California Licensing Update – Clark Howell LLP

Today we’re talking about the California budget, one of the state’s most important (and overwhelming) annual decision-making processes. The budget determines how money is distributed in the state – for education, infrastructure, health care, and … cannabis programs! This year’s budget is full of changes to California’s cannabis framework. Even if you didn’t read the state budget, you’ve probably gotten wind of big changes via emails from the brand new “Department of Cannabis Control,” which was established on July 12 through the budget process.

We’ll explain a bit about the budget and trailer bills, and then highlight a handful of key changes around licensing. The trailer bills make changes to other aspects of the California cannabis framework as well; we will cover those in future bulletins.

First of all, what’s a ‘trailer bill’? Trailer bills are accompanying legislation to the Governor’s Budget Act. They change statute (law) in order to implement the budget. The budget bill is the authorization to spend money, and the trailer bills outline how that money will be spent.

In January, the Governor outlined funding and staffing for a new consolidated department as part of his budget proposal. That proposal was then introduced in the California State Legislature. Over the following months, the Assembly and Senate reviewed the proposal, made changes, and reconciled their differences into one budget bill. At the mid-June deadline, a placeholder state budget was passed. From that point, negotiations continued and dozens of trailer bills have passed to implement portions of the budget. There may be more once lawmakers return from recess on August 16.

A few of the 50+ signed trailer bills significantly impact the California cannabis framework:

AB 128 (signed June 28)

AB 141 (signed July 12)

AB/SB 160 (signed July 16)

Here’s what you need to know about licensing:

On July 12, the Department of Cannabis Control (DCC) became the single licensing authority for commercial cannabis activity in California. Nicole Elliott was appointed as the Director. Elliott is experienced in cannabis policy at the state level, as the Governor’s Senior Advisor on Cannabis, and at the local level, as the first Director of the San Francisco Office of Cannabis.

Reasons for consolidation: to centralize licensing, streamline regulatory oversight, and improve enforcement coordination.

Current licensees: Your license was automatically transferred to the DCC with the same expiration date and according to the DCC’s revamped website “is still active, even if your license certificate lists the old licensing authority’s name.”

Future licensees: For now, the DCC oversees three licensing systems and you will apply within the one that matches the license type for which you are applying. In the future, we expect to see these three systems merged into one.

Before the statutory changes made by the trailer bills, issuance and renewal of provisional licenses were allowed only until January 1, 2022. The budget trailer bills established a new sequence of deadlines to apply for or renew a new provisional license. The deadlines and eligibility vary for cultivators and local equity applicants. The new provisions also change certain compliance benchmarks (such as CEQA and streambed alteration agreements).

Timelines for getting new provisional licenses:

New provisional licenses may be issued for an extra 6 months, until June 30, 2022. Applications are due by March 31, 2022.

For cultivation applications submitted in 2022 or later, a provisional will not be issued if it would cause the licensee to exceed certain canopy limits across multiple cultivation licenses on contiguous premises.

If you are a grower under certain canopy limits, you may be issued a new provisional license until September 30, 2022. Applications are due by June 30, 2022.

If you are a local equity applicant with cultivation activities, you may be issued a provisional license until June 30, 2023. Applications are due by March 31, 2023.

Timelines for renewing an existing provisional license:

Renewals between July 1, 2022 and June 30, 2023 require evidence related to streambed alteration agreements (cultivators only) and CEQA compliance (all licensees). The benchmarks change on July 1, 2023.

Starting January 2, 2023, cultivation licenses will not be renewed if the licensee’s total canopy across multiple cultivation licenses on contiguous premises would exceed certain limits. None of these licenses will be valid beyond January 1, 2024.

January 1, 2025 is the last date a provisional can be renewed.

Sunset of the provisional licensing program:

All licenses issued after January 1, 2025 must be in compliance with environmental laws.

No provisional licenses will be effective after January 1, 2026.

Believe it or not, this was the simplified version of the changes to the provisional program! There are many more details that were too lengthy to include here. The Legislature made clear that no further exemptions from annual licenses will be adopted. That means provisional licensees must transition to an annual license within the specified timeframes in order to remain operational. Reach out to us for guidance about which deadlines apply to you and what you need to achieve to keep your license active.

You may recall from our June Legislative Update that the vast majority of California licenses are provisional, and only a small fraction (about one quarter) have transitioned to annual licenses. The key transition hurdle is achieving compliance with the California Environmental Quality Act (CEQA), which has been a challenge for most licensees.

After reading the section above, you’re aware of the changes to the provisional licensing program and its fast-approaching deadlines. In an effort to increase local capabilities to complete environmental reviews, the Governor’s budget includes $100 million for local assistance.

The local jurisdictions eligible for the most funding are:

Los Angeles ($22.3 million)
Humboldt County ($18.6 million)
Mendocino County ($18.1 million)
Oakland ($9.9 million)
Sacramento ($5.8 million)

12 other local jurisdictions are eligible for the approximately 25% of remaining funds.

The trailer bills also open a pathway for trade samples, require the development of Comparable-to-Organics programs, set deadlines for the Appellations of Origin program establishment, fund the equity license fee deferral or waiver program, and more. Stay tuned for future bulletins on those topics!

As always, reach out to us to ask questions and discuss how these changes impact your business today and in the future.

UPCOMING EVENTS

Virtual Psychedelic Medicine Symposium – Aug 28, Sept 11 & 25, 2021 • 9am-1pm PST

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Clark Howell Bulletin subscribers: Use discount code CLARKHOWELL at the below link upon registration for 10% off the symposium cost.

If you have any questions about how the above or would like to discuss how it could impact your business, please contact your attorney directly or call our main line at 877-257-2442.

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