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Five years after California voters approved prop. 64, the legal market is still struggling to ignite, in part because of a complicated regulatory structure, licensing barriers and a heavy tax burden.

The Legislative Analyst’s Office, a non-partisan tax and policy research institute for the California legislature, estimates that adult cannabis businesses operate in less than a third of state jurisdictions.

Los Angeles County Sheriff’s Department

Law enforcement eradicates cannabis plants from illegal operation in Southern California.

Meanwhile, the illicit market continues to flourish. On July 7, the Los Angeles County Sheriff’s Department announced the results of a 10-day undercover operation involving more than 400 law enforcement personnel, which seized $ 1.2 billion worth of cannabis. and plants illegally harvested last month in Southern California, and arrested 131 Mexicans, members of the Chinese and Armenian cartels.

Investigators said the operation accounted for only 40% of illegal outdoor crops in the county, where up to four harvests per year can materialize. If these illicit crops were not interrupted by law enforcement, Los Angeles County alone would overshadow the state’s legal market, which generated $ 4.4 billion in sales in the United States. detail in 2020.

California State Assembly Member Tom Lackey, whose 36th District encompasses most of the illegal operations identified in the Antelope Valley, said the people who passed Proposition 64 did not not intending to create the “toxic environment” occurring in his backyard.

“But here’s the reality that a lot of people don’t realize, is that in California, and we’re very unique from the rest of the country on all of these cannabis issues, is that we’ve allowed the illicit market to thrive for nearly two decades. , and they’ve become very, very proficient in their delivery models and in their business operations, ”he said. “And now we have international cartels that are here and they are invading our desert for heaven’s sake. Who would have ever thought they would go to the wilderness?

In February, State Senator Nancy Skinner introduced legislation to ease some of the licensing and regulatory constraints by increasing resources to help city and county governments that cannot afford to oversee legal cannabis operations to access a state program that would handle certain bureaucratic functions. for them. This law was passed by the Senate Appropriations Committee on May 3.

Last month, the California legislature approved a plan to funnel $ 100 million into its cannabis industry with the goal of stimulating the legal market by helping companies move to more permanent licenses. According to Governor Gavin Newsom’s May budget summary, about 82% of cannabis licensees in California had provisional or temporary licenses as of April 2021.

The $ 100 million funding aims to help cities and counties help cannabis companies complete long and complex environmental studies on the impacts of their operations and how they can reduce potential harm – a necessary step to obtain a more formal annual license, which is mandated by the California Environmental Quality Act (CEQA).

The mandate to move all businesses from temporary licenses to formal licenses was due in 2019, but the deadline has since been pushed back (twice) to January 1, 2022. Newsom is now pushing for that deadline to be extended by six. month.

Although the proposed extension has met with opposition from various environmental groups, the absence of an extension could result in the exit of several licensees from the legal cannabis system, thus reducing the state’s efforts to eradicate the market. illicit.

As the 10-day infiltration operation in Los Angeles County revealed, the environmental impacts associated with unregulated growers using banned pesticides, banned fertilizers, and stolen water for their illegal crops may well be. worse.

Below are comments from various stakeholders in the California cannabis industry regarding the $ 100 million grant program.

Schwass

“The approval of the $ 100 million local government grant program is an attempt to address a major flaw in the deployment of the regulated cannabis market in California. California has demanded that local governments bear a huge burden in adopting and licensing regulated cannabis companies without providing additional funding. Local governments were left on their own to recoup these additional costs, which in turn increased the cost for people seeking licenses. Many rural counties eligible to receive a relatively large portion of the $ 100 million grant program were already struggling to find the money before they had to do the heavy lifting for cannabis licensing, such as Mendocino and Humboldt; who are eligible to receive $ 18 million and $ 18.6 million, respectively. I think the additional funding, if used properly, will help these counties help their legacy operators comply with CEQA requirements and move to annual licenses. However, counties are running out of time to act no matter how much money they receive, and approving the Trailer Bill to extend the provisional licenses for another six months would have a bigger impact than l injection of money alone. ” –Jared Schwass, Founder, Schwass Law Firm

Horner

“California’s regulatory scheme has proven to be complicated and burdensome for an industry that is struggling to find its place. The problem with grants is that they often benefit the big companies who know how to get them; I see very little of that money ending up in the hands of small family farms. It is these small family farms that struggle the most with more complex compliance issues such as CEQA. I believe much of AUMA’s environmental language was there to anticipate the environmental argument against legalizing an industry that had developed a reputation for environmental damage. In Northern California we have a group of farmers who are doing their best to come out of the shadows and comply with the law. If our goal is to prevent environmental damage, we must first support these farmers. ” –Michael Horner, CEO / Founder, Cannavie

Farrar

“I think it’s great that the CA legislature recognizes that there is work to be done. In this case, I think they could have done a lot more for the industry as a whole by lowering the state of California cannabis taxes. They treat the symptoms rather than the underlying cause. Lowering taxes would help legal operators fight their way against the illicit market, which drives the entire industry forward. Lowering taxes would generate MORE tax revenue, not less, by allowing the state to levy tax on more of the market. ” –Graham Farrar, President, Tight

Zagzebski

“Personally, I am encouraged by this legislation because it has several promising features intended to alleviate the regulatory backlog, and because it shows a willingness on the part of policymakers to take proactive rather than simply reactive measures to advance the law. ‘industry. Regulatory uncertainty is a cloud hanging over the heads of many California operators, so anything that can help clean that air is welcome. That said, there are other regulatory and tax burdens on legal cannabis operators in California that are not addressed by this legislation and arguably would do more to move the industry forward. ” -Sander C. Zagzebski, Member, Clark Hill Law Firm


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