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.

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.