Laws pertaining to cannabis trade samples and medical marijuana donations have been recently updated in California. Marijuana businesses would be wise to review this changes with their Los Angeles cannabis lawyer to ensure their company processes and practices are aligned with the letter and intent of these laws.
Let’s start with trade samples. These are samples of cannabis plants or products that are sent to cannabis licensees by producers, processors, wholesalers, and holders of hemp certificates to create brand and product awareness. It’s considered a solid means to generate more business. Trade samples allow products to be sampled, tasted, and smelled by licensed business buyers. An example would be marijuana producers who sell immature plants to other producers. Prospective buyers may want to know what kind of strain those immature plants are going to ultimately produce. A trade sample can show them. Similarly, producers could send samples to retailers to convince them to stock their product. Other industries have engaged in this for eons, but there has been some question about how those in the California cannabis industry could not only do it lawfully, but without having to pay the hefty taxes associated with retail sales.
Now, with the passage of AB 141 (a large piece of legislation that went into effect Jan. 1, 2022), cannabis products can be designated as trade samples from one licensee to another for marketing purposes. This will allow them to bypass cannabis taxes they’d otherwise have to pay. Exempted exchanges will include all harvested cannabis that has been or will be designated as a trade sample, as well as all cannabis that is used to manufacture a cannabis product that is/will be designated as a trade sample. Furthermore, the cannabis excise tax won’t apply to product that is designated as trade and simply given to another licensee absent consideration.
It should be noted that only operators can distribute trade samples, and they can only do so to other licensees and only after properly designating the product as a sample for targeted advertising. It should be clearly labeled as “TRADE SAMPLE: NOT FOR DONATION OR RESALE.” Event organizers, testing labs, and retailers are NOT allowed to distribute trade samples. Once product is designated as a trade sample, that designation can’t change. The movement of any trade samples must be recorded and trackable by METRC. Trade sample designations are capped monthly at 2 pounds of flower and 900 units of manufactured/non-manufactured products. Conversely, recipients of trade samples can only receive a maximum of 5 grams of flower per strain (no more than 6 strains) and up to 5 units of no more than 6 different products each month. Any employee who is transporting cannabis trade samples can’t carry with them any amount that exceeds the personal possession limits.
Next, let’s look at the updates to provisions of California law on donations of cannabis for medicinal purposes. Starting in March 2020, state law began allowing retailers of cannabis products to donate free medicinal cannabis and marijuana products to patients. Licensees were also allowed to donate free medicinal cannabis to retailers for subsequent donation to medicinal marijuana patients. Cultivation taxes – including excise taxes and use taxes – for crop designated as intended for medical donation is waived, though the cannabis must still be tracked by the state’s track-and-trace system.
Retailers can also designate cannabis products as donations in the METRC system, but they can’t change this designation once it’s set.
Although they don’t have to pay taxes for growing and distributing cannabis designated for this purpose, the plant/product still has to comply with regulatory and quality requirements mandated for other cannabis goods. Whatever is being donated per caregiver or patient can’t exceed personal possession limits. Finally, all information pertaining to these donations must be carefully recorded and those records properly maintained.
If you are a California cannabis company or cultivator with questions about legal compliance with trade samples or medical cannabis donations, our Los Angeles marijuana business lawyers can help.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 714-937-2050.
AB 141, California Legislature