the proposal to establish or amend an appellation of origin would include weblinks to the completed petition, a map of the area described by the petition, and the standard, practice, and cultivar requirements identified in the petition.  The public would have 30 days from the initial date identified in the notice to provide comments on the proposal. § 9201.

No time limits are specified in the proposed regulations for CDFA to issue a final decision on a petition for an appellation of origin.  There are four types of final decisions:

  1. Established, meaning the petition to establish a new appellation has been granted.
  2. Amended, meaning the petition to amend an already established appellation has been granted.
  3. Denied, meaning the petition to establish or amend is denied.
  4. Cancelled, meaning CDFA chose to exercise its sole discretion to cancel an inactive appellation because it did not receive a Notice of Use during a period of five years.

Notice would be provided by e-mail to the petitioner, CDFA licensees located within areas directly impacted by the decision, and stakeholders enrolled in the CDFA Appellations list serv.

Effective Dates and Three Year Phase-Out Period

The proposed regulations also detail when protections against misuse of established appellations would take effect.  An appellation of origin would be considered established and protected against misuse on the date identified in the notice of final decision.  § 9203(a).  If CDFA chooses to cancel an appellation for non-use, the appellation of origin would cease to exist on the date identified in a notice of decision to cancel the appellation. § 9203(b).

During a period of three years following the date identified in the notice of final decision establishing a new appellation of origin, the use of trademarks containing words or phrases which are part of or similar to an appellation of origin in advertising, labeling, marketing, or packaging shall not be considered misbranding or false advertising, provided all of the following requirements are met:

  1. The trademark was registered with the California Secretary of State or the United States Patent and Trademark Office prior to the initial date in the notice of proposed establishment of the appellation of origin, when CDFA provided public notice of the proposal to establish the new appellation of origin.
  2.  The trademark was used in the California cannabis marketplace prior to the initial date.
  3. Documentation of compliance with the requirements in 1 and 2 above is retained by the trademark owner and provided to CDFA upon request.
  4. The use of the trademark is accompanied by a county of origin or appellation of origin applicable to the cannabis and clearly indicated as the geographical origin.

Thus, those who comply with all of the above requirements would be given a three-year period to phase-out the use of trademarks containing words or phrases which are part of or similar to an appellation of origin. § 9203(c).  Those who do not meet all of the above requirements would have to cease  the use of trademarks containing words or phrases which are part of or similar to an established appellation, as of the date identified in the notice of final decision establishing the appellation. § 9203(a).

Petition Review Panel

The proposed regulations also set forth the process for the establishment of an optional Petition Review Panel to assist CDFA with review of petitions.  § 9300. If established, the Petition Review Panel would be composed of seven members and two alternates, who would be designated to act in the place of any absent members.  The members of the panel would be individual California residents appointed by CDFA from nominations requested by CDFA.  Members of the panel “shall have relevant experience in cannabis cultivation, intellectual property, sustainable agriculture, or community-based research.”  Members and alternates would serve four year terms.  § 9301.

The duties of the Petition Review Panel would be to provide a recommendation on a pending petition by the deadline selected by CDFA.  Members of the Petition Review Panel would be allowed to submit comments or analyses to CDFA within the thirty-day public comment period.  Members holding any ownership or economic interest in any cannabis business within the areas directly impacted by a petition would also required to recuse themselves from contributing to the panel’s recommendation.  A recommendation from the Petition Review Panel would indicate the names of participating and recused members. § 9302.

Public Comment on Proposed Appellation Regulations

A 45-day public comment period on the proposed regulations has now begun.

Written comments on the proposed regulations are due on April 6, 2020. [UPDATE 4/9/20: Written comments are now due on May 6, 2020.] Comments should be sent via mail or email to: 

Kristi Armstrong 

California Department of Food and Agriculture 

CalCannabis Cultivation Licensing Division 

P.O. Box 942871 

Sacramento, CA 94271 

Email: CDFA.CalCannabis_Appellations@cdfa.ca.gov 

Phone: (916) 263-0801

Statements or oral arguments regarding the proposed regulations may also be given at the public hearing on April 14, 2020 in Sacramento. [UPDATE 4/9/20: The public hearing will now take place on May 6, 2020.] Anyone making oral testimony is encouraged to submit a written version of their testimony as well. The public hearing will be held at the following time and location:

Tuesday April 14th, 2020 from 1 PM to 3 PM 

California Department of Food & Agriculture Auditorium 

1220 N Street, Sacramento, CA 95814

Please refer to the “How to Submit Your Comments” guide from CDFA for more information about how to provide feedback on the proposed regulations.

Stay tuned to our blog for more information regarding the proposed appellations regulations.

 

This information is provided as a public educational service and is not intended as legal advice. For specific questions regarding CDFA’s Cannabis Appellations Program or other topics related to cannabis or hemp, please contact the Law Offices of Omar Figueroa at info@omarfigueroa.com or 707-829-0215 to schedule a confidential legal consultation.

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