By Jay Connolly & Aaron Belzer

As cannabis growers and retailers struggle with the complex and onerous regulatory scheme governing California’s emerging legal marijuana marketplace, they may be excused for overlooking the requirements of California Safe Drinking Water and Toxic Enforcement Act of 1986—more commonly known as Proposition 65.  Neither the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), nor its implementing regulations, reference or suggest that cannabis growers or retailers are subject to Proposition 65.  Yet, Proposition 65 plainly applies to cannabis and cannabis products, and ignorance of its requirements can prove costly to fledgling and established cannabis businesses alike.

Proposition 65 requires California to publish and update annually a list of chemicals known to the State to cause cancer, birth defects or other reproductive harm (the “Listed Chemicals”).  It further requires businesses to provide “clear and reasonable” warnings to California residents before exposing them to one or more of the over 900 Listed Chemicals above the established regulatory “safe harbor” levels.  Such exposures can be from consumer products, in workplaces or in the environment and therefore require different types of warnings.

Proposition 65 is enforced entirely through litigation; it vests the Attorney General with primary enforcement responsibility, but also allows any individual or organization “acting in the public interest” to sue a business for purported violations, and seek penalties of up to $2,500 per violation per day.  Because private enforcers can potentially recover their attorney fees and 25% of any penalties assessed, Proposition 65 has spawned a cottage industry for “bounty hunter” plaintiffs who pursue costly enforcement actions against unwary businesses that fail to warn of potential exposures to even trace amounts of a Listed Chemical.

Cannabis and cannabis products are not immune from these enforcement actions.  Since California added “marijuana smoke” as a Listed Chemical in 2009, cannabis and cannabis products have become notable targets for enforcement—a trend that has only increased since California passed Proposition 64 legalizing recreational marijuana use effective January 1, 2018.  Over the past four years, for example, private enforcers have issued over 800 Proposition 65 notices of violation to cannabis businesses alleging violations of Proposition 65’s warning requirements.  And while “marijuana smoke” is an obvious target for enforcement, other Listed Chemicals commonly found in both edible or smokable cannabis products, including “beta-Myrcene” and “isoprene” (common hydrocarbons found in cannabis plant oils), and “Myclobutanil,” and “Carbaryl” (pesticides and fungicides used to grow cannabis plants), can also be targets for enforcement.

To avoid becoming a target for enforcement, prospective and licensed cannabis businesses should add Proposition 65 to their legal and regulatory compliance checklist.  To that end, the Proposition 65 regulations clarify the relative warning responsibilities between product manufacturers, producers, packagers, importers, suppliers, distributors (“Upstream Entity(ies)”) and retail sellers of consumer products.  Specifically, the regulations require Upstream Entities subject to Proposition 65 either: (1) to affix a warning to the product, or (2) to provide directly to the authorized agent for a retail seller written notice, which, among other things, identifies the exact name or description of the product requiring a notice, and encloses all necessary warning materials for retail sellers to display and maintain.

A retail seller, in turn, is independently responsible for providing a Proposition 65 warning only when: (1) it sells the product under its own (or an affiliate’s) brand or trademark; (2) it introduces or creates the Listed Chemical in the product itself; (3) it fails to display or obscures the product warning provided by an Upstream Entity; or (4) it has “actual knowledge” of the potential exposure and an Upstream Entity cannot be readily compelled to provide the warning (a potential “gotcha” situation).

The regulations also provide specific, detailed non-mandatory guidance for the content of Proposition 65 warnings for a wide variety of exposures, including consumer product exposures, occupational exposures, and environmental exposures.  The regulations further provide additional non-mandatory guidance for the method by which a business may provide the warning for various exposure types—whether resulting from the acquisition, purchase, storage, consumption or use of a consumer product, or from contact with an environmental source, such as ambient air.

Although businesses are not required to use the warning content or methods set forth in the regulations, doing so is the only way in which to ensure compliance with Proposition 65.  And while Proposition 65 may not be as complex as the MAUCRSA and its implementing regulations, Proposition 65 is sufficiently complex and nuanced that cannabis businesses should carefully review their requirements, determine their warning obligations, and develop and implement a reasonable and practical compliance plan.  Indeed, as many cannabis operators have already discovered, one ignores Proposition 65 at one’s own peril.

Jay W. Connolly is a partner in Seyfarth’s San Francisco office and Aaron Belzer is a partner in the firm’s Los Angeles office.  They regularly represent and advise clients in Proposition 65 matters and developments.  If you have any questions regarding this development or related issues please contact your Seyfarth Shaw LLP attorney, Jay Connolly at jconnolly@seyfarth.com or Aaron Belzer at abelzer@seyfarth.com

By Ronald Gart and Christa Dommers

Seyfarth Shaw LLP has released the results of its fourth annual Real Estate Market Sentiment Survey, which polled commercial real estate executives around the country from all sectors. Of interest to our readers, this year’s survey revealed that, despite the dramatic increase in the number of states legalizing marijuana, 85% of respondents are putting the brakes on investing in cannabis use real estate or leasing space to the cannabis industry. This is not surprising, given the current state of federal law, lack of credit availability from financial institutions, and lack of title insurance.

What about the other 15% who do plan on investing in CRE for marijuana use? Most (70%) do not plan to invest anytime soon, indicating an investment horizon of at least 2-5 years. Notably, however, 20% of those respondents planning to participate in the industry already have their hands in the pot business.

View the full survey results