California’s preliminary marijuana licensing disaster re-emerges

For the third time in less than four years, California lawmakers are rethinking the state’s marijuana licensing program to give businesses and regulators more time to process approvals while the industry continues to operate without major disruption.

On the balance sheet hangs the possible fate of more than 8,000 marijuana business licenses, including retailers, growers, and other businesses still working with business licenses originally made by the state as temporary and non-permanent.

“California’s regulated industry would be at significant risk of potential collapse,” warned Genine Coleman, executive director of Mendocino County’s Origins Council, if lawmakers do not address the issue.

It’s about the state’s “interim” licensing program for marijuana that California launched in late 2018 as a stopgap measure to give entrepreneurs more time to transition from “temporary” business licenses to full “annual” permits.

However, the bill that established the provisional licenses only gave the program a one-year lifespan.

Then, in 2019, lawmakers approved the program again, this time with a two-year window.

One of the biggest bottlenecks in getting annual permits is a state law, the California Environmental Quality Act (CEQA), that every business in California – including marijuana – must comply with.

The time it takes to demonstrate compliance with this law has helped clear the current backlog of thousands of companies still operating without full annual licenses.

A crucial sticking point: The cannabis regulators currently do not have the legal authority to issue further provisional permits or to renew existing ones after December 31, 2021.

If lawmakers don’t renew the emergency program again, thousands of businesses could be forced to close, at least temporarily.

An industry-wide hurdle

The problem affects all sectors of the state marijuana industry, including retailers, growers, manufacturers, and any other state-licensed MJ industry, according to Coleman.

Any company that does not yet have a full annual license is at risk if an extension is not approved.

As of March 4, a whopping 83% of marijuana business licenses in California were active provisional permits, while only 17% were annual licenses. That is a total of 9,950 permits.

“Because it is industry-wide, regional, and impacts every part of the supply chain, it can cause significant damage,” said Coleman.

Introduce Senate Bill 59. Legislation introduced by Senator Anna Caballero aims to address the temporary problem by extending the program for an additional six years until January 1, 2028. The bill is due to be heard by the state Senate Committee on Business, Professions and Economic Development on April 5th.

If the story is a guide, the math is likely to pass easily. Nothing is easy for the California cannabis industry, however.

Environmental policy in play

The preliminary licensing crisis is underpinned by the CEQA, where every cannabis company must demonstrate full compliance in order to receive an annual license.

Compliance can be extensive, depending on the company and actual operation. For example, all outdoor cultivators must ensure that their operation does not affect the nearby water sources.

The problem: Compliance takes months – if not a year or more for any company. And companies often have to fulfill both local and state mandates.

In addition, the entire process can be extremely costly, and can sometimes run into six figures for companies.

Because of this, an industry attorney predicted in 2019 that the CEQA would become a “silent killer” for marijuana companies.

The time-consuming compliance steps are the reason the interim licensing program was created.

Regulators and industry representatives realized that it was not reasonable to expect the entire industry to go through the compliance process in order to obtain annual licenses within a year or even a year.

Amy Jenkins, the California Cannabis Industry Association’s lead lobbyist, warned companies not to reach out to their lawmakers for support for SB 59 to ensure it gets the legislation through this year.

“At the moment it is assumed that this will only be approved and that it will be a simple process, and in fact it is not,” she said.

Jenkins said the environmental lobby in particular has “serious concerns” that most of the marijuana industry has not officially complied with environmental protection law.

“We are in an uphill battle to convince the environmental community,” she said that most of the marijuana industry is not deliberately bypassing the CEQA.

This could endanger the passage of SB 59.

Kristin Nevedal, the executive director of the International Cannabis Farmers Association based in Humboldt County, echoed Jenkins’ concerns.

Nevedal said she is concerned that too many marijuana stakeholders are putting their hopes on a short-term resolution through Governor Gavin Newsom.

Alternatively, they could wait for a broader reform bill that addresses the awkwardness of the Environmental Protection Act itself, which various California industries have long viewed as albatross because of the bureaucratic burdens involved.

“Support for interim license renewals needs to come in now, not wait for changes or wait to see if CEQA can be fixed or if the governor will save the industry,” said Nevedal.

“Even if you have an annual license, the thought that you might lose (83%) your supply chain capacity should be terrible people.”

More ripple effects

The problem isn’t just at the state level.

In Mendocino County, one of the three counties of California’s famous Emerald Triangle, hundreds of farmers are waiting for the outcome of a new CEQA regulation that the county regulator is working on.

This is mainly because the county passed a CEQA compliance program for its marijuana farmers before the state Department of Food and Agriculture issued its own requirements for cannabis companies.

That meant local ordinance was inconsistent with state requirements, said Patrick Sellers, chairman of the board of the Mendocino Cannabis Alliance.

Mendocino isn’t the only one having to change its regulations regarding CEQA and the cannabis industry, Sellers said. The same thing happened in a number of cities and counties across the state.

“None of this really works and it all takes a long time,” said Sellers. “As a result, the interim licensing program needs to be renewed as the renewal previously granted has allowed some jurisdictions to make some progress.”

Sellers also warned that without the success of SB 59, “a loss of continuity for licensing for these (marijuana farmers) will put them out of business”.

Meanwhile, 83% of companies still working with provisional licenses are doing so without much legal protection as state regulators consider provisional licenses to be temporary.

That point has been driven home in recent weeks by an ongoing legal battle between state officials and Hayward-based Harrens Lab.

The State Bureau of Cannabis Control (BCC) revoked Harrens’ preliminary business license on February 4, forcing him to cease operations.

The BCC also informed the laboratory that it had no right to appeal under state law as it operated with preliminary approval. That meant Harrens’ only recourse was to have his license regained through the courts.

The lab sued and quickly won temporary redress from a Supreme Court judge who ruled that the lab could be reopened to business until the larger due process issue could be resolved.

This question – whether provisional licensees have the right to appeal against license revocation – remains open.

California Attorney General Xavier Becerra has already argued on behalf of the BCC that provisional licensees have no right to due process.

The case is still ongoing – a hearing is scheduled for March 25 – but it is reminding other interim licensees that their legal viability could be jeopardized if they fail to strictly comply with all state regulations.

John Schroyer can be reached at [email protected]

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