Lawmakers weigh changes to legal cannabis industry, many with potential impacts to cities

This year has already seen one significant change to California's legal cannabis industry — the winding down of provisional licenses — and could see several more. Many of the proposed changes could impact local ordinances and decision-making.

One of the most impactful proposals is SB 1186 (Wiener). The bill would prohibit regulations that “unreasonably restrict” access to medicinal cannabis businesses. In order to satisfy the “reasonable access” requirement, local jurisdictions would have to allow for the delivery of medicinal cannabis.

Cal Cities opposes the bill as it would severely undermine local decision-making. Local control was a key component of the original Medical Cannabis Regulation and Safety Act and Proposition 64, which set up a legal framework for the medicinal and recreational use of cannabis.

While SB 1186 suggests that there are serious barriers to accessing cannabis, 99% of Californians live in a county where retail is allowed either within the county or a city, and in most cases, both. Thirty-three counties allow for both medical and adult-use cannabis retail. The twenty counties that do not authorize cannabis retail have at least one incorporated city that does and, in many cases, multiple cities.

There are also significant costs associated with implementing these regulations. In smaller jurisdictions, a single retailer or delivery service — which is often all the market can support — cannot cover the costs associated with regulating the business, such as licensing, inspection, and environmental review. Even the most enthusiastic, cannabis-permitting counties and cities have experienced significant general fund losses in their efforts to meet both local and state-imposed regulatory costs.

State eyes possible tax changes; begins phasing out provisional licenses

Lawmakers have proposed several changes to the state’s cannabis tax structure as well. Gov. Gavin Newsom announced that overhauling cannabis taxes was one of his top priorities for this year. In response, lawmakers introduced six different bills, each of which takes a vastly different approach to reform. It is likely that, following a compromise, language from these bills could be included in a budget trailer bill.

Cannabis is the only crop taxed prior to sale and many analysts have argued that the state’s high tax rate is a barrier to entry. Any changes will likely significantly reduce or eliminate the cultivation tax, complementing similar efforts at the local level.

The Department of Cannabis Control also announced that it is winding down its provisional licensing program. These licenses allow businesses to operate as they come into compliance with the rules for annual permits. The state will likely expect more stringent local licensing processes as the program is phased out.

March 31 is the last day for any business to apply for a provisional license. Most operators will be unable to secure a new provisional license starting June 30, barring some exceptions for social equity licensees and smaller cultivators. However, existing provisional licenses can be renewed until Jan. 1, 2025. Crucially, new operators will have to undergo a CEQA review, California's environmental analysis process, to obtain a license.

The department released a list of other proposed changes to California's cannabis regulations, most of which make allowances for local regulations. If approved, the changes will become effective in fall 2022.