JUNE 2021 - Capitol Corner

May Revise/Budget

California Gov. Gavin Newsom announced on May 14th his new state budget proposal – called the California Comeback Plan – will include $100 million to alleviate a bureaucratic logjam that has left thousands of marijuana companies with so-called “provisional” business licenses in danger of shuttering at least temporarily.

To give marijuana growers, retailers and other companies breathing room, Newsom also plans to introduce a trailer bill to allow regulators to issue provisional cannabis business permits for an added six months, until June 30, 2022.

The two moves take aim at a growing problem tied to the provisional licenses, which at some point must be converted to more permanent “annual” licenses.

That process has been delayed for years by red tape, complicated environmental regulations and a patchwork of differing local industry ordinances.

As a result, more than 80% of the state’s marijuana business licenses could be in jeopardy of closing in 2022 – at least temporarily – unless the provisional licensing issue is resolved.

State regulators currently lack the legal power to extend provisional licenses after Dec. 31.

The $100 million in grant monies would be doled out to cities and counties to help local officials process the backlog of provisional licenses awaiting approval to secure the mandatory annual permit.

According to the Newsom administration, the money would be divided among “jurisdictions with high numbers of provisional licenses across the supply chain” in order to deliver the biggest impact for the industry.

As of March, there were a total of 9,950 active cannabis licenses, and roughly 83% of those – or 8,280 – were operating on provisional licenses versus the annual permits.

A large part of the delays in getting provisionally licensed companies transferred to annual permits is the California Environmental Quality Act.

Money to be divided three ways

Under Newsom’s proposal, the $100 million would be split among three categories of local governments:

  • The top eight jurisdictions that are home to the most provisionally licensed cultivation permits as of May 5 would receive 25% of the funds.

  • The top eight jurisdictions with the most provisionally licensed manufacturers, distributors, testing labs, microbusinesses and retailers as of May 5 would receive another 25% of the funds.

  • The third category would receive 50% of the funds, and the money would go to any of the top eight jurisdictions with the most provisionally licensed businesses that have received state grant money to support social equity programs.

The amount of grant money received by each city or county would be broken down by the “proportionate share of their entire provisional license population,” according to the Newsom administration.

The move coincides with the consolidation of the state’s three marijuana regulatory agencies into a single new oversight bureaucracy, the Department of Cannabis Control (DCC). That agency is slated to launch July 1 and will oversee the dispersal and use of the grant monies.

Provisional licensing conditions

The local governments will be required to use the $100 million in grant money for processing marijuana business licenses, technical support for license applicants, mitigation measures related to environmental control – particularly water conservation – or “other uses that further the intent of the program as determined by the (DCC),” a Newsom administration official wrote in an email to MJBizDaily.

“This distribution method will result in over 60% of provisional licensees and the cities and counties that permit them being served by these grant dollars,” the email continued.

The provisional licensing extension also comes with conditions.

Under the terms of the trailer bill, California marijuana regulators must still:

  • Ensure that cannabis businesses are complying with certain environmental rules.

  • Specify for companies what type of progress they must make toward an annual permit in order to keep their provisional licenses active.

  • Remove the provisional expiration date of June 30, 2022, as long as “the applicant is making measurable progress toward achieving annual licensure.”

According to the budget analysis shared with the CCIA by the Newsom administration, the cities and counties likely to receive grant monies include:

  • Adelanto

  • Commerce

  • Desert Hot Springs

  • Humboldt County

  • Lake County

  • Long Beach

  • Los Angeles

  • Mendocino County

  • Monterey County

  • Nevada County

  • Oakland

  • Sacramento

  • San Diego

  • San Francisco

  • Santa Rosa

  • Sonoma County

  • Trinity County

The analysis also noted the budget proposal calls for the hiring of a state deputy director of equity and inclusion as part of the DCC staff. That post would be “tasked with assessing and developing best practices and work programs that achieve social equity,” according to the analysis.

The budget proposal also will suggest that $9 million be spent on a new three-year pilot program within the state Department of Food and Agriculture. The program is focused on incorporating cannabis into a broader sustainable agricultural program.

Future Ballot Measure Could Strip Local Governments Power Over Cannabis

Five years after voters legalized adult use marijuana in California, cannabis advocates are discussing a ballot measure that would expand access by stripping local governments of their licensing powers. It’s an idea that would spark widespread opposition from municipalities and the organizations that represent them.

One of the keys to Prop 64’s success was getting local governments to sign on.

Backers of the measure accomplished this by giving them plenty of control to approve or deny cannabis businesses in their communities. Fast forward to 2021 and an eye-popping 80% of local governments have used that power to prohibit marijuana sales. Critics say the result is a thriving black market.

Taxes and fees are another big issue. The proposed ballot measure would also remove the current cultivation tax, bring the excise tax down from 15% to 5%, and remove local governments’ power to tax cannabis altogether. Jurisdictions would instead receive one-fifth of state excise tax revenue.

The California Association of Counties and the League of California Cities say it’s too soon to directly comment on the proposal. The idea is still in its infancy.

“I wouldn’t call what we’re doing campaigning right now. I would call what we’re doing team-building,” Sean Kiernan, executive director of the veterans advocacy group Weed for Warriors and the California Cannabis Reform Project, told the Sacramento Bee.

Kiernan’s group has just started discussions with lawmakers. It would cost $6 million to $8 million to get a measure on the ballot. At that price, he says he’s aiming for a measure in 2022 or 2024.

Source: CA Marijuana Policy Update

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