Supply Chain Shortage

The Impending Cannabis Shortage

The supply of legal cannabis may soon run out. There are over 6,000 temporary cultivation licensees, but by the end of July all those licenses will expire. March and April alone will see 5,497 licenses expire. Since being allowed to award licenses over a year ago, the California Department of Food and Agriculture (CDFA) has approved only 48 annual licenses (9 issued with another 39 pending fees as high as $44,000). Even if they double that number in the next 3 months, that is less than 2% of legal farms in California. The legal cannabis market will dry up if something is not done.

The biggest problem has been California Environmental Quality Act (CEQA) compliance. Unlike any other farm in California, cannabis farms must abide by CEQA, a set of tough environmental standards that require a lengthy and arduous review process. Richard Parrott, the division director of CalCannabis Cultivation Licensing, has stated that CEQA reviews are the number one factor slowing down annual licensing.

So far there has been two Senate Bills to remedy this problem, one was signed into law in September, another was introduced earlier this year.

Senate Bill 67: Temporary Permit Extensions

This bill would revalidate an expired temporary license if the licensee submitted an application for an annual state license before the licensee’s temporary license expiration date. The temporary license would them be valid until December 31, 2019, in hopes of giving enough time for CDFA and CEQA review.  The bill is currently making its way through the California Senate, most recently it passed unchallenged through the Senate Business, Professions and Economic Development Committee. However, if this bill is not signed into law soon it may be too late to salvage the dying legal supply.

Senate Bill 1459: Provisional Licenses

This bill was signed into law by Gov. Jerry Brown on September 27th, 2018. If an applicant holds or has held a temporary license and submits an annual license application for the same premises and the same commercial cannabis activity, AND the applicant has evidence they are currently undergoing the process of CEQA compliance, they may be eligible for a provisional license. A provisional license acts as an annual license but only lasts for one year and is not renewable. Like Senate Bill 67, the goal of provisional licenses is to buy time while CEQA and CDFA review can take place.

What you need for a provisional license:

California’s black market is already stifling legal sales. Though in our previous blog we talked about the government stepping up enforcement in 2019 to allow the new legal market to breath, this crackdown may do little to help the legal market if there is no legal cannabis available to buy.

With the California legal market severely underperforming, as seen by shrinkage in legal spending from $3 billion in 2017 to $2.5 billion in 2018, it is more important than ever to make sure the legal routes for obtaining cannabis remain open. As a cultivation operation, being on top of regulations and remaining in compliance can make your business one of the few farms available to supply the legal market. Give us a call so you can take advantage of the opportunities a dwindling legal supply market produces