Program to Help California Cannabis Businesses Get Licensed

In the first year of the Local Jurisdiction Assistance Grant Program, the state auditor found that 535 businesses successfully transitioned from provisional to annual state licenses — a number that didn’t deviate significantly compared to the year before the program existed. By January 2023, 4,600 provisional license holders had yet to secure a state license.

In response to the finding, DCC said that since 2023, thousands more businesses have secured the annual state license. As of this August, more than 2,800 businesses still needed to do so.

The DCC said it appreciated the state auditor’s recommendation and has worked to address concerns.

“Prior to the audit report’s publication, many of the issues highlighted in the report had been addressed, including hiring dedicated grant management staff, consolidating licensing systems, and adopting CSA-recommended best practices for administering similar grant programs,” DCC spokesperson Moorea Warren said in a statement to The Sacramento Bee.

Following the legalization of cannabis for nonmedical uses in 2016, California issued provisional licenses to help businesses transition to the new market and abide by complex environmental regulations such as the California Environmental Quality Act, which regulates fertilizer runoff to prevent contaminants from getting into watersheds.

The Legislature approved the four-year grant program in 2021. It tasked 17 cities and counties across California to distribute millions of dollars in grants before the deadline of June 30, 2025.

But in the first year of the grant’s existence, the state auditor found the DCC had delayed cities and counties’ ability to distribute funds due to slow response times. In the case of Trinity County and the City of Adelanto, DCC did not process local officials’ requests to make changes to their spending plans for a year.

To address the issues, DCC reported that it had increased staffing at the department’s Office of Grants Management to expedite reviews.

The audit also knocked DCC for not providing measurable benchmarks to cities and counties. Without those, the report said, the DCC may not be able to measure progress. The department said, as of February, all 17 jurisdictions had provided updated goals and timelines.

The audit also found that several of the cities and counties failed to properly manage the state funds. Four jurisdictions in particular — the cities of Commerce and Long Beach, and Humboldt and Trinity counties — did not properly track spending, which the state auditor said could pose budgetary risks and cause officials to mix up the grant funding with other monies.

In an example of improper management, the audit found that the City of Commerce and Mendocino County did not sufficiently track $729,000 in staff costs.

The state auditor also raised concerns about agreements approved by DCC that enabled cannabis businesses to spend state money on things unrelated to the licensing process. In one example, Humboldt County proposed providing commercial cannabis businesses that already secured state licenses with grant money to transition from gas-powered generators to renewable energy sources. A Humboldt County official acknowledged that the “county’s use of grant funds was never intended for the transition of provisional licenses to annual state licenses,” the report said.

But in a response to the report, the DCC argued the funds were spent appropriately. DCC noted that local ordinances require compliance with additional environmental protections in order to obtain a permit from Humboldt County.

“On average, provisional licensees spent nearly two years to obtain annual state licenses in 2022,” the report said.

To alleviate the issues, the state auditor recommended DCC review expenses of cities and counties to ensure the grant money is spent appropriately. The auditor also recommended the DCC adopt policies to better measure how businesses are securing licenses.

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