SB378 - Online marketplaces: illicit cannabis: reporting and liability.

Senate Bill No. 378 CHAPTER 411 An act to add Chapter 31.3 (commencing with Section 22943) and Chapter 31.4 (commencing with Section 22944) to Division 8 of the Business and Professions Code, and to add Section 1714.47 to the Civil Code, relating to cannabis. [ Approved by Governor October 06, 2025. Filed with Secretary of State October 06, 2025. ] LEGISLATIVE COUNSEL'S DIGEST SB 378, Wiener. Online marketplaces: illicit cannabis: reporting and liability. (1) Existing law, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), an initiative measure, authorizes a person who obtains a state license under AUMA and any applicable local ordinances to engage in commercial adult-use cannabis activity pursuant to that license, if conducted as prescribed. Existing law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities, and requires the Department of Cannabis Control to administer its provisions. Existing law, until January 1, 2028, requires a social media platform to create and post a policy statement regarding the use of the social media platform to illegally distribute controlled substances, including a link to the social media platform’s reporting mechanism for illegal or harmful content or behavior on the social media platform, if one exists, and a general description of its policies and procedures for responding to law enforcement inquiries. This bill, beginning on July 1, 2026, would require an online cannabis marketplace, as defined, to address in its terms of service whether it permits Californians to view the advertisements and business information of unlicensed sellers of cannabis or cannabis products on its marketplace and whether the marketplace verifies the licenses of sellers of cannabis or cannabis products whose advertisements and business information are viewable on its marketplace, as specified. The bill would require an online cannabis marketplace that does not verify those licenses to display a clear and conspicuous graphic that warns the consumer that the marketplace may be displaying, storing, or hosting unlicensed sellers of cannabis or cannabis products. This bill would require an online cannabis marketplace to establish a clear and conspicuous mechanism within its internet-based service that allows an individual to report to the online cannabis marketplace the display, storing, or hosting on the marketplace of advertisements from, or business information about, an unlicensed seller of cannabis or cannabis products. The bill would require the mechanism to provide the individual who submits a report with written confirmation of receipt of the report, periodic updates, and final written determination, as specified. This bill would impose certain penalties and relief depending on the violation of these provisions, as specified. (2) The Sherman Food, Drug, and Cosmetic Law regulates the packaging, labeling, and advertising of food, beverages, and cosmetics and authorizes the State Department of Public Health to adopt regulations for the enforcement of that law, as specified. That law imposes various requirements specific to the manufacture and sale of industrial hemp products that are food or beverages, including a requirement for a certificate of analysis from an independent testing laboratory that confirms that the THC concentration does not exceed a specified amount. Existing emergency regulations require that industrial hemp food, food additives, beverages, and dietary supplements intended for human consumption have no detectable THC per serving. This bill, beginning July 1, 2026, would require an online hemp marketplace, as defined, to establish a clear and conspicuous mechanism within its internet-based service that allows an individual to report to the online hemp marketplace an advertisement for an intoxicating hemp product on the marketplace, as specified. The bill would define “intoxicating hemp product” to include an inhalable hemp product, as further defined, with a detectable THC concentration. The bill would require the mechanism to provide the individual who submits a report with written confirmation of receipt of the report, periodic updates, and final written determination, as specified. The bill would impose specified penalties and relief for violations of these provisions. (3) Existing law imposes strict liability upon persons who place a defective product on the market, including retailers engaged in the business of distributing goods to the public, for injuries caused by the product. Existing law also provides that each person is responsible for an injury occasioned to another by that person’s want of ordinary care or skill, commonly known as negligence, in the management of their property or person, unless the injured person has, willfully or by want of ordinary care, brought the injury upon themselves. This bill, beginning July 1, 2026, would prohibit an online marketplace from engaging in unlawful paid online advertising related to unlicensed sellers of cannabis or cannabis products or intoxicating hemp products, as specified. The bill would impose joint and several liability on an online marketplace that violates that prohibition, and is a substantial factor in an unlawful transaction between a consumer and an unlicensed seller of cannabis or a cannabis product, or between a consumer and a seller of an intoxicating hemp product, for damages caused to the consumer by the cannabis, cannabis product, or intoxicating hemp product, unless specified conditions are met. The bill would increase the amount that a prevailing plaintiff may recover depending on what the online marketplace had actual knowledge at the time of the unlawful transaction and whether the harm was suffered by a child, as described. The bill would provide various affirmative defenses to an action brought under these provisions, and would authorize an online marketplace to seek indemnification against an advertiser of cannabis, cannabis products, or intoxicating hemp products that misrepresented to the online marketplace that they were licensed or registered to sell that product, as specified. (4) This bill would state that its provisions are severable. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. The Legislature finds and declares all of the following: (a) (1) In September 2024, the Los Angeles County Board of Supervisors adopted a resolution affirming the connection between the proliferation of unlawful, unlicensed, uninspected, and unregulated cannabis and the knowing, profit-driven behavior of internet companies: “Unfortunately, distinguishing between licensed and unlicensed dispensaries is now more difficult than ever. When searching for a cannabis dispensary, search engine and GPS platforms such as Google and Apple Maps do not distinguish between licensed and unlicensed businesses, but instead give results that contain, more often than not, unlicensed dispensaries, thus legitimizing problematic establishments selling unregulated and often dangerous products for general public consumption. Regulating online search engines and GPS platforms will ensure only legal, licensed dispensaries appear in results from those platforms and protect the safety of the public.” (2) The unanimously adopted resolution cites a February 2024 report by the Pew Research Center that found there were nearly 1,500 cannabis dispensaries in the County of Los Angeles; as of 2022, only 384 of them were properly licensed. (3) Investigative reports affirm the vast scope of the problem. According to the Los Angeles Times, “the black market is booming in plain sight, luring customers away from aboveboard retailers with their cheaper — if untested and unregulated — product.” (4) Law enforcement and other experts also affirm that the problem is vast: (A) Bill Jones, the head of enforcement for the state’s Department of Cannabis Control, has stated “[t]he black market is very pervasive and it’s definitely larger than the legal market.” (B) According to a study by Beau Whitney, founder of cannabis economics research firm Whitney Economics, illicit marijuana sales make up more than half the state’s marijuana sales. (C) Another expert assert more than two out of three cannabis purchases are made in the illicit market, and evidence suggests that disparity is getting worse. Legal sales have been on a two-year slide. (5) The nation’s most populous county is not alone in observing the role internet companies play in facilitating the sale of illegal and dangerous cannabis. In February, New York Governor Kathy Hochul pleaded with Google and Yelp to delist illegitimate cannabis dispensaries as the state began to see the rollout of its nascent recreational cannabis industry, as the Associated Press reported at the time. Initial results were not promising, as many illicit dispensaries remained on the sites while some of New York’s fledgling legal dispensaries were repeatedly delisted. (b) Unlawful cannabis sales pose a unique peril to the state’s children. Recently, the state seized an astonishing 2,200,000 illicit cannabis packages designed to look like candy and sweets. As The Los Angeles Times reported in an August 2024 article, the packages were: “… designed to mimic popular food and candy, including Sweet Tarts sour gummies and Twinkies adorned with rainbow sprinkles, which officials said could make them attractive to children. Such packages would not be permitted in the legal marijuana market.” (c) That internet companies openly and profitably facilitate criminal enterprises selling inherently dangerous products poses a grave risk to public safety. As the Los Angeles Times wrote in a September 2022 article, “Unlicensed dispensaries have become hotbeds of crime. Sometimes the operators are the perpetrators, authorities say, selling cocaine and methamphetamine alongside cannabis. At other times, they are the victims. In August 2021, a man was gunned down in the doorway of the illegal dispensary he ran in East Los Angeles.” (d) (1) Law enforcement leaders say law enforcement raids are barely slowing the black market. Siskiyou County Sheriff Jeremiah LaRue has stated that “[i]f we examine the statistics, it is clear that these operations are not effectively or aggressively putting a dent into the illegal market.” (2) As the sheriff observed, operations by the state Department of Justice’s Eradication and Prevention of Illicit Cannabis program, or EPIC, have seized about 750,000 cannabis plants in 36 counties. Yet, Siskiyou County alone produces an estimated 12,000,000 to 16,000,000 illegal plants per year. Therefore, if EPIC only focused on Siskiyou for a year, it would eradicate just 6 percent of the estimated local black market, he said. (e) In addition to posing risks to the public health, especially children, in addition to endangering public safety, unlawful cannabis also poses environmental risks. As the Guardian reported, Rick Dean, the community development director for Siskiyou’s environmental health division, “is spending ever more of his time on the consequences of illegal cannabis production. One of the challenges is ‘the daily accumulation and disposal of human waste and garbage that is buried on site. Many are plastic containers left over from fertilizers and pesticides.’” (f) The Legislature finds and declares that internet companies’ listing of unlawful cannabis sellers when those companies have readily available, inexpensive, and public resources to distinguish between licensed and unlicensed cannabis businesses poses a direct, immediate, and urgent risk to the public health and safety of its citizens, especially its children. (g) The Legislature finds and declares that such companies routinely prevent content that they disfavor from appearing on their products. For example, Meta’s Facebook blocks nudity, Google’s YouTube blocks copyrighted songs, and Meta’s Instagram was exposed as being able to detect and intercept child sex abuse material, permitting users to click through and see it after being warned. (h) The Legislature finds and declares that, for all the aforementioned reasons, internet companies must shoulder some accountability for their role in facilitating criminal enterprises that pose direct, immediate, and urgent risks to public health and safety. SEC. 2. Chapter 31.3 (commencing with Section 22943) is added to Division 8 of the Business and Professions Code, to read: CHAPTER 31.3. Online Cannabis Marketplaces 22943. For purposes of this chapter, the following definitions apply: (a) “Advertisement” means an advertisement about, or an offer of, the sale of cannabis or a cannabis product. (b) “Business information” means an internet website, mobile application, address, or telephone number through which a seller offers to sell, or a consumer makes a purchase of, cannabis or a cannabis product. (c) “Cannabis” has the same meaning as that term is defined in Section 26001. (d) “Cannabis product” has the same meaning as “cannabis products” as defined in Section 26001. (e) “Clear and conspicuous” means in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks that call attention to the language. The Attorney General may promulgate regulations further defining clear and conspicuous. (f) “License” means a license issued by the Department of Cannabis Control pursuant to Division 10 (commencing with Section 26000). (g) “Online cannabis marketplace” means an internet website, online service, online application, or mobile application, or a portion thereof, including a social media platform, as defined in Section 1798.99.20 of the Civil Code, that does any of the following in California: (1) Transmits or otherwise communicates between a third-party seller and consumer an offer for the sale of cannabis or a cannabis product that is accepted by the consumer. (2) Offers for sale cannabis or a cannabis product. (3) Connects a third-party seller of cannabis or cannabis products and a consumer. (h) “Third-party seller” means a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a product in the state by or through an online marketplace. 22943.2. (a) An online cannabis marketplace shall address in its terms of service both of the following: (1) Whether the online cannabis marketplace permits advertisements from, or business information about, unlicensed sellers of cannabis or cannabis products to be viewed by Californians on its marketplace. (2) Whether the online cannabis marketplace verifies that a seller of cannabis or cannabis products has a valid, unex [Text truncated for display. Full text available on Congress.gov.]