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Uh-Oh, California Could Run Out of Legal Cannabis by Summer

February 25, 2019
Supplies of legal cannabis may dry up by summer if California lawmakers can't buy growers more time to get through brutal licensing. (Jamie Soja for Leafly)
Supplies of legal cannabis (pictured) may dry up by summer if California lawmakers can't buy growers more time to get through brutal licensing. (Jamie Soja, Leafly FILE Photo)
The supply of legal cannabis in California promises to start drying up by spring unless a quick fix becomes law.

On Tuesday, Feb. 19, the California Legislature published Senate Bill 67, to keep cannabis farms open as they await permanent licensing.

Right now, thousands of farms operate under temporary licenses from the California Department of Food and Agriculture (CDFA). Those 6,924 temp licenses are expiring faster than the CDFA can issue permanent annual licenses. Those temp licenses also can’t be extended unless existing law is tweaked.

It’s been 834 days since California voters approved cannabis legalization in November 2016. So far, the CDFA has issued just nine annual cannabis farm licenses. Another 39 annual farm licenses are pending payment of fees as high as $44,000 per license.

Industry expert and cannabis attorney Omar Figueroa said that without legal farm licenses, there is no legal industry. Meanwhile, the state’s illicit market continues to thrive.

“If California runs out of regulated cannabis, consumers will turn to the unregulated market, making it even more difficult for the few remaining licensed cannabis businesses to eke out a living,” Figueroa said.

“The world’s largest legal cannabis industry is on the verge of collapse,” said Lauren Mendelsohn, an associate at Figueroa’s law offices.

The author of SB 67 is Sen. Mike McGuire, who represents many cannabis farmers north of San Francisco.

Why a Fix Is Needed

There’s no shortage of unlicensed cannabis inside California, of course. It’s the legal cannabis system that may run dry.

California’s legalization Proposition 64 mandates state licensing for the entire commercial cannabis supply chain. But bureaucratic red tape has proved thickest around farm licensing. Farms need local city and county approval, plus sign-offs from the Department of Fish & Wildlife and the California State Water Resources Control Board. The annual farm license application is 44 pages long, and application reviews can stretch for more than four months.

The number one thing slowing down farm licensing is environmental review, CDFA Director Richard Parrott said on Jan. 29. For example, cannabis is the only type of crop subject to the state’s toughest-in-class environmental law, the California Environmental Quality Act (CEQA).

SB 67 buys state officials time to try to get more farms past CEQA review to earn “provisional” or “annual” licensing status.

Leafly asked the CDFA to provide a statement on the pace of licensing, and asked if the CDFA is meeting internal goals. The CDFA stated they are working as fast as they can, and pointed to incomplete applications as an issue.

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“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. “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.”

Many thousands of submitted annual applications are incomplete, said consultant Jenn Price, director of state compliance at Golden State Government Relations.

“The current state of affairs is worrisome to say the least,” she said. “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.”

A Feb. 20 memo from cannabis industry lobbyists at K Street Consulting states that the cannabis farm industry has failed to to do their homework and turn in completed applications on time.

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“The industry is not holding up their end of the bargain in submitting annual applications for their temporary licenses,” K Street stated.

The CDFA may be open to a legal fix that buys both sides time, said Price.

“In speaking to a lead scientist from CDFA last week about this looming issue he assured me that Gov. Newsom is highly motivated to see the cannabis regulatory program to succeed. He also alluded to potential legislative fixes in the works,” she said.

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License Expiration Rate Is Accelerating

(Leafly)

(Leafly)

If the cannabis industry is an airplane, a critical warning light is now flashing and a switch needs to be flipped fast (SB 67), or the plane will run out of fuel (raw cannabis) and crash by summer, said Hezekiah Allen, former executive director of the California Grower’s Association.

“SB 67 isn’t the solution to all of this, but it is critical if the fledgling market is going to survive the next year,” he said.

California is on pace to have maybe 144 fully licensed farms by July, when all temporary licenses will have expired.

By contrast, Californians consume an estimated 640 metric tons of cannabis per year. That’s about 1.4 million pounds.

The rate of temporary license expiration is accelerating, and if it continues, the industry will collapse. Virtually all current legal farms won’t be able to grow cannabis. Distributors won’t have anything to ship. Labs will have nothing to test. Store shelves will go bare, and customers will retreat to the illicit market.

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There are 6,924 temporary farm licensees on file with the CDFA. About 3,127 of them have submitted applications for annual licensing. Thirty-nine of those annual licenses are approved pending payment of fees. Nine farms have annual licenses.

Temporary licenses have started expiring. There are 198 temporary licenses expiring in the month of February. Among those temp licensees, four have submitted annuals. So 194 temp farm licenses will expire in February, no matter what.

  • In March, 1,496 temporary farm licenses will expire, with no possibility of renewal or extension.
  • In April, 4,001 temp licenses will expire.
  • From May through July, all remaining temporary licenses will expire.

At the CDFA’s current pace of 48 annual licenses approved since Jan. 1, regulators are on track to license maybe double that number (144 total) by July.

An industry with more than 6,000 temp farm licenses will have contracted to one with maybe 144 permanent farm licenses.

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David Downs's Bio Image

David Downs

David Downs directs news and lifestyle coverage as the California Bureau Chief for Leafly.com. He's written for WIRED, Rolling Stone and Billboard, and is the former cannabis editor of the San Francisco Chronicle, as well as the author of several cannabis books including 'Marijuana Harvest' by Ed Rosenthal and David Downs. He co-hosts The Hash podcast. TW: @davidrdowns | IG @daviddowns

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  • Paris Merriam

    Perhaps Neil Young ought to step in and sing “Home grown, it’s all right with me”.

    • ManlyMutt

      You’re kidding right? Only the rich can afford to have the space to home grow in California.

      • Anon Amos

        Anyone willing to give up a closet can grow at home.

  • 360dunk

    “Come next door, we’ve got tons of weed!” said Nevada.

  • alacrity

    “the death of a thousand cuts” comes to mind- between city taxes, county taxes and state taxes levied on multiple levels, the costs have risen beyond reasonable. Add in the paranoia that “unregulated and illegal cannabis production is a threat to the health of cannabis users” fomented by those that have no experience or relevant knowledge makes the entire process a joke.

  • horsemannv

    Yes, make the crossing of state lines with cannabis legal and we will sell you some of ours…or Oregon, they have a ton of unsold pot there. The real story here is that of those licenses sure to be approved or already existing belong mostly to large Agri-businesses, cutting out the small farmer because of the cost of applying and start up capital, which is astronomical. The rich get richer and the less fortunate get stepped on and squashed.

  • James Hall

    I have no doubt California will fix this conundrum, and come out of this problem bigger and better than expected!

  • The mad yooper

    I’m thinking Crosby, Stills and Nash, CHICAGO

  • Tellur88

    Got a surplus in Oregon…like double surplus. So how is it that ‘progressive’ CA is in so much turmoil? Colorado, WA, OR all transitioned with issues…some not so pretty. In Oregon we seem to have a surplus because we just love to grow. Still a black market, but we also have Industrial Hemp going on with the 3rd most acreage nationally…over 7000 acres in Hemp.

    For CA…it would seem they could hire a number of people in key jobs (salaries can be on future earnings from the industry), like screening applications for accuracy and fast tracking ones that can be. Sometimes the problem isn’t what looks obvious….my guess is that their system is ill designed for efficiency. Like how about reducing fees for the first two years to get people licensed and up and running. For the ones already licensed…a future rebated to even it out.

    A friend of mine was just down in CA for a Forestry job with PG&E utility. He just shared with me how they pad contracts with layers of jobs, some totally irrelevant, just to max out the funds….Not saying the cannabis industry there is padding inefficient jobs…. Just to the point of inefficient systems that shoot themselves in the foot unable to see a better way.

  • jbc123

    How typical. “I’m from the government, and I’m here to help”. Not.

  • Debbidoodles

    Seriously ……. Oregon has way too much weed so we are voting to be able to ship it to where it’s needed! Hold on Cally the Green is on its way!!

  • GrowLightSource

    Bring back the easy to grow rules of medical marijuana, limit the number of plants to 99, have thousands of the old organic growers participating instead of a limited number of rich investors controlling the show. Provide classes, take test, if you pass you sign an affidavit indicating you will play by the rules, pay a small fee to participate, if successful pay taxes. There should be a coop system, by which the grower delivers, it is instantly tested for safety and potency and a fair wholesale cultivator price is paid based on the results or it is rejected for not meeting standards, retail and pharmaceutical companies buy form the coop. Get the building departments, all of the excessive conditions and fees out of the mix. Proper regulation, not over-regulation.