The transition to a fully regulated cannabis industry is taking California a bit longer than anticipated.
While state regulators scramble to extend temporary marijuana business licenses, they’re also considering whether to extend a grace period that gives operators extra time to comply with strict new industry standards.
As of Monday, a tenth of the 6,000 temporary cannabis licenses state regulators have issued were set to expire by May 1, which marks the four-month anniversary of the start of legal recreational marijuana sales in California. A third of all existing licenses were due to lapse by the start of June.
The state hasn’t issued any full annual licenses yet. And the first approvals are likely still at least four weeks out.
Instead, regulators are extending provisional permits for another 90 days while businesses deal with complex regulations, backlogs in getting local approval and, it seems, their own procrastination.
“Part of the problem, I think, is that people wait until the last minute,” said Lori Ajax, chief of California’s Bureau of Cannabis Control. “I’m a procrastinator sometimes. I get it, so I’m not upset.”
Only 278 businesses had even applied for annual licenses as of April 25. That includes just 24 cultivators, 61 manufacturers and 193 retailers, distributors or testers, according to figures provided by the three agencies regulating marijuana businesses.
If businesses don’t get complete applications in before their temporary permits expire, they’ll be required to shut down until however long it takes them to get annual authorization. Ajax said her staff will inspect sites to insure compliance.
Still, neither state regulators nor industry insiders seem too concerned about the slow pace of processing, with everyone confident that a coming flood of temporary permit extensions will take care of the problem.
State regulators created simple temporary licenses, good for 120 days, so they could hit a mandated Jan. 1 target to launch recreational sales and regulate all segments of California’s massive marijuana market for the first time.
The goal was to give marijuana business owners time to compile the additional information needed to get annual licenses, including security plans, insurance bonds, business formation documents and fingerprinting for all owners. It also gave the state time to review and verify conditions needed for annual licenses, such as local approval.
The temporary licenses came with an optional 90-day extension. Now it seems all businesses will need to take advantage of that provision.
Delays in licensing don’t seem to be happening at the state level. In fact, industry operators say state agencies have been extremely prompt about processing applications and responsive in answering questions that pop up along the way.
“When you think about the herculean task they had, they did a really good job,” said Rob Bernheimer, chief counselor for Irvine-based Cultivation Technologies.
But the requirement that operators show they have permission from their local jurisdiction before they can get a state license has proven particularly challenging.
While the Bureau of Cannabis Control had approved 1,779 licenses as of April 25, Ajax said they’d denied another 1,150 license applications. About 90 percent of the denials were issued because businesses didn’t have approval form their city or county to set up shop.
More than two-thirds of California cities don’t allow any cannabis businesses at all, according to a statewide database of policies compiled by the Southern California News Group.
Some cities and counties that do have policies on the books to allow the industry have been slow in rolling out local permits. Sonoma and Nevada counties, for example, have substantial backlogs in processing local applications to grow cannabis, according to Hezekiah Allen, executive director of the California Growers Association trade group.
The application process itself also is challenging, Allen said, noting that he’s seen annual license applications that were 300 pages long.
It took Bernheimer and his team of dedicated staff about a month to put together all of the information needed in the four separate annual license applications they submitted to manufacture and distribute both medical and recreational cannabis out of Coachella.
Then there are the fees associated with state annual licenses, which range from $800 up to $120,000 a year, depending on the business type and size. Allen said some small cultivators are being priced out of business, particularly when state fees are added to the fees associated with local permits and the price of operational upgrades needed to comply with new regulations.
Given these challenges, Ajax said the state is also considering extending a grace period they offered businesses to comply with portions of the hundreds of pages of new state regulations. That includes letting shops sell inventory that doesn’t meet new testing and packaging requirements, and allowing businesses to keep working with other licensed operators without worrying about whether their permits are for medical and recreational activities.
That grace period is set to expire July 1. But many stores stocked up on inventory before new regulations kicked in, so Ajax said owners are saying they’re still going to have lots of unsold product if that July 1 date sticks. Also, she said giving operators more time before they have additional limits on who they can do business with will probably be needed to help avoid any hiccups in the supply chain.
We saw supply chain issues in other states as they struggled to launch regulated cannabis markets. In Nevada, for example, a delay in licensing distributors meant retailers were running out of product just days after recreational marijuana sales launched there on July 1, 2017.
California regulators say they’re proud to report they haven’t had those kinds of issues here, even while rolling out licenses and rules for the world’s largest legal marijuana market.
Extending temporary permits and the grace period on some compliance issues will help them maintain a steady flow of licensed product, Ajax said. But it also means it will likely be late summer before California cannabis consumers can be sure products they’re buying have been lab tested, tracked from seed to sale, sold by vendors that have cleared background checks and passed other security measures.
Meanwhile, the state is also busy creating final regulations for the cannabis industry.
Businesses are now operating under 276 pages of emergency regulations issued in mid-November. California’s Cannabis Advisory Committee has been meeting to discuss changes to these rules, and Ajax said she expects quite a few adjustments once final plans come out in perhaps two months.
Some issues on the table are possibly loosening hours of operation for retailers, limits on delivery services and a requirement that vertically integrated businesses must use distributors to move products even on their own campuses, Ajax said.
“There’s plenty of room for improvement and we’re OK with that because I just think that makes for a better product,” she said.
As final rules are approved and temporary permits expire, Ajax said the state does plan to step up enforcement in the second half of 2018.
They’ve already sent out cease and desist letters to nearly 1,000 businesses that don’t seem to have made any attempt to comply with new state laws, including the giant dispensary-mapping service Weedmaps. Soon, Ajax said her small agency will begin partnering with the Department of Consumers and local law enforcement to shut down unlicensed businesses.
But even at that stage, Ajax said they’ll still be taking into consideration operators who are trying to get local permits or otherwise follow the rules, since the goal is to move as many businesses as possible into the regulated marketplace.
“It’s not as black and white as a regulator would like it to be,” she said. “But I think there just comes a point where we’ve got to cut it off.”
To subscribe to The Cannifornian’s email newsletter, click here.