Notice of Proposed Rulemaking Action
Notice is hereby given that the Department of Cannabis Control (Department) proposes to adopt the amended regulations described below after considering all comments, objections, and recommendations regarding the proposed action.
Public Hearing
The Department will hold a virtual public hearing on Tuesday, July 21, 2026, beginning at 10:00 a.m.
Attendees may participate via WebEx online meeting platform or telephone conferencing. To participate via WebEx online meeting platform, please contact Lilly Quynn at 1-844-612-2322 or outreach@cannabis.ca.gov by 4:30 p.m. on Monday, July 20, 2026 to request a link to the meeting. A link to the meeting will also be posted on the Department’s website no later than 9:00 a.m. the day of the hearing.
For those who wish to attend the hearing in person, including those who require reasonable accommodations, limited seating will be available in the Department Hearing Room, 2920 Kilgore Road, Rancho Cordova, CA 95670. Please contact Lilly Quynn at 1-844-612-2322 or outreach@cannabis.ca.gov by 4:30 p.m. on Monday, July 20, 2026 to request to attend the hearing in person or by 4:30 p.m. on Monday, July 6, 2026 if reasonable accommodations are necessary.
Participants will be given instructions on how to provide oral comment once they have accessed the hearing. The hearing will proceed on the dates noted above until all testimony is submitted or 12:00 p.m., whichever is later. At the hearing, any person may present oral or written statements or arguments relevant to the proposed action. The Department requests, but does not require, that persons who make oral comments at the hearing also submit a written copy of their testimony via email.
Written Comment Period
Any interested person, or their authorized representative, may submit written comments relevant to the proposed regulatory action by mail or email to:
Department of Cannabis Control
Legal Affairs Division
2920 Kilgore Road
Rancho Cordova, CA 95670
E-mail: publiccomment@cannabis.ca.gov
The written comment period closes on Monday, July 20, 2026. To be considered by the Department, a comment must be received by Monday, July 20, 2026.
Authority
Business and Professions Code section 26013.
Reference
Business and Professions Code sections 26013, 26067, 26069, 26070, 26100, 26104, 26110, 26120, 26140, 26160, and 26161.
Informative Digest/Policy Statement Overview
Summary of Existing Laws and Effect of the Proposed Action
The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) (Bus. & Prof. Code, § 26000 et seq.) generally governs commercial cannabis activity in California. The provisions of California Code of Regulations (CCR), title 4, division 19 further implement, interpret, and make specific many MAUCRSA statutes. These existing laws define commercial cannabis terms, govern sampling and testing of final-form cannabis goods, and establish the California Cannabis Track and Trace (CCTT) system and impose specific use and reporting requirements on all licensees.
The changes proposed in this rulemaking action would provide additional safeguards against fraudulent transactions and other potential abuses of the system to engage in “lab shopping,” including requiring all parties to a transfer of cannabis goods to approve the transfer before a shipping manifest may be generated by the system. The proposed changes would clarify and supplement existing data entry requirements to ensure the accuracy of system data. The proposed changes would require licensed retailers to enter certain tax information when recording sales in the system. The proposed changes would require licensed retailers to provide Certificates of Analysis (COAs) to customers upon request.
Evaluation of Inconsistency with Federal Laws
The United States Drug Enforcement Administration lists cannabis as a Schedule 1 Drug under the Controlled Substances Act (21 U.S.C. § 812). This means that commercial cannabis activity is illegal under federal law. However, California, through the MAUCRSA and other laws, has decriminalized the cultivation, sale, and possession of cannabis goods for persons aged 21 or older and for medicinal patients.
Objectives and Anticipated Benefits of the Proposed Regulations
The objectives of the proposed regulatory changes are strengthening California’s regulated cannabis industry and protecting public health and safety by preventing distributor diversion of cannabis to the illicit market, preventing lab shopping and potency inflation, improving the accuracy and quality of data entered in the CCTT system by licensees, and giving consumers immediate and full access to cannabis test results. The changes will strengthen the integrity of the legal cannabis supply chain and reduce illegal diversion that undercuts the legal market and unfairly disadvantages legal operators. The changes will greatly reduce the volume of adulterated and misbranded products that pass laboratory testing and end up on retail shelves. Other regulators, including the California Department of Tax and Fee Administration (CDTFA), will benefit from improved recordkeeping and reporting of accurate sales data, while consumers will benefit from more transparent sales receipt information, including a clear price breakdown. Consumers will further benefit from increased access to regulatory testing results, allowing for better-informed purchasing decisions and increased confidence and participation in the regulated cannabis market.
Evaluation of Inconsistency/Incompatibility with Existing State Regulations
After careful evaluation, the Department has determined that the proposed changes are not inconsistent or incompatible with existing regulations.
Disclosures Regarding the Proposed Action
The Department has made the following initial determinations:
- Mandate on local agencies or school districts: None.
- Cost to any local agency or school district required to be reimbursed in accordance with Government Code sections 17500 through 17630: None.
- Cost or savings to any state agency: The Department will incur costs of approximately $555,165 in developing and implementing CCTT system enhancements and monitoring compliance with the new regulations. The proposed regulations are expected to result in unquantified tax revenue increases and significant savings for CDTFA.
- Other nondiscretionary cost or savings imposed upon local agencies: None.
- Cost or savings in federal funding to the state: None.
- Effect on housing costs: None.
- Significant, statewide adverse economic impact directly affecting businesses, including the ability of California businesses to compete with businesses in other states: None.
- Cost impacts on a representative private person or business: For a typical business, including a small business, one-time up-front expenses of $2,130. For typical retail businesses, including small businesses, who must upgrade their POS system, annual recurring expenses of $7,800.
Results of the Standardized Regulatory Impact Analysis (SRIA)
The Department believes that the proposal will eliminate approximately 857 existing jobs and 47 existing businesses. The Department believes that larger businesses, especially larger retailers, will generally be at a competitive advantage over smaller businesses when these changes take effect. The Department believes that the proposal would result in an increase in investment in California of approximately $1.28 million. The Department does not expect the proposal to incentivize any innovation in the regulated commercial cannabis market. The Department believes that the proposal will improve the health of California residents, worker safety, and the state’s environment.
Summaries of, and Responses to, Department of Finance (DOF) Comments on the Standardized Regulatory Impact Analysis
Comment #1
The SRIA must provide an estimated effective date and implementation period of the proposed regulation, even if these periods are subject to uncertainty.
Response #1
The SRIA has been edited to include an estimated effective date and implementation period. The precise date of full implementation is unknown but is generally expected to be shortly after the regulations are implanted. This is defined as approximately fall 2026 through fall 2027.
Comment #2
While the SRIA quantifies 12-month impacts, it does not clarify whether these costs are ongoing or limited to the first year following implementation. The SRIA must assess the estimated economic impacts to businesses and/or individuals over a multi-year period, or the SRIA must explicitly state that the estimated economic impacts only occur within the first 12 months with justification.
Response #2
The SRIA and STD. 399 have been edited to distinguish between one-time and annual recurring costs and benefits (sections 4.5.1, 4.5.8). The net present value of total costs and benefits to businesses and individuals over a 3-year period following implementation has been included in both the SRIA (section 4.5.1) and the STD. 399. A 3-year period is chosen because costs are expected to decrease over time as producers adjust to regulations and as production from compliant businesses replaces noncompliant production. That is, it is reasonable to expect compliant market participants to quickly expand production in the first few years following implementation, and therefore quantifiable costs and benefits would not persist. However, unquantified human and environmental benefits from reducing potency inflation and preventing harmful products from entering the market would persist.
The components included in total costs and benefits have been defined in the SRIA (section 4.5.1). Costs include:
- Annual recurring direct costs to businesses of $11.44 million, including $6.58 million to labs from reduced testing, $3.85 million in labor costs, and $1.02 million on POS systems.
- One-time direct costs of $1.20 million to retail businesses in the first 12 months of implementation, including $0.26 million for POS systems and $0.94 million in labor costs for COA disclosures.
- Average annual recurring direct costs of $47.43 million in decreased gross output from decreased retail spending.
- Average annual recurring direct costs to individuals of $5.33 million in lost consumer surplus due to market shifts.
- Average annual recurring indirect and induced effects of $47.05 million.
Of the $112.45 million in total first-year costs, $111.25 million are annually recurring costs. The net present value (NPV) of total costs over the first year of implementation and subsequent two years would be $324.55 million, with a range of $157.78 million to $501.46 million. These costs would be primarily imposed on businesses producing or handling noncompliant products.
Consumers and compliant businesses would benefit from the proposed regulations. Benefits include:
- Total direct benefits to businesses of $12.65 million, including savings on lab spending of $6.58 million, increased industry labor of $4.79 million, and $1.28 million to business management services from spending on POS systems.
- Direct benefits to consumers from reducing potency inflation of $10.57 million, with a lower bound of $4.88 million per year and upper bound of $17.58 million from no longer paying extra for inflated potency.
- Indirect and induced effects of $5.52 million.
The NPV of total benefits over three years would be $61.42 million, with a range of $52.67 million to $92.27 million.
Estimates of total costs and benefits in the first 12 months of implementation were adjusted to reflect total economic impacts as the sum of the direct, indirect, and induced impacts (sections 4.4, 4.5.1, 4.7), and the components of these costs and benefits were clarified. The previous calculation combined changes in income, value added, and total output in the total impact calculation; however, total output includes income and value added.
Initial costs and ongoing costs in the SRIA and STD. 399 for a typical business have been edited as well to reflect just one-time initial costs (as opposed to all first-year costs) and annual recurring costs, respectively. Initial and annual costs are described for retailers (instead of an average spread across all businesses as in the previous version), which account for 44% of direct costs to businesses (this includes change in gross output at retail). The overall one-time up-front cost increase of $1.20 million, spread across all 1,560 licensed cannabis retailers, would be $770 per business. Annual recurring direct costs for retailers, which are $49.47 million of the $111.25 million in ongoing costs, would be $31,700 per business.
Comment #3
The SRIA should provide lower-bound and upper-bound economic impact and revenue estimates due to the wide range of outcomes possible, particularly regarding the regulations’ estimated effects on the cannabis market. For example, the SRIA states that there is considerable uncertainty in potency inflation and diversions into the illicit market, with a wide range of outcomes for cannabis retailers. The estimate used for the total impact is the midpoint of a decrease of $47.7 million but the SRIA states that the decrease could range from $18.8 million to $78.1 million, which would accordingly lead to a much larger or lower total economic and revenue impacts. Department of Cannabis Control (DCC) should augment the analysis with a sensitivity analysis to estimate how total economic impacts may vary under different plausible market effects by providing lower bound and upper-bound economic impact and revenue estimates.
Response #3
Lower- and upper-bound ranges have been included for indirect and induced effects estimated via IMPLAN analysis (section 4.4), total benefits and costs in the first 12 months of implementation (section 4.5.1), and the net present value of costs and benefits over 3 years (section 4.5.1).
The revised range of total cost to businesses and individuals is $112.45 million in the first 12-months of implementation, with a lower bound of $55.07 million and upper bound of $173.32 million. The expected benefits of the proposed regulations are $28.74 million. The lower and upper bounds of total benefits are $21.70 million and $37.09 million, respectively, in the first 12-months of implementation.
The sensitivity range reflects uncertainty in how the industry and consumers may response to changes in reported potency and diversions to the illicit market.
Comment #4
The SRIA must quantify fiscal impacts on local revenues. Reductions in cannabis supply and demand in the licensed market will likely impact local government agencies’ revenues through the varying local cannabis tax rates across jurisdictions. Changes in state tax revenue should be included in the fiscal impacts section rather than characterized as changes in investment so that the fiscal impacts section fully reflects all impacts to the state.
Response #4
Estimated changes in local and state tax revenues have been included in total fiscal impacts (section 4.6). The overall expected change in fiscal impacts is $13.39 million, which includes a decrease of $10.46 million in state tax revenue, a decrease of $2.37 million in local tax revenue, and $0.56 million in fiscal costs to the Department of Cannabis Control. Decreased tax revenue is the result of decreased sales revenue from reducing potency inflation and removing products from the market that are potentially harmful to humans and the environment. Potentially offsetting fiscal benefits from decreased enforcement, compliance, and inspection efforts, or higher consumer confidence in the licensed market leading to increased sales and tax revenue, have not been quantified.
Considering the range of impacts to gross output at retail and resulting change in local and state tax revenue, the overall range of fiscal impacts is $5.63 million to $21.69 million.
Investment in the state has been revised to only include changes in value added (section 4.5.3), which include a decrease of $59.02 million from the market adjustment and decreased lab spending, and an increase of $4.34 million from increased spending on labor and POS systems. The net effect is a decrease of $54.68 million.
Small Business Determination
The proposed regulations would affect approximately 5,500 licensed businesses of all types, approximately 97 percent of which are estimated by the Department to be small businesses.
Consideration of Alternatives
In accordance with Government Code section 11346.5, subdivision (a)(13), the Department must determine that no reasonable alternative it considered or that has otherwise been identified and brought to its attention would be more effective in carrying out the purpose for which the action is proposed, as effective and less burdensome to affected private persons than the proposed action, or more cost-effective to affected private persons and equally effective in implementing the statutory policies or other provisions of law.
Contact Persons
Inquiries concerning the proposed rulemaking action may be directed to:
Melissa Brokken
Department of Cannabis Control
2920 Kilgore Road
Rancho Cordova, CA 95670
916-465-9025
Regulations@cannabis.ca.gov
The backup contact person for these inquiries is:
Kaila Fayne
Department of Cannabis Control
2920 Kilgore Road
Rancho Cordova, CA 95670
916-465-9025
Regulations@cannabis.ca.gov
Availability of the Initial Statement of Reasons, Proposed Regulation Text, and Rulemaking File
The Department will make the entire rulemaking file, including all documents relied upon, available for inspection and copying throughout the rulemaking process at its office at the above address. As of the date this Notice is published in the Notice Register, the rulemaking file consists of this Notice, the proposed text of the regulations, the Initial Statement of Reasons, and the STD. 399. Please direct requests to inspect or copy the rulemaking file to the contact person(s) listed above.
Availability of Changed or Modified Text
After considering all timely and relevant comments received, the Department may adopt the proposed regulations substantially as described in this notice. If the Department makes modifications that are sufficiently related to the originally proposed text, it will make the modified text (with the changes clearly indicated) available to the public for at least 15 days before adopting the regulations as revised. Please direct requests for copies of any modified regulations to the contact person(s) listed above. The Department will accept written comments on the modified regulations for the duration of the period of public availability.
Availability of the Final Statement of Reasons
Upon its completion, the Department will make copies of the Final Statement of Reasons available. Please direct requests for copies to the contact person(s) listed above.
Availability of Documents on the Internet
Copies of the Notice of Proposed Action, the Initial Statement of Reasons, and the text of the regulations with modifications highlighted, as well as the Final Statement of Reasons, when completed, and modified text and notices thereof, if any, may be accessed via the Department’s website at https://www.cannabis.ca.gov/cannabis-laws/rulemaking/.