California cannabis businesses have had an eventful 2019. From Governor Newsom calling in the state National Guard to curb illegal operators, to  Track and Trace, to cities across the state suing to block delivery, it’s been eventful if not productive. However, 2019 will be remembered for one crippling bottleneck: licensing. For months California’s trickle of annual cannabis licenses rolling out and replacing temporary licenses has seemed like an episode of Black Mirror or any other surrealist show satirizing bureaucracy.

California cannabis businesses are losing money and time

California started the year with over 9,000 cultivators with temporary licenses. Californians rejoiced for the growing industry, the potential tax revenue, and the opportunities for small business owners and social equity businesses. But now, a mere five months later, the landscape has changed: most of the temporary licenses have expired, the unlicensed market is thriving, and tax revenue is not meeting expectations. It has a lot of folks wondering “what’s going on here?”

The licensed cannabis industry in California is in the midst of a major contraction. Some folks are using terms like “Canna-pocalypse” and “Extinction Event.” The sentiment was echoed at Meadowlands, California cannabis’s annual and de facto family reunion/industry retreat, where in his annual “state of the union” with Lori Ajax, Meadow CEO David Hua revealed some sobering survey results. Of Meadowland participants:

• 53% of companies reported being less profitable in the past year
• A staggering 95% explained that California hasn’t created an environment suitable for small businesses to succeed in

Of that 95%, the survey was sent out to attendees in mid-May, who wants to bet that the licensing fiasco was on their mind? 95% is a level of animus not even the current president is accustomed to seeing. And as for the coin flip results regarding profitability? Who isn’t already cringing at the Sophie’s Choice of losing your temporary before your annual shows up and shutting down versus getting fined (or worse) for operating sans license?

Currently, there are less than 1000 cultivators with any sort of license. With so many licenses expiring, operators are quick to blame the regulators for the current conundrum. In the agencies defense, many of the expired licenses are due to licensee error, such as submitting an incomplete application, or not giving the agencies enough time for scientific review. But regardless of the cause, it is undisputable that most cultivation licenses, and some manufacturing licenses, have expired.

The industry hoped SB 67, with its extension of all temporary licenses through 2019, would be a Deus Ex Machina that would enable the supply chain to keep on truckin’ along while some of the regulatory kinks were worked out. However, once the BCC and CDPH peeled off of the package, the bill lost momentum. Quickly. What’s the status of SB 67? “Held at desk.” Another legislative proposal poised to waste away without a vote.

Compliant operators are concerned with how to navigate a supply chain in which the majority of operators and suppliers are ceasing to have a valid license.

With so many licenses expiring, now is as good of a time as any to verify that businesses in your supply chain still have a valid license for commercial cannabis activity. The license lookup features of the websites of the BCC, CDFA, and CDPH have begun to be updated for the new provisional licenses, as well as temporary licenses, enabling operators to check online if the business that they have been working with are in fact still licensees.

With so many expirations occurring daily, it is important not only to verify licensure status, but also to track the expirations of supply chain partners. It’s all very tedious and frustrating, but that is the situation we are in right now. Unfortunately, ignorance of a licensee’s expiration is not a defense to conducting commercial cannabis activity with a non-licensee.

Solutions? Sorta.

Now is also a good time to make sure that your own license is still valid. You can use the CalCannabis website or you can check your primary contact’s e-mail.

While the process of approving provisional and annual licenses seems slow as winter molasses, the CDFA and other agencies will promptly notify you when your temporary license has expired. Within 24 hours. And that notification is enough to make the most stoic heart skip a beat. “Be advised that all rights, privileges, and protections afforded to you by the temporary CDFA CalCannabis Cultivation License listed above have expired. All commercial cannabis activity at this previously licensed location, therefore, must cease immediately.”

If your temporary license expires, there is only one thing to do: stop engaging in commercial cannabis activity. Some anecdotal “off the record” (read: terrible) advice from industry vets has been everything from “keep growing/producing, just don’t manifest/transfer anything until your provisional” to “don’t worry about it, the provisional will be here soon and it’s totally fine to keep operating in the meantime” to “the agencies aren’t really enforcing on it, so no biggie.” This all qualifies as what we call terrible advice.

Why is it terrible advice? “Pursuant to Business and Profession Code section 26038, a person engaging in commercial cannabis activity without a license shall be subject to civil penalties of up to three times the amount of the license fee for each violation, and the court may order destruction of cannabis associated with that violation pursuant to Health and Safety Code section 11479. Each day of operation shall constitute a separate violation, and the violator shall be responsible for the cost of the destruction of cannabis associated with his or her violation.”

Takeaways? Small wins for California cannabis businesses?

So here are the takeaways (there aren’t any small wins … yet. If you’re looking for a moral victory, we still think you’re cool):

• Verify all businesses in your supply chain have a valid commercial cannabis license. Don’t make it weird for them, just call them and talk things out.
• Train your employees to verify licenses are valid and track expiration dates of supply chain partners.
• Cease commercial cannabis activity if your license expires until a provisional license is issued. The costs of non-compliance continue to skyrocket, folks. It’s not worth the risk.
• Cure deficiencies in your application as soon as possible, or submit an annual application if you have not already submitted one yet.

Have questions? Contact MMLG. We’re here to help.