Almost 4% of California’s state marijuana business permits remain suspended weeks after regulators put more than 400 in limbo for not participating in mandatory track-and-trace system training.

The number of suspended permits has fallen – but remains sizable. As of Tuesday, 277 out of the 407 permits involved had not received reinstatement to “active” status, according to state licensing data.

Those remaining 277 are “a combination of businesses not in operation or not in the (track-and-trace) system,” a spokesperson for the Bureau of Cannabis Control wrote in an email to Marijuana Business Daily.

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Industry observers suggest California’s licensed marijuana supply chain likely won’t experience major fallout from the permit suspensions, because many of the cannabis companies involved weren’t currently operational or were canceled business ventures.

Or, if they are operational, marijuana businesses can get through the permit reinstatement process quickly, industry officials noted.

The ongoing suspensions include:

  • 164 distributors (16 of which are transport-only)
  • 28 retailers
  • 41 delivery services
  • 34 microbusinesses
  • 8 manufacturers
  • 2 cultivators

Suspensions for inactive businesses?

California has 7,214 state-licensed cannabis companies, so the suspensions represent just under 4% of the legal supply chain.

For about a quarter of the suspended permits, it was an easy fix that took only about half a day, said Josh Drayton, communications director for the California Cannabis Industry Association (CCIA).

But that’s also apparently a part of the supply chain that wasn’t even yet operational, according to analysis by several industry participants.

As far as the remainder of the suspensions, many appear to still be in the works or perhaps canceled ventures altogether.

The upshot, the CCIA’s Drayton said, is the legal supply chain won’t experience major long-term impacts from the suspensions.

But to him, the episode again illustrates how burdensome the regulatory system remains for marijuana companies.

“There’s still quite a few barriers for folks, and right now, with capital investment drying up, it’s going to be difficult for some of these folks to ever get operational, because those investment dollars are just no longer there, the way they were a year ago,” Drayton said.

As far as the 277 remaining suspensions, many of those have likely gone unused, Drayton said, another indicator of how difficult it’s been to navigate the California marijuana industry or to turn a profit.

“I don’t know if this is the full case, but my initial understanding is a lot of these licenses are businesses that have been inactive,” Drayton said.

That’s true for at least three of the operators that have suspended permits.

Tim Blake, founder of the Emerald Cup – one of the most high-profile marijuana events in California – holds one of the 28 retail permits that were suspended. It’s for a retail cannabis shop in the heart of Mendocino County that he said he currently can’t afford to reopen after closing it about a year ago for remodeling.

“It was an old building (and) had a lot of upgrades that needed to be done. We thought (regulators would) let us get by without doing a lot of them, but they demanded all that get done,” Blake said.

The mandatory upgrades – such as making the building disability-accessible – are likely going to cost upwards of $200,000, he said. But he’s had other business ventures to focus on in the past year.

“It came down to a matter of finances,” Blake said.

“It probably would have cost a prohibitive amount to be open over the last year, so I probably ended up saving money by not being open.”

Blake is still planning to reopen the shop, but likely not until spring, he said.

It’s a similar story with Grupo Flor, a Monterey County-based company with a wide business footprint that also holds a suspended distribution permit.

Grupo Flor had an investment deal that fell through over the summer – which was partially to blame for the company’s recent staff layoffs – and left the company without the necessary capital to launch a previously planned statewide distribution operation. That license is currently going unused.

“Since the location is not operational, it’s not much of a loss,” Grupo CEO Gavin Kogan wrote in an email to MJBizDaily.

“Rather than accept the suspension, we are voluntarily withdrawing the license from (the) state. We will resubmit to state once the location is operational.”

Possible system glitches

Another suspended permit belongs to Jerred Kiloh, president of Los Angeles-based trade group United Cannabis Business Association, for a retail shop in Napa.

That instance, however, appears to involve a clerical error by the Bureau of Cannabis Control (BCC), Kiloh said, since he’s fully credentialed for the state’s Metrc track-and-trace program for his other shop in L.A., the Higher Path.

Kiloh said the BCC made a mistake on the license, so he just needed to inform the agency the required track-and-trace training was already completed.

“It was just a convoluted amount of miscommunications on (the BCC’s) part,” he added.

Kiloh noted his Napa shop – like Blake’s – has yet to open, so getting the suspension lifted isn’t a priority yet, in part because getting that taken care of will likely take only a matter of hours.

“We’re not open for business yet, so it wasn’t like, ‘Oh my god, let’s hurry and get onto Metrc,'” Kiloh said.

“Because who cares right now? But we are trying to open in the next few weeks, so my name should be off the suspended list by now.”

Kiloh said he suspects it’s a similar explanation for many of the other suspended licensees: Either they’re not yet operational but soon will be, or they have canceled plans, as in the case of Grupo Flor.

“A lot of them have put that on the back burner until they’re ready, knowing that in a few days, they can take that suspension off,” Kiloh said.

He also noted that a lot of small businesses – including retailers, farmers and others – obtained distribution permits in 2018, thinking that niche would be an easy entrance into the legal market.

“Some farmers got distribution licenses so they could distribute their own product, and then they realized it’s not cost-effective,” Kiloh said.

“They didn’t have a whole sales force to go sell their product like a distributor would need to. So a lot of those forces are what have pushed a lot of these distribution permits to not be used.”

John Schroyer can be reached at johns@mjbizdaily.com