It looks like there's a petition to overturn this law - here's the link in case anybody is interested in signing the petition!
I hope this petition will be granted. I actually have a college friend who's been planning to have her own bakery business in CA, but did not pursue in the end because of this existing law. Last I heard she has transferred to Virginia and I'm guessing that she has started her home business right there since I've read that they allow it in Virginia.
This is now being pursued by the Sustainable Economies Law Center.
See http://www.theselc.org/cottage-food-laws/ and sign the petition here: www.change.org/petitions/california-state-legislature-enact-a-cottage-food-law-in-california