California’s Issuing More Temporary Licenses to Avoid Disruption in Supply Chain

A new California law will let regulators issue annual provisional licenses to cannabis businesses beginning next year.
California's Issuing More Temporary Licenses to Avoid Disruption in Supply Chain

Prior to adult-use legalization, California already had a robust, extensive and established cannabis market. This includes the state’s medical cannabis industry, of course, but also the illicit “black market” for which California is both infamous and legendary, depending on whom you ask. Proposition 64, the adult-use ballot measure California voters approved in 2016, didn’t just legalize weed. It also set up a taxation and regulatory framework to bring the extensive network of illicit operations above board and into the legal system.

But California regulators are finding that process to be a tall order. And nearly a year into the full implementation of Prop. 64, the Golden State has still not issued a single annual license to a cannabis businesses. Meanwhile, the expiration date for temporary licenses continues to approach, threatening the entire supply chain of legal cannabis. To address this problem, Gov. Jerry Brown signed a bill to issue yet another round of provisional licenses while regulators play catch up. The move creates an additional stop-gap measure that will hopefully keep California’s cannabis industry moving as businesses await full licensing.

Community Approval Requirements are Bottlenecking California’s Licensing Process

Regulators and the cannabis industry both are doing the best they can with limited resources and extraordinary demand for licenses. At the same time, the industry has raised a number of concerns about the process, and a consistently heard complaint centers on California’s community approval requirement. This part of California’s cannabis business requirements was supposed to give communities autonomy to shape the nature of the cannabis industry in their jurisdictions. Instead, it has turned out to be a significant bottleneck in the entire licensing process.

In several places, local approval has been slow-coming. But even in communities that want to welcome the cannabis industry, like those in Humboldt and Mendocino county for example, there’s a backlog. Here, the issue isn’t hesitant city councils, but overwhelming demand from the industry.

And that has put regulators between a rock and hard place. If they rush the applications through, they risk green-lighting substandard operations or failing to consider all the factors at play, such as environmental impacts. On the other hand, if they continue to take their time and let the permits expire, they risk businesses backsliding into the illicit market to stay afloat.

The only solution, then, was to continue issuing temporary and provisional permits as stop-gaps. This solution lets companies continue operating, while giving regulators more time to review applications.

Extending Permit Deadlines is a Win-Win for the Industry and Regulators

California’s legal adult-use cannabis market commenced on January 1 this year. At the time, the state issued four-month temporary permits to cannabis businesses who were putting together licensing applications. As those were set to expire in April with no full licenses approved, California issued a 90-day extension. The new, July 1 deadline ushered in what many in the industry called a “Marijuanapocalypse,” with millions of dollars in products failing to meet new regulatory standards destroyed.

Around 6,450 businesses across California are operating with temporary licenses. A full 75 percent of them are cultivation licenses. But California law had prevented issuing new temporary licenses or extending current ones past Jan. 1, 2019. At the same time, regulators announced they did not have the resources to complete their review of all applications by December. And that meant that cannabis business licenses would begin expiring in Jan. 2019. All of them would have expired by March 31. Facing a situation where thousands of businesses would have to shut down, lawmakers authored Senate Bill 1459 to establish a new licensing category.

New Licensing Category Will Let Cannabis Businesses Operate Through 2019

The new category sets up year-long provisional licenses to cover all of 2019. The state will being to issue the annual provisional licenses in January. They’ll be good for a full 12 months, but won’t be eligible for renewal. To get one, businesses will have to file under the same address and category as their temporary license. They will also have to comply with California’s strict new seed-to-sale tracking requirements. Currently, temporary permit holders do not have to submit data to the track-and-trace database.

The industry registered virtually no opposition to SB 1459, with major organizations like the Cannabis Industry Association and Growers Association signing on. The bill passed the California Senate and Assembly easily, and Gov. Brown signed it into law on Sept. 27.

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