Could California Run Out of Legal Cannabis This Summer?
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California could be plunged into a state-wide legal cannabis shortage this summer as the result of a growing licensing problem in the state’s cannabis industry.
Thousands of cannabis growers in California have been relying on temporary cultivation licenses from the California Department of Food and Agriculture (CDFA) as they await approval for a permanent annual cultivation license, but the temporary licenses are beginning to expire at a significantly faster rate than the CDFA can process permanent license applications.
There is a fear that this could cause the legal industry to grind to a halt, at least for a short while, as businesses struggle without a legal way to keep producing cannabis to meet consumer demand. This might even result in an unwelcome boost to the state’s black market, as consumers seek out alternative routes to getting the products that they want.
Thousands of cultivators face license uncertainty
Since California voters backed the legalization of cannabis by ballot measure in 2016, the CDFA has issued just nine cultivation licenses for cannabis farmers, with a further 39 licenses provisionally approved pending the payment of license fees. By contrast, there are nearly seven thousand temporary licenses that are set to expire this summer unless further action is taken.
Of the 6,924 temporary cultivation license holders on file, over three thousand have submitted an application for a permanent annual license from the CDFA. But while these cultivators wait for approval, temporary licenses are already beginning to expire.
Nearly two hundred of the temporary licenses were due to expire by the end of February, with 1,496 more scheduled to expire by the end of March. In April, over four thousand licenses will expire within a single month, with the remainder of the temporary license expiry dates scattered throughout May, June, and July.
Following new regulations brought in at the start of the year, the CDFA is no longer able to issue any more temporary licenses, or grant any extensions to the length of a temporary license, meaning that in under six months the entire Californian cannabis industry could be riding on the backs of the few cultivators who manage to secure permanent licenses. If the current speed of approval holds steady, California will have just 144 licensed cannabis farms by the time the final temporary licenses expire in July.
Such a sudden and dramatic contraction in the cannabis cultivation sector, from nearly 7000 to around 150 active farmers, could have devastating effects on the Californian cannabis industry. Similar cannabis supply shortages in Canada led to temporary closures for a number of cannabis retailers in the country, with some provinces even trying to ease the demand on the scare product by freezing or limiting the number of retail store licenses being approved. There is concern that California could go through a similar episode if the licensing situation isn’t addressed in time.
Barriers to proper licensing
One of the biggest contributing factors to the slow approval of annual licenses is the huge amount of bureaucratic red tape that needs to be handled in the process. Before an annual license can be issued, both the Department of Fish & Wildlife and the California State Water Resources Control Board are required to complete a detailed environmental review of the license application. From start to finish, an application process with zero further complications (incorrectly filed forms, errors in the application, etc.) can take upwards of four months to complete. Even once the license application is confirmed, cultivators might still have to pay tens of thousands of dollars in fees before they can receive their license.
And the CDFA are not unaware of this potential licensing crunch — they are working swiftly to try to process as many annual license applications before the final temporary licenses expire.
“The top priority of CDFA’s CalCannabis Cultivation Licensing Division is to process as quickly as possible the annual cannabis cultivation licensing applications,” stated Rebecca Foree, CDFA communications manager, to Leafly. “We are here to help applicants understand how to submit accurate and complete applications, which in turn will help speed up the application-review process.”
The application form for an annual license is 44 pages long, which can be a large burden on the farmers who have to fill them out, as well as the regulators who have to review them. This is exacerbated by huge numbers of submitted applications that are incomplete or contain errors. Jenn Price, the director of state compliance at Golden State Government Relations, said that these erroneous applications account number in the thousands.
“The current state of affairs is worrisome to say the least,” said Price, also to Leafly. “It isn’t just an issue of whether or not CDFA can power through that many applications in the time allotted, it’s whether the applications are even eligible for approval.”
In an attempt to curb this problem, the CDFA have announced dates for a number of public licensing workshops that will run through the end of March and early April. The workshops will give specific guidance on how to complete the annual cultivation license application, including information on business-entity structure documentation, local-authorization documentation, fees, and diagram requirements.
A lifeline for cultivators: Senate Bill 67
In addition to the best efforts of the CDFA, state senators are also stepping in to help keep California’s cannabis farms open.
Senate Bill 67, authored by Senator Mike McGuire (D), is an active bill currently moving through the California Legislature which aims to ease the potential licensing crunch. If passed, the bill would amend and add relevant sections to the business and professional code, which would push back the expiry dates of all temporary licenses submitted to December 31, 2019. That is, unless these licenses are otherwise revoked, which could be done by either successfully obtaining an annual license, being rejected, or withdrawing from the application process.
It is hoped that this extension would give the CDFA enough time to process a large enough volume of applications that the remaining temporary licenses could expire without causing a major cannabis shortage or otherwise damage the state’s cannabis industry.
“In our office, we call this a good, old-fashioned hot mess,” Sen. Mike McGuire, the lead sponsor of SB 67, reportedly told the state’s Business, Professions and Economic Development Committee in one of the early votes for the bill.
“This is a band-aid to a big challenge. But it buys us breathing room for a big fix.”
However, the bill itself will take a while to pass through the legislative system, potentially not making it out until the end of April, by which time a significant number of cultivation licenses will have already expired. Sen. McGuire has said that he hopes enforcement action against businesses that are operating in good faith but with expired licenses will be put on hold until his bill can make it through the legislature and the licenses can be retroactively updated.
Rebecca Foree, the CDFA communications manager, did tell Marijuana Business Daily that “businesses with a temporary license that have submitted an annual application are not an enforcement priority for CDFA”, but she did also go on to note that state law does require a valid CDFA license for commercial cannabis cultivation and directed attention to resources available on the CDFA website that can assist in the application process.