July 26, 2021

California Legislative Update

California has finally ridden itself of its three-headed cannabis beast and replaced its multiple regulatory authorities with the single Department of Cannabis Control (DCC). Led by the newly appointed director, Nicole Elliot – former cannabis advisor to Governor Newsom – the DCC will be responsible for state licensing and enforcement for commercial cannabis activity. One of its first responsibilities will be to write regulations for two trailer bills that enact parts of the state budget: AB 141 and SB 160. Governor Newsom signed AB 141, the primary cannabis trailer bill, on July 12, so it is now officially the law. It contains major policy changes, including the establishment of the DCC, a pathway for the industry’s use of trade samples, and some controversial language relating to provisional licenses.

Let’s dig more into the controversy. First, AB 141 ends the provisional licensing program after January 1, 2026 and prohibits the DCC from renewing any provisional licenses after January 1, 2025. Right now, about 82% of the state’s licenses are provisional and many industry members have little faith the state will be able to issue annual licenses in time before the program expires. Second, as of January 1, 2023, cultivation licensees will no longer be able to hold multiple provisional licenses on contiguous premises that exceed one acre, a strategy sometimes referred to as “stacking.” While larger growers are upset about this change, smaller growers and others see this as a win for small business and the environment. One important note is that the stacking prohibition applies to provisional licenses only – it does not impact annual licenses. This means the DCC and local governments will soon face serious pressure from larger operators to help them hit the environmental compliance milestones necessary to obtain annual licenses. These milestones are now outlined in law, per AB 141, and are the final major change to the provisional license program. All provisional licensees and applicants must meet them to renew or obtain a new provisional license before the end of the program. Seen as a significant win for environmentalists, many hope the new guidelines will help local governments as they work with businesses to come into  compliance with the California Environmental Quality Act (CEQA), a challenge that has caused major delays in licensing.

With limited time, the Legislature hurried to get AB 141 to the Governor, which led to the inevitable introduction of SB 160, a cleanup bill. SB 160 makes some technical changes and clarifies that the DCC will need to write regulations about the amount of trade samples that can be given. It also extends the amount of time that local equity applicants have to obtain a provisional cultivation license. If the bill is enacted, they will have until June 30, 2023. It also extended the deadline by which the Department of Food and Agriculture must create a process for licensed cultivators to establish appellations of origin for California-produced cannabis. SB 160 did not touch stacking nor did it extend the provisional license program for anyone but equity applicants. The bill is now heading to the desk of Governor Newsom, who is expected to sign it along with several other budget trailer bills in the next few days.

No one thinks the cannabis trailer bills are perfect; everyone is a little unhappy. Generally, that means the Legislature did a pretty good job. If we look at the big picture, this is good progress for California’s industry. Yes, there will be new regulations to follow but there will only be one state agency to pay attention to now, which means we can expect rules to be more consistent. The allowance for trade samples helps put cannabis on par with other industries. The state is finally starting to recognize the needs and barriers for equity applicants. And while the sunset date on provisional licenses is daunting, it is a push that California needs to actually get government, environmentalists, and businesses working together to achieve CEQA compliance and let everyone move on with their lives, rather than perpetually kicking the can down the road. California has a long way to go, but this is a solid work for 2021. There is also still a lot of time left in the legislative session, so there is still a chance for additional progress to be made. Stay tuned and subscribe to our newsletter for the latest updates or contact us for legal support with these rules.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.