The End Of An Era: California Cannabis Provisional Licensing, A New State Regime, And CEQA

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Vicente Sederberg LLP

The times are a-changin’ for California’s cannabis industry. In the first post of a three-part VS Insights series focused on California cannabis, we will highlight the impact of the 2021 Budget Trailer Bill and the upcoming end of provisional licensing on California cannabis operators, as well as strategies to reduce delays in new license issuance and annual license transitions.

2021 Budget Trailer Bill

In July 2021, Governor Newsome signed multiple budget trailer bills (collectively, the 2021 Budget Trailer Bill) which took effect immediately and made necessary changes to implement the state’s budget. To increase efficiencies, reduce redundancies, and streamline application processing and regulatory oversight, the 2021 Budget Trailer Bill consolidated the previous three commercial cannabis regulatory agencies — CalCannabis within the Department of Food and Agriculture (CDFA), the Bureau of Cannabis Control (BCC), and the Manufactured Cannabis Safety Branch (MCSB) under the Department of Public Health — into one Department of Cannabis Control (DCC) within the state’s Business, Consumer Services, and Housing Agency.

In addition to establishing the DCC, the 2021 Budget Trailer Bill set a revised deadline for the DCC’s issuance of new provisional licenses and a sunset clause for the renewal of provisional licenses which, taken together, mark the end of California’s existing provisional license framework.

Agency Consolidation

The DCC assumed the powers, duties, responsibilities, and functions of the previous three state cannabis regulatory agencies, but the approach to a truly consolidated licensing regime is multi-phased. Currently, the three sets of existing regulations continue to govern their respective license type(s), and the three existing state licensing portals will still be used to file state applications. Following a full public process with opportunity for comment, the DCC will ultimately establish a single set of regulations to govern the industry. Similarly, analysts and other staff members from the BCC, CDFA and MCSB have migrated under the DCC and, for the time being, appear to be delegating responsibilities according to license type.

The DCC is currently preparing a consolidated set of regulations to govern the industry. We strongly encourage participation and advocacy in the rulemaking process. Please reach out to our California Licensing and Regulatory team if there are particular topics of interest to your operations or business model. We will keep you apprised of relevant regulatory rulemaking developments and alert you of opportunities for public comment.

End of Provisional Licenses

California’s cannabis licensing program is a dual license system, meaning operations cannot commence until the applicant secures both a local and state license. To encourage the transition to the legal market, the state established an interim license program, initially called “temporaries” and now called “provisionals,” which allow applicants to operate their business while certain remaining state application items — namely demonstration of the project’s compliance with California’s Environmental Quality Act (CEQA) and final local approval — remain underway.

The state’s provisional licensing program was to sunset originally on January 1, 2020, but was later extended to sunset on January 1, 2022. Throughout the legislative session, the environmental lobby pushed for increased oversight of the state’s burgeoning commercial cannabis industry while local jurisdictions, industry operators, and equity applicants sought additional time for licensees to transition to state annual licenses. Though there are critical deadlines of which all operators, licensees, applicants, stakeholders, and interested applicants should be aware ahead, careful and strategic planning should help mitigate the threat of operational delays.

Recognizing that over 80% of the state’s cannabis licensees (over 8,500) currently operate under a provisional license, rather than a state “annual,” the 2021 Budget Trailer Bill extends the sunset date for issuance of new provisional licenses for an additional six months (and even longer for equity applicants). Until June 30, 2022, state license applications can indicate compliance with CEQA and final local approval are still “underway.” Beginning June 30, 2022, the department will no longer issue provisional licenses to general applicants. For equity applicants, this deadline is extended for one year, ending June 30, 2023. To be eligible for processing, applicants must submit an application on or before March 31, 2022.

Issued provisional licenses are eligible for renewal every twelve months and will continue to be eligible for renewal until January 1, 2025. As of January 1, 2026, all licensees must operate under an annual license. The DCC can exercise its discretion to revoke or suspend a provisional license, including when the applicant fails to actively and diligently pursue requirements for annual licensure. The 2021 Budget Trailer Bill directs the DCC to adopt regulations clarifying what constitutes “actively and diligently” pursuing requirements for annual licensure.

How to Prepare

For new California market entrants or existing operators seeking new licenses:

  • Prioritize preparing and submitting your local license applications in local jurisdictions with efficient local licensing programs and with an established CEQA review process.

  • Get in the queue with your local jurisdiction(s) and do everything in your power to move ahead the review of your application by the local licensing authority.

  • Prepare and submit your state license application after communicating with your local jurisdiction and receiving confirmation they will indicate to the department your local license application is “underway.”

For applicants currently undergoing local review:

  • Communicate with your local licensing authority to confirm the earliest point at which you can submit your state license application and receive confirmation that local approval is underway. (The sooner the better.)

  • Submit your state applications as soon as possible and ahead of the March deadline in anticipation that the department may receive an influx of new applications that cannot be processed by June 30. (Note: the state made an exception to the June 30, 2022 deadline for cultivation applicants.) More on this and other critical updates for cultivation applicants and provisional license holders will be in Part 3 of this VS Insights series.

For current state license holders:

  • With the upcoming sunset on provisional license renewals, prioritize the transition to annual licensure. Near license renewal time, DCC analysts are typically providing licensees with a list of missing state application items which are needed to transition to an annual license. We encourage all provisional license holders to diligently prepare and submit these requested documents and request updates regularly from your assigned Department analyst to transition your state provisional license to an annual license.

  • Provisional license holders must also work diligently with their local jurisdiction to ensure all local licensing processes are completed, including CEQA review. We will discuss this more in Part 2 of this VS Insights series.

Stay tuned for parts two and three of this series focused on changes in California cannabis

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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