California to give struggling cannabis businesses more time on provisional permits

Reporting from Sacramento —  In another sign that California’s legal cannabis market is in deep trouble, state officials plan to extend the period that growers and sellers can operate with provisional licenses by five years, giving them a delay in complying with stricter rules for regular permits.

But the proposal faces opposition from environmental groups. They object that it would allow cannabis farms to remain out of compliance with laws aimed at protecting waterways, land and the public.

The change is included in legislation related to the state budget. Gov. Gavin Newsom proposed it as hundreds of pot farmers faced the expiration of temporary licenses and the prospect that they would have to shut down operations, industry officials said.

Cannabis firms have complained that California’s rules and bureaucracy are so complicated and taxes are so high that growers and sellers are discouraged from coming out of the black market. Illicit operations are not complying with environmental rules or paying taxes, licensed growers say.

So far, only 208 growers have obtained regular, annual licenses, while another 1,532 are still operating on provisional permits as they go through the cumbersome paperwork that requires detailed environmental reviews. Among cannabis retailers, only 39 have received regular licenses while 2,751 are still operating on provisional or temporary permits.

Industry officials, including Hezekiah Allen, welcomed the delay in requiring regular licenses.

“Slowing things down is probably the most important thing that can be done to help smooth the transition to a regulated market,” said Allen, the chairman of Emerald Grown, a cooperative of 130 licensed cultivators.

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The state had hoped to move cannabis businesses from temporary licenses to annual, or regular, licenses after a year. There is disagreement between the state and industry over what is behind the delays.

Staffing problems appear to be an issue, according to Josh Drayton, spokesman for the California Cannabis Industry Assn. Cannabis growers wanting a regular license must complete a detailed environmental review that shows how their farm will affect area water supplies, vegetation and wildlife.

As a result, some cannabis firms were having to wait 10 months to a year to get approval of regular licenses, long after temporary permits were set to expire.

“We have started to see that the processing of annual licenses was clearly taking much longer than the licensing authorities had anticipated,” Drayton said. “For cultivators, we were seeing our members falling into expiration of their temporary licenses in huge numbers.”

The five-year extension was proposed in part because the agencies responsible for administering the licensing program “say they are overwhelmed with the workload that has poured in,” said Cathy Mudge, spokeswoman for Assemblyman Jim Wood (D-Healdsburg), a coauthor of the bill.

The division that licenses growers is authorized for 151 positions, but 60 of them are still unfilled, leaving the office 39% below its budgeted staffing level.

Still, the California Department of Food and Agriculture denies that staffing has been an issue in processing permit applications.

“Many of them are submitted in an incomplete state,” said Rebecca Foree, a department spokeswoman, adding that more staff time must be spent when applicants fail to file required documents, such as those needed to comply with environmental rules.

“In addition, applicants often take up to 90 days to respond to our requests to resolve deficiencies in their applications,” Foree said.

Drayton said state agencies have often been slow to respond to applicants trying to complete their documentation.

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The change providing five more years to use provisional licenses would take effect July 1 if signed into law this month by Newsom, a leading proponent of Proposition 64, the 2016 initiative approved by voters that allowed the sale of marijuana for recreational use by firms licensed by the state.

The Newsom administration noted that the changes also allow more cannabis firms to get new licenses, removing a requirement that they hold a temporary license during the first year of legalization.

The new system will “strengthen the mandate that operators move diligently towards annual licensure,” said H.D. Palmer, spokesman for the state Department of Finance.

“The restructuring of provisional licensure allows a provisional license to serve as a ‘step-up’ license for operators newly entering the licensed system, allowing operators to legally do business in the licensed market while concurrently navigating local approval processes, including the environmental review requirements,” he added.

The proposed change in the law would also provide a two-year delay in the requirement that local governments complete detailed environmental studies before adopting local regulations, potentially allowing more cities to allow cannabis operations.

Three-quarters of cities have not approved cannabis sales.

However, a coalition of environmental groups including the Sierra Club and Defenders of Wildlife is pressing lawmakers and the governor to reduce the extension to two years, to 2022, according to Kim Delfino, California program director for Defenders of Wildlife.

She said the bill’s proposal to give cannabis firms five years to comply with the California Environmental Quality Act creates “a significant risk of harm to the public health and environment, but it also is inconsistent with Proposition 64.”

CEQA, she added, is an “essential” part of the cannabis rules.

“Preventing the discharge of toxic chemicals, dewatering and pollution of waterways, and destruction of natural landscapes is significantly more effective and less costly before projects are implemented than having to remediate environmental and public health problems after they occur,” she said.

The new legislation would also address a concern by the state’s permitted businesses that they face unfair competition from thousands of unlicensed growers and sellers. The bill sets a new $30,000 fine for firms caught operating without a license.

Tougher enforcement is welcomed by Drayton, who noted a lack of enforcement has hindered legal operators, reducing the amount of tax revenue they generate for the state.

“We’re now 18 months in and we’re not reaching our tax revenue goals,” Drayton said. “The industry is not as successful as folks were anticipating, and there need to be some solutions on how to get this industry back off the ground.”

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