California agencies face cannabis licensing backlog that could hamper legal supply

Thousands of temporary cannabis business licenses across the state could expire before provisional annual licenses can be issued or extensions can be implemented, according to state regulatory data and industry experts.

'Ultimately, this will have a domino effect on the supply chain,' said Josh Drayton of the California Cannabis Industry Association, a trade group.

An influx of around 9,000 applications in December took regulators by surprise, particularly those at the California Department of Food and Agriculture, which issues permits to cannabis growers, Drayton said.

'Towards mid to late 2018 there was a real rush of folks filling out their temporary applications and to get those in before January first of 2019,' which was the deadline to apply for temporary licenses, Drayton added.

A bill has been proposed and is hurdling towards the governor's desk, but even with its passage there could be a gap of several weeks between when temporary permits expire and before permanent licenses are issued, Drayton also warned.

Of the three state agencies that issue permits to cannabis businesses, the food and agriculture department appears to be most behind while the Bureau of Cannabis Control and California Department of Public Health do not face quite a large backlog.

The agriculture department permitting process requires time-intensive reviews of grow operations to insure they comply with The California Environmental Quality Act, a requirement that was delaying the issuance of annual permits especially in harder to access rural areas of the state, Drayton said.

The department lists 4,925 active temporary permits on its website. Of those, it lists 1,806 of them as about the expire, meaning the permits will terminate in March or April.

The agriculture department did not respond to repeated requests for comment, and it was unclear how many permanent licenses had been issued or were being processed.

The Bureau of Cannabis Control is tasked with licensing everything from testing labs to delivery and retail operations, while the California Department of Public Health issues licenses for manufactured cannabis products and focuses on packaging and labeling.

The health department's website showed 1,209 active temporary licenses of which 770 were set to expire in March or April. The department also listed 20 annual licenses currently issued.

'CDPH is making the processing of annual license applications a priority. The annual license application review process includes a review of application completeness, owner background check information, a notification to local jurisdictions, and a scientific review of the good manufacturing practices the business has established,' according to a department email.

A spokesperson for the Bureau of Cannabis Control wrote in an emailed statement that it did not face a gap between expiring and renewed licenses.

'All our licensees are covered until June, so we have time to process annuals or Provisionals,' wrote Alex Traverso.

The cannabis bureau had licensed just under 2,800 businesses, according to its data. Traverso estimated that the agency had received about 1,200 annual permit applications pending review.

The state legislature has taken notice of the issue and is looking to move swiftly, but it may be too late to avoid at least a partial breakdown in the supply of cannabis.

State Senate Bill 67, sponsored by state Sen. Mike McGuire, D-Healdsburg, would allow the three state agencies that issue the permits to extend a business's temporary license while the annual applications are processed, provided they apply before the temporary license expired.

'The temporary license was intended as an intermediary step while the state and local jurisdictions managed their own efforts to come into compliance with the cannabis regulatory structure,' McGuire's office wrote in a fact sheet about the bill. 'However, due to the significant amount of annual license applications that came in during the fall of 2018 after the legislature adjourned, there are over 10,000 temporarily licenses currently in the system that will be eligible for a provisional license.'

Even with the bill advancing under an urgency statute however, it might not make it to the desk of Gov. Gavin Newsom until April, meaning businesses with expiring licenses could fall out of compliance with state law in the meantime and not be able to operate.

The bill sailed through the Senate Business, Professions and Economic Development Committee on an 8-0 vote and now advances to the Committee on Appropriations.