California cannabis licensing backlog could spur collapse of supply chain, ‘hundreds of businesses’

(This story has been updated to include comments from the California Department of Food and Agriculture.)

A California Senate panel on Wednesday advanced a bill – dubbed a “Band-Aid” by one sponsor – in a last-minute bid to prevent thousands of marijuana companies from being temporarily forced out of the legal market and causing chaos in the state’s marijuana supply chain.

But the move is likely to be in vain, at least in the short term.

Temporary licenses – on which the entire legal market operated throughout 2018 – have already begun to expire, while licensees continue to wait for full annual permits.

“Without passage of this bill, there will be dire consequences, such as the imminent market collapse of hundreds of businesses,” Terra Carver, the executive director of the Humboldt County Growers Alliance, told lawmakers on Wednesday.

The measure, Senate Bill 67, would give more leeway to the three state agencies responsible for licensing marijuana companies.

In particular, the bill would allow licensing authorities to extend existing temporary licenses, thereby letting companies continue doing business as normal while their applications for full annual permits are processed.

However, the three state agencies – California Department of Food and Agriculture (CDFA), Bureau of Cannabis Control (BCC) and Department of Public Health (DPH) – have failed to move quickly enough to process the backlog of provisional or annual license applications. Moreover, the temporary licenses can no longer be renewed or extended.

As a result, some of the companies operating with temporary licenses have watched their permits expire.

Looking ahead, companies with only temporary permits will technically be banned from doing business once their temporary permits are no longer valid – a scenario that could result in lost income for businesses and product shortages.

The problem’s scope is large: Most legal cannabis companies in the state hold licenses that are set to expire in the coming months.

“In our office, we call this a good, old-fashioned hot mess,” Sen. Mike McGuire, the lead sponsor of SB 67, told the state’s Business, Professions and Economic Development Committee, which then approved his bill on an 8-0 bipartisan vote.

“This is a Band-Aid to a big challenge. But it buys us breathing room for a big fix,” McGuire said, referring to the huge licensing backlog.

Timing a big question

Even with an “urgency clause” attached to SB 67, the soonest it could be signed into law by Gov. Gavin Newsom is at least another two months, McGuire said.

“Best-case scenario, making it through all policy committees and off the floor of the Senate and Assembly in the next 60-90 days,” McGuire said when asked how soon the bill could get to Newsom’s desk.

That means there will likely be thousands of companies with temporary licenses forced to halt operations temporarily, causing not only industry consternation but a loss of income for growers and manufacturers. It also could trigger product shortages for retailers.

McGuire told the committee that roughly 10,000 temporary business licenses will expire this year. He noted that so far only four provisional licenses and 52 annual permits have been issued.

Lindsay Robinson, the executive director of the California Cannabis Industry Association, said about 6,200 businesses possess temporary licenses that “could expire by April,” despite having already submitted annual applications.

“Many of these soon-to-expire licenses belong to cultivators … the essential starting point of the cannabis supply chain,” Robinson told the committee. “Should these businesses lapse, the upstream ramifications for the entire cannabis industry could be severe.”

But because the bill may not make it all the way through the legislative process before April, it means 6,200 operators out of 10,000 may face at least a short-term shutdown.

Carver, who represents the Humboldt County growers, shares that concern about the ripple effects, even if SB 67 is fast-tracked to Newsom’s desk.

“Even if we could get it into statute in 60-90 days, if we can’t operate because our temps have expired, to prepare even for when we’re active again, how is that going to impact our fall harvest this year?” Carver asked.

“There are farms right now that are popping seeds and cutting clones. It’s go time for those earlier farms. So I’m not quite sure” what the full impacts will be.

In the meantime?

McGuire and Robinson both warned the committee the failure of the state to issue timely license extensions or updates could strengthen the illegal market, which already has proved to be a resilient competitor for companies trying to succeed without skirting state law.

“We are left with no other alternative,” McGuire said. “If we do not pass this bill, we are going to see thousands of Californians … falling into the illicit market.”

That’s probably already happening, said Lovingly & Legally Grown’s Paul Hansbury and Susan Tibbon, Mendocino County growers who drove to Sacramento for the bill hearing.

Farmers can’t stop doing business simply because there’s no way to keep hold of their business permits, they said.

“They’ve got bills to pay as well, mouths to feed,” Hansbury said. “And to shut them out like this, the problem is that CDFA is adhering to the letter of the law instead of the intent. They’re making excuses and holding up the statute.”

Hansbury and Tibbon have a temporary license that expires in April. They submitted their annual application to the CDFA but haven’t yet received a response.

Rebecca Foree, communications manager for the CDFA’s cannabis licensing division, wrote in an email to Marijuana Business Daily that processing annual permit applications is the department’s top priority.

But she also acknowledged each permit “can take several months” and the timing for each “varies greatly depending on the completeness of an application.”

“We urge those who have already submitted an annual application to log on to their online accounts regularly to check on the status of their application and look for possible deficiency messages,” Foree wrote.

“The sooner applicants resolve any deficiencies in their applications, the faster their applications will be processed.”

Will enforcement continue?

Asked if he and Tibbon were worried about potential enforcement by the state against businesses that continue to operate even without any legal way to get a permit, Hansbury said, “You bet your ass we are. That’s why we’re here.”

McGuire said he hopes enforcement against businesses operating in good faith will be put on hold until his bill can make it through the Legislature and that licenses can be updated retroactively, so law-abiding companies aren’t unduly penalized.

“We’re looking at 200 (licenses expiring) in the month of January alone – 23 today, just in one day,” he said. “What I would hope is there’s a stay from state agencies when it comes to enforcement.”

According to the CDFA’s Foree, “businesses with a temporary license that have submitted an annual application are not an enforcement priority for CDFA.”

But she also noted that “state law requires a valid CDFA license to conduct commercial cannabis cultivation” and offered some guidance to entrepreneurs seeking licensure.

Spokespeople for the BCC and CDPH declined to comment for this story.

John Schroyer can be reached at [email protected]

15 comments on “California cannabis licensing backlog could spur collapse of supply chain, ‘hundreds of businesses’
  1. John Crame on

    Another major issue is you have cities focusing all their resources on equity applicants that are no where near ready to move forward but keep applying for multiple licenses with no real plans but cities continue to spend time on processing and issuing them permits, inspection cards, etc. Wheres the logic in that ? You have mom and pop businesses that are not equity applicants ready to go just sitting waiting hemorrhaging money on rent and insurance…most are about to close down. That’s a big loss of tax revenue for cities and state that could go to hiring more staff.

    Reply
  2. Concerned citizen on

    Again politicians thinking they know business!? Well why we here ? Because of farmers? Idiots that can’t even expedite a bill!? Couldnt see the meteor coming the size of the earth!
    And then add insult to injury bust the ones waiting for an extension…f troop! We are so far behind other states its embarassing..social equity comes before the general public and the consumers the permits..and these people know nothing about the industry..don’t u think we should of gone in communities economically challenged and provided jobs? Uh I don’t know uh maybe..boneheads..people are going to other states because other states see how stupid California has been in cannabis and are making the necessary adjustments and kicking our ass all over the place..over taxing, can’t proceed an app expeditiously, the worst not enough dispensaries that has the market jammed..Colorado has 2400 shops 3 million people california 650 40 million people uh maybe we should open some more shops uh yeah like 10,000.
    Run into the ground like the high speed train..California is 2 trillion in debt..uh how’d that happen so called politicians that can’t even wipe their asses..out

    Reply
  3. Rod Gass on

    Hooray!

    California’s Cannabis Cultivators have woke-up. Who needs a license?

    Spring planting always comes this time of year. There’s no delay based on anything other than our Sun. It shouldn’t matter which middleman can’t keep-up the natural solar cycle.

    To stall is to prohibit.

    Reply
  4. Chris Cahill, JD MBA on

    One reason the state is taking so long, as mentioned, “varies greatly depending on the completeness of an application” was completely under the control of the applicants who failed to make prudent decisions.

    Those Temporarily license holders who didn’t appreciate the level of detail an agency needs to approve their operations are going to pay a huge price for not investing in qualified, professional assistance from trustworthy consultants … The penny-wise DIY’ers may end up putting their entire business at risk to save a few thousand dollars.

    Reply
    • Large Cannabis Business who has an army of lawyers and consultants on

      Your comments are so ill informed – the State doesn’t even understand it’s own process. We’ve asked the same questions from a few different companies and all get different answers. The entire regulatory scheme in California is a joke – the best example of government destroying what could otherwise be a great example of innovation and capitalism at work.

      They don’t even realize that they have literally strengthened the black market due to the TRIPLE TAXES the State created – Cultivation tax, Excise Tax, Sales tax on both of those taxes oh and that doesn’t’ count local extra cannabis taxes. They built a super highway in the middle of a traffic jam with no on-ramps.

      Reply
  5. Phil on

    What can anyone say? It’s California. The Govenor moves National Guard from border to find illegal grows and did anyone think the State governement had any support for the people? Politicians respond to money not health issues unless it’s someone in their family.

    Reply
  6. Nathan Zeke on

    However, the three state agencies – California Department of Food and Agriculture (CDFA), Bureau of Cannabis Control (BCC) and Department of Public Health (DPH) – have failed to move quickly enough to process the backlog of provisional or annual license applications. Moreover, the temporary licenses can no longer be renewed or extended.

    Lori Ajax we are talking to you!

    Reply
    • john ward on

      Nathan,
      I think most of us gave prop 64 a choice. For myself and our company of ten people, of which four are owners we feel we have been betrayed by the state. The regulatory scheme that Lori Ajax has rolled out was neither the intent nor the definition of the law. They, the state agencies involved have undermined and sabotaged the legalization of cannabis in California. This Trumpian style of leadership will not stand. If they can’t stomach the people’s decision, they should resign. If they don’t they should be fired at once.
      Both myself my wife and our partners have all mortgaged our homes to get through the start of this new law. We set aside $250,000 as a burn rate till things smoothed out. Now after going through $500,000 we are almost broke. The rollout has been disastrous. After operating as a 280 tax compliant, locally licensed cannabis vendor since 2005, we have gone from 97 accounts to 7. We maintained payroll to all of our staff which are either family or like family. All with lives and mortgages and kids in school.
      We are being forced to go back to the black market, which worked very well for a long time. Of the fifty or so vendors in our area we got to know and respected over the years as true medical cannabis vendors, three of us are left. It will be zero very soon. This is happening all over the state.
      For us it will be the day my temporary license is not extended. It has now been 850 days since prop 64 won in a landslide. It is the state that has ruined a smooth rollout of regs. One simple plant now has a rule book of over 200 pages. We the former cannabis operators did not cause this chaos. Only speaking for myself, I am not exiting the industry that is my passion, we are only withdrawing from the state sponsored failure to do their jobs.
      My patients and customers will still get their CBD products (we only market CBD) . We will not give up on them, just the state’s new cartel system.
      We are cannabis vendors not drug dealers, we refuse to sell booze, tobacco or sugar.

      Reply
      • david smitt on

        Right on John,
        Same with us. We spent the money got a license to manufacture and then preceded to go broke. We have now reverted to the old ways. I have never received so many new customers in the twelve years of being an edible vender. People are leaving the dispensaries in droves. I would say prop 64 has been a massive failure, but I agree with you that it’s the state that refused to let it happen by making crazy rules for a harmless plant.
        Now we have a viable alternative. Let the big money players deal with the 15-20% of the market. The rest of us can share the much bigger pie.
        This is free enterprise at work. The consumer will ultimately decide the market place, not the BCC, although they could have.

        Reply
      • Dan on

        My suggestion is to file for a HEMP growers permit. Then you are legal immediately. I believe a lot of growers will switch to hemp this year. A lot of them have done it here, in Oregon.

        Reply
        • Joe on

          The provision which allows for one to grow Hemp under a university – sunset with passage of the 2018 Farm Bill. Anyone is going to be hard pressed to receive a local license for growing hemp in California this year. Local jurisdictions have either folded their hemp regulations into their canna regs or have out right banned a federally legal activity with no sense of the devastation they are causing.

          Reply
  7. Kris Murthy on

    Why no mention about going to Governor for issuing an Executive Order extending the validity
    dates of all temporary licenses by a year?

    Reply
  8. MICHAEL on

    The time that the government sector handles affairs is too long, handle affairs efficiency is too low. With no regard for the loss to the farmer. Government officials do not understand that farming is seasonal, and that if time is delayed, the farm will have no harvest.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *