Nearly four years after California began regulating its cannabis industry, three out of four businesses still operate on provisional licenses.
As temporary license holders, 75% of the state’s cannabis industry lack the protections and privileges that come with holding a full license—a situation that worries some in the business. Those temporary operators have also not passed the comprehensive environmental review required for full licensing – a fact that concerns environmental groups.
Cannabis licensing is slow for a number of reasons, ranging from the ever-expanding complexity of California’s environmental regulations to the conflicting language between state and local cannabis laws to the high costs for permits and the amount of government workers required to process paperwork. shortage is included.
The weed licensing mess isn’t new either. Over the years, state legislators have enhanced the permitting process so that thousands of businesses do not go unlicensed overnight.
But now, California is pushing to change the situation. The state has set aside $100 million to help 17 cities and counties transition their cannabis businesses from temporary to full licensees. Los Angeles is eligible for $22.3 million of that money, while five other Southern California cities — Long Beach, San Diego, Commerce, Adelanto and Desert Hot Springs — are in the running for a combined $6.9 million. Applications are due by 15 November.
Eligible cities say they will use the money to hire employees and in some cases directly support businesses. He is confident that in the next few months, he can get rid of this problem to a great extent.
“I know it will help,” said Edgar Cisneros, city manager of commerce, which has seven fully licensed cannabis businesses and 12 others waiting to get through the process.
“There is also a real need for staff and consultants to get these permits for permanent licensing at a much faster pace.”
Still, while business owners and others appreciate lump-sum state funding, they say it doesn’t go far enough. Many cities and counties are left out of the applicant pool, and there are no statewide plans to reduce the business barriers that cause backlogs in the first place.
“No amount is going to replace the significant amount of time it takes for local approval to come in fast,” said Hilary Bricken, a Los Angeles-based cannabis industry attorney who said some businesses failed during the multi-year wait. to obtain a license.
Obstacles cause delays
Voter-approved legislation passed in 2016 requires cannabis businesses to comply with environmental protection regulations, including the state-wide California Environmental Quality Act, or CEQA.
This requirement was a political necessity to garner support from environmental groups that, in previous years, had raised flags about the damage of illegal, unregulated marijuana farms to California’s natural resources. Rogue cannabis growers sometimes divert waterways or pollute them with pesticides, among other problems.
But in 2018 – recognizing that CEQA compliance could be a lengthy process – regulators created a program to let operators with temporary licenses remain in compliance with state law as long as they work toward achieving full licenses. are.
Initially, that program was supposed to end in January 2019. But with most businesses unable to meet the requirements, the deadline was extended to January 2020 and later to January 2022. And this summer, legislators voted to issue new provisional licenses to the state by June 30, 2022, and to extend existing provisional licenses to 2025, despite protests from groups such as the Sierra Club.
As of Friday, October 15, more than 3,000 of the state’s 12,000 active cannabis licenses had full annual permits.
Many in business are not concerned about deadlines, confident that the state will not allow a new, growing industry to stop. But while the latest extensions give businesses breathing room, operators say the odds of getting a fully licensed one haven’t changed.
In some cases, there is a conflict between state law and local ordinances. In Long Beach, for example, instead of the cannabis business having to go through lengthy and valuable environmental reviews for each site, the city agrees to conduct environmental reviews that cover all potential operators carrying out specialized activities in specific city areas. will cover. According to Emily Armstrong with Long Beach’s Office of Cannabis Oversight, the goal was to streamline the business license application process for cannabis operators, as they do for nearly all other businesses.
But Long Beach’s law doesn’t match California’s. The updated rules make it clear that the state will only issue a full license to a cannabis business that has undergone an environmental review based on the specific site where it plans to operate the business.
Although Armstrong is confident that the cannabis businesses that are allowed in Long Beach won’t have to go through full CEQA reviews, he also said it will take time — perhaps months — for businesses to gather the documents needed for that exemption. . She said cities need to dedicate staff to help cannabis businesses jump through various hoops, or require businesses to hire their own, usually pricey, consultants.
Commerce’s Cisneros said the rules are important, but conflicts can happen even within a city.
In commerce, for example, city employees help guide cannabis operators through site inspections and other permit-related red tape. But other inspection agencies in other cities, such as fire or water departments, take longer to process applications from cannabis businesses than to process applications from other types of businesses.
This happens, he said, even when a cannabis company’s equipment or operations are nearly identical to those of other businesses. Cisneros believes that some inspectors connect the entire cannabis industry – even those trying to comply with all the regulations – from a world of underground growers and extractors who do not comply with the regulations. and sometimes cause fire or explosion.
“It seems like not everyone has caught up to this industry,” Cisneros said. “Hopefully, we can develop a greater understanding of technology and tools, and make it a little more routine.”
Then there are the cannabis businesses that insist they’ve jumped through every hoop, but still haven’t been issued a full license.
“I see no reason why we wouldn’t have our annual by now,” said Rob Taft, co-owner of 420 Central Cannabis Shop in Santa Ana and CMX Distribution Company in Costa Mesa.
“We have filled all the forms. We have done everything. It’s not like the state is asking us anything else,” Taft said.
He attributed the delay to lack of staff to process the applications. But he also said that he sometimes sees the situation in a more cynical light.
“It seems like maybe the state is putting everyone on a shorter lease because you get more rights with an annual license,” Taft said, noting that one of those rights is to appeal the revoked license.
Los Angeles attorney Bricken said a company without a full license from California could also face hurdles in raising capital, especially because cannabis is illegal under federal law.
“Investors don’t like to hear that you’re on borrowed time.”
grant will help
According to employees in cities eligible for funding, the $100 million grant program should reduce the backlog of businesses trying to transition to full licenses.
Long Beach is set to receive up to $3.9 million, which Armstrong said they plan to use to hire employees and consultants who can help businesses meet CEQA review requirements. But, he said, the city is waiting for an explanation from the state before deciding how many people to hire.
According to Kat Packer, executive director of the city’s Department of Cannabis Regulation, Los Angeles is still putting together an application that will outline how it intends to use its potential $22.3 in grant money.
In commerce, Cisneros said they would use $416,870 in grant funding to help pay for the salaries of two full-time employees and help process license applications for a consultant. Cisneros said they didn’t want to rely only on consultants because even after this initial demand for help goes away, they will still need workers who are focused on handling cannabis industry compliance checks and new applications.
When the grant money runs out, he said, he believes commerce will have enough tax revenue from cannabis companies to support those positions going forward.
There are some grumblings from cities (and from businesses in those cities) that didn’t qualify for grant money, noting that they’re missing out on funding because they did a better job of fully licensing the cannabis business. Is. For example, none of the cities in Orange or Riverside counties qualify.
Still, while state money proves helpful, industry insiders say lump-sum programs like this are just band-aids on bigger problems. Five years after California voters approved legal recreational cannabis, illicit operators still outnumber licensed operators by at least two to one — giving ongoing, unfair financial benefits to businesses that fail to comply with regulations. are not following.
“If the state wants to help cities and cannabis businesses succeed, they must reduce taxes, period,” said Kenny Morrison, president of the California Cannabis Manufacturers Association and founder of VCC Brands.
“Helping cannabis businesses to become ‘fully licensed’ isn’t really helpful in the long run. Grants help runners get out of the starting gate, but they reduce the regulatory and financial burden on each runner’s shoulders.” nothing to do.”