[Thanks to Wendel Rosen environmental attorney Wendy Manley for this post.]

State Water Quality Permit

In 2017, the State Water Resources Control Board (State Board) issued a general permit for all cannabis cultivation to protect water quality (State Permit). Cannabis cultivation is broadly defined as “any activity involving or necessary for the planting, growing, pruning, harvesting, drying, curing, or trimming of cannabis,” including water diversions, preparing a cultivation site, or activities otherwise to support cannabis cultivation, and which discharge or could discharge waste to waters of the state. “Waste” includes any kind of pollutant that might reach surface waters or groundwater, such as nutrients in irrigation tail water and hydroponic wastewater. The State Permit is potentially far reaching, to include even indoor operations unless they meet certain conditions and file for a Waiver. See the State Permit here. 

Conditional Exemption

To be “Conditionally Exempt,” an indoor cannabis operation must occur in a structure with a permanent roof and a permanent, relatively impermeable floor (e.g., concrete or asphalt); discharge all wastewaters to the sanitary sewer in accordance with sanitary sewer system requirements; and implement “best practical treatment or control” measures or “BPTC,” which consist of numerous restrictions and express requirements for cultivation site development, fertilizer and pesticide use, activities in and around riparian areas and wetlands, water storage and conservation, among other things. Conditionally Exempt dischargers are also required to obtain the “Waiver.” In other words, “Conditionally Exempt” doesn’t mean you don’t have to do anything.

Outdoor cultivators who do not qualify for a Waiver as Conditionally Exempt are designated as either “Tier 1” (operations disturbing 2,000 square feet to one acre (43,560 square feet), or “Tier 2” (cultivating outdoors on more than one acre. In addition to BPTC, permittees must implement a monitoring and reporting program. 

Upcoming Workshops

Everyone in Cannabis cultivation, including indoor operators, should determine how the State Permit may affect their operations. Those planning to establish a new growing operation should examine the State Permit as early as possible, since site development and road building are subject to the State Permit, and there are numerous opportunities to organize the operation to minimize the costs and complications of implementing the BPTC measures. Those subject to the regional permits issued by the North Coast and Central Valley Regional Water Boards are expected to be transitioned to the State Permit this year.

Staff from the State Water Board will be available to describe the program and assist cultivators with permit applications and questions in two upcoming workshops co-hosted with other entities with oversight of the cannabis industry, including Cal Fish and Wildlife, Cal Department of Food and Agriculture CalCannabis, local planning departments, and CalFire. The workshops are in Laytonville March 26 (Mendocino County) and in Clearlake March 13 (Lake County). 

The State Permit is only one piece of the complex regulatory puzzle. For example, conditionally exempt cultivators may still need to apply for a water right to divert and use water.    

Beginning on January 1, 2018, numerous California cities will begin issuing licenses for recreational marijuana businesses.  To help you better understand the application process for the City of San Francisco, we set forth the following update from San Francisco’s Office of Cannabis.  If you have any questions, please do not hesitate to contact the experienced attorneys at Wendel Rosen who can help you navigate the application process.

Non-MCD cannabis businesses operating in San Francisco must register by November 30, 2017, to be able to apply for 2018 permits.

Medical cannabis dispensaries (MCDs) with an Article 33 permit do not need to register now. But any cultivators, distributors and manufacturers who work with permitted MCDs must register.

Most cannabis businesses who miss the November 30 deadline will have to stop operating and wait until 2019 to apply again.

We know many cannabis businesses are changing right now. In most cases, business registering with the Office of Cannabis will have a chance to update business name, management structure and address after this initial registration period.

If you have already registered, pass this email on to other cannabis businesses. 

Help us spread the word. Ask your contacts in the industry to register by November 30, 2017.

Last week three California Agencies issued a series of regulations governing recreational canna-business which is scheduled to launch January 1, 2018. The most controversial aspect of the regulations is what they don’t include. They don’t include limits on the number of cultivation licenses one person or entity can own or control.

For years, many in the cannabis industry have feared that big tobacco (R.J. Reynolds), big pharma (G.W. Pharmaceuticals) or big agriculture (Monsanto, Archer Daniels Midland) would swoop in and take over the cannabis industry once it was legalized and reached sufficient scale to make it profitable. Last November, California voters approved Proposition 64, the Adult Use of Marijuana Act., which required the California Department of Food and Agriculture to issue cultivation licenses for various size grows: Small (Type 2 up to 10,000 square feet), Medium (Type 3 up to one acre) and Large (Type 5 more than an acre). But Proposition 64 explicitly stated that “No Type 5 … cultivation licenses may be issued before January 1, 2023.”  Senate Bill 94, includes the same size descriptions and limitations, precluding large grows of more than an acre per premises until January 2023.

Many saw the five year waiting period for large grows as a barrier to entry that would allow the smaller local farmers to get a foothold in the legal recreational market, while discouraging and/or delaying big tobacco/pharma/agriculture since they wouldn’t be able to buy up, or convert their existing hundred-acre farms into pot plantations.

But the local cannabis industry was also hoping the recently proposed regulations would include a second barrier to entry; limits on the number of cultivation licenses any one person or entity could hold. The regulations issued last week don’t include such limitations.

Absent such limitations, local canna-businesses are concerned that big tobacco/pharma/agriculture will apply for unlimited cultivation licenses, effectively preempting the local cannabis industry just as it gets started.

The City of Oakland recently finalized cannabis permitting regulations that are unique in California because they focus on “equity,” making entry into the cannabis industry easier for low-income individuals of color who generally have suffered much higher incarceration rates for marijuana crimes.

Unfortunately, along with giving needed assistance to equity cannabis permit applicants, Oakland attempted to protect those same applicants from competition by practicing a different form of discrimination, including delaying permits for non-equity applicants.

Oakland’s cannabis regulations were nearly far worse. In March, the City Council approved an unconstitutional prohibition on cannabis permits for anyone who did not reside in Oakland. Under pressure from Wendel Rosen [letter: Cannabis Permitting Amendments are Unconstitutional] and many others, the Council removed the residency rule, but the permit process remains fraught with likely delays and other questions as the January 2018 deadline for State licenses looms.

Local cannabis operators need both a local permit and State license to conduct business. Oakland announced that, aside from storefront dispensaries, all cannabis applications would be available “some time” in May. There is no date for the dispensaries. Adding to the unknowns is a requirement that 50 percent of all permits must be issued to equity applicants for an indefinite period of time. Given the narrow equity criteria (including (a) low income, (b) residence of specific Oakland neighborhoods, or (c) conviction of a cannabis crime in Oakland) a permitting bottleneck is expected as the equity applications trickle in compared to the general applications.

The “50%” phase ends when the City accumulates $3.4 million in tax revenue from cannabis businesses to fund an Equity Assistance Program, which will include no-interest business startup loans, fee waivers, and technical assistance.

The City explained the need for the 50% phase as follows:  “If the City initiates an unrestricted permitting process before an Equity Assistance Program is in place, well-positioned operators will only move further ahead as historically marginalized operators fall further behind due to lack of capital and real estate.”

There are several fundamental flaws with the City’s rationale:  1) It assumes that Oakland is a closed market and that local equity operators will not be competing against others in cities across the state; 2) It is self-defeating because it constrains revenue available to the Equity Assistance Program by stalling permits for business that would otherwise pay taxes; and 3) It ignores the fact that businesses wanting a local permit so they can get a State license in January 2018 may go elsewhere, further reducing revenue.

There’s more. Oakland has a solution for some general permit applicants:  A general applicant can move up in the permit application line by serving as an “Equity Incubator,” which consists of providing three-years of free real estate or rent to an equity permit holder.

This is where the City tries to undo racial and social discrimination by employing economic discrimination. Clearly the only general applicants who can serve as incubators have more resources than those who don’t. In exchange for those resources, incubator sponsors receive preferential City treatment.

Equally hypocritical is the fact that the City has never taken responsibility for contributing to disproportionate focus of marijuana law enforcement on lower-income communities of color. Remember, the City Council approved legislation in 2004 legalizing dispensaries in commercial and industrial areas of the City. The Oakland Police Department did not arrest cannabis users on their way out of dispensaries. Instead, they targeted street sales.

For a variety of reasons, many cannabis businesses will decide to stick with Oakland. They include the fact that some operators already are locked into leases; Oakland is one of a handful of cities that permits volatile manufacturing; and the City is situated in the middle of transportation corridor, making it a good distribution location.

It’s also important to remember that big parts of Oakland’s Equity Assistance Program will likely serve as models for other areas of the State, where there has been a lot of talk about making the cannabis industry inclusive, but little action. Oakland’s equity applicants will have financial and technical assistance unavailable elsewhere in California. Going forward, hopefully the City can find ways to advance equity while not also hobbling its own cannabis industry.

The California Legislature’s approval of the Medical Marijuana Regulation and Safety Act opened the door for cannabis operators to obtain state medical cannabis business licenses for everything from testing to distributing cannabis, and voter passage of Prop. 64 did the same for recreational pot. But, the most calls I receive are from cannabis entrepreneurs interested in commercial cultivation and manufacturing.

Meanwhile, in order to be licensed by the state, an operator must first acquire a local permit. And, a survey of cities across California shows that surprisingly few allow both commercial cultivation and manufacturing. In the Bay Area, just Richmond, Santa Rosa and Oakland have approved cannabis laws for both cultivation and manufacturing. Oakland’s laws come with a big asterisk, because the City has not started issuing permits. I’ll get back to this issue below.

In this overview, I summarize the three cities’ permitting distinctions, fees and quirks. An important caveat: As cities learn from experience and adjust to market conditions, regulations are expected to change. The rules listed below are not static and additional cities are expected to craft rules in the coming months for cultivation and/or manufacturing. I will review other regions of the state in future entries.

The Bay Area’s Big Two (Plus One)

For now, Richmond and Santa Rosa are it if you’re interested in applying for permits to cultivate and manufacture cannabis. In January 2017 the Oakland City Council will review amendments to cannabis legislation approved in May 2016, and permit applications should be released in the following months. The expectation is that both cultivation and manufacturing will still be allowed. Other Bay Area cities are starting to discuss cultivation and manufacturing, but have a ways to go.

Richmond and Oakland charge a five percent gross receipts tax on cannabis businesses. Santa Rosa applies tax rates to cannabis businesses based on existing industry categories, up to $3,000 annually, but is considering a 10% tax specifically for its cannabis industry. The three cities’ application and permitting fees vary widely. Each city defines cultivation and manufacturing differently and handles permitting through a distinct agency. See the highlights below.

RICHMOND

Summary:  Richmond’s medical cannabis permits are issued through the city’s Police Department and require a conditional use permit approved by the Planning Commission and the City Council. Cultivation is limited to two commercial zoning districts, and non-volatile manufacturing is restricted to industrial/office flex, and light industrial zoning. Volatile manufacturing is prohibited (volatile manufacturing is producing cannabis extracts through the use of solvents, such as butane).

Fees:

• Application Completeness Review: $2,312
• Complete Application Review: $18,178
• Annual Regulation and Inspection: $16,989/Quarter

SANTA ROSA

Summary:  Santa Rosa’s medical cannabis permits are handled through the city’s Planning Department and require a conditional use permit approved by the Planning Commission. Cultivation is permitted in three industrial zones and the city allows non-volatile manufacturing in two industrial zones and a business park zone. Volatile manufacturing is prohibited.

Fees:  The fees listed below are valid through December 2016 and total fee amounts depend of the scope of related environmental review.

• Minor Conditional Use Permit: $2,511
• Major Conditional Use Permit: $10,964
• Commission Public Hearing: $1,889

OAKLAND

Summary:  Permitting for Oakland’s medical cannabis industry will be handled through the City Administrator’s Office and operators will be required to obtain special business permits. The City has not issued permit applications because the City Council is debating economic, social and racial “equity” amendments to laws approved in May. The next Council meeting is scheduled for January 17, 2017. Permit applications are expected to be issued in the following months.

Once applications are issued, an important step in the approval process will be inspections by the Planning and Building Departments, but there will be no Planning Commission review. Based on the laws approved in May, cultivation will be permitted as of right in “light manufacturing industrial” and “research and development” zones or their equivalents. Non-volatile manufacturing will be allowed as of right in “custom manufacturing industrial” zoning or its equivalent, and volatile manufacturing will be allowed as of right in “general manufacturing industrial” or its equivalent.

Fees: 

• Application, Non-Dispensary Facility: $2,474
• Annual Regulatory Fee
• Gross Sales >$150,000: $11,173
• Gross Sales $50,000-$150,000: $5,586
• Gross Sales <$50,000: $2,790