California legislation hopes to address lag in approvals for cannabis business licenses

Mar 14, 2019

California State Sen. Mike McGuire, along with countless cannabis industry advocates, is worried. He’s worried that the legal California cannabis industry is careening towards what advocates are calling a possible “extinction event.”

According to state regulatory data, an estimated 10,000 temporary cannabis business licenses across the Golden State could expire before provisional licenses can be issued by the three state licensing agencies: the California Department of Food and Agriculture, the Bureau of Cannabis Control, and the California Department of Public Health.

The CDFA seems to have the greatest backlog of pending license approvals, thus growers and cultivators are the most at risk of losing their licenses. McGuire saw an opportunity for the state legislature to assist.

“The State, under current law, has no ability to extend a temporary license, despite the fact thousands are set to expire. To make matters worse, thousands of applicants who wanted to comply with the law and applied for a temporary license did so in the last quarter of 2018, leaving a massive backlog for the state regulating agencies,” McGuire said in a statement released on February 27.

“As the temporary licenses come due, if the state can’t approve or deny an annual license prior to the temporary license expiring, the license holder—for example, the grower, farm, distributor, or retailer—will no longer be operating legally and will be kicked into the black market,” he concluded.

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McGuire’s sponsored legislation, SB 67, would allow the CDFA, the Bureau, and the CDPH to extend a business’s temporary license through December 31, 2019, while the annual applications are processed, provided that the applying businesses turned in all of their application paperwork before their temporary license expired.

Provisional licenses would be extended from January 1, 2020 to July 1, 2020.

“Bottom line is this,” McGuire said, “This bill will protect thousands of cannabis farmers, in particular, who did the right thing and applied for and secured a state license. But because their temporary license is about to expire, and because of the inability to extend their license due to existing state law, they could be forced into the black market.”

“Obviously, this can’t stand, which is why we’re moving quickly to keep a legal, regulated market here in California from collapsing,” McGuire said.

The licensing lag in California

California voters legalized recreational marijuana use by voting in Proposition 64. Under the law, the CDFA, the Bureau, and the CDPH received the authorization to grant cannabis businesses a temporary license, which was valid for 120 days and eligible for a 90-day extension.

State law also allowed for a temporary license holder to apply for a one-year provisional license in the event of unanticipated delays in becoming compliant with the California Environmental Quality Act.

One of these unanticipated delays is that the licensing agencies received nearly 9,000 applications in December, creating a rush of turned-in temporary applications, especially to the CDFA.

According to the Senate Business, Professions, and Economic Development Committee analysis of SB 67, the CDFA issued 65 percent of all temporary licenses, while the Bureau and the CDPH represent 23 percent and 12 percent, respectively.

Alex Traverso, Assistant Chief of Communication for the Bureau told PotNetwork in an exclusive interview that “The Bureau is responsible for licensing retailers, distributors, microbusinesses, testing labs, and cannabis events. The Bureau does not have any of its temporary licenses that expire until May, and then it’s only five.”

In 2018, the Bureau processed around 2,800 temporary licenses, according to Traverso.

The CDPH issues licenses for manufactured cannabis products, focusing on packaging and labeling requirements.

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The CDFA currently has the most licensees, as they are the sole agency responsible for licensing cultivators. As such, they also have one of the most stringent licensing processes.

As of mid-January, 2019, the CDFA reported that they had issued 6,291 temporary licenses to California cannabis cultivators. There were 4,109 temporary licenses with pending annual applications, and approximately 1,100 temporary licenses with pending annual applications are set to expire this month.

In response to the large number of pending applications, the CDFA issued the following email to applicants.

The annual license application review process includes three major components: local verification, administrative review, and scientific review. Each one of those components has a review time frame associated.

For instance, local verification can take up to 60 business days for the local jurisdiction to reply with compliance approval and the administrative and scientific reviews allow anything that is deficient to be provided within 90 calendar days of notice.

In general, the entire process can take 6+ months to complete. This process is heavily dependent on the applicants and owners responding in a timely manner to every notification and deficiency.

According to the Committee, the CDFA’s online license database shows that they have issued 10 annual cultivation licenses as of February 24 and one provisional license.

Assemblymember Jim Wood, the co-author of SB 67, added to McGuire’s statement, claiming that bureaucratic growing pains are to be expected, especially in an area as contentious as cannabis.

“We have many folks in the cannabis industry who have worked hard to comply with new rules and requirements, and we have, from the start, experienced some growing pains as state and local governments have also worked hard to get their processes running smoothly.”

“[SB 67] will provide some short-term relief to those who have submitted their annual license applications on time and allow the various state agencies to catch up with the volume of applications that have been submitted,” Wood said.

The extinction event and the legislative bandaid

According to McGuire, the massive volume of temporary cannabis business licenses creates the real risk that not all provisional annual license applications will be able to go through the rigorous review process prior to the business’s temporary license expiring.

There are an estimated 10,000 temporary licenses scheduled to expire in 2019, with approximately 23 businesses scheduled to expire the day of the Senate Committee hearing.

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McGuire argued that this is the worst way to transition a multi-billion dollar agricultural market, a market which employs tens of thousands of Californians.

“We can’t afford to let good actors who want to comply with state law fall out of our regulated just because timelines are too short and departments have been unable to process applications. Without legal licenses, there isn’t a legal, regulated market here in the Golden State.”

There it is, the extinction event. Without licenses, there isn’t a legal cannabis market. Luckily, SB 67, if it should pass, would put a bandaid on the situation. The bill would allow the state to extend temporary licenses and calls for the improvement of the annual license process in the state.

SB 67 would authorize licensing agencies to do everything in their power to make temporary licenses provisional annual licenses and would allow licensing agencies to grant provisional annual licenses to businesses without temporary licenses once the backlog issue has been resolved.

McGuire’s bill is headed for the Senate Appropriations Committee. While the bill doesn’t have a set hearing date, it has already received overwhelming support from both the legislative and cannabis communities and is anticipated to pass with flying colors.

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