TITLE 37. PUBLIC SAFETY AND CORRECTIONS

PART 1. TEXAS DEPARTMENT OF PUBLIC SAFETY

CHAPTER 12. COMPASSIONATE-USE/LOW-THC CANNABIS PROGRAM

SUBCHAPTER A. GENERAL PROVISIONS

37 TAC §§12.1 - 12.4, 12.7 - 12.9

The Texas Department of Public Safety (the department) proposes amendments to §§12.1 - 12.4, 12.7, 12.8, and proposes new §12.9, concerning General Provisions. These amendments are necessary to clarify and enhance certain safety and security requirements and to provide a requirement that dispensers obtain certain levels of commercial liability insurance coverage. New §12.9 provides more specific product testing and waste disposal requirements.

In the October 28, 2016, issue of the Texas Register (41 TexReg 8520), the department published proposed amendments to §§12.1 - 12.4, 12.7, 12.8, and proposed new §12.9, concerning General Provisions. The department received numerous comments regarding the proposals. In response to these written comments, the department has made changes to the proposals as summarized below, withdraws the October 28th proposal and is republishing this proposal.

The department accepted comment on the proposed rules through November 28, 2016. Written comments were submitted during this period by several individuals and the following groups: CannOrganics of Texas; Texas Cannabis; Fields Ventures; Pendulum; GrowBlox Sciences; Texas Wellness Investment Group; Texas Cannabis Industry Association; and the Epilepsy Foundation Texas. Written comments were also submitted by State Representative Stephanie Klick with an additional 41 state representatives as cosignatories.

Included in the comments received by the department were items interpreted as requests for information or questions about the meaning of certain items, and not rule comments. These items will be addressed by either direct correspondence or website communications. Additional information pertaining to the Compassionate-Use Program can be found at: http://dps.texas.gov/rsd/CUP/

The substantive comments, as well as the department’s responses thereto, are summarized below.

COMMENT: Relating to §12.1(4) and the proposed expansion of the definition of "directors," GrowBlox Sciences commented that this proposal, in conjunction with current rule requirements relating to applications, will require registration of all owners and shareholders of publically traded companies and therefore of individuals who have no involvement in the business.

RESPONSE: The proposal is intended to ensure the integrity of the program by authorizing the department to obtain background information on all individuals involved in the program at any level. However, the department agrees that shareholders in a publically traded company who are not otherwise involved in the affairs of the business should not be required to register. The proposal is being amended accordingly.

COMMENT: Relating to proposed §12.2(f), concerning Requirements and Standards, Representative Stephanie Klick commented that prohibiting the possession of low-THC cannabis if a license has expired or has been suspended or revoked under proposed rule §12.2(f) could become problematic if a licensee can cure the reason for their license suspension quickly.

RESPONSE: The proposed rule is consistent with the statutory language governing possession of low-THC cannabis by unlicensed individuals. The suspension or revocation of a license would occur only after a final order is issued, which would follow notice and opportunity for hearing. The department believes it is appropriate to include this requirement in the administrative rules.

COMMENT: Relating to proposed §12.2(p), concerning Requirements and Standards, State Representative Stephanie Klick pointed out a conflict between two provisions - §12.2(p) and §12.4(b)(6) - that relate to the time a dispensing organization must retain the registration card of a terminated employee.

RESPONSE: The department agrees with this comment. Section 12.2(p) has been amended to require the retention of a registration card of a terminated employee for two years in order to correspond with the two year period designated in §12.4(b)(6).

COMMENT: Relating to proposed §12.2(q), concerning Requirements and Standards, GrowBlox Sciences expressed concern regarding the availability of commercial general liability insurance coverage as required by §12.2(q).

RESPONSE: The proposed rule is necessary to ensure the protection of the public against potentially unsafe production methods and negative environmental impacts resulting from the production of low-THC cannabis. The department believes that such insurance will be available, as it is currently in other states. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.2(v), concerning Requirements and Standards, Fields Ventures and GrowBlox Sciences commented that the restriction on additional research and development in §12.2(v) was overly constrictive and could limit legitimate research.

RESPONSE: The proposed rule limits research to that which is necessary for development of cultivation or production techniques specific to low-THC cannabis. The restriction against broader research is intended to limit the potential for violations of federal law. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.2(w), concerning Requirements and Standards, CannOrganics; Texas Cannabis Industry; Texas Cannabis and Representative Klick and an individual expressed concern regarding the prohibition on the cultivation of other plants contained in proposed §12.2(w). The comments stated that limiting the type of plants grown could threaten the financial stability of dispensing organizations.

RESPONSE: The department agrees that the rule as proposed may be overly restrictive and has deleted §12.2(w) in this new proposal.

COMMENT: Relating to proposed §12.2(x), concerning Requirements and Standards, Texas Cannabis Industry; Texas Cannabis and an individual expressed concern regarding the requirement in proposed §12.2(x) that by-products be destroyed, specifically that the requirement is unnecessary and an unreasonable restriction on a possible revenue source.

RESPONSE: The rule as proposed is intended to restrict a possible mechanism of diversion. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.2(y), concerning Requirements and Standards, Pendulum and Texas Wellness Group expressed concern that due to limitations in federal law regarding the legality of marijuana, compliance with federal law with respect to interstate transportation would be extremely difficult if not impossible.

RESPONSE: The department agrees that in the current legal environment, §12.2(y) could be misconstrued. The department has deleted §12.2(y) in this new proposal and replaced it with a requirement that licensees acknowledge federal laws governing marijuana and its interstate transportation.

COMMENT: Relating to proposed §12.4, concerning Records, several individuals and groups including Fields Ventures; Texas Cannabis Industry; Texas Cannabis; Pendulum; Texas Wellness Group; the Epilepsy Foundation Texas and Representative Stephanie Klick, expressed concern that the requirement to maintain records reflecting the sources of all seeds and plants would force dispensing organizations to admit to potential violations of federal or state law.

RESPONSE: The department agrees with this comment and has deleted the amendment to §12.4(b)(2) in this new proposal and replaced it with a requirement that licensees acknowledge federal laws governing marijuana and its interstate transportation.

COMMENT: Relating to proposed §12.4, concerning Records, Fields Ventures believes that the requirement in §12.4(b)(4) to maintain video recordings for two years is too long.

RESPONSE: The department believes that maintaining records, including video recordings, for a period of two years is necessary to ensure their availability for administrative or criminal investigations. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.7(b), concerning Testing, Production and Packaging, GrowBlox Sciences recommends that the testing regime be expanded to include other bioactive compounds.

RESPONSE: The comments seek to expand the substances for which the product should be tested to include additional cannabinoids not contemplated by the Act. The department believes the current rules are adequate and appropriate in this regard. The rules do not prohibit testing for other substances. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.8(a) and §12.8(d), concerning Inventory Control System, several individuals and groups including Fields Ventures; Texas Cannabis Industry; Texas Cannabis; Pendulum; Texas Wellness Group; the Epilepsy Foundation Texas and Representative Stephanie Klick, expressed concern that the requirement to disclose "seed source" would force dispensing organizations to admit to potential violations of federal or state law.

RESPONSE: The department agrees with the comment and is withdrawing the proposed amendments relating to the seed source and replaced it with a requirement that licensees acknowledge federal laws governing marijuana and its interstate transportation.

COMMENT: Relating to proposed §12.8(j), concerning Inventory Control System, State Representative Stephanie Klick pointed out a conflict between two provisions - §12.8(j) and §12.34(a)(2) - that relate to when a dispensing organization must report evidence of theft or diversion of product, raw materials or by-product to the department.

RESPONSE: The department agrees. Section 12.8(j) has been amended to require a report of evidence of theft or diversion of product, raw materials or by-product to the department within two days of the date the theft or diversion was discovered in order to correspond with the two day period designated in §12.34(a)(2).

Suzy Whittenton, Chief Financial Officer, has determined that for each year of the first five-year period these rules are in effect there will be no fiscal implications for state or local government, or local economies.

Ms. Whittenton has determined that there will be no adverse economic effect on small businesses or micro-businesses required to comply with the proposed amendments to §§12.1, 12.3, 12.4, 12.5, 12.6, 12.8, and 12.9. There is no anticipated economic cost to businesses required to comply with these rules as proposed. There is no anticipated negative impact on local employment.

Ms. Whittenton has also determined that §12.2 and §12.7 may have adverse economic effects on small businesses or micro-businesses required to comply with these rules as proposed. The department estimates there will be three licensees, all of these licensees will be small businesses. These estimates are based on an analysis of other states’ compassionate-use programs and the number of patients in Texas with intractable epilepsy. The department estimates the projected impact of these rules will be increased costs of compliance associated with liability insurance coverage and production related safety standards. Specifically, the department estimates §12.2’s requirement that dispensers obtain commercial liability insurance coverage will likely cost $4,000 to $5,000 per year. Its requirement that dispensers have a fire alarm and fire extinguishing system will impose costs, depending on the size and complexity of dispenser’s structures. The department estimates a basic fire alarm system with smoke and heat detectors, and alarms with both visual and audio alerts, will cost $1 to $2 per square foot. More complex systems in large buildings may cost $3 to $6 per square foot. A sprinkler or other extinguishing system may cost $3 to $12 per square foot, not including installation. Monitoring fees may cost $50 to $60 per month.

Section 12.7 requirement of a ventilation system with the capability to detect and signal problematic exhaust levels for the extraction room, are estimated to cost approximately $5,000 for those dispensers using CO2 systems and $15,000 for butane based systems. The requirement of an emergency power backup system will vary considerably with the size of the facility, but the department would estimate a backup generator to cost $3,000 to $15,000.

In preparing these rules the department considered the alternatives of granting exemptions or grace periods from the requirements for small businesses. However, these rules are intended to implement Texas Health and Safety Code, Chapter 487’s requirements that licensees possess the technical and technological ability to cultivate and produce low-THC cannabis; the ability to secure the necessary resources, personnel, and facilities; the ability to maintain accountability for the raw materials, the finished product, and any by-products used or produced in the cultivation or production of low-THC cannabis to prevent unlawful access to or unlawful diversion or possession of those materials, products, or by-products; and the financial ability to maintain operations for not less than two years. The department’s proposal reflects the minimum standards necessary to ensure the health, safety, and the environmental and economic welfare of the state. An exemption or grace period would be inconsistent with these purposes. There is no anticipated negative impact on local employment.

In addition, Ms. Whittenton has also determined that for each year of the first five-year period the rules are in effect, the public benefit anticipated as a result of enforcing the rules will be greater protection of the public against potentially unsafe production methods or negative environmental impacts, and reduction in the potential for diversion of marijuana or related products.

The department has determined that this proposal is not a "major environmental rule" as defined by Texas Government Code, §2001.0225. "Major environmental rule" is defined to mean a rule that the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

The department has determined that Chapter 2007 of the Texas Government Code does not apply to this proposal. Accordingly, the department is not required to complete a takings impact assessment regarding this proposal.

Comments on this proposal may be submitted to Steve Moninger, Regulatory Services Division, Department of Public Safety, P.O. Box 4087, MSC-0240, Austin, Texas 78773-0246, or by email at https://www.dps.texas.gov/rsd/contact/default.aspx. Select "Compassionate Use Program". Comments must be received no later than thirty (30) days from the date of publication of this proposal.

The amendments and new rule are proposed pursuant to Texas Government Code, §411.004(3), which authorizes the Public Safety Commission to adopt rules considered necessary for carrying out the department's work, and Texas Health and Safety Code, §487.052, which requires the department adopt rules necessary for the administration and enforcement of Texas Health and Safety Code, Chapter 487.

Texas Government Code, §411.004(3) and Texas Health and Safety Code, §487.052 are affected by this proposal.

§12.1.Definitions.

The terms in this section have the following meanings when used in this chapter unless the context clearly indicates otherwise:

(1) Act--Texas Health and Safety Code, Chapter 487.

(2) Application--Includes an original application for a registration or license, or an application to renew a registration or license, issued under the Act.

(3) Department--The Texas Department of Public Safety.

(4) Director--An individual[, including any owner,] involved in decisions governing the operation or daily functions of the licensed dispensing organization, and any owner, partner, or shareholder of the business unless the organization is a publically traded company and the individual is a shareholder only and is not otherwise involved in the business.

(5) Dispensing organization--An organization licensed to perform the regulated functions of cultivation, processing, and dispensing of low-THC cannabis.

(6) Employee--An individual engaged by or contracting with a licensee to assist with any regulated function, whether or not compensated by salary or wage.

(7) Licensee--An organization licensed under the Act.

(8) Manager--An individual employed or otherwise engaged by a dispensing organization to supervise others in any portion of the regulated functions and processes.

(9) Prescription--An entry in the compassionate-use registry that meets the requirements of Texas Occupations Code, Chapter 169.

(10) Product--Any form of low-THC cannabis that is cultivated, handled, transported, processed, or dispensed, or raw materials used in or by-products created by the production or cultivation of low-THC cannabis.

(11) Registrant--An individual registered with the department as a director, manager, or employee of a licensee; this term does not include a physician registered as a prescriber of low-THC cannabis.

(12) Regulated premises--The physical areas under the control of a licensee, in which low-THC cannabis, or production related raw materials or by-products, are [is] cultivated, handled, transported, processed, or dispensed.

(13) SOAH--State Office of Administrative Hearings.

§12.2.Requirements and Standards.

(a) A licensee [Licensees] may only perform [provide] regulated functions [services] at a [the] department approved location [locations]. Any change in location must be approved by the department prior to operation in a regulated capacity.

(b) Licensees shall notify the department within five (5) business days of a registrant's termination of employment.

(c) All licensees shall display in a conspicuous location [in the principal place of business and in any branch location] a copy of the department issued license and information on how to submit a complaint to the department.

(d) Licensees must establish and implement a drug-free workplace policy consistent with the Texas Workforce Commission's "Drug-Free Workplace Policy," and shall maintain in each registrant's file a copy of the company's policy signed or otherwise acknowledged by the registrant.

(e) Licensees and registrants must cooperate fully with any inspection or investigation conducted by the department, or by a state fire marshal, or local designee of the state fire marshal, including but not limited to the provision of any laboratory test results, employee records, [or] inventory and destruction records, or other records required under the Act or this chapter, and the compliance with any lawfully issued subpoena [issued by the department].

(f) Licensees and registrants may not cultivate, process, or dispense low-THC cannabis or possess any raw material used in or by-product created by the production or cultivation of low-THC cannabis if the respective license or registration has expired, or has been suspended or revoked.

(g) Licensees and registrants may not dispense to an individual other than a [qualified] patient for whom low-THC cannabis is prescribed under Chapter 169, Occupations Code, or the [a qualified] patient's legal guardian [representative].

(h) Licensees and registrants may not permit or fail to prevent the diversion of any controlled substance.

(i) Those registered with the department as directors, managers, or employees of a licensed dispensing organization may only perform functions [services] regulated under the Act for the licensee(s) [licensee] with whom they are registered.

(j) If arrested, charged, or indicted for a criminal offense above the level of Class C misdemeanor, a registrant shall within seventy-two (72) hours notify the employing licensee. When [, and the employer when] notified by the registrant [employee] or otherwise informed, the licensee shall notify the department in writing (including by email) within seventy-two (72) hours of notification. The notification shall include the name of the arresting agency, the offense, court, and cause number of the charge or indictment. The registrant and licensee must supplement their respective notifications as further information becomes available.

(k) Registrants must carry on their person or otherwise display their department issued registration card while performing any functions [services] regulated under the Act involving contact with or exposure to patients or the general public, including the dispensing of low-THC cannabis to patients and the transportation of low-THC cannabis on behalf of a licensee.

(l) All advertisements for functions [services ] regulated under the Act must contain the dispensing organization's license number in a font of the same size as the primary text of the advertisement.

(m) Licensees must comply with all applicable local, state and federal regulations and permitting requirements relating to air and environmental quality, advertising, business and occupancy, building, plumbing, electrical, fire safety, [and] noise, and odor or other nuisances. This subsection does not require compliance with a regulation that conflicts with the Act or this chapter.

[(n) Destruction of any waste products related to the cultivation or processing of low-THC cannabis must involve the rendering of the product indistinguishable from other non-cannabis related plant material. The waste product must be stored in a locked container prior to disposal.]

(n) [(o)] Licensees must use applicable best practices to limit contamination of the product including but not limited to residual solvents, metals, mold, fungus, bacterial diseases, rot, pests, pesticides, mildew, and any other contaminant identified as posing potential harm. [The licensee shall maintain quality history records showing any laboratory testing results conducted on the licensee's products.]

(o) [(p)] Licensees must have a plan for establishing a recall of their products in the event a product is shown by testing or other means to be, or potentially to be, defective or have a reasonable probability that their use or exposure to will cause [serious] adverse health consequences. At a minimum, the plan should include the method of identification of the products involved; notification to the processing or dispensing organization or others to whom the products were sold or otherwise distributed; and how the products will be disposed of if returned to or retrieved by the licensee.

(p) Licensees shall retain the registration card of all terminated registrants for two (2) years after termination, unless the card is seized or destroyed by department personnel.

(q) Licensees shall maintain commercial general liability insurance coverage, as described in §12.11 of this title (relating to Application for License), and maintain current proof of such insurance on file with the department.

(r) Licensees' regulated premises must annually pass an inspection conducted by the state fire marshal or local designee of the state fire marshal. Proof of the passing inspection must be submitted to the department on a form approved by the department.

(s) Licensees' regulated premises shall be protected by a fire alarm and sprinkler system that complies with local ordinances and applicable Texas Department of Insurance administrative rules, 28 TAC Chapter 34, concerning State Fire Marshal.

(t) Licensees shall install an exterior wall-mounted building key safe at the main entrance to any processing facility, to enable emergency access for fire departments and emergency medical services.

(u) To the extent there is a conflict between the requirements of this chapter, or a conflict between this chapter and the Act, the more restrictive requirement governs. To the extent any requirement of this chapter or the Act conflicts with a regulation incorporated herein, this chapter or the Act shall govern.

(v) Research or development beyond that which is necessary for the cultivation or production of low-THC cannabis is prohibited.

(w) Only low-THC cannabis may be dispensed or sold. By-products must be destroyed.

(x) Registrants must be at least twenty-one (21) years of age at the time of application.

§12.3.Criminal History Disqualifiers.

(a) Registration as a director, manager or employee of a licensed dispensing organization provides these individuals access to sensitive medical information, drugs, and the equipment and raw materials needed to produce drugs. Registration provides those predisposed to commit fraud, theft and drug related crimes with greater opportunities to engage in such conduct and escape detection or prosecution. Therefore, the department has determined that offenses of the types detailed in subsection (b) of this section directly relate to the duties and responsibilities of those who are registered under the Act. Such offenses include crimes under the laws of another state or the United States, if the offense contains elements that are substantially similar to the elements of an offense under the laws of this state. Such offenses also include those "aggravated" or otherwise enhanced versions of the listed offenses.

(b) The list of offenses in this subsection is intended to provide guidance only and is not exhaustive of either the offenses that may relate to the regulated occupation or of those independently disqualifying under Texas Occupations Code, §53.021(a)(2) - (4). The listed offenses are general categories that include all specific offenses within the corresponding chapter of the Texas Penal Code and Texas Health and Safety Code. In addition, after due consideration of the circumstances of the criminal act and its relationship to the position of trust involved in the particular licensed occupation, the department may find that an offense not described in this subsection also renders an individual unfit to hold a registration. In particular, an offense that is committed in one's capacity as a registrant under the Act, or an offense that is facilitated by one's registration under the Act, will be considered related to the regulated occupation and may render the individual unfit to hold the registration.

(1) Bribery--Any offense under the Texas Penal Code, Chapter 36.

(2) Burglary and criminal trespass--Any offense under the Texas Penal Code, Chapter 30.

(3) Fraud--Any offense under the Texas Penal Code, Chapter 32.

(4) Perjury--Any offense under the Texas Penal Code, Chapter 37.

(5) Robbery--Any offense under the Texas Penal Code, Chapter 29.

(6) Theft--Any offense under the Texas Penal Code, Chapter 31.

(7) Organized Crime--Any offense under the [,] Texas Penal Code, Chapter 71.

(8) Any offense under Texas Health and Safety Code, Chapters 481, 482, or 483.

(9) In addition:

(A) An attempt to commit a crime listed in this subsection;

(B) Aiding and abetting in the commission of a crime listed in this subsection; and

(C) Being an accessory before or after the fact to a crime listed in this subsection.

(c) A felony conviction for an offense listed in subsection (b) of this section is disqualifying for ten (10) years from the date of the conviction.

(d) A Class A or B misdemeanor conviction for an offense listed in subsection (b) of this section is disqualifying for five (5) years from the date of conviction.

(e) Conviction for a felony or Class A offense that does not relate to the occupation for which registration is sought is disqualifying for five (5) years from the date of commission, pursuant to Texas Occupations Code, §53.021(a)(2).

(f) Independently of whether the offense is otherwise described or listed in subsection (b) of this section, a conviction for an offense listed in Texas Code of Criminal Procedure, Article 42.12, §3g or Article 42A.054, or that is a sexually violent offense as defined by Texas Code of Criminal Procedure, Article 62.001, is permanently disqualifying subject to the requirements of Texas Occupations Code, Chapter 53.

(g) Any unlisted offense that is substantially similar in elements to an offense listed in subsection (b) of this section is disqualifying in the same manner as the corresponding listed offense.

(h) A pending Class B misdemeanor charged by information for an offense listed in subsection (b) of this section is grounds for suspension.

(i) Any pending Class A misdemeanor charged by information or pending felony charged by indictment is grounds for suspension.

(j) In determining the fitness to perform the duties and discharge the responsibilities of the regulated occupation of an individual against whom disqualifying charges have been filed or who has been convicted of a disqualifying offense, the department may consider evidence of:

(1) The extent and nature of the individual's past criminal activity;

(2) The age of the individual when the crime was committed;

(3) The amount of time that has elapsed since the individual's last criminal activity;

(4) The conduct and work activity of the individual before and after the criminal activity;

(5) Evidence of the individual's rehabilitation or rehabilitative effort while incarcerated or after release;

(6) The date the individual will no longer be disqualified under the provisions of this section; and

(7) Any other evidence of the individual's fitness, including letters of recommendation from:

(A) Prosecutors or law enforcement and correctional officers who prosecuted, arrested, or had custodial responsibility for the individual; or

(B) The sheriff or chief of police in the community where the individual resides.

(k) In addition to the documentation listed in subsection (j) of this section, the applicant or registrant shall, in conjunction with any request for hearing on a criminal history based denial, suspension or revocation, furnish proof in the form required by the department that the individual has:

(1) Maintained a record of steady employment;

(2) Supported the individual's dependents;

(3) Maintained a record of good conduct; and

(4) Paid all outstanding court costs, supervision fees, fines and restitution ordered in any criminal case in which the individual has been charged or convicted.

(l) The information listed in subsection (j) and subsection (k) of this section must be submitted in conjunction with the request for hearing, following notification of the proposed action and prior to the deadline for submission of the request for hearing.

§12.4.Records.

(a) Records required under the Act or this chapter must be maintained and made available for inspection or copying for a period of two (2) years. Records may be maintained in digital form so long as a hard copy may be produced upon request of department personnel.

(b) In addition to any records otherwise required to be maintained under the Act or this chapter, licensees must specifically retain [The records detailed in this subsection must be maintained by all licensees for two (2) years, unless otherwise provided]:

(1) Copies of all [All] application materials submitted to the department or relied on in making any representation or affirmation in conjunction with the application process;

(2) Purchase, sale, and inventory records [of destruction];

(3) Shipping invoices, log books, records of duty status if applicable, delivery records and manifests reflecting the recipient's acknowledgment and establishing the chain of custody, relating to the transportation of:

(A) Low-THC cannabis and any cannabis sativa plants intended for use in the processing of low-THC cannabis;

(B) Raw materials used in or by-products created by the production or cultivation of low-THC cannabis; [or]

(C) Drug paraphernalia used in the production, cultivation or delivery of low-THC cannabis; or[.]

(D) Waste material resulting from cultivation, processing, or dispensing of low-THC cannabis.

(4) Security records, including building access and visitor logs, [and] video recordings, and transportation trip plans;

(5) The licensee's drug-free workplace policy;

(6) Records on all registered directors, managers, and employees, including a color photograph of the individual, a copy of the registration issued by the department, records reflecting the individual's position, assigned duties, and work schedule, and a copy of the company's drug-free workplace policy signed by the individual. These records must be maintained for two (2) years from the date employment is terminated;[.]

(7) Records of any disposal or destruction of waste materials resulting from cultivating, processing, or dispensing low-THC cannabis;

(8) Records of any local or state regulatory inspections, including state or local fire marshal inspections; and

(9) Records of all tests conducted in compliance with §12.7 of this title (relating to Testing, Production, and Packaging).

§12.7.Testing, Production, and Packaging.

(a) Licensees must comply with all applicable provisions of the Texas Agriculture Code and the Texas Department of Agriculture's administrative rules, Title 4, Part 1.

(b) Representative samples of all [Licensees must test all] processed products must be tested for the levels of tetrahydrocannabinol and cannabidiol, and for residual solvents, pesticides, fungicides, fertilizers, mold, and heavy metals, in accordance with applicable provisions of the Texas Agriculture Code and Texas Department of Agriculture's administrative rules, Title 4, Part 1, and Code of Federal Regulations, Title 16, Part 1107.

(c) Only pesticides of minimum risk exempted under the Federal Insecticide, Fungicide, and Rodenticide Act, 7 USC §136, may be used on cannabis. The pesticide's active ingredients may only be those listed in 40 CFR §152.25(f)(1). The pesticide's inert ingredients may only be those that listed in 40 CFR §152.25(f)(2); commonly consumed food commodities, animal feed items, and edible fats and oils as provided in 40 CFR §180.950(a),(b) and (c); and chemical substances listed in 40 CFR §180.950(e). All pesticide ingredients (both active and inert) must be listed on the pesticide container's label. The active ingredient(s) must be listed by label display name and percentage by weight. Each inert ingredient must be listed by label display name. The product may not bear claims to control or mitigate organisms that pose a threat to human health, or insects or rodents carrying specific diseases. The name of the producer or the company for whom the product was produced and the company's contact information must be displayed prominently on the product label. The label cannot include any false or misleading statements. The label must comply with the Texas Department of Agriculture's administrative rule, 4 TAC §7.11, relating to Label Requirements.

(d) All facilities must be inspected and approved for their use by a local fire code official, or by the state fire marshal or local designee of the state fire marshal, and must meet any required fire, safety, and building code requirements specified in:

(1) National Fire Protection Association (NFPA) standards;

(2) International Building Code (IBC);

(3) International Fire Code (IFC);

(4) Texas Department of Insurance administrative rules, 28 TAC Chapter 34, concerning State Fire Marshal; and

(5) Other applicable standards including following all applicable fire, safety, and building codes in processing and the handling and storage of the solvent or gas.

(e) Licensees must provide certification by a Texas licensed professional engineer that the extraction system to be used to produce low-THC cannabis products was commercially manufactured, safe for its intended use, and built to codes of recognized and generally accepted good engineering practices, such as:

(1) The American Society of Mechanical Engineers (ASME);

(2) American National Standards Institute (ANSI);

(3) Underwriters Laboratories (UL); or

(4) The American Society for Testing and Materials (ASTM).

(f) The extraction process must be continuously staffed during operations by a registered employee trained in the extraction process, the transfer of LP-gas where applicable, and all emergency procedures. All staff training records shall be maintained on-site and made available upon request by the department or local law enforcement or regulatory official.

(g) The installation, operation, repair and maintenance of electrical systems, devices, and components shall conform to the National Electrical Code, NFPA 70 as adopted by the Texas Department of Licensing and Regulation. All electrical components within the extraction room shall be interlocked with the hazardous exhaust system and when provided, the gas detection system. When the hazardous exhaust system is not operational, or the gas detection system is activated, light switches and electrical outlets shall be disabled while leaving lights on that are necessary for evacuation. The electrical systems shall include:

(1) Extraction room lighting;

(2) Extraction room ventilation system;

(3) Solvent gas detection system;

(4) Emergency alarm systems;

(5) Automatic fire extinguishing systems;

(6) Vent failure alarm system; and

(7) Emergency power backup system.

(h) For extraction processes utilizing gaseous hydrocarbon-based solvents, a continuous gas detection system shall be provided. The gas detection threshold shall be no greater than 10% of the LEL/LFL limit of the materials.

(i) Signs shall be posted at the entrance to each production area using or storing carbon dioxide, indicating the hazard. Signs shall be durable and permanent in nature and not less than 7 inches wide by 10 inches tall. Signs shall bear the "skull and crossbones" emblem with the warning "DANGER! POTENTIAL OXYGEN DEFICIENT ATMOSPHERE". NFPA 704 signage shall be provided at the building main entry and the rooms where the carbon dioxide is used and stored. The main entrance to the facility and any door to a room where storage, transfer or use of hazardous materials is conducted shall be appropriately posted with markings in accordance with NFPA 704, Standard System for the Identification of the Hazards of Materials for Emergency Response.

(j) Mechanical ventilation within an extraction or processing facility shall be in accordance with the applicable local ordinances or the appropriate NFPA standard as adopted by the State Fire Marshal's Office if no applicable local ordinance exists, and shall have:

(1) Mechanical ventilation in the room or area of rate of not less than 1 cubic foot per minute per square foot;

(2) Exhaust system intake from a point within 12 inches of the floor; and

(3) Ventilation operating at a negative pressure in relation to the surrounding area.

(k) Any liquid extraction process using flammable and combustible liquids in which the liquid is boiled, distilled, or evaporated must operate in compliance with this section and NFPA 30 as adopted by the State Fire Marshal's Office.

(l) Any processing equipment using a flammable or combustible vapor or liquid must meet the requirements of NFPA 30 and NRPA 70. Such equipment shall be located within a hazardous exhaust fume hood, rated for exhausting flammable vapors. Electrical equipment used within the hazardous exhaust fume hood shall be rated for use in flammable atmospheres. Heating of flammable or combustible liquids over an open flame is prohibited, with the exception that the use of a heating element not rated for flammable atmospheres may be used where documentation from the manufacturer or a nationally recognized testing laboratory indicates it is rated for heating of flammable liquids.

(m) Product extraction processes may use only potable water in compliance with Code of Federal Regulations, Title 40, Part 141.

(n) All regulated premises shall be located at least 1000 feet from any private or public school or day care center that existed prior to the date of initial license application, measured from the closest points on the respective property lines.

(o) All final packaging for patient consumption must be in child-resistant packaging designed or constructed to be significantly difficult for children under five (5) years of age to open and not difficult for normal adults to use properly as defined by the most current version of the Code of Federal Regulations, Title 16, Part 1700 and Title 40, Part 157.2 and American Society for Testing and Materials (ASTM) D3475-15, Standard Classification of Child-Resistant Packages, ASTM International, West Conshohocken, PA, 2015.

(p) All final packaging labels must include:

(1) Physician's name;

(2) Patient's name;

(3) Dispensing organization's name, state license number, telephone number, and mailing address;

(4) Dosage prescribed and means of administration;

(5) Date the dispensing organization packaged the contents;

(6) Batch number, sequential serial number, and bar code when used, to identify the batch associated with manufacturing and processing;

(7) Potency of the low-THC cannabis product contained in the package, including the levels of tetrahydrocannabinol and cannabidiol;

(8) Statement that the product has been tested for contaminants with specific indications of all findings, and the date of testing in accordance with Code of Federal Regulations, Title 16, Part 1107; and

(9) Statement that the product is for medical use only and is intended for the exclusive use of the patient to whom it is prescribed. This statement should be in bold print.

(q) The dispensed product may contain no more than 0.5% by weight of tetrahydrocannabinols and not less than 10% by weight of cannabidiol.

(r) The storage, transfer, and use of LP- Gas shall conform to the regulations of the Texas Railroad Commission, including but not limited to NFPA 58, LP Gas Code (as amended) and the adopted standards of the State Fire Marshal's Office.

(s) The storage, use and handling of liquid carbon dioxide shall be in accordance with Chapter 13 of NFPA 55.

[(c) All final packaging for patient consumption must be in child-resistant packaging designed or constructed to be significantly difficult for children under five years of age to open and not difficult for normal adults to use properly as defined by the most current version of the Code of Federal Regulations, Title 16, Part 1700 and Title 40, Part 157.2 and American Society for Testing and Materials (ASTM) D3475-15, Standard Classification of Child-Resistant Packages, ASTM International, West Conshohocken, PA, 2015.]

[(d) All final packaging labels must include:]

[(1) Physician's name;]

[(2) Patient's name;]

[(3) Dispensing organization's name, state license number, telephone number, and mailing address;]

[(4) Dosage prescribed and means of administration;]

[(5) Date the dispensing organization packaged the contents;]

[(6) Batch number, sequential serial number, and bar code when used, to identify the batch associated with manufacturing and processing;]

[(7) Potency of the low-THC cannabis contained in the package, including the levels of tetrahydrocannabinol and cannabidiol;]

[(8) Statement that the product has been tested for contaminants with specific indications of all findings, and the date of testing in accordance with Code of Federal Regulations, Title 16, Part 1107; and]

[(9) Statement that the product is for medical use only and is intended for the exclusive use of the patient to whom it is prescribed. This statement should be in bold print.]

[(e) The dispensed product may contain no more than 0.5% by weight of tetrahydrocannabinols and not less than 10% by weight of cannabidiol.]

§12.8.Inventory Control System.

(a) A licensed dispensing organization shall use a perpetual inventory control system that identifies and tracks the licensee's stock of low-THC cannabis from the time it is propagated from seed or cutting, to the time it is delivered to either another licensee or [a qualifying ] patient or legal guardian.

(b) The inventory control system shall be capable of tracking low-THC cannabis from a [qualified] patient back to the source of the low-THC cannabis in the event of a serious adverse event.

(c) The inventory control system shall be designed to promptly identify a discrepancy and interact with the department's centralized registry system.

(d) Upon receipt of raw material for cultivation, a licensee shall record in the inventory control system:

(1) The date delivered; and

(2) The number of clones or seeds delivered or the weight of the seeds for each variety in the shipment.

(e) For each plant, including any clippings to be used for propagation, a licensee shall:

(1) Create a unique identifier;

(2) Assign a batch number;

(3) Enter appropriate plant identifying information into the inventory control system;

(4) Create an indelible and tamper resistant tag made of temperature and moisture resistance material, with a unique identifier and batch number;

(5) Securely attach the tag to a container in which a plant is grown until a plant is large enough to securely hold a tag;

(f) Upon curing or drying of each batch, a licensee shall weigh the batch and enter the weight into the [low-THC cannabis to update] inventory control system database [for the batch].

(g) At least monthly, a licensee shall conduct a physical inventory of the stock and compare the physical inventory of stock with inventory control system data.

(h) If a licensee discerns a discrepancy between the inventory of stock and inventory control system data outside of normal weight loss due to moisture loss and handling, a licensee shall begin [commence] an audit of the discrepancy.

(i) Within fifteen (15) business days of discovering a discrepancy, the licensee shall:

(1) Complete an audit;

(2) Amend the licensee's standard operating procedures, if necessary; and

(3) Send an audit report to the department.

(j) If a licensee finds evidence of theft or diversion, the licensee shall [immediately] report the theft or diversion to the department within two (2) days of the discovery of the theft or diversion.

§12.9.Sanitation; Waste Disposal.

(a) Licensees must maintain regulated premises in a clean and sanitary condition, and shall take all reasonable measures to ensure:

(1) Litter and waste are routinely removed and waste disposal systems are routinely inspected in accordance with applicable local, state, or federal law, rule, regulation or ordinance;

(2) Fixtures, floors, walls, ceilings, buildings or other facilities are kept in good repair;

(3) Regulated premises are adequately screened and otherwise protected against the entry of pests;

(4) Refuse disposal is conducted in a manner to minimize the development of odor and the potential for breeding of pests;

(5) Contact surfaces, including utensils and equipment used for the cultivation, drying, trimming, or storage of product, are cleaned and sanitized in a manner to protect against contamination;

(6) Potentially toxic chemicals used within the cultivation facility are identified, stored, and disposed of in a manner to protect against contamination of the product, in compliance with all applicable local, state, or federal laws, rules, regulations or ordinances;

(7) Storage and transportation of product is under conditions that protect against physical, chemical, and microbial contamination;

(8) Safes, vaults, and storage rooms are in good working order, with climate control systems sufficient to prevent spoilage;

(9) Processing site is free of contamination and suitable for the safe and sanitary preparation of the product, including ensuring all equipment, counters and surfaces used for processing are food-grade and nonreactive with any solvent being used, with easily cleanable surface areas constructed in a manner to reduce the potential for development of mold or fungus;

(10) Hand-washing facilities provide effective hand-cleaning and sanitizing materials, with sanitary towel service or hand drying devices, and hot and cold running water;

(11) All persons working in direct contact with product conform to hygienic practices while on duty, including but not limited to:

(A) Maintaining adequate personal cleanliness, including washing hands thoroughly before handling product and as often as necessary to remove soil and contamination and to prevent cross-contamination when changing tasks;

(B) Refraining from direct contact with product if the person has or may have an illness, open lesion, including boils, sores, or infected wounds, or any other abnormal source of microbial contamination, until such condition is corrected;

(C) Keeping fingernails trimmed and filed so that the edges and surfaces are cleanable;

(D) Unless wearing intact gloves in good repair, having no fingernail polish or artificial fingernails on the employee's fingernails;

(E) Wearing clean clothing appropriate to assigned tasks or protective apparel such as coats, aprons, gowns, or gloves to prevent contamination; and

(F) Reporting to the employer's director or manager any health condition experienced by the employee that may adversely affect the safety or quality of product with which the employee may come into contact;

(12) Prohibiting any employee with a health condition that may adversely affect the safety or quality of the product from having direct contact with any product or equipment or materials for processing low-THC cannabis, or from performing any task that reasonably might contaminate or adversely affect any product.

(b) Destruction and disposal of waste materials resulting from the cultivation or processing of low-THC cannabis must be conducted in compliance with applicable state and local laws and regulations, and Code of Federal Regulations, Title 21, Part 1317, Subpart C. Any waste materials containing low-THC cannabis or raw materials used in or by-products created by the production or cultivation of low-THC cannabis must be rendered irretrievable, as defined in Code of Federal Regulations, Title 21, Part 1300. Waste water generated during production and processing must be disposed of in compliance with applicable state and local laws.

(c) Licensees are responsible for determining whether specific waste materials or waste water constitute hazardous waste under applicable federal or state regulations and for ensuring disposal of any such waste complies with applicable disposal regulations.

(d) All waste materials must be stored on the licensee's premises prior to destruction and disposal.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 30, 2016.

TRD-201606762

D. Phillip Adkins

General Counsel

Texas Department of Public Safety

Earliest possible date of adoption: February 12, 2017

For further information, please call: (512) 424-5848


SUBCHAPTER B. APPLICATION AND RENEWAL

37 TAC §§12.11, 12.14, 12.15

The Texas Department of Public Safety (the department) proposes amendments to §§12.11, 12.14, and 12.15, concerning Application and Renewal. The amendments to §12.11, concerning Application for License, requires that licensed dispensers of low-THC cannabis obtain commercial liability insurance within certain coverage limits, to ensure licensees can appropriately compensate third parties injured or otherwise harmed by the product or activities of the licensee. The amendments to §12.14, concerning Application and Licensing Fees and Method of Payment, increase application and renewal fees to accurately reflect the costs of administering the program. The amendments to §12.15, concerning Denial of Application for License, amend a cross reference necessitated by the proposed amendments to §12.11, and amend the basis for which the department may deny the application for a license in order to accurately reflect the requirements of Texas Health and Safety Code, §487.104(a)(2).

In the October 28, 2016 issue of the Texas Register (41 TexReg 8520), the department published proposed amendments to §§12.11, 12.14, and 12.15, concerning Application and Renewal. The department received numerous comments regarding the proposals. In response to these written comments, the department has made changes to the proposals as summarized below, withdraws the October 28th proposal and is republishing this proposal.

The department accepted comment on the proposed rules through November 28, 2016. Written comments were submitted during this period by several individuals and the following groups: ACC Wellness Center; CannOrganics of Texas; Texas Cannabis; Canna Advisors; Fields Ventures; Pendulum; GrowBlox Sciences; Texas Wellness Investment Group; Texas Cannabis Industry Association; United Food and Commercial Works Union Local 1000; and the Epilepsy Foundation Texas. Written comments were also submitted by State Representative Stephanie Klick with an additional 41 state representatives as cosignatories.

Included in the comments received by the department were items interpreted as requests for information or questions about the meaning of certain items, and not rule comments. These items will be addressed by either direct correspondence or website communications. Additional information pertaining to the Compassionate-Use Program can be found at: http://dps.texas.gov/rsd/CUP/

The substantive comments, as well as the department’s responses thereto, are summarized below.

COMMENT: Relating to proposed §12.11, concerning Application for License, GrowBlox Sciences expressed concern regarding the availability of commercial general liability insurance coverage as required by §12.11(b)(7).

RESPONSE: The proposed rule is necessary to ensure the protection of the public against potentially unsafe production methods and negative environmental impacts resulting from the production of low-THC cannabis. The department believes that such insurance will be available, as it is currently in other states. The department disagrees with the comment and will not be modifying the proposal.

COMMENT: Relating to proposed §12.14, concerning Application Fees and Method of Payment, several individuals and groups including ACC Wellness Center; CannOrganics of Texas; Texas Cannabis; Canna Advisors; Fields Ventures; Pendulum; GrowBlox Sciences; Texas Wellness Investment Group; Texas Cannabis Industry Association; United Food and Commercial Works Union Local 1000; and the Epilepsy Foundation Texas expressed concern regarding the increase in the licensing fee from $6000 in the current §12.14 to $1.3 million as proposed. The comments urged the department to decrease the fee and make it comparable to the licensing fees in other states with similar compassionate use programs. These same individuals and groups urged the department to increase the number of licensed dispensing organizations and to remove or limit the presence of commissioned troopers at dispensing facilities in order to reduce the costs of the program.

RESPONSE: Although the department is limited by the statutory directive found in Texas Health & Safety Code, §487.152 that the department must impose fees "in amounts sufficient to cover the cost of administering" the low-THC cannabis program, in response to the comments the department has modified its analysis by removing the assumption of commissioned trooper presence, and replacing with an augmentation of inspection personnel at each location who will conduct multiple visits to each site every week resulting in a reduction in the proposed licensing fees provided in §12.14. The proposed application fee for a dispensing organization license is now $7,356. The proposed license fee for a dispensing organization is now $488,520 for a two year license. The proposed fee for the biennial renewal of the dispensing organization license is $318,511. The proposed registration fee is $530 for both the original registration and renewals.

The department did consider the suggestions of those who commented on the factors above and took their opinions into account when developing a reduced fee. However, the department is committed to ensuring that if three applicants qualify, that three are licensed. Additionally, in carrying out the legislative directive that the CUP program allow for state wide access, the rules set forth provisions allowing for licensees to deliver to patients regardless of their location in Texas.

COMMENT: Relating to proposed §12.11(b)(7)(B)(vii) and §12.11(b)(7)(C)(iv), concerning Application for License, several individuals and groups including Fields Ventures; Texas Cannabis Industry; Texas Cannabis; Pendulum; Texas Wellness Group; the Epilepsy Foundation Texas and Representative Stephanie Klick expressed concern that the requirement to disclose "seed source" would force dispensing organizations to admit to potential violations of federal or state law.

RESPONSE: The department agrees with the comment and has deleted the amendments related to the disclosure of seed sources in §12.11(b)(7)(B)(vii) and §12.11(b)(7)(C)(iv) in this new proposal and replaced it with a requirement that licensees acknowledge federal laws governing marijuana and its interstate transportation.

Suzy Whittenton, Chief Financial Officer, has determined that for each year of the first five-year period these rules are in effect there will be no fiscal implications for state or local government, or local economies.

Ms. Whittenton has determined that there will be no adverse economic effect on small businesses or micro-businesses required to comply with the proposed amendments to §12.15. There is no anticipated economic cost to businesses required to comply with the rule as proposed. There is no anticipated negative impact on local employment.

Ms. Whittenton has also determined that the proposed amendment to §12.11 may have adverse economic effects on small businesses required to comply with this rule as proposed. The department estimates there will be three licensees, and all of these licensees will be small businesses. These estimates are based on an analysis of other states’ compassionate use programs and the number of patients in Texas with intractable epilepsy, and Texas Health and Safety Code Chapter 487’s requirements that the department issue at least three licenses and that issuance of the license be necessary to ensure reasonable statewide access to, and the availability of low-THC cannabis for patients for whom low-THC cannabis is prescribed under Chapter 169, Occupations Code. The department estimates the projected impact of this rule will be increased costs of compliance associated with obtaining commercial liability insurance coverage. Specifically, the department estimates §12.11’s requirement that dispensers obtain commercial liability insurance coverage will likely cost each licensee $4,000 to $5,000 per year.

In preparing these rules the department considered the alternatives of granting exemptions or grace periods from the requirements for small businesses. However, these rules are intended to implement Texas Health and Safety Code, Chapter 487’s requirements that, among other things, licensees possess the financial ability to maintain operations for not less than two years. The department’s proposals also ensure licensees are financially capable of appropriately compensating third parties injured or otherwise harmed by the product or activities of the licensee. An exemption or grace period would be inconsistent with these purposes. There is no anticipated negative impact on local employment.

Ms. Whittenton has also determined that proposed rule §12.14, relating to application fees and method of payment, may have an adverse economic effect on small businesses required to comply with these rules as proposed. The department estimates there will be three licensees, with an average of thirty-seven registered employees per organization, and that all of these licensees will be small businesses. These estimates are based on an analysis of other states’ compassionate use programs, the number of patients in Texas with intractable epilepsy, and the Texas Health and Safety Code, Chapter 487’s requirements that the department issue at least three licenses and that issuance of the license be necessary to ensure reasonable statewide access to, and the availability of low-THC cannabis for patients for whom low-THC cannabis is prescribed under Chapter 169, Occupations Code. In calculating the costs of administering the statute, the department considered the type of employees to be involved with processing applications and inspecting facilities. A percentage of salary, fuels, consumables, and other operating costs are included. Also included are estimated costs for license cards and FBI and state background checks. The estimated fees are: an initial application fee of $7,356 per organization, a license fee of $488,520 per organization and a registration license fee of $530 per registrant, for initial licensure, and $318,511 and $530 respectively, for renewals. Because the proposed fees are based on the cost of administering the program, they are consistent with the statutory requirements. The initial application and registration fees reflect the department’s costs to review the applications, conduct background checks, and perform the pre-licensure onsite inspections. The renewal fees reflect the department’s continuing costs of administering the program.

In addition, Ms. Whittenton has also determined that for each year of the first five-year period the rules are in effect, the public benefit anticipated as a result of enforcing the rules will be greater protection of the public against harm or damages arising from licensees’ industrial accidents or defective products.

The department has determined that this proposal is not a "major environmental rule" as defined by Texas Government Code, §2001.0225. "Major environmental rule" is defined to mean a rule that the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

The department has determined that Chapter 2007 of the Texas Government Code does not apply to this proposal. Accordingly, the department is not required to complete a takings impact assessment regarding this proposal.

Comments on this proposal may be submitted to Steve Moninger, Regulatory Services Division, Department of Public Safety, P.O. Box 4087, MSC-0240, Austin, Texas 78773-0246, or by email at https://www.dps.texas.gov/rsd/contact/default.aspx. Select "Compassionate Use Program". Comments must be received no later than thirty (30) days from the date of publication of this proposal.

These amendments are proposed pursuant to Texas Government Code, §411.004(3), which authorizes the Public Safety Commission to adopt rules considered necessary for carrying out the department’s work, and Texas Health and Safety Code, §487.052, which requires the department adopt rules necessary for the administration and enforcement of Texas Health and Safety Code, Chapter 487.

Texas Government Code, §411.004(3) and Texas Health and Safety Code, §487.052 are affected by this proposal.

§12.11.Application for License.

(a) Application for license as a dispensing organization may only be made in the manner determined by the department [through the department's online application process].

(b) A complete application must include the items detailed in this subsection, in a manner determined by the department:

(1) Proof of ownership and current status in the manner required by the department, including but not limited to a current Certificate of Existence or Certificate of Authority from the Texas Office of the Secretary of State and a Certificate of Good Standing from the Texas Comptroller of Public Accounts;

(2) All application fees required under §12.14 of this title (relating to Application and Licensing Fees and Method of Payment);

(3) Names, dates of birth, addresses, and all other information required by the department necessary to verify the identity of all directors, managers, and employees of the applicant;

(4) Criminal history disclosure of all convictions and deferred adjudications for each individual listed on the application as directors, managers, and employees of the dispensing organization;

(5) Complete registration applications for all directors, managers and employees submitted in the manner approved by the department and in compliance with §12.12 of this title (relating to Application for Registration);

(6) Proof of commercial general liability insurance coverage against claims of liability for damage to property of third parties and for personal injuries to third parties, including bodily injury, property damage, and product liability, with limits of:

(A) $1,000,000 each occurrence;

(B) $2,000,000 General Aggregate limit; and

(C) $1,000,000 Product Liability.

(7) [(6)] Evidence of the qualifications detailed in this paragraph as determined at the time of the required onsite inspection, in the manner determined by the department:

(A) The technical and technological ability to cultivate, process, and/or dispense low-THC cannabis, evidenced by experience in the areas of:

(i) Cultivation, analytical organic chemistry and micro-biology; and analytical laboratory methods; and

(ii) Patient education and interaction, and the handling of confidential information including familiarity with the requirements of the Health Insurance Portability and Accountability Act (HIPAA).

(B) The ability to secure the premises, resources, and employees [personnel] necessary to operate as a dispensing organization, evidenced by:

(i) Descriptions of all properties applicant proposes to utilize to cultivate, process, and dispense low-THC cannabis, including ownership information for the properties;

(ii) Descriptions of the methods proposed for the cultivation, processing, and dispensing of low-THC cannabis;

(iii) Descriptions of the types and locations of worker safety equipment and plans and procedures for complying with federal Occupational Safety and Health Administration (OSHA) regulations for workplace safety;

(iv) A list of current and proposed staff, including, position, duties and responsibilities, and an organizational chart illustrating the supervisory structure of the dispensing organization;

(v) Description of the applicant's proposed testing laboratory, and description of the proposed [cannabis] testing protocols and methods; [and]

(vi) A proposal establishing the ability to secure premises reasonably located to allow patient access through existing infrastructure; and [.]

(vii) Department approved acknowledgments executed by the applicant’s directors, managers and employees indicating familiarity with the federal laws governing marijuana and its interstate transportation.

(C) The ability to maintain accountability of all raw materials, finished products, and any by-products to prevent diversion or unlawful access to or possession of these substances, evidenced by:

(i) Floor plan of each facility or proposed floor plans for proposed facilities, including:

(I) Locking options for all means of ingress and egress consistent with life safety requirements;

(II) Alarm systems;

(III) Video surveillance;

(IV) Name, layout and function of each room; and

(V) Storage, including safes and vaults.

(ii) Diversion prevention procedures;

(iii) Emergency management plan;

(iv) System for tracking [low-THC] source plant material throughout cultivation, processing, and dispensing;

(v) Inventory control system [for low-THC cannabis] as required by §12.8 of this title (relating to Inventory Control System);

(vi) Policies and procedures for recordkeeping;

(vii) Electronic vehicle tracking systems;

(viii) Vehicle security systems;

(ix) Methods of screening and monitoring employees;

(x) Employee [Personnel] qualifications and experience with chain of custody or other tracking mechanisms;

(xi) Waste disposal plan;

(xii) Recall procedures for any product that has a reasonable probability of causing adverse health consequences based on a testing result, patient reaction, or other reason; and

(xiii) Access to specialized resources or expertise regarding data collection, security, and tracking.

(D) Infrastructure reasonably located to dispense low-THC cannabis to registered patients, evidenced by:

(i) Map showing the location of the applicant's proposed dispensing facilities with streets; property lines; buildings; parking areas; outdoor areas, if applicable; fences; security features; fire hydrants, if applicable; and access to water and sanitation systems;

(ii) Floor plan of the actual or proposed building or buildings where dispensing activities will occur showing areas designed to protect patient privacy and areas designed for retail sales, with proposed hours of operation;

(iii) HIPAA compliant computer network utilized by all facilities;

(iv) Identifying descriptions of any vehicles to be used to transport product; and

(v) Description of all communication systems.

(E) The financial ability to maintain operations for two (2) years from the date of application, evidenced by:

(i) Applicant's business organization, and corporate structure if applicable;

(ii) List of all owners of any non-corporate [the] applicant, or all [including any] shareholders [owning 10% or more] of a corporate applicant;

(iii) All individuals and entities with control over the applicant;

(iv) Projected two (2) year budget; and

(v) Description of available assets sufficient to support the dispensing organization activities.

(c) Subsequent to the submission of all information and documentation required by subsection (b)(1) - (6) [(5) ] of this section and the conditional approval of the application , [and prior to approval of the application,] the department will conduct an onsite inspection to confirm applicant's compliance with the requirements of subsection (b)(7) [(b)(6) ] of this section and of this chapter generally. The applicant must pass the inspection prior to licensure. Failure to pass the inspection will result in notification of the basis for the failure. Failure to address the basis for the failure within sixty (60) [ninety (90)] days of notice may result in the denial of the application, pursuant to §12.15 of this title (relating to Denial of Application for License). Upon request of the applicant, the department may extend the period to address the basis for the failure for one (1) additional thirty (30) [ninety (90)] day period.

(d) Failure of an applicant to submit all information and documentation required by subsection (b)(1) - (6) [(5) ] of this section will result in notification of the deficiency. Applicant will have ninety (90) days from the date of notice to address the deficiency. Upon request of the applicant, the department may extend the period to address the deficiency for one (1) additional ninety (90) day period. If an applicant fails to provide all required application materials, or fails to respond to a request by the department for additional information necessary to process the application, the application will be terminated. Following the termination of an application, a new application, including a new application fee, must be submitted.

§12.14.Application and Licensing Fees and Method of Payment.

(a) The application fee for a dispensing organization license is $7,356. The license fee for a dispensing organization is $488,520 for a two (2) year period. [$6,000.]

(b) The fee for the biennial renewal of the dispensing organization license is $318,511 [$6,000].

(c) The registration fee is $530 for both the original registration and renewals [application and biennial renewal fees are $150].

(d) Payment of all fees must be made electronically in the manner determined by the department.

(e) If payment is dishonored or reversed prior to issuance of the license or registration, the application will be rejected as incomplete. If the license or registration has been issued prior to the payment being dishonored or reversed, revocation proceedings will be initiated pursuant to §12.23 of this title (relating to Revocation). The department may dismiss a pending revocation proceeding upon receipt of payment of the full amount due, including any additional processing fees.

§12.15.Denial of Application for License.

(a) The department may deny the application for a license as a dispensing organization if the applicant fails to pass the initial review of the application materials or the onsite inspection, based on the failure to satisfy the requirements reflected in subsection (b)(7) [(b)(6)] of §12.11 of this title (relating to Application for License), and has either failed to address the basis for the failure within sixty (60) [ninety (90)] days of notice of the failure, or has failed to request an additional thirty (30) [ninety (90)] days to address the basis for the failure.

(b) The department may [also] deny the application for a license if the applicant is found to have violated any provision of the Act or this chapter, or §§481.120, 481.121, 481.122, or 481.125 of the Texas Health and Safety Code prior to licensure or renewal.

(c) The department may also deny the application for a license from an otherwise qualified applicant if the department determines issuance of the license is not necessary to ensure reasonable statewide access to, and the availability of low-THC cannabis for patients registered in the compassionate-use registry and for whom low-THC cannabis is prescribed under Chapter 169, Occupations Code.

(d) [(c)] Following the notice of denial the applicant will be provided thirty (30) days to request a hearing by submitting a request through the department's website.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 30, 2016.

TRD-201606763

D. Phillip Adkins

General Counsel

Texas Department of Public Safety

Earliest possible date of adoption: February 12, 2017

For further information, please call: (512) 424-5848


SUBCHAPTER G. PRODUCTION LIMITS

37 TAC §12.61

The Texas Department of Public Safety (the department) proposes new §12.61, concerning Production Limits. This section is necessary to establish a statewide production limit to ensure that licensees produce only the amount of product necessary to serve the narrow population of patients living with intractable epilepsy, as defined under Occupations Code, Chapter 169.

Suzy Whittenton, Chief Financial Officer, has determined that for each year of the first five-year period this rule is in effect there will be no fiscal implications for state or local government, or local economies.

Ms. Whittenton has also determined that there will be no adverse economic effect on small businesses or micro-businesses required to comply with the rule as proposed. There is no anticipated economic cost to individuals who are required to comply with the rule as proposed. There is no anticipated negative impact on local employment.

In addition, Ms. Whittenton has also determined that for each year of the first five-year period the rule is in effect, the public benefit anticipated as a result of enforcing the rules will be greater protection of the public against harms or damages caused by diversion or potential misuse of an excessive supply of low-THC Cannabis.

The department has determined that this proposal is not a "major environmental rule" as defined by Texas Government Code, §2001.0225. "Major environmental rule" is defined to mean a rule that the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

The department has determined that Chapter 2007 of the Texas Government Code does not apply to this proposal. Accordingly, the department is not required to complete a takings impact assessment regarding this proposal.

Comments on this proposal may be submitted to Steve Moninger, Regulatory Services Division, Department of Public Safety, P.O. Box 4087, MSC-0240, Austin, Texas 78773-0246, or by email at https://www.dps.texas.gov/rsd/contact/default.aspx. Select "Compassionate Use Program". Comments must be received no later than thirty (30) days from the date of publication of this proposal.

This proposal is proposed pursuant to Texas Government Code, §411.004(3), which authorizes the Public Safety Commission to adopt rules considered necessary for carrying out the department's work, and Texas Health and Safety Code, §487.052, which requires the department adopt rules necessary for the administration and enforcement of Texas Health and Safety Code, Chapter 487.

Texas Government Code, §411.004(3) and Texas Health and Safety Code, §487.052 are affected by this proposal.

§12.61.Production Limits.

(a) This subchapter limits the amount of annual statewide production by licensees to the estimated demand as calculated under this subchapter but shall not be construed as adopting a standard of care for treatment involving the product. The intent of this subchapter reflects legislative intent to serve a narrow population of patients living with intractable epilepsy, as defined under Occupations Code, Chapter 169. The subchapter includes a provision allowing the department to increase the established production limit. This provision shall be executed if ever necessary to prevent the subchapter from ever being the cause of a patient legally prescribed the product under Occupations Code, Chapter 169, from being unable to access his or her full prescription from a licensee.

(b) On the first of every September or in accordance with subsection (i) of this section, the Department of State Health Services shall provide a report to the department with:

(1) a current estimate of people living with intractable epilepsy, as defined by Occupations Code, Chapter 169, in Texas; and

(2) the most current scientifically accepted dosage of product used to treat an average individual living with intractable epilepsy for one (1) year.

(c) Any information reported under subsection (b) of this section:

(1) may be extrapolated from the number of beneficiaries receiving state public assistance treating individuals with intractable epilepsy;

(2) is strictly for the purpose of estimating a limit on production under this chapter; and

(3) shall not be construed as the Department of State Health Services adopting a standard of care for treating intractable epilepsy.

(d) Upon receipt of the report required under subsection (b), the department shall determine the maximum amount of product allowed to be produced statewide, which shall be limited to:

(1) an amount required to treat one third of the population described in subsection (b)(1) of this section with each individual receiving the dosage determined by subsection (b)(2) of this section, if prior to September 1, 2018; or

(2) the amount of product demand from the previous twelve (12) month period grown by a percent equal to the growth over the same previous twelve (12) month period in the population described by subsection (b)(1), if after September 1, 2018.

(e) The department shall determine a maximum amount of cannabis sativa plants needed to produce the amount of product described in subsection (d) and subsection (j) of this section, if applicable.

(f) Except as provided in subsection (j), each licensee shall not annually produce more than an amount of product described by subsection (d) divided by the number of licensees.

(g) In any fiscal year, licensees shall not have more live cannabis sativa plants than an amount authorized by the department in subsection (e) in this section divided by the number of licensees.

(h) Licensees may report a forecasted shortage of product once in any quarter of the fiscal year to the department, which shall forward the report to the Department of State Health Services.

(i) The Department of State Health Services may resend a revised report under subsection (b) at any time upon receipt of reliable information that conflicts with the most recently released report under subsection (b).

(j) The department may increase the amount allowed under subsection (d) upon notice from the Health and Human Services Commission under subsection (b). An increase under this subsection is limited to meeting the forecasted demand for product in Texas for the remainder of the current twelve (12) month period ending on the last day of August.

(k) After the department makes a determination under subsection (i), each licensee may increase their maximum production allowed under subsection (f) of this section by the amount of the increase divided by the number of licensees.

(l) On March 1, 2018, the Department of State Health Services shall release updated population and dosage amounts required under subsection (b) that will determine the maximum amount of product allowed statewide under subsection (d)(1) of this subsection until September 1, 2018.

(m) Subsection (l) expires on September 1, 2018.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 30, 2016.

TRD-201606765

D. Phillip Adkins

General Counsel

Texas Department of Public Safety

Earliest possible date of adoption: February 12, 2017

For further information, please call: (512) 424-5848


CHAPTER 35. PRIVATE SECURITY

SUBCHAPTER K. FEES

37 TAC §35.132

The Texas Department of Public Safety (the department) proposes amendments to §35.132, concerning Subscription Fees. The amendments to §35.132 reduce certain subscription fees imposed on private security registrants under the authority of Texas Government Code §2054.252(g). The reductions arise from an amendment to the vendor contract relating to online licensing services.

Suzy Whittenton, Chief Financial Officer, has determined that for each year of the first five-year period this rule is in effect there will be no fiscal implications for state or local government, or local economies.

Ms. Whittenton has also determined that there will be no adverse economic effect on small businesses or micro-businesses required to comply with the rule as proposed. There is no anticipated economic cost to individuals who are required to comply with the rule as proposed. There is no anticipated negative impact on local employment.

In addition, Ms. Whittenton has also determined that for each year of the first five-year period the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be a reduction in the cost of doing business in the private security industry and therefore a potential reduction the cost of certain private security services.

The department has determined that this proposal is not a "major environmental rule" as defined by Texas Government Code, §2001.0225. "Major environmental rule" is defined to mean a rule that the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

The department has determined that Chapter 2007 of the Texas Government Code does not apply to this proposal. Accordingly, the department is not required to complete a takings impact assessment regarding this proposal.

Comments on this proposal may be submitted to Steve Moninger, Regulatory Services Division, Department of Public Safety, P.O. Box 4087, MSC-0240, Austin, Texas 78773-0246, or by email at https://www.dps.texas.gov/rsd/contact/default.aspx. Select "Private Security". Comments must be received no later than thirty (30) days from the date of publication of this proposal.

This proposal is proposed pursuant to Texas Government Code, §411.004(3), which authorizes the Public Safety Commission to adopt rules considered necessary for carrying out the department’s work, and Texas Occupations Code, §1702.061(b), which authorizes the department to adopt rules to administer Texas Occupations Code, Chapter 1702.

Texas Government Code, §411.004(3) and §1702.061(b) are affected by this proposal.

§35.132.Subscription Fees.

The subscription fees detailed in this section are authorized under Texas Government Code, §2054.252.

(1) Each individual licensee, registrant, or commissioned security officer shall pay the following subscription fee for occupational license renewal: $2 [$3.00] for a $30 to $50 [$30.00] renewal and $3 [$5.00] for a $100 renewal [renewals from $50.00 to $100.00]. This fee is in addition to the renewal fee.

(2) Each company licensee shall pay the following subscription fee for occupational license renewal: $7 [$7.00] for a $225 [$225.00] renewal; $11 [$11.00] for a $300 [$300.00] to $350 [$350.00] renewal; $12 [$12.00] for a $400 [$400.00] renewal; and $16 [$16.00] for a $540 [$540.00] renewal. This fee is in addition to the renewal fee.

(3) Each individual applicant for a license, registration or security officer commission shall pay the following subscription fee upon application: $2 [$3.00] for a $30 to $50 [$30.00] application; and $3 [$5.00 ] for a $100 [$50.00 to $100.00] application. This fee is in addition to the application fee.

(4) Each company license applicant shall pay the following subscription fee upon application: $11 [$11.00] for a $300 [$300.00] to $350 [$350.00 ] application; $12 [$12.00] for a $400 [$400.00] application; and $16 [$16.00] for a $540 [$540.00] application. This fee is in addition to the application fee.

(5) Each individual registrant or commissioned security officer shall pay a $2 [$2.00] subscription fee for an employee information update. This fee is in addition to the employee information update fee.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 29, 2016.

TRD-201606766

D. Phillip Adkins

General Counsel

Texas Department of Public Safety

Earliest possible date of adoption: February 12, 2017

For further information, please call: (512) 424-5848