California Lawmakers Adopt Bill to Consolidate Cannabis Licensing Agencies
Provisional Licenses Addressed, But Problem Remains
By Lauren Mendelsohn
July 7, 2021 (updated July 12 & July 16)
Last week, lawmakers in Sacramento approved Assembly Bill 141, a budget bill that includes numerous changes to California’s cannabis regulatory structure. Among the items covered in AB 141 are the impending consolidation of the three existing licensing agencies — the Bureau of Cannabis Control (“BCC”) within the Department of Consumer Affairs, CalCannabis Cultivation Licensing (“CalCannabis”) within the Department of Food & Agriculture, and the Manufactured Cannabis Safety Branch (“MCSB”) within the Department of Public Health — into one cannabis licensing agency, the Department of Cannabis Control (the “DCC”). We previously discussed Governor Newsom’s plan to consolidate the cannabis agencies here.
The passage of AB 141 follows last month’s passage of another budget bill that included cannabis-related provisions, Assembly Bill 128. That bill, which was signed into law by Gov. Newsom on June 28, spells out how many state programs will be funded for the 2021-2022 year, including the new Department of Cannabis Control. Among the many items addressed by AB 128 are a $100 million appropriation for grant funding that will be available to local governments for the purpose of assisting with converting provisional licensees to annual licensees via the new “Local Jurisdiction Assistance Grant Program”), including a breakdown of how much each jurisdiction is eligible to receive; and a $20 million appropriation for grant funding that will be available to local governments to assist equity applicants and operators via a continuation of the “Local Equity Grant Program”. We previously discussed AB 128 and these local jurisdiction grants here.
Below are some of the key cannabis-related items addressed in the latest budget bill, AB 141.
CONSOLIDATION OF LICENSING AGENCIES
The measure spells out how the state regulatory agencies will be combined in terms of transfer of officers, employees, appointed positions, records, forms, contracts, tangible and intangible property, etc.; and how the DCC will assume the roles and responsibilities of the existing agencies. References to the existing licensing agencies in the Medicinal and Adult Use Cannabis Regulation and Safety Act (MAUCRSA) and related regulations will be construed as referring to the Department of Cannabis Control.
The newly-created DCC would be allowed to adopt, and re-adopt, regulations via the emergency rule-making process, so one can expect it will be a while before a full public notice-and-comment period will be held (though even the emergency rule-making process still requires an abbreviated notice period). The existing regulations that have been published will stay in effect until they expire on their own or are repealed or amended by the DCC.
PROVISIONAL LICENSING
Notably, AB 141 addresses the requirements to qualify for provisional and annual licensing, and the state’s ability to issue provisional licenses beyond a certain date. Under current law, the BCC, CalCannabis and MCSB cannot issue or renew any provisional licenses beyond January 1, 2022. (Business & Professions Code §26050.2.) Under AB 141 the ability to issue new provisional licenses would be extended until June 30, 2022 — provided that the application is submitted by March 31, 2022 — and the ability to renew existing provisional licenses would extend until 2025.
While AB 141 provides the DCC with some flexibility to issue and renew provisional licenses beyond the dates currently set in state law, it also imposes new requirements for the issuance and renewal of provision licenses. For example, applications submitted after January 1, 2022 cannot involve multiple cultivation premises on multiple contiguous parcels spanning over an acre, or over 22,000 square feet for mixed-light/indoor — otherwise they won’t be eligible for a provisional. Likewise, the DCC would not be able to renew a provisional license beyond January 1, 2023 if doing so would result in multiple contiguous cultivation premises amounting to over an acre of outdoor canopy or 22,000 square feet of mixed-light or indoor canopy space.
Furthermore, provisional licensure would still require completion of or evidence of progress towards compliance with the California Environmental Quality Act (CEQA) and Chapter 6 of Division 2 of the Fish and Game Code, which in the context of cannabis licensing, respectively involve site-specific environmental review and a streambed alteration agreement with the Department of Fish and Wildlife or proof that one isn’t required. AB141 spells out what “evidence of substantial progress” will look like in this context.
The provisional licensing issue is critical to the cannabis industry statewide because there are many licensees who are still in the process of satisfying the requirements of the annual licensing process, in particular the CEQA and Fish and Wildlife components. Many of these operators have local permits or authorizations that did not require the level of environmental review called for by MAUCRSA and the state regulations, so they are forced to do this on their own in order to qualify for a state license. In some cases like Mendocino County, which ironically is part of the world-renowned Emerald Triangle and has been a haven for cannabis activity over the past decades, almost all licensees are operating on provisional licensure status due to the way that the county set up their program a few years ago. If nothing is done, many existing licensed operators there and elsewhere across California will be unable to renew their provisional license or to qualify for an annual license next year, which would have an enormous impact on the entire supply chain.
TRADE SAMPLES
Another notable aspect of AB 141 is its allowance for trade samples to be provided to other licensees for the purposes of target advertising. Trade samples will have to be labeled as “TRADE SAMPLE. NOT FOR RESALE OR DONATION,” and transfers of trade samples will have to be tracked in METRC. Free transfers of trade samples between licensees would not be subject to state cultivation or excise taxes, though trade samples that are sold would be taxed.
This is an improvement over current law, which prohibits licensees from giving away free cannabis goods without addressing the issue of trade samples. (16 CCR §§ 5040, 5411.)
OTHER CHANGES
The bill would clarify that the prohibition against having an interest in a testing laboratory and any other type of license extends not just to owners but also to financial interest holders. A “harvest batch” would also no longer need to be uniform in strain. Water use, environmental impacts, and other “issues” would have to be taken into consideration before the Department of Cannabis Control issues cultivation licenses. Additionally, DCC agents would be authorized to possess certain firearms that are restricted to sworn members of various state entities.
These are just some of the many changes that AB 141 would bring about; a full analysis is beyond the scale of this post.
IT’S NOT OVER YET
There will be one more budget trailer bill later this month that may include additional changes related to California’s cannabis or hemp industries. Additionally, as mentioned above, the Department of Cannabis Control will likely soon issue emergency regulations that will provide clarity on how the new agency will operate and which requirements will change as part of the consolidation process.
This is a developing story; stay tuned for updates.
*UPDATE* July 12 – Governor Newsom signed AB 141, which became effective immediately.
*UPDATE* July 16 – The state legislature has adopted SB160 which makes some amendments to AB141.
This information is provided as a public educational service and is not intended as legal advice. For specific questions regarding cannabis or hemp laws in California, please contact the Law Offices of Omar Figueroa at 707-829-0215 or info@omarfigueroa.com to schedule a confidential legal consultation.