Governor Jerry Brown recently signed a bill that allows thousands of cannabis operators surviving on expiring temporary licenses to stay open for an additional year without new approval from local authorities.

Brown signed Senate Bill 1459 amid a flurry of legislation on September 27. The bill addresses a problem faced by much of the California commercial cannabis industry: the state cannot issue licenses to operators who have completed state applications until the relevant city or county provides approval, but that local approval has been very slow to come.

In response to the slow local process, the state provided applicants with the option of operating on a 120-day temporary license (and three 90-day extensions) until they were issued a standard state license. The state required some form local authorization to issue the temporary license, but not a finalized local permit. However, the temporary license program was only meant to be a short-term fix and is scheduled to expire on December 31, 2018. After that, a cannabis business could only operate if it obtained a standard license. Yet, many local governments are still moving at a snail’s pace.

Making matters worse, some local jurisdictions announced that they would not provide applicants with local approval for their standard state license unless the applicant had obtained a finalized local permit. In one example, The City of Oakland sent applicants a letter in April refusing to provide local approval for a standard (non-temporary) state license until the applicant had obtained a city permit. Meanwhile, permit-seekers who had filed complete applications more than six months prior were still awaiting inspections from Oakland’s Building and Fire departments, placing applicants in a Catch-22.
Recognizing the protracted delays at the local level, AB 1459 wrests some control from the hands of city and county agencies and gives the state “sole discretion” to decide whether to issue the new a 12-month “provisional” license. The state does not plan to hand out provisional licenses casually however, and has included its own criteria that applicants must meet. In order to be eligible for the provisional license, applicants must have met the following list of conditions:

• Submitted a completed a standard (non-temp) state license application
• Filed and signed a provisional license application under penalty of perjury
• Held or currently holding a temporary license
• Provided evidence that compliance with the California Environmental Quality Act is underway

The bill represents a lifeline for the vast majority of cannabis permit applicants in counties and cities facing long permitting backlogs that have occurred by no fault of their own.

In Oakland, hundreds of applicants are awaiting sign-off from the City’s Building and Fire Departments before their final permits can be issued. The departments’ staffs have been overwhelmed by the volume of applications and the new complexities that cannabis infrastructure presents.

John Oram, CEO of Oakland-based Bloom Innovations, which owns the popular NUG brand said, “99.9 percent of Oakland cannabis businesses would have had to shut down” while waiting for their local permit to be issued had the Governor not signed SB 1459.

“If the bill had not passed The City of Oakland could have chosen to deny local authorization, which would have forced us to close,” Oram said.

California’s recent recreational pot legalization brings into question the relevance of medical cannabis in a state that led the legal marijuana movement with a 1996 voter initiative giving patients the right to possess and grow cannabis reasonably related to their medical needs.

Will medical marijuana continue to matter? The answer is absolutely yes, and in many instances, it will be a preferable choice for both consumers and cannabis business operators after Prop 64’s recreational marijuana laws are implemented and applications for state business licenses are issued in early 2018.

A fundamental reason medical cannabis will continue to thrive is a growing consumer demand for cannabis products that do not provide a psychological “high.” Tetrahydrocannabinol (THC) is the psychoactive cannabis element in pot. But there is a long list of popular medical cannabis products that have only trace amounts of THC and can be used to treat pain associated with ailments such as arthritis and nerve damage. The predominant active ingredient in those products is Cannabidiol, or CBD, which is known to reduce pain, but is not psychoactive.

Business owners may have added incentive to produce medical cannabis as recreational suppliers and users enter the market. Some states have seen recreational pot prices drop significantly due to oversupply, whereas medical pot inventory and prices have generally remained steady because suppliers have not aggressively entered the more specialized medical market.

The experiences of states such as Colorado and Washington suggest that medical cannabis demand may even increase as the recreational pot market kicks into gear. That’s likely because, as cannabis generally becomes more accepted and legal, customers with medical needs who have been hesitant to purchase pot are less reluctant to seek it out.

In addition to commercial medical cannabis, home-based medical marijuana cultivators are expected to continue to grow their own plants. Prop 64 does not change the fact that individual cultivators and cooperatives are still legal under California’s 1996 Compassionate Use Act (Prop 215) and related legislation and can grow an amount of marijuana reasonably related to their medicinal needs.

In addition to a continued demand for medical cannabis products and their stable prices, local regulations and lesser-known provisions in Prop 64 that are supportive of medical cannabis will mean that medical cannabis remains relevant in California. See a few highlights below.

• Local Jurisdictions May Restrict or Ban Recreational Permits: Prop 64 and related state cannabis laws give local governments the authority to place zoning restrictions and other limitations on their cannabis industries, including banning sales altogether. Some cities may ban recreational sales, but allow for medical cannabis commerce.

• Sales Tax Exemption for Medical Cannabis Buyers With State ID: Prop 64 eliminates a 7.5 percent sales tax for medical cannabis buyers with a state-issued medical marijuana identification card. Once business licenses are issued under Prop 64, all cannabis operations – recreational and medical – will pay a 15 percent excise tax. Recreational purchasers will still have to pay the additional 7.5 sales tax. But, ID card-holding medical purchasers will continue to be exempt.

• Prop 64 Makes it Easier and Safer to Obtain a State-Issued Medical Marijuana Identification Card and Related Tax Break: Prop 64 caps ID card fees at $100. Many counties now charge $150 to $175. Prop 64 also protects patients’ card data privacy through the state’s Confidentiality of Medical Information Act.

• Prop 64 Parental Protections: Prop 64 states that it is illegal to “restrict or abridge custodial or parental rights to minor children in any action or proceeding under the jurisdiction of family or juvenile court,” as long as a patient is complying with the Compassionate Use Act. This means, for instance, the presence of pot in a household reasonably related to a parent’s medical needs would not be grounds for child protective services to remove the parent’s children.

To be clear, in order to realize the sales tax exemption described above, a medical cannabis patient must obtain a state-issued patient ID card. The state card application requires a patient’s primary doctor’s recommendation, proof of residency and related paperwork. The state process generally requires more effort than for cards issued by private cannabis card outlets, which have doctors on site to review and approve all patients’ applications. Only about 6,000 Californians currently possess the state ID cards needed for the Prop 64 sales tax exemption, but until now there has been little incentive to obtain the state card.

There’s no doubt that some consumers will conclude that the benefits of obtaining a state patient ID card are not worth the hassle involved. But, recent history shows that medical cannabis is viable even without a tax exemption. In Colorado, where a medical tax break is available only in limited circumstances, medical cannabis accounted for approximately 30 percent of the state’s $1.1 billion 2016 cannabis sales. Until 2015, when the State of Washington merged its medical and recreational cannabis regulations, medical cannabis represented one-third of the state’s market.

Cannabis operators looking to enter or expand in California will be influenced by a number of factors, including state laws incentivizing medical cannabis patients, the relative demand for medical products, and local permitting, which may restrict or ban recreational cannabis sales in areas where companies might generally prefer to locate. The California cannabis industry is growing and changing rapidly in light of new regulations, but medical cannabis is likely to be around for the long haul.