Eric Fuss, Biologist with NV5
Cannabis is an emerging and evolving industry in California. Cannabis and sales tax revenues have grown, peaking in 2021. Total cannabis tax revenue in 2022 was $1.09 billion. This was a significant decrease from 2021, in which $1.36 billion of total tax revenue was collected from the industry. A large factor in the decreased tax revenue was the drop in the price of cannabis. Additionally, a large drop in tax revenue resulted from the elimination of the cultivation tax for the second half of the year due to stress on the market. With the passing of Proposition 64 in 2016, which legalized recreational cannabis, cannabis laws in California have since been changing faster than most operators can keep up with.
Assembly Bill (AB) 141 and Senate Bill (SB) 160, which passed in 2021, brought an end to provisional cannabis licenses. Any cannabis business seeking a license to operate after June 30, 2022, was no longer able to receive a provisional license. Those holding a provisional license were also required to show efforts being made to comply with the California Environmental Quality Act (CEQA). No new applicants will be granted a license to operate without first completing the CEQA process. Currently, many businesses have still not completed their CEQA review and are unable to operate. This is causing many in the industry to abandon operation all together.
CEQA is triggered when a project in California may have the potential to result in a “physical change in the environment.”1 Most cannabis projects (as well as non-cannabis related projects) have a CEQA component. Cannabis is heavily regulated and due to recent bills that were passed it is treated less like farming and more like development. In California, a cannabis business must receive local permits before applying for a State license with California’s Department of Cannabis Control (DCC). Often the local jurisdiction, either city or county, are the “lead agency.” Planners from these local jurisdictions are assigned to review and process the applicants CEQA review before the applicant can move on to seeking licenses at the state level.
CEQA review is a lengthy process which is causing many of the lead agencies to be backlogged with hundreds of cannabis applications. Due to the delays, the lead agency or the applicants will often hire a third party to assist in processing the CEQA applications. For local jurisdictions that do not have or do not require environmental review, the DCC becomes the lead agency. In these circumstances, it is the sole responsibility of the applicant to ensure their project complies with CEQA otherwise it will be likely denied by the DCC.
The legal cannabis industry in California has become a billion-dollar industry in a short amount of time. Despite this, many applicants are unable to keep up with state and local regulations. With new CEQA review processes, it just adds to the extensive hurdles and delays faced by legal cannabis operators.
Aside from the CEQA review, additional permits can be required. For example, cultivation licenses require permits that are needed for water use which are issued by the Fish and Game and the California Regional Water Quality Control Boards. For applicants to succeed in the cannabis industry it is important that they hire consultants that understand environmental review and the ever-changing permitting process in California. The CEQA process can be lengthy and daunting. Yet it is critical to navigate it as effectively and expeditiously as possible to achieve the necessary permits to operate and succeed.
1 CEQA Guidelines § 15378(a)