Since California voted to legalize marijuana in November 2016, the state has been struggling to find the right course of action to regulate the burgeoning industry. Recently, the state’s lawmakers approved a $100 million medical and adult-use pot fund from which cities, counties and agencies can apply for grants and loans. In total, the state expects recreational marijuana sales to generate $2 billion in annual tax revenue.
California is home to the world’s ninth-largest economy, and its legalization of recreational marijuana sales has created an opportunity for the state’s legal pot industry. According to the Bureau of Cannabis Control, retail sales in the state hit $3.5 billion in 2017. The state is now in the process of picking winners and losers, as it looks to distribute the funds that were awarded in order to help legal marijuana businesses survive.
The California Legislature on Monday approved a $100 million plan to support California’s legal marijuana industry, which is still struggling to compete with the huge illegal marijuana market, nearly five years after voters approved the sale of recreational marijuana. Los Angeles will be the main recipient of the money, which Governor Gavin Newsom has proposed awarding in the form of grants to cities and counties to help cannabis businesses transition from temporary permits to regular licenses. California voters approved Proposition 64 five years ago and trusted the legislature to create a legal, well-regulated cannabis market, said Assemblyman Phil Ting (D-San Francisco), chairman of the Assembly Budget Committee. We have not yet achieved this goal. Many cannabis producers, vendors and manufacturers want to move from a temporary permit to a permanent, annually renewable permit, a process that requires an expensive, complex and time-consuming analysis of the negative environmental impacts of the activity and a plan to mitigate those damages. As a result, about 82 percent of cannabis licensees in the state still had temporary licenses in April, according to the governor’s office. The funds, including $22 million for Los Angeles, will help cities hire experts and staff to help companies conduct environmental studies and transfer permits so legal businesses can succeed, Ting said. The grant program is backed by Los Angeles Mayor Eric Garcetti, who said in a letter to lawmakers that the money is needed to support a well-regulated, fair and sustainable cannabis market. Either way, the governor wants to give cannabis businesses a chance after the 1st Amendment. January to allow a six-month grace period to transition from temporary permits to compliance with the California Environmental Quality Act. The extension, which was opposed because it would delay promised environmental protections, was not included in the budget bill approved Monday and is still being negotiated with lawmakers. The governor’s proposal to extend the temporary licenses was opposed by a coalition of seven environmental groups, including Sierra Club California, Defenders of Wildlife and The Nature Conservancy. In a letter to Newsom, they say the proposal to allow temporary license extensions and temporary alternatives to CEQA rules is contrary to what was promised to voters and completely inadequate to protect local communities and the environment. At the same time, industry officials say the governor’s proposals don’t go far enough to help businesses trying to stay open with temporary permits while complying with what they see as burdensome environmental regulations for the state. That’s a lot of money, but I’m not sure it really solves the problem of temporary licenses allowing for timely CEQA analysis for an annual license, said Jerred Kiloh, president of the United Cannabis Business Assn. He said delays in the city’s rules, limited staffing and a lack of resources for cannabis businesses mean some have to wait two to four years before they can get a permit. Many of them are in danger of being shut down, at least temporarily, if they don’t get a regular permit by the state’s deadline, Kiloh said. California voters paved the way for cannabis shops, nurseries, dispensaries and testing to become licensed when they passed Proposition 64 in 2016. Initially, state officials were expected to license 6,000 cannabis shops in the first two years, but only 1,086 cannabis shops and delivery companies were licensed. Industry officials estimate there were nearly three times as many unlicensed businesses as state-licensed businesses in 2019. Although some industry leaders believe the number of illegal stores has declined, researchers at the University of Southern California conducted a study in September that found the number of unlicensed retail stores still outnumbers the number of licensed stores. Proponents of legalization blame the discrepancy on things like high taxes for licensed businesses, burdensome regulations, and the decision of about three-quarters of California cities not to allow cannabis shops within their borders. The bill approved Monday by the Legislature provides $100 million and lists 17 cities and counties that will receive grants, including Los Angeles, which will receive the largest grant. The other beneficiary cities are Long Beach, San Francisco, Oakland, Commerce, Adelanto and Desert Hot Springs. Originally, cannabis businesses were supposed to switch from temporary permits to regular annual permits in 2019, but many businesses did not meet that requirement in time. Therefore, the state granted temporary permits until January 1, 2020, and then extended the period again until January 1, 2020. January 2022. One of the key requirements for obtaining a temporary permit is a CEQA analysis to determine how marijuana businesses and other cannabis businesses will affect the water, air, plants and wildlife in the area, and to suggest ways to mitigate any harm. However, Kiloh said some cities are in the process of preparing ordinances and hiring staff for permits, meaning many businesses will not be able to meet the upcoming deadline. Each cannabis producer must demonstrate that they have met the requirements of the environmental assessment. If the city and county do not provide the required document, the applicants must prepare it, which often requires the use of environmental consultants. Senator Anna Caballero’s (D-Salinas) bill would have allowed the state to extend the temporary permits for six years, until 2028, but she delayed the bill after a coalition of environmental groups objected. The groups sent a letter to lawmakers arguing that the bill does not adequately protect the environment. The governor’s proposal, currently under consideration by lawmakers, would extend existing temporary permits for six months. According to Pamela Flick, director of the California-based organization Defenders of Wildlife, environmentalists are still hoping that the budget bill can be amended to address their concerns. Flick said the group opposes the language proposed in the trailer bill because it requires stronger environmental protections, consistent with the original commitment of Proposition 64, in which voters wanted to ensure meaningful and timely enforcement of environmental laws. The Newsom government is warning of serious consequences if cannabis shops are not given more time to obtain a regular licence. Without the extension, it is possible that a significant number of these licensees will opt out of the legal cannabis system, significantly limiting the state’s efforts to facilitate the transition to a legal, well-regulated market, the government warns in its budget proposal. The $100 million will be paid to local agencies with the most temporary permits for cultivation, production, distribution, testing and retailing. Some of this money could be used by cities to provide equity financing to cannabis companies owned by people of color. Lawmakers welcomed the budget proposal from Newsom, who has a vested interest in the success of the legal market, as he was a key sponsor of Proposition 64. Governor Newsom is committed to the success of California’s legal cannabis industry, said Nicole Elliott, senior advisor to the governor on cannabis. The purpose of this one-time $100 million grant is to help local and transient permit holders, including many small businesses, incumbents and equity seekers, move more quickly to annual permits. In his letter, Mr. Garcetti stated that he would assist Los Angeles in developing a robust CEQA compliance program and comprehensive programs to help permit holders meet annual permit requirements. Industry officials point out, however, that only a small portion of California cities will receive the money, and only those that have already decided to allow cannabis. That doesn’t encourage local governments where cannabis is prohibited to adopt their ordinances, said Kiloh, owner of Higher Path Cannabis Shop in Sherman Oaks. The real problem is that CEQA is a very difficult process, he added. I think it would be good to fundamentally reform the licensing system rather than just throw money at it.
